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 September 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





Indicate
      by check mark whether the registrant is a shell company (as defined in rule
      12b-2 of the Exchange Act). Yes o No x





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 10,023,460
      shares as of November 1, 2005.





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


















INDEX





PART
                I
            Financial
                Information
            Page
                No.Item
                1
            Financial
                StatementsCondensed
                Consolidated Balance Sheets as of September 30, 2005and
                December 31, 2004
            3Condensed
                Consolidated Statements of Income for the Three and NineMonths
                Ended September 30, 2005 and 2004 (Restated)
            5Condensed
                Consolidated Statements of Cash Flow for the NineMonths
                Ended September 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
                5
            Other
                Information
            17Item
                6
            Exhibits
            18Signatures
            
            19








2





PART
      I
      - FINANCIAL INFORMATION





ITEM
      1.
      FINANCIAL STATEMENTS





CAS
      Medical Systems, Inc.





Condensed
      Consolidated Balance Sheets





(Unaudited)





Assets
            
            September
                30,
            
            December
                31,2005
            
            2004Current
                Assets:Cash
                and cash equivalents
            
            $
            1,089,673
            
            $
            1,973,452Accounts
                receivable, net of allowancefor
                doubtful accounts
            
            
            4,001,343
            
            
            2,929,167Inventories
            
            
            5,969,395
            
            
            2,662,686Deferred
                income taxes
            
            
            194,866
            
            
            250,342Other
                current assets
            
            
            267,883
            
            
            355,367Total
                current assets
            
            
            11,523,160
            
            
            8,171,014Property
                and Equipment:Land
                and improvements
            
            
            535,000
            
            
            535,000Building
                and improvements
            
            
            1,584,159
            
            
            1,473,698Machinery
                and equipment
            
            
            3,612,122
            
            
            2,908,3765,731,281
            
            
            4,917,074Accumulated
                depreciation and amortization
            
            
            (2,962,462
            )
            
            (2,649,031
            )Property
                and equipment, net
            
            
            2,768,819
            
            
            2,268,043Intangible
                and other assets, net
            
            
            305,411
            
            
            167,990Deferred
                income taxes
            
            
            417,167
            
            
            385,935Goodwill
            
            
            3,093,586
            
            
            —Total
                assets
            
            $
            18,108,143
            
            $
            10,992,982











3





CAS
      Medical Systems, Inc.





Condensed
      Consolidated Balance Sheets





(Unaudited)








September
                30,
            
            December
                31,Liabilities
                and Stockholders’ Equity
            
            2005
            
            2004Current
                Liabilities:Accounts
                payable
            
            $
            2,587,020
            
            $
            734,939Accrued
                expenses
            
            
            957,821
            
            
            854,410Income
                taxes payable
            
            
            237,162
            
            
            417,130Current
                portion of long-term debt
            
            
            565,589
            
            
            58,929Total
                current liabilities
            
            
            4,347,592
            
            
            2,065,408Long-term
                debt, less current portion
            
            
            4,563,115
            
            
            1,034,495Retirement
                benefit obligation
            
            
            779,829
            
            
            736,988Stockholders’
                Equity:Common
                stock, $.004 par value per share,19,000,000
                shares authorized, 10,048,860 and9,959,173
                shares issued at September 30, 2005 andDecember
                31, 2004, respectively, includingshares
                held in treasury
            
            
            40,196
            
            
            39,837Additional
                paid-in capital
            
            
            3,126,519
            
            
            3,031,387Common
                stock held in treasury, at cost - 86,000 shares
            
            
            (101,480
            )
            
            (101,480
            )Retained
                earnings
            
            
            5,352,372
            
            
            4,186,347Total
                stockholders’
                equity
            
            
            8,417,607
            
            
            7,156,091Total
                liabilities and stockholders’
                equity
            
            $
            18,108,143
            
            $
            10,992,982











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








4








CAS
      Medical Systems, Inc.





Condensed
      Consolidated Statements of Income





(Unaudited)







Three
                Months Ended
            
            Nine
                Months EndedSeptember
                30,
            
            September
                30,2004
            
            
            
            20042005
            
            Restated
            
            2005
            
            RestatedREVENUES:
            
            $
            7,476,075
            
            $
            5,035,463
            
            $
            18,307,341
            
            $
            14,474,780OPERATING
                EXPENSES:Cost
                of product sales
            
            
            4,382,906
            
            
            2,666,280
            
            
            10,349,014
            
            
            7,899,693Research
                and development
            
            
            364,939
            
            
            209,479
            
            
            900,243
            
            
            729,994Selling,
                general and administrative
            
            
            2,017,819
            
            
            1,558,791
            
            
            5,216,812
            
            
            4,585,5966,765,664
            
            
            4,434,550
            
            
            16,466,069
            
            
            13,215,283Operating
                income
            
            
            710,411
            
            
            600,913
            
            
            1,841,272
            
            
            1,259,497Interest
                expense
            
            
            63,517
            
            
            13,314
            
            
            100,258
            
            
            62,504Income
                before income taxes
            
            
            646,894
            
            
            587,599
            
            
            1,741,014
            
            
            1,196,993Income
                taxes
            
            
            214,309
            
            
            203,752
            
            
            574,989
            
            
            335,182NET
                INCOME
            
            $
            432,585
            
            $
            383,847
            
            $
            1,166,025
            
            $
            861,811Weighted
                average number ofcommon
                shares outstanding:Basic
            
            
            9,952,587
            
            
            9,829,573
            
            
            9,916,779
            
            
            9,729,429Diluted
            
            
            11,831,984
            
            
            11,027,432
            
            
            11,648,523
            
            
            11,032,739Earnings
                per common share:Basic
            
            $
            0.04
            
            $
            0.04
            
            $
            0.12
            
            $
            0.09Diluted
            
            $
            0.04
            
            $
            0.03
            
            $
            0.10
            
            $
            0.08











The
      accompanying notes are an integral part of these financial
      statements








5





CAS
      Medical Systems, Inc.





Condensed
      Consolidated Statements of Cash Flow





(Unaudited)


Nine
                Months EndedSeptember
                30,20042005
            
            RestatedOPERATING
                ACTIVITIES:Net
                income
            
            $
            1,166,025
            
            $
            861,811Adjustments
                to reconcile net income tonet
                cash (used) provided by operating activities:Depreciation
                and amortization
            
            
            393,242
            
            
            375,313Provision
                for doubtful accounts
            
            
            —
            
            
            43,000Deferred
                income taxes
            
            
            (32,213
            )
            
            (53,033
            )Changes
                in operating assets and liabilities:Accounts
                receivable
            
            
            (1,271,822
            )
            
            541,168Inventories
            
            
            (1,785,650
            )
            
            (943,803
            )Other
                current assets
            
            
            103,836
            
            
            359,338Retirement
                benefit obligation
            
            
            42,841
            
            
            151,566Accounts
                payable, accrued expenses andincome
                taxes payable
            
            
            1,698,668
            
            
            765,748Net
                cash provided by operating activities
            
            
            314,927
            
            
            2,101,108INVESTING
                ACTIVITIES:Purchase
                of property and equipment
            
            
            (570,561
            )
            
            (398,783
            )Business
                acquisition, net of cash acquired of $250,060
            
            
            (4,538,814
            )
            
            —Purchase
                of intangible assets
            
            
            (213,305
            )
            
            (72,176
            )Net
                cash used by investing activities
            
            
            (5,322,680
            )
            
            (470,959
            )FINANCING
                ACTIVITIES:Repayments
                under notes payable
            
            
            —
            
            
            (219,619
            )Repayments
                under long-term debt
            
            
            (171,517
            )
            
            (902,046
            )Proceeds
                from long-term debt agreement
            
            
            4,200,000
            
            
            —Purchase
                of stock held for treasury
            
            
            —
            
            
            (101,480
            )Proceeds
                from issuance of common stock
            
            
            95,491
            
            
            137,697Net
                cash provided (used) by financing activities
            
            
            4,123,974
            
            
            (1,085,448
            )Change
                in cash and cash equivalents
            
            
            (883,779
            )
            
            544,701CASH
                AND CASH EQUIVALENTS, beginning of period
            
            
            1,973,452
            
            
            881,087CASH
                AND CASH EQUIVALENTS, end of period
            
            $
            1,089,673
            
            $
            1,425,788SUPPLEMENTAL
                DISCLOSURES OF CASH FLOW INFORMATION:Cash
                paid for interest
            
            $
            118,876
            
            $
            75,177Cash
                paid for income taxes
            
            $
            833,858
            
            
            ($
                171,794
            )


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


6




CAS
      Medical Systems, Inc.


Notes
      to
      Condensed Consolidated Financial Statements


(Unaudited)


September
      30, 2005




(1) The
        Company





CAS
      Medical Systems, Inc. (“CAS” or the “Company”) is a Delaware corporation that
      was organized in 1984. The Company designs, manufactures and markets medical
      products, specifically blood pressure measurement technology, vital signs
      measurement equipment, cardio-respiratory monitoring equipment and supplies
      for
      neonatal intensive care. 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 and the results of its operations and its
      cash
      flows have been included in the accompanying financial statements. The results
      of operations for interim periods are not necessarily indicative of the expected
      results for the full year.





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.





The
      accompanying statement of income for the three month period ended September
      30,
      2004 has been restated




7




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 nine month period ended September 30, 2004 have
      been restated to include additional benefit expense related to the Plan of
      $151,566 and for the related deferred income tax benefit of $53,033.





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 sells 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 technologies. 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 sales 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
      September 30, 2005, the Company had paid $404,583 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.





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





Cash
                paid
            
            $
            4,200,000Working
                capital adjustment
            
            
            404,593Transaction
                costs
            
            
            184,281Total
                purchase price
            
            $
            4,778,874





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
              
              
              420,354Inventories
              
              
              1,521,059Other
                  current assets
              
              
              16,353Property
                  and equipment
              
              
              243,646Goodwill
              
              
              3,093,586
  8
  Other
                  intangible assets
              
              
              3,926Accounts
                  payable
              
              
              (579,067
              )Accrued
                  expenses
              
              
              (108,616
              )Deferred
                  income taxes
              
              
              (56,455
              )Capital
                  lease obligations
              
              
              (15,972
              )$
              4,778,874




The
      results of operations of Statcorp are included in the Company’s consolidated
      statement of income 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 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
            
            Nine
                Months EndedSeptember
                30
            
            September
                302005
            
            2004
            
            2005
            
            2004Net
                Revenues ($000’s)
            
            $
            7,476.1
            
            $
            6,480.2
            
            $
            21,099.9
            
            $
            18,551.6Net
                Income ($000’s)
            
            $
            432.6
            
            $
            462.4
            
            $
            1,411.6
            
            $
            1,098.5Net
                Income perCommon
                share -Basic
            
            $
            0.04
            
            $
            0.05
            
            $
            0.14
            
            $
            0.11Diluted
            
            $
            0.04
            
            $
            0.04
            
            $
            0.12
            
            $
            0.10








(6) Inventories





Inventories
      consisted of the following:





September
                30,
            
            December
                31,2005
            
            2004Raw
                material
            
            $
            4,453,749
            
            $
            1,727,578Work-in-process
            
            
            70,152
            
            
            144,628Finished
                goods
            
            
            1,445,494
            
            
            790,480$
            5,969,395
            
            $
            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 has recorded goodwill of $3,093,586. The
      Company will evaluate the carrying value of goodwill for potential impairment
      at
      least annually.





9





(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:




Nine
                Months Ended September 30,2005
            
            2004Beginning
                balance
            
            $
            122,000
            
            $
            122,000Provisions
            
            
            61,334
            
            
            94,475Warranty
                costs incurred
            
            
            (61,334
            )
            
            (94,475
            )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
      plan was as follows:




Three
                Months Ended
            
            Nine
                Months EndedSeptember
                30
            
            September
                302005
            
            2004
            
            2005
            
            2004Service
                cost
            
            $
            9,980
            
            $
            22,217
            
            $
            36,596
            
            $
            66,648Interest
                cost
            
            
            7,444
            
            
            11,729
            
            
            27,150
            
            
            35,189Prior
                service cost recognition
            
            
            (8,258
            )
            
            28,265
            
            
            (426
            )
            
            84,795Gain
                recognition
            
            
            (314
            )
            
            (5,003
            )
            
            (734
            )
            
            (15,008
            )Net
                periodic benefit cost
            
            $
            8,852
            
            $
            57,208
            
            $
            62,586
            
            $
            171,624





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 $19,700 and
      $20,050 for the nine months ended September 30, 2005 and 2004, respectively.
      The
      Company expects that premium payments will approximate $26,300 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
      September 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 shares of the Company’s common stock were
      similarly not included for the periods ended September 30, 2005.




10




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





Three
                Months Ended
            
            Nine
                Months EndedSeptember
                30
            
            September
                302004
            
            
            
            20042005
            
            Restated
            
            2005
            
            RestatedNet
                income
            
            $
            432,585
            
            $
            383,847
            
            $
            1,166,025
            
            $
            861,811Weighted
                average shares outstanding, used tocalculate
                basic earnings per share
            
            
            9,952,587
            
            
            9,829,573
            
            
            9,916,779
            
            
            9,729,429Dilutive
                effect of warrants and options
            
            
            1,879,397
            
            
            1,197,859
            
            
            1,731,744
            
            
            1,303,310Total
                weighted average shares of dilutivesecurities
                outstanding, used to calculatediluted
                earnings per share
            
            
            11,831,984
            
            
            11,027,432
            
            
            11,648,523
            
            
            11,032,739Earnings
                per share:Basic
            
            $
            0.04
            
            $
            0.04
            
            $
            0.12
            
            $
            0.09Diluted
            
            $
            0.04
            
            $
            0.03
            
            $
            0.10
            
            $
            0.08








(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
            
            Nine
                Months EndedSeptember
                30
            
            September
                302004
            
            
            
            20042005
            
            Restated
            
            2005
            
            RestatedNet
                income:As
                reported
            
            $
            432,585
            
            $
            383,847
            
            $
            1,166,025
            
            $
            861,811Compensation
                expense for stockoptions
                based on fair value
            
            
            137,823
            
            
            25,541
            
            
            353,165
            
            
            52,182Pro
                forma
            
            $
            294,762
            
            $
            358,306
            
            $
            812,860
            
            $
            809,629





11




Earnings
      per share:


As
                reported - Basic
            
            $
            0.04
            
            $
            0.04
            
            $
            0.12
            
            $
            0.09Pro
                forma - Basic
            
            $
            0.03
            
            $
            0.04
            
            $
            0.08
            
            $
            0.08As
                reported - Diluted
            
            $
            0.04
            
            $
            0.03
            
            $
            0.10
            
            $
            0.08Pro
                forma - Diluted
            
            $
            0.02
            
            $
            0.03
            
            $
            0.07
            
            $
            0.07




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 bank lender to finance the acquisition of Statcorp. The loan was
      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.





On August
      29, 2005, the Company renewed its $3,000,000 line-of-credit with its bank
      lender. The maturity date of this agreement has been extended for two years
      and
      expires on September 1, 2007. 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 (6.75% at September 30, 2005). At September 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 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 September 30, 2005 and 2004, approximately $210,000
      and
      $160,000, respectively, of certain research and development costs were
      reimbursed under the grants. During the nine months ended September 30, 2005
      and
      2004, approximately $461,000 and $304,000, 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.




12




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 statements of income for the three month period ended September
      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 nine month period
      ended
      September 30, 2004 have been restated to include additional benefit expense
      related to the Plan of $151,566 and for the related deferred income tax benefit
      of $53,033.




The
      discussion that follows reflects, as applicable, restated amounts for the three
      months and nine months ended September 30, 2004.





13





Results
      of Operations





For
      the
      three months ended September 30, 2005, the Company reported net income of
      approximately $433,000, or $0.04 per common share on a diluted basis compared
      to
      net income of $384,000 or $0.03 per diluted share reported for the same period
      of 2004. For the nine months ended September 30, 2005, the Company reported
      net
      income of approximately $1,166,000, or $0.10 per diluted share compared to
      net
      income of $861,811, or $0.08 per diluted share for the nine months ended
      September 30, 2004.





The
      Company generated revenues of $7,476,000 for the three months ended September
      30, 2005 an increase of $2,441,000, or 48%, over revenues of $5,035,000 for
      the
      three months ended September 30, 2004. Sales of Statcorp products accounted
      for
      $1,810,000 of the increase in revenues. Increases in blood pressure product
      sales of 14%, primarily from sales of vital signs monitors, accounted for the
      remainder of the increase in revenues.





The
      Company recorded revenues of $18,307,000 for the nine months ended September
      30,
      2005, an increase of $3,832,000, or 26%, over the $14,475,000 recorded for
      the
      nine months ended September 30, 2004. Sales of Statcorp products accounted
      for
      $2,632,000 of the increase in overall sales. Increases in blood pressure product
      sales of 16% and neonatal product sales of 14% accounted for the balance of
      the
      increase in revenues. Partially offsetting these increases was a decline in
      Apnea product sales.





The
      cost
      of product sold was $4,383,000 or 58.6% of revenues for the three month period
      ended September 30, 2005, compared to $2,666,000 or 53.0% for the same period
      of
      2004. Cost of product sold for the first nine months of 2005 was $10,349,000
      or
      56.5% compared to $7,900,000 or 54.6% for the same period of the prior year.
      The
      increase in cost of products sold as a percentage of revenues for both periods
      is related to the lower average gross margins on products sold by Statcorp.
      Cost
      of products sold as a percentage of revenues for all other products combined
      were slightly lower for both periods reported.





Research
      and Development (“R&D”) expenses increased $156,000 to $365,000 for the
      three months ended September 30, 2005 compared to $209,000 for the three months
      ended September 30, 2004. R&D expenses increased $170,000, or 24%, to
      $900,000 for the nine months ended September 30, 2005 compared to $730,000
      for
      the nine months ended September 30, 2004. The increase in R&D spending for
      both periods resulted primarily from engineering project spending, professional
      consulting fees and facilities related costs resulting from the Company’s lease
      commitment to separately house certain of its R&D efforts which were
      partially offset by increases in reimbursements from the National Institutes
      of
      Health (“NIH”) under established grant programs. R&D expenses before
      reimbursements increased 31.7% to $1,361,000 or 7.4% of revenues for the nine
      months ended compared to $1,034,000 or 7.1% of revenues for the first nine
      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 $459,000, to
      approximately $2,018,000 or 27.0% of revenues for the three months ended
      September 30, 2005, compared to $1,559,000 or 31.0% of revenues for the three
      months ended September 30, 2004. S,G&A expenses of Statcorp accounted for
      $288,000 of the increase. General and administrative (“G&A”) expenses
      accounted for $130,000 of the remainder of the $171,000 increase in S,G&A
      expenses. S,G&A expenses increased $631,000, to $5,217,000 or 28.5% of
      revenues for the nine months ended September 30, 2005 compared to $4,586,000
      or
      31.7% of revenues for the same period of the prior year. Statcorp expenses
      of
      $440,000 were primarily responsible for the increase in S,G&A expenses.
      Increases in marketing salaries and related fringe benefits and G&A expenses
      were primarily responsible for the balance of the increase in S,G&A
      expenses.




Interest
      expense increased to $64,000 for the third quarter of 2005 compared to $13,000
      for the third quarter of 2004. Interest expense for the nine months ended
      September 30, 2005 was $100,000 compared to $63,000 for the nine months ended
      September 30, 2004. The increase in interest expense for both periods resulted
      from the Statcorp acquisition loan consummated on May 16, 2005. Interest expense
      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.




14




The
      provision for  income
      taxes of $214,000 and $575,000, respectively, for the three and nine months
      ended September 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 nine months of 2004 reflects 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
      September 30, 2005, the Company’s cash
      and cash
      equivalents totaled $1,090,000 compared to $1,973,000 at December 31, 2004.
      Working capital increased by $1,070,000 to $7,176,000 at September 30, 2005,
      from $6,106,000 on December 31, 2004. The Company’s current ratio declined to
      2.7 to 1 from 4.0 to 1 partially due to the rise in inventory and associated
      accounts payable and to the effects of consolidating Statcorp as of May 15,
      2005
      which had lower levels of working capital and related ratios.





Cash
      provided by operations for the nine months ended September 30, 2005 was $315,000
      compared to $2,101,000 for the first nine months
      of the prior year. Increases in inventories and accounts receivable were
      primarily responsible for the decrease in cash provided by operations compared
      to the nine months ended September 30, 2004. Inventory increases partially
      resulted from delays in the launch of a new product for which components have
      been purchased. Also, management increased inventory purchases during the third
      quarter of 2005 in anticipation of significant orders for its vital signs
      monitors, a portion of which were planned to be shipped during early fourth
      quarter 2005. These orders primarily relate to the Company’s blanket purchasing
      agreement with the Veterans Administration. In addition, Statcorp increased
      inventory levels in anticipation of the Company’s transition of its blood
      pressure cuff product line to the Statcorp line. The Company expects to consume
      these materials in the fourth quarter of 2005. Additionally, Statcorp has
      increased its inventory levels in order to improve customer order fulfillment.
      Income before depreciation and amortization and increases in accounts payable
      and accrued expenses offset increases in inventory and accounts receivable
      and
      decreases in income taxes payable. During the first nine months of 2005, the
      Company paid $834,000 in income taxes compared to $172,000 of refunds received
      during the first nine months of 2004.





Cash
      used
      by investing activities was $5,323,000 for the nine months ended September
      30,
      2005 compared to $471,000 for the first nine months of the prior year reflecting
      $313,000 of increased expenditures for equipment and intangible assets and
      $4,539,000 for the purchase of Statcorp. Equipment purchases of $571,000 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 nine months ended September 30, 2005
      was $4,124,000 compared to cash used of $1,085,000 for the first nine 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 first nine months of 2004, the Company repaid $1,122,000
      of outstanding debt obligations.





On August
      29, 2005, the Company renewed its $3,000,000 line-of-credit with its bank
      lender. The maturity date of this agreement has been extended for two years
      and
      expires on September 1, 2007. 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 (6.75% at September 30, 2005). At September 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 pledged as collateral under its financing
      arrangements.





The
      Company believes that its source of funds consisting of cash generated from
      operating activities and funds available from the revolving credit facility
      will
      be sufficient to meet its current and expected requirements over the next twelve
      months. Management believes that, if needed, it would be able to find
      incremental sources of funds on commercially acceptable terms.




15




Critical
      Accounting Judgments and Estimates





The
      Company’s discussion and analysis of financial condition and results of
      operations are based upon the un-audited 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 inventories, and
      valuation of deferred tax assets and liabilities, useful lives of intangible
      assets, warranty obligations and accruals. The Company bases its estimates
      on
      historical experience and on various other assumptions that management believes
      to be reasonable under the circumstances. Actual results may differ from these
      estimates under different assumptions or conditions. For a complete description
      of accounting policies, see Note 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 nine months
      ended September 30, 2005.








ITEM
      3
      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 September 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 September 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.




















16




PART
      II - OTHER INFORMATION








ITEM
      5
      OTHER INFORMATION





Modification
      to Loan Agreement





On
      August
      29, 2005, the Company entered into a Modification Agreement with NewAlliance
      Bank pursuant to which it renewed its $3,000,000 line-of-credit with NewAlliance
      Bank. The maturity date of the line of credit has been extended for two years
      and expires on September 1, 2007. 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 (6.75% at September 30, 2005). At September 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 pledged as collateral under this and the Company’s other debt
      financing arrangements. The foregoing description of the Modification Agreement
      does not purport to be complete and is qualified in its entirety by reference
      to
      the Modification Agreement, a copy of which is filed as Exhibit 10.2 hereto
      and
      incorporated herein by reference.





Amendment
      to Employment Agreement





On
      November 8, 2005, the Company entered into Amendment Number Six (the
“Amendment”), dated as of September 1, 2005, to its Employment Agreement with
      Louis P. Scheps, its Chairman of the Board, President and Chief Executive
      Officer. Pursuant to the Amendment, Mr. Scheps shall be employed by the Company
      as President and Chief Executive Officer, and shall serve as a director of
      the
      Company if elected by the stockholders, through March 31, 2007. Mr. Scheps
      will
      then serve as a part-time employee in a senior executive role from April 1,
      2007
      through March 31, 2009 and will remain as a director of the Company if elected
      by the stockholders. Mr. Scheps will continue to serve as Chairman of the Board
      during the term of the employment agreement if elected as such by the Board
      of
      Directors. Pursuant to the Amendment, as of October 1, 2005, Mr. Scheps will
      be
      compensated at an annual salary of $275,000. Commencing April 1, 2007 through
      March 31, 2009 Mr. Scheps will be compensated at an annual salary of $100,000.
      From October 1, 2005 to October 1, 2007 the Company will maintain life insurance
      coverage for Mr. Scheps naming Mr. Scheps as the insured party in an amount
      not
      less than $250,000. Further, the Company will use commercially reasonable
      efforts to secure continuation of Mr. Scheps Company paid life insurance for
      the
      period October 1, 2007 to March 31, 2009 in amounts commensurate with existing
      coverage of $250,000.





The
      change of control provisions of the employment agreement were revised pursuant
      to the Amendment such that if a Change of Control (as defined) occurs and Mr.
      Scheps’ employment terminates for any reason after such Change of Control
      occurs, including termination by Mr. Scheps, Mr. Scheps will be paid a lump
      sum
      of $275,000 within ten (10) days of such termination. Notwithstanding the
      foregoing if the Change of Control occurs on or after April 1, 2007, Mr. Scheps
      will be entitled to $100,000, rather than $275,000, except that if an agreement
      of sale or merger agreement is executed while Mr. Scheps is being paid at the
      $275,000 rate but the Change of Control is not consummated until after April
      1,
      2007 then his payment under this provision will be equal to $275,000 rather
      than
      $100,000.





The
      Amendment defines “Change of Control” as (i) a sale of all or substantially all
      of the Company’s assets, (ii) a merger involving the Company in which 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 action 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.





The
      foregoing description of the Amendment does not purport to be complete and
      is
      qualified in its entirety by reference to the Amendment, a copy of which is
      filed as Exhibit 10.1 hereto and incorporated herein by reference.





17








ITEM
      6 EXHIBITS




10.1
              Amendment
                  Number Six to Employment Agreement between the Company and Louis
                  P.
                  Scheps


10.2
              Modification
                  Agreement to Line of Credit Loan Agreement dated August 29, 2005
                  between
                  the Company and NewAlliance Bank


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











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: November
                14, 2005
              By:
              /s/ Louis
                P. SchepsBy:
                Louis P. SchepsChairman
                  of the Board, President and
                Chief
                  Executive Officer
 
 Date: November
                  14, 2005
                By:
                /s/ Jeffery
                  A. BairdBy:
                  Jeffery A. BairdChief
                    Financial
                    Officer





19