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

CAS Medical Systems, Inc. ("CASMED" or the "Company") is a Delaware corporation organized in 1984. The Company designs, manufactures and markets innovative medical technologies and products for non-invasive vital signs monitoring. The Company's products include blood pressure measurement technology, blood pressure cuffs, vital signs measurement equipment, cardio-respiratory monitoring equipment and supplies for neonatal intensive care. The products are designed to improve the quality of patient care and provide exceptional value and performance.

On May 15, 2005, CASMED completed the purchase of all of the outstanding capital stock of Statcorp, Inc. from its stockholders for cash. The cost of the acquisition was $5.1 million including a post-closing working capital adjustment, a purchase price adjustment based upon Statcorp's sales level for the 12 months following the acquisition and direct acquisition costs. Statcorp, a privately-owned company based in Jacksonville, Florida, develops, assembles and sells blood pressure cuffs, IV rapid infusor cuffs, and blood transfusion filters for use in the medical industry worldwide.

The Company currently designs, markets, services and manufacturers all finished product out of its Branford and Jacksonville facilities. The Company has several products in various stages of development that it believes will add to and complement its current product lines.

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

Blood Pressure Measurement Technology -------------------------------------

The Company has developed a proprietary non-invasive blood pressure measurement technology, MAXNIBP(R). The Company believes this technology is more accurate, reliable, and able to produce a measurement result faster than its competitors. These advantages strengthen the Company's competitive position, especially in clinical situations where measurements can be difficult. The Company has entered into original equipment manufacturer ("OEM") agreements to supply its MAXNIBP technology in the form of modules to various companies throughout the world. These modules are used in larger monitoring systems where non-invasive blood pressure is but one measurement parameter. The Company's OEM agreements are typically multi-year arrangements.

Blood Pressure Cuffs --------------------

The Company offers a complete line of disposable and reusable blood pressure cuffs that can be used on any manufacturer's monitoring equipment. The product line includes cuffs and pressure infusors manufactured by Statcorp, Inc. which was purchased by CASMED in 2005. The blood pressure cuffs, including UltraCheck(R) and Tuff-

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Cuff(R) Reusable Cuffs, and SoftCheck(R) and Safe-Cuff(TM) Disposable Cuffs, can be used on patients from neonate through adult, as well as on veterinary patients, and complement the Company's MAXNIBP blood pressure measurement technology. The Company's Unifusor(R) line of infusor cuffs are used to rapidly infuse intra-venous fluids into a patient. The Company has various private label versions of both the blood pressure and infusor cuffs available for OEM partners.

Vital Signs Monitoring Equipment --------------------------------

The Company offers two platforms of vital signs monitors incorporating various combinations of industry-leading measurement parameters. The product lines include options for measurement of non-invasive blood pressure using the Company's proprietary MAXNIBP technology, pulse oximetry, electro-cardiography, temperature, and capnography. CASMED monitors are ideal for a range of clinical settings (both human and veterinary) including emergency medical service, medical/surgical units, out-patient care, and procedural sedation. The Company's vital signs monitors have been awarded a multi-year, sole-source purchasing agreement by the U.S. Department of Veterans Affairs.

Cardio-Respiratory Monitoring Equipment ---------------------------------------

The CASMED line of cardio-respiratory monitors is used to monitor apnea in home-based and hospital settings. The Company's product line includes two of the industry's best selling infant apnea monitoring products and has the broadest range of capabilities available to the market. The AMI(R) and 511 monitors allow cardio-respiratory and pulse oximetry monitoring and recording for a range of patients. Proprietary CAS EXPRESS(R) software saves patient data from the monitors and generates reports for review by the clinician.

Supplies for Neonatal Intensive Care ------------------------------------

The Company's specialty neonatal supplies are a foundation of its business. CASMED has a long record of producing high quality products designed specifically to meet the unique needs of neonatal intensive care. The varied product line includes Klear-Trace(R) ECG Electrodes, NeoGuard(R) skin temperature probes and adhesive reflectors, SoftCheck(R) neonatal blood pressure cuffs, BiliBottoms(TM) light permeable diapers for use during phototherapy, and the Premie Nestie(R) neonatal positioning device.

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

The Company markets its products globally, through hospital, alternate site, homecare, veterinary and emergency medical distribution channels.

Sales in the United States are conducted by specialty distributors working under both exclusive and non-exclusive arrangements, in conjunction with nine full time Company field managers. International sales are conducted through exclusive distributors in the European, African, Middle Eastern, Pacific Rim and Latin American regions and Canada, working together with regional sales consultants and two employees located outside of the United States.

The Company also sells its non-invasive blood pressure technology, in the form of sub-assemblies to be joined to multi-parameter monitors, to various firms operating on both a domestic and international basis. The Company is in the process of pursuing other OEM agreements.

Financial Information Relating to Sales Year Ended December 31 ------------------------------ 2006 2005 ------------ ------------ Domestic Sales $ 27,518,584 $ 21,891,805 Export Sales 7,683,427 4,992,616 ------------ ------------ $ 35,202,011 $ 26,884,421 ============ ============

Page 5 Competition -----------

The Company competes in the medical equipment market where there are many suppliers with greater financial and personnel resources that sell a broad line of both commodity products and monitoring equipment and have a dedicated selling capability. The Company's products primarily serve the hospital and emergency medical services markets. The Company's equipment is compact, portable, lightweight and user-friendly. The monitors are all built in the USA and contain best-in-class technology. The monitors maintain a high, professional standard of accuracy and quality in demanding environments such as those encountered in hospital and transport situations. With respect to all of its products, the Company competes on the basis of price, features, product quality and promptness of delivery and overall quality of customer service.

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

During 2006 and 2005, the Company incurred expenses of approximately $2,782,000 and $2,162,000, respectively, on activities related to the research and development of new products, and improvement of existing products. These amounts are before consideration of reimbursements received from the National Institutes of Health ("NIH") further explained under Grant Awards below. Net research and development ("R&D") expenses after reimbursements from the NIH approximated $2,762,000 for 2006 and $1,631,000 for 2005.

The majority of the Company's 2006 development efforts were directed toward the design and development of its patented Near-Infrared Spectroscopy ("NIRS") technology. The Company has been actively researching this technology since 1999. The Company's NIRS technology has multiple potential product applications including the Company's initial targeted development project - a monitor that can non-invasively and directly measure brain oxygenation levels. This monitor, the FORE-SIGHT(TM) Cerebral Oximeter, has been the primary focus of development efforts during 2006, culminating in market introduction at the end of 2006, and expected product availability in the first half of 2007.

The initial target procedures for the FORE-SIGHT product include high risk cardiovascular surgeries, of which there are about 700,000 performed each year in the U.S. This is a key market entry point for the product due to the recognized need for cerebral protection during these procedures and the large volume of clinical data available to support the need for a device that can directly monitor oxygen saturation levels in the brain during these procedures. Independent, published clinical studies have shown that approximately one in sixteen patients, or 6%, undergoing cardiopulmonary bypass surgery, may experience severe adverse cerebral outcomes and that approximately 17% - 23% of patients undergoing cardiopulmonary bypass surgery suffer from cerebral venous oxygen desaturation, resulting in compromised cognitive outcomes.

Future applications for the FORE-SIGHT Cerebral Oximeter include use of the device in a broad range of general surgical procedures, as well as post-operative and critical care settings in which cerebral protection is an important goal. The FORE-SIGHT Cerebral Oximeter provides new information that allows clinicians to monitor and respond to instances of brain tissue oxygen deprivation before damage to the brain occurs, thereby resulting in the potential for improved clinical response times and better clinical outcomes.

During 2006, the Company received 510(k) clearance from the FDA to expand the patient population for use of the FORE-SIGHT Cerebral Oximeter to include infants and children over forty kilograms. The Company was awarded two additional patents in 2006 related to the FORE-SIGHT NIRS platform and now holds a total of three U.S. patents on the technology, with several patents pending. The Company intends to continue to actively seek further patent protection.

Additional development efforts have focused on the continued support of, and enhancements to, the Model 740 & 750 monitors; the Company's proprietary non-invasive blood pressure technology; and the Company's apnea and neonatal products. The Company continues to develop and expand its patient monitoring capabilities by adding new complementary physiological parameters. The Company believes that this forward-thinking development strategy will enable the Company to pursue sales opportunities in key markets.

The Company's 2006 research efforts centered on enhancements to the NIRS platform. In support of research and product development efforts, adult and neonatal clinical studies were conducted at various institutions throughout the U.S. Results from these clinical studies were presented at major medical meetings.

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Grant Awards ------------

The Company has, in prior years, 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 the Company's NIRS development. In accordance with the terms of these grants, the Company is reimbursed for certain qualifying expenditures. Such grant awards provide substantial support for the Company's clinical efforts currently being undertaken at multiple adult and neonatal sites.

Reimbursements were approximately $20,000 for 2006 and $531,000 for 2005. Funding provided to the Company is being recorded as a reduction in R&D expenses. The Company has additional NIH grants pending as of December 31, 2006 to support its NIRS research.

Trademarks, Patents and Copyrights ----------------------------------

Certificates of Registration have been issued to the Company by the United States Department of Commerce Patent and Trademark Office for the following marks: CAS(R), Pedisphyg(R), OscilloMate(R), NeoGuard(R), Tuff-Cuff(R), Limboard(R), Klear-Trace(R), Premie Nestie(R), MAXNIBP(R), UltraCheck(R), SoftCheck(R), Unifusor(R), SWANK(R), Woods Pump(R), the heart shaped mark for use as a thermal reflector and the Company's corporate logo. The Company continues to use the CASMED(TM), FORE-SIGHT(TM), For What's Vital(TM), For Every Life and Breath Situation(TM), Safe-Cuff(TM), BiliBottoms(TM) and CAS Express(TM) common law trademarks. The Company also holds trademarks for the Event-Link(R) monitoring system, the Edentec Assurance(R) monitor, Edentrend(R) software and the AMI(R) and AMI(R) Plus monitors.

The Company holds various patents for its blood pressure measurement technology which it believes provide it with a competitive market advantage. In addition, it has patents with respect to apnea monitor technology. Although the Company holds such patents and has patents pending related to certain of its products, it does not believe that its business as a whole is significantly dependent upon patent protection with the exception of the Near Infra Red Spectroscopy (NIRS) cerebral oximetry technology.

The FORE-SIGHT NIRS cerebral oximetry technology has three U.S. patents issued (US 6,456,862 B2, US 7,047,054 and US 7,072,701). In addition, the Company currently has several patents pending with US and foreign patent offices. The Company believes the design concepts covered in its current patent applications and provisional patent applications are important to providing a cerebral oximeter capable of absolute brain tissue oxygen saturation measurements.

Other patents have previously been issued to third parties involving optical spectroscopy and the interaction of light with tissue, some of which relate to the use of optical spectroscopy and NIRS in the area of brain metabolism monitoring. The Company is not aware of any infringement by its products of the claims of any issued patents, and no charge of patent infringement has been asserted against the Company.

The Company also relies on trade secret, copyright and other laws and on confidentiality agreements to protect its technology.

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

The Company will continue to actively seek patent, trademark and copyright protections as it deems advisable to protect the market for its products and its R&D efforts.

We believe that neither our patents nor our other legal rights will necessarily prevent third parties from developing or using a similar or a related technology to compete against our products.

Employees ---------

As of December 31, 2006, the Company had 152 employees, of which 151 were full-time. The Company has no collective bargaining agreements and believes that relations with its employees are good.

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Government Regulation ---------------------

Medical products of the type currently being marketed and under development by the Company are subject to regulation under the Food, Drug and Cosmetic Act (the "FDC Act") and numerous acts and amendments such as the Quality System Regulations ("QSR"), often referred to as Good Manufacturing Practices ("GMP's").

In addition, depending upon product type, the Company must also comply with those regulations governing the Conduct of Human Investigations, Pre-Market Approval Regulations and other requirements, as promulgated by the Food and Drug Administration ("FDA"). The FDA is authorized to inspect a device, its labeling and advertising, and the facilities in which it is manufactured in order to ensure that the device is not manufactured or labeled in a manner which could cause it to be injurious to health.

The FDA has adopted regulations which classify medical devices based upon the degree of regulation believed necessary to assure safety and efficacy. A device is classified as a Class I, II, or III device. Class I devices are subject only to general controls. Class II devices, in addition to general controls, are or will be subject to "performance standards." Most devices are also subject to the 510(k) pre-market notification provision. In addition, some Class III devices require FDA pre-market approval before they may be marketed commercially because their safety and effectiveness cannot be assured by the general controls and performance standards of Class I or II devices.

The Company's products are primarily Class I and II devices and several of them have required FDA notification under Section 510(k) of the FDC Act.

The FDA has the authority to, among other things, deny marketing approval until all regulatory protocols are deemed acceptable, halt the shipment of defective products, and seize defective products sold to customers. Adverse publicity from the FDA, if any, could have a negative impact upon sales. The FDA last completed a factory audit of the Company in March 2005. There were no material non-conformities.

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

The Company assembles its products at its facilities in Branford, Connecticut and Jacksonville, Florida. The various components for the products, which include plastic sheeting, plastic moldings, wire, semi-conductor circuits, electronic and pneumatic components and power supplies, are obtained from outside vendors. The Company does not have any long-term contracts with its suppliers and believes that needed components are available from alternative sources if needed. While the Company has not experienced any sustained interruption in production or the supply of components and does not anticipate any difficulties in obtaining the components necessary to manufacture its products, there can be no assurance that the Company will continue to receive its components as needed and would be able to readily find alternative sources.

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

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

In September 1996, the quality system at CASMED was first certified to ISO 9001/EN 46001 by the accredited body, BSI Inc. This certification recognizes CASMED for its achievement in implementing and maintaining a world-class quality system and prepares CASMED for the use of the "CE" mark. The CE mark is now required for medical devices to gain access to the European Union common market. The FDA, recognizing the value of a universally accepted quality system, has patterned its Quality System Regulations after ISO 9001 and ISO 13485.

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CASMED maintains full compliance with the FDA Quality System Regulations. In 2003, CASMED became certified to another universal Quality System Standard, ISO 13485, meeting a requirement for sales in Canada, and in preparation for the termination of the 1994 version of ISO 9001 which ended August 31, 2003. In December 2005, the Company's Branford, Connecticut facility achieved certification to ISO13485:2003, a process oriented quality system update. The Jacksonville, Florida facility was awarded its certification during May 2006.

Customers ---------

During 2006 and 2005, the Company had sales to Medtronic, Inc. which accounted for approximately 11% and 14% of net sales, respectively.

Backlog -------

The Company's backlog includes orders pursuant to long-term OEM agreements as well as orders for products shippable on a current basis. Total backlog, therefore, is not a meaningful indicator of future sales.