ITEM 1. BUSINESS
The Company
CAS Medical Systems, Inc. (CAS) was organized in 1984 primarily to serve neonatal and pediatric units in hospitals. Today, CAS is engaged in the business of developing, manufacturing and distributing diagnostic equipment and medical products for use by adults and children in many areas of the health care industry.
The Company has developed and is manufacturing a full line of non-invasive blood pressure monitors, blood pressure cuffs for both adult and neonatal patients, silver/silver chloride electrodes for neonatal hospital intensive care units, and a line of disposable products for neonatal use. These products are being sold by the Company directly through its own sales force via distributors and pursuant to original equipment manufacturer (OEM) agreements in Europe and the United States. The Company has agreements to supply its blood pressure monitors, cuffs and electrodes to companies for distribution in major segments of the international market. The Company also has OEM agreements to supply custom versions of its blood pressure measuring technology in the form of plug-in modules for patient monitoring systems. The Company has several other products in various stages of development which it believes are applicable to both adult and neonatal/pediatric medicine.
Narrative Description of Business
Principal Products and Services
OscilloMate Blood Pressure Monitors
The Company manufactures a complete line of state-of-the-art blood pressure monitors which it has developed. Distribution is to the hospital and professional markets through its sales force and distributors, and through international distributors and OEM agreements.
Pedisphyg, Safe-Cuff, Tuff-Cuff and PAPERCUFF Blood Pressure Cuffs
The Company manufactures and sells complete lines of disposable and multi-use blood pressure cuffs for hospital use. These cuffs are based on design criteria developed from scientific studies to ensure the highest degree of accuracy. They can be used with all of the blood pressure monitors currently available in hospitals, thus permitting hospitals to standardize with one company for blood pressure cuffs.
Klear-Trace Electrodes
The Company manufactures and sells prewired, X-ray translucent electrocardiographic electrodes. They utilize a conductive solid-gel adhesive that allows them to remain on the patient for extended periods of time without causing skin irritation.
NeoGuard Reflectors, Klear-Temp Disposable Temperature Probes
The Company manufactures and sells thermal reflectors to shield temperature probes while in use within radiant warmers. They perform an important role in maintaining the proper thermal environment for neonates while assuring that no skin irritation takes place. Klear-Temp disposable skin temperature probes are designed to be a standard replacement part in all incubators and radiant warmers.
NeoGuard Limboard Arm Boards
The Company manufactures and sells a line of neonatal arm boards used to immobilize and support intravenous sites with minimal patient skin trauma.
The electrodes, arm boards, and reflectors utilize a polymeric solid gel adhesive to minimize damage to neonatal skin.
Sales and Marketing
The Company conducts its sales in the domestic hospital market by means of exclusive distributors managed by full time sales managers. Sales to emergency medical services are managed nationwide by a single company sales manager. OEM sales and international sales are conducted by personnel located within the Company.
Domestic sales are conducted by 25 distributors across the country each of whom has exclusive sales rights in a limited geographic area.
The Company has sales agreements with several distributors internationally. These agreements provide for distribution of products within an assigned territory. Other agreements are being negotiated to allow for expanded international distribution.
The Company sells its non-invasive blood pressure technology, in the form of sub-assemblies to be joined to multi-parameter hospital monitors, to several firms operating on both a domestic and international basis. The Company is in the process of negotiating other agreements for the use of its technology as components in other medical monitoring systems.
Financial Information Relating to Sales Year Ended December 31,
1995 1994 1993
Domestic Sales $4,273,483 $3,431,374 $3,529,335 Export (Including Licensing Revenues) 2,155,748 1,463,974 1,516,524 _________ _________ _________
$6,429,231 $4,895,348 $5,045,859 _________ _________ _________
Competition
The Company competes in the hospital market where there are many suppliers with greater financial and personnel resources with full service commodity products and dedicated selling capability. Neonatal and pediatric intensive care units are such areas. Here, the Company has been supplying competitively priced, uniquely designed products responsive to this market in which no major company currently focuses its total effort.
In both the hospital and emergency medical service markets, the Company's line of non-invasive blood pressure monitoring equipment has significant advantages over competitive products. It is compact, portable, lightweight and user-friendly. The monitors maintain a high professional standard of accuracy and quality in demanding environments such as those encountered in hospital and transport situations.
With respect to all of its products, the Company competes on the basis of price, features, product quality, promptness of delivery and customer service.
Customers
During 1995, 1994 and 1993, the Company had sales to one customer which in the aggregate accounted for approximately 12%, 13% and 13% of sales, respectively.
Research and Development
In 1995, 1994 and 1993, the Company spent approximately $405,000, $335,000 and $329,000, respectively, on activities relating to the development of new products and the improvement of existing products.
The Company is building on its base of non-invasive blood pressure technology by developing a family of next-generation patient-monitoring equipment.
Employees
As of December 31, 1995, the Company had 46 employees of whom 44 were full-time. The Company has no collective bargaining agreements and believes that relations with its employees are good. The Company maintains employee benefit plans providing for disability income, life insurance and medical and hospitalization coverage. The Company sponsors a 401(K) benefit plan for its employees which generally allows participants to make contributions by salary deductions up to allowable internal revenue service limits on tax-deferred basis and discretionary contributions by the Company. The Company did make discretionary contributions in 1995.
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 "FDA Act") as amended in the Medical Device Amendments of 1976 (the "1976 Amendments") and the 1990 "Safe Medical Devices Act", as well as additional regulations promulgated thereto. Under the 1976 Amendments, the Company must be a registered device manufacturer and must comply with Good Manufacturing Practice Regulations for Medical Devices.
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.
Under the 1976 Amendment and the Safe Medical Device Act, the FDA has adopted regulations which classify medical devices based upon the degree of regulation it believes is necessary to assure safety and efficacy. A device is classified as a Class I, II, or III device. Class I devices are subject only to general controls. Class II devices, in addition to general controls, are or will be subject to "performance standards." Most devices are subject to the 501(K) pre-market notification provision. In addition, some Class III devices require FDA pre-market approval before they may be marketed commercially because their safety and effectiveness cannot be assured by the general controls and performance standards of Class I or II devices. The Company's products are mostly Class II devices. Several of them have required FDA notification under Section 510(k) of the FDA 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. To date, the Company has had no FDA oversight problems, and none are pending to its knowledge.
Manufacturing and Quality Assurance
The Company assembles its products at its facility. 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 anticipate any difficulties in obtaining the components necessary to manufacture its products.
Quality control procedures are performed by the Company at its facility and occasionally at its suppliers' facilities to standards set forth in the "Good Manufacturing Practices". These procedures include the inspection of components and full testing of finished goods. The Company has a controlled clean environment where the final assembly of single-patient-use products is conducted. The Company has charted a course to becoming certified to ISO 9000 and relevent European Union Directives in order to broaden European markets and make domestic quality system improvements.
Backlog
The Company's practice is to ship its products upon receipt of a customer's order or pursuant to customer-requested ship dates. On December 31, 1995, the Company had a backlog of orders from customers for products with requested ship dates in 1996 totaling approximately $880,000, deliverable throughout 1996, as compared to $691,000 as of December 31, 1994. During the first quarter of 1996, the Company will fulfill approximately $273,000 of this backlog.
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 (Registered trademark), Pedisphyg (Registered trademark), OscilloMate (Registered trademark), NeoGuard (Registered trademark), Tuff-Cuff (Registered trademark), Limboard (Registered trademark), Klear-Trace (Registered trademark), and the heart shaped mark for use as a thermal reflector and the Company's corporate logo. The Company continues to use the PAPERCUFF (Trademark) and Safe-Cuff (Trademark) trademark.
The Company filed a patent application on behalf of an employee covering the method of operation of its blood pressure measurement monitor. This patent was issued under Patent Number 4,796,184 and assigned to the Company. The Company also holds Patent Number 4,966,992 which covers the design of a blood pressure monitor for use with hyperbaric chambers. The Company holds Patent Number 5,101,830 which covers the design of a blood pressure cuff.
The Company has copyright protection for the software used in its blood pressure monitors.
ITEM 2.

ITEM 2. PROPERTIES
The Company has leased new facilities comprising approximately 17,500 square feet of office, laboratory and assembly space, including a controlled clean environment, located at 21 Business Park Drive, Branford, Connecticut 06405. Minimum annual rentals under the Company's lease agreement are:
1996 $101,000 1997 $104,000 1998 $110,000
These amounts are in addition to the Company's share of increases in real estate taxes and certain utility costs.
ITEM 3.

ITEM 3. LEGAL PROCEEDINGS
No material legal proceedings involving the Company are pending at this time.
ITEM 4.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5.

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS
(a) The Common Stock of the Company is traded over-the-counter. The following table shows the high and low bid quotations for the Company's Common Stock for each quarterly period for the last three years. These prices do not represent actual transactions and do not include retail mark-ups, mark-downs or commissions.
Period Ended High Low
March 31, 1993 5/8 1/2 June 30, 1993 3/8 1/4 September 30, 1993 5/16 1/8 December 31, 1993 1/4 1/8 March 31, 1994 3/8 1/4 June 30, 1994 5/16 1/4 September 30, 1994 1/4 1/8 December 31, 1994 1/4 3/16 March 31, 1995 9/32 1/8 June 30, 1995 19/32 9/32 September 30, 1995 15/32 19/32 December 31, 1995 1 5/8 15/16
(b) The following table sets forth the approximate number of holders of record of Common Stock of the Company on December 31, 1995.
Title of Class Number of Shareholders
Common Stock, $.004 par value 400
Preferred Stock, $.001 par value 1
(c) No cash dividends have been declared on the Company's common stock for 1995, 1994 and 1993.
(d) Cash dividends were declared and paid during 1995, 1994 and 1993, in the amount of $40,000, $50,000 and $50,000 respectively, on the Series C cumulative preferred stock.
(1) Based on weighted average number of shares outstanding during the years.
ITEM 7.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Financial Condition, Liquidity and Capital Resources
As of December 31, 1995, the Company's cash and cash equivalents totaled $1,082,003, compared to $301,472 at December 31, 1994 (an increase of 359%), and the Company's working capital totaled $2,087,687 on December 31, 1995, compared to $1,506,332 on December 31, 1994. The Company's increased cash position is due to cash provided by operating activities in 1995. As a result of improved liquidity in 1995, the Company was able to internally finance approximately $70,000 of property and equipment additions and paid the outstanding debt in full.
The Company's working capital ratio improved from 4.17 at December 31, 1994 to 4.23 at December 31, 1995.
At December 31, 1994, the Company had a line of credit with a Connecticut bank totaling $500,000. On August 1, 1995, this line was extended through August 1, 1996. Borrowings under the line bears interest at prime plus 1.5%. At December 31, 1995, there were no borrowings outstanding under this line.
On July 27, 1994, the Company entered into a new four year licensing agreement with a major manufacturer of patient monitors, granting a nonexclusive license to use the Company's blood pressure technology for a specific application, and allowing the exchange of technical know-how. Under this agreement, the Company will receive $750,000 over the initial four year
term, plus royalties. The manufacturer has the option to extend the license for an additional three year period upon payment of an additional $600,000 plus royalties over the extended term. This agreement replaces a prior licensing agreement with the manufacturer. License fees are being recognized on a straight line basis over the contract period.
The Company believes that existing funds together with internally generated funds from 1996 operations and its existing line of credit arrangement will provide the Company with adequate liquidity and capital resources to meet its 1996 financial requirements.
Results of Operations
1995 Compared to 1994
The Company earned $849,000 ($.08 per common share) in 1995, compared to $301,000 ($.03 per common share) in 1994. The 1995 earnings performance was favorably impacted by incremental gross margin generated by higher sales volume and an increase in licensing fee revenues partially offset by additional sales support costs.
The Company's revenues increased by 31 percent to approximately $6,429,000 for 1995 compared to revenues of approximately $4,895,000 for the previous year. Sales of NIBP modules to Original Equipment Manufacturers ("OEM") who utilize the Company's technology in their systems, were responsible for approximately $862,000 of the growth in overall sales revenues. Sales of our blood pressure monitors were 33 percent higher than the same period in 1994. The Company expects continued improvement in overall sales next year.
Total cost of product sales decreased as a percentage of net product sales from 49.5 percent to 45.9 percent when comparing the current year to 1994. The decrease in cost reflects an on-going quality and cost reduction efforts and a more profitable product mix.
Research and development expenses increased by 21 percent during 1995 to approximately $405,000 compared to $335,000 for the same period of 1994, primarily due to development cost of new products.
Selling, general and administrative expenses increased to approximately $2,272,000 for the year ended December 31, 1995 compared to the prior year of approximately $1,898,000, an increase of 20 percent. However, as a percentage of net revenues, 1995 decreased to 35 percent from 39 percent in 1994. The increase in expenses was primarily due to salaries and related expenses, legal fees for patent applications for new product and telemarketing expenses for various products.
The Company's strong cash position enabled all outstanding debt to be paid in full and resulted in excess cash. The Company earned approximately $19,000 from various investment accounts.
During 1995, the Company utilized approximately $874,000 of net operating loss carryforwards to reduce its provision for taxes for financial reporting purposes. The tax benefit associated with this utilization of net operating loss carryforwards was approximately $297,000 or $.03 per common share. As of December 31, 1995, the company has utilized substantially all of its net operating loss carryforwards.
1994 Compared to 1993
The Company earned $301,000 ($.03 per common share) in 1994, compared to $475,000 ($.05 per common share) in 1993. The 1994 earnings performance was impacted by softness in sales of certain of the Company's product lines partially offset by an increase in licensing fee revenues.
The Company's revenues decreased from $5,045,859 in 1993 to $4,895,348 in 1994, a decrease of $150,511. The decrease in revenues reflects a decrease in international product sales attributed primarily to delays in shipments of non-invasive blood pressure modules and declines in domestic sales of disposable products due to increased competition. This decrease in product revenues was partially offset by an increase in licensing fee revenues from $40,000 in 1993 to $220,833 in 1994 as a result of a new licensing agreement.
Cost of product sales increased as a percent of net product sales from 45 percent in 1993 to 49 percent in 1994. This increase mainly reflects under absorption of overhead expenses due to decreased sales and production.
Selling, general and administrative expenses decreased to $1,898,039 in 1994 from $1,934,808 in 1993, a decrease of $36,769. The decrease is due primarily to a reduction in payroll costs beginning in the second quarter of 1994, and reimbursement of certain professional fees and expenses upon signing of the license agreement previously discussed.
Net interest expense decreased in 1994 to $29,869 from $33,721 in 1993. The decrease was due to net debt principal reductions of approximately $130,500 during 1994.
During 1994, the Company utilized approximately $290,000 of net operating loss carryforwards to reduce its provision for taxes for financial reporting purposes. The tax benefit associated with this utilization of net operating loss carryforwards was approximately $104,000 or $.01 per common share.
ITEM 8.

ITEM 8. INDEX TO FINANCIAL STATEMENTS
Report of Independent Public Accountants
Balance Sheets - December 31, 1995 and 1994 to
Statements of Income for the Years Ended December 31, 1995, 1994 and 1993
Statements of Shareholders' Equity for the Years Ended December 31, 1995, 1994 and 1993
Statements of Cash Flows for the Years Ended December 31, 1995, 1994 and 1993 to
Notes to Financial Statements to
Schedules called for under Regulation S-X are not submitted because they are not applicable or not required, or because the required information is included in the financial statements or notes thereto.
ITEM 9.

ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None. PART III
ITEM 10.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Reference is made to the section entitled "Election of Directors" in the Registrant's definitive proxy statement to be mailed to shareholders on or about April 22, 1996, and filed with the Securities and Exchange Commission.
ITEM 11.

ITEM 11. EXECUTIVE COMPENSATION
Reference is made to the sections entitled "Compensation of Executive Officers" and "Election of Directors" in the Registrant's definitive proxy statements to be mailed to shareholders on or about April 22222996, and filed with the Securities and Exchange Commission.
ITEM 12.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND STOCKHOLDERS
Reference is made to the sections entitled "Principal Stockholders" and "Election of Directors" in the Registrant's definitive proxy statements to be mailed to shareholders on or about April 22, 1996, and filed with the Securities and Exchange Commission.
ITEM 13.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On September 17, 1990, by agreement, the Company and Dr. Myron L. Cohen amended Dr. Cohen's employment contract and provided that he shall be employed as Executive Vice President of the Company until December 31, 1995 in accordance with the terms of the agreement. Compensation for 1995 is approximately $165,862. On January 1, 1996, the Company extended Dr. Myron L. Cohen's employment contract to December 31, 1996.
In September of 1993, the Company entered into a three year employment agreement with Louis P. Scheps as President and Chief Executive Officer. Compensation is approximately $175,000 for 1995.
Deferred Revenue from Related Party
In June 1989, the Company and a majority preferred shareholder, (the "Shareholder"), entered into an agreement, whereby the Shareholder agreed to fund $100,000 for the Company's purchase of certain components needed to establish an electrode manufacturing facility ("the System"). In exchange, the Company agreed to pay the Shareholder an amount equal to five percent of the net invoice price of all electrodes manufactured and sold by the Company using the System, during a period of five years.
The System became fully operational and the five year period commenced on January 8, 1990. The agreement expired as of December 31, 1994, there fore there were no earning expenses relating to royalties during 1995. During 1994 and 1993, royalties earned by the shareholder to the agreement totaled $78,181 and $91,807, respectively. The Company recognized revenue on a straight-line basis over the agreement period ($20,000 per year). Net royalty expense was $58,181 and $71,807 during 1994 and 1993, respectively.
PART IV
ITEM 14.

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A) 1.The financial statements and schedules listed in the accompanying index to financial statements are filed as a part of this report.
2. See (a) 1 above.
3. (a) Certificate of Incorporation of Registrant*
(b) By-Laws of Registrant*
* Incorporated by reference from the Exhibits filed in the Registrant's Prospectus, dated April 15, 1985, filed with the Securities and Exchange Commission.
(B) Reports on Form 8-K None filed.
CAS MEDICAL SYSTEMS, INC.
Report of Independent Public Accountants
Balance Sheets -- December 31, 1995 and 1994 to
Statements of Income for the Years Ended December 31, 1995, 1994 and 1993
Statements of Shareholders' Equity for the Years Ended December 31, 1995, 1994 and 1993
Statements of Cash Flows for the Years Ended December 31, 1995, 1994 and 1993 to
Notes to Financial Statements to
Schedules called for under Regulation S-X are not submitted because they are not applicable or not required, or because the required information is included in the financial statements or notes thereto.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of CAS Medical Systems, Inc.:
We have audited the accompanying balance sheets of CAS Medical Systems, Inc. (a Delaware corporation) as of December 31, 1995 and 1994, and the related statements of income, shareholders' equity and cash flows for each of the three years in the period ended December 31, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of CAS Medical Systems, Inc. as of December 31, 1995 and 1994, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Stamford, Connecticut, January 23, 1996
CAS MEDICAL SYSTEMS, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1995
(1) The Company:
CAS Medical Systems, Inc. (the "Company") 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 internationally and in the United States. The Company's operations and manufacturing facilities are located in the United States. During 1995, 1994 and 1993, the Company had sales to one customer which in the aggregate accounted for approximately 12%, 13% and 13% of sales, respectively, and had export sales principally to Europe, including licensing fee revenues, of $2,155,748, $1,463,974 and $1,516,524, respectively.
(2) Summary of Significant Accounting Policies:
Property and Equipment-
Property and equipment are stated at cost. Furniture and equipment are depreciated using the straight-line method based on the estimated useful lives of the assets, which range from two to five years. Leasehold improvements are amortized over the life of the lease.
Revenue Recognition-
Revenues from product sales are recognized upon passage of title, generally upon shipment. Revenues from licensing fees are recognized over the term of the agreement (see Note 6).
Net Income per Common Share-
Net income per common share has been computed by dividing net income available for common stock, after cumulative preferred dividends earned, by the weighted average number of common shares outstanding. Weighted average shares outstanding includes the common equivalent shares calculated for outstanding stock options and warrants under the treasury stock method.
Use of Estimates-
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Recently Issued Accounting Pronouncements-
The Company does not believe any recently issued accounting standards will have a material impact on its financial condition or results of operations. The Company plans to continue to apply the recognition and measurement provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" and adopt the disclosure requirements of Statement of Financial Accounting Standards No. 123, "Accounting for Stock Based Compensation" ("FAS 123"), beginning in 1996. Accordingly, the issuance of FAS 123 will not impact the Company's consolidated financial statements.
Reclassifications-
Certain reclassifications were made to prior year amounts to conform to current year presentation.
(3) Inventories:
Inventories include costs of materials, labor and manufacturing overhead.
Inventories are stated at the lower of first-in, first-out (FIFO) cost or market and consist of the following:
1995 1994
Raw materials $505,159 $575,915 Work in process 160,215 112,782 Finished goods 177,930 122,291 -------- -------- $843,304 $810,988 ________ ________
(4) Debt:
At December 31, 1995, the Company's line of credit arrangement allowed for maximum borrowings of $500,000, all of which was available. The line of credit arrangement expires on August 1, 1996, and bears interest at the prime rate (8.50% at December 31, 1995) plus 1.5%. During 1995, 1994 and 1993, the maximum month end borrowings outstanding under this line were $50,000, $200,000 and $115,000, the weighted average borrowings were approximately $4,167, $92,100 and $25,500, and the weighted average interest rates on amounts outstanding were 10.3%, 8.3% and 7.5%, respectively. The bank has a first security interest in all assets of the Company and requires a compensating balance equal to 20% of the line of credit ($100,000 at December 31, 1995).
(5) Debt to Related Parties:
During the fourth quarter of 1990, a majority preferred shareholder exchanged a 10% convertible note for a new term note which matured and was repaid in December 1995. The holder of the 10% term note was the Series C preferred shareholder and had a security interest in all tangible and intangible assets of the Company.
(6) License Agreements:
In June 1989, the Company and a majority preferred shareholder (the "Shareholder") entered into an agreement, whereby the Shareholder agreed to fund $100,000 for the Company to purchase certain components needed to establish an electrode manufacturing facility ("the System"). In exchange, the Company agreed to pay the Shareholder an amount equal to five percent of the net invoice price of all electrodes manufactured and sold by the Company using the System for a period of five years. The System became fully operational and the five year period commenced on January 8, 1990. The agreement expired as of December 31, 1994, and, accordingly, there were no related royalty revenues or expenses during 1995. During 1994 and 1993, royalties earned by the Shareholder pursuant to this agreement totaled $78,181 and $91,807, respectively. The Company recognized revenue on a straight-line basis over the agreement period ($20,000 per year), and, accordingly, net royalty expense was $58,181 and $71,807 during 1994 and 1993, respectively.
On July 27, 1994, the Company entered into a four year licensing agreement with a major European manufacturer of medical equipment, canceling and superseding a prior licensing agreement with this customer. The agreement granted a nonexclusive license to use the Company's blood pressure technology for a specific application. As part of this agreement, the Company will receive $750,000 plus royalties over the initial four year term, of which $300,000 has been received through December 31, 1995. The manufacturer has the option to extend the license for an additional three year period upon payment of an additional $600,000 plus royalties over the extended term. License fees from this agreement and deferred revenue of $140,000 from the prior license agreement are being recognized on a straight line basis over the new contract period.
(7) Capital Stock:
Holders of the Series C cumulative preferred stock are entitled to a cumulative dividend, payable quarterly, at the annual rate of $10 per share. The Company has the right to redeem the preferred stock in whole or in part, at a price equal to $100 per share plus all accrued and unpaid dividends. On July 1, 1995, 2,000 shares of the Company's Series C preferred stock were redeemed at $100 per share plus all dividends accrued at that time. Upon redemption, the shares were retired and the Company filed with the State of Delaware a certificate of reduction of stated capital. No dividends may be paid on common stock unless all accumulated dividends have been paid on the Series C cumulative preferred stock. Dividends in the amount of $40,000, $50,000 and $50,000 were paid on these shares in 1995, 1994 and 1993, respectively.
On January 17, 1996, the remaining 3,000 shares of the Company's Series C preferred stock were redeemed at $100 per share.
(8) Employee Benefit Programs: Stock Options-
In December 1984, the Board of Directors and stockholders adopted an Employee Incentive Stock Option 1984 Plan (the "1984 Plan"). The exercise price for common stock issued under the 1984 Plan is to be no
less than the fair market value of the stock at the grant date of the options. Pursuant to the 1984 Plan, 750,000 shares of common stock have been reserved for employee (including officers and directors) purchase. An option granted under the 1984 Plan becomes exercisable in two equal annual installments, commencing one year from the date of the grant of the option. Options begin to expire between five and ten years from the date of grant, depending on the optionholder's percentage of ownership of the Company. In the event employment is terminated, the employee no longer has the right to exercise his or her options unless expressly permitted by the Board of Directors.
In June 1994, the Board of Directors and stockholders adopted the 1994 Employees' Incentive Stock Option Plan (the "1994 Plan"). Pursuant to the 1994 Plan, 250,000 shares of common stock have been reserved for employee (including officers and directors) purchase. The 1994 Plan is the successor to the 1984 Plan and contains provisions which are similar to those of the 1984 Plan.
Transactions in stock options under the Plans are summarized as follows:
Exercise Price Shares per Option Outstanding at December 31, 1992 973,400 $.20 to $.75 Exercised (17,500) .25 Canceled (35,000) .375 to .75 -------- Outstanding at December 31, 1993 920,900 $.20 to $.75 Granted 120,000 .31 Canceled (50,000) .275 -------- Outstanding at December 31, 1994 990,900 $.20 to $.75 Granted 75,000 .82 Canceled/Exercised (85,000) .25 to .75 -------- Outstanding at December 31, 1995 980,900 $.20 to $.82 ________ Exercisable at December 31, 1995 845,900 $.20 to $.75 ________
In 1993, the Company granted a warrant to purchase 750,000 shares of common stock to an officer of the Company. The exercise price ($.31 per share) was equal to the fair market value of the stock at the grant date of the warrant. The warrant has no expiration date.
Life Insurance-
During 1995, 1994 and 1993, the Company paid life insurance premiums of approximately $10,000 for life insurance policies on the lives of two officers of the Company. The policies are in the face amounts of $1,000,000 and $650,000. The beneficiaries of $250,000 and $150,000, respectively, of the policies are designated by the insured. The Company is the beneficiary of the balance.
401(k) Plan-
During 1992, the Company established a 401(k) benefit plan for its employees which generally allows participants to make contributions by salary deductions up to allowable Internal Revenue Service limits on a tax-deferred basis and discretionary contributions by the Company. The 1995 contribution was $28,166. The Company did not make discretionary contributions in 1994 or 1993.
The Company does not provide other post-retirement benefits.
(9) Income Taxes:
Effective January 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS 109), which requires the recognition of deferred tax assets and liabilities for future tax consequences resulting from differences between the book and tax basis of existing assets and liabilities. In addition, SFAS 109 requires the recognition of future tax benefits of net operating loss carryforwards to the extent that realization of such benefit is more likely than not. This change in accounting had no significant effect on the Company's financial position or results of operations.
The 1995, 1994 and 1993 provisions for income taxes of $85,000, $20,000 and $17,000, respectively, represent state income taxes and in 1994 and 1993 federal alternative minimum taxes, and are net of tax benefits of net operating loss carryforwards utilized in 1995, 1994 and 1993 of $874,000, $104,000, and $253,000, respectively. As of December 31, 1995, the Company has utilized substantially all of its net operating loss carryforwards. The 1995 provision for income taxes includes deferred tax benefits of approximately $25,000 due to temporary differences related primarily to certain accruals not currently deductible for income tax purposes.
(10) Commitments and Contingencies:
Employment Agreements-
The Company is committed under employment agreements with certain officers aggregating $175,000 and which expire in 1996.
Other Commitments-
Minimum annual rentals under the Company's noncancelable lease agreement covering its principal office space, which expires on December 31, 1998 and includes escalations for real estate taxes, are as follows:
1996 $101,000 1997 104,000 1998 110,000 -------- $315,000 ________
Rent expense was approximately $102,000, $105,000 and $62,000 for the years ended December 31, 1995, 1994 and 1993, respectively.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
CAS MEDICAL SYSTEMS, INC. (Registrant)
March 25, 1996 Louis P. Scheps Date Louis P. Scheps President and Chief Executive Officer and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
March 25, 1996 Myron L. Cohen Date Myron L. Cohen Executive Vice President
March 25, 1996 Lawrence Burstein Date Lawrence Burstein Director
March 25, 1996 Stanley Josephson Date Stanley Josephson Director
March 25, 1996 Jerome Baron Date Jerome Baron Director
March 25, 1996 Jay Haft Date Jay Haft Director
March 25, 1996 Saul Milles Date Saul Milles Director


ITEM 1. BUSINESS
The original predecessor of Family Dollar Stores, Inc., was organized in 1959 to operate a self-service retail store in Charlotte, North Carolina. In subsequent years, additional stores were opened, and separate corporations generally were organized to operate these stores. Family Dollar Stores, Inc. (together with its subsidiaries referred to herein as the "Company"), was incorporated in Delaware in 1969, and all existing corporate entities became wholly-owned subsidiaries. Additional stores continued to be opened and operated in wholly-owned subsidiaries organized in the states where the stores were located. Four wholly-owned subsidiaries organized as North Carolina corporations provide distribution, trucking, operations, marketing and other services to the Company.
The Company now operates a chain of self-service retail discount stores. As of November 1, 1995, there were 2,451 stores in 38 states and the District of Columbia as follows:
The number of stores operated by the Company at the end of each of its last five fiscal years is as follows: 1,759 stores on August 31, 1991; 1,885 stores on August 31, 1992; 2,035 stores on August 31, 1993; 2,215 stores on August 31, 1994; and 2,416 stores on August 31, 1995.
During the fiscal year ended August 31, 1995, 12 stores were closed, 10 stores were relocated within the same shopping center or market area and 18 stores were expanded in size. In addition, the Company contin- ued its program of periodic improvements in selected existing stores. All of the stores are occupied under leases, except 144 stores owned by the Company. (See "Properties" herein.) The Company has announced plans to open approximately 235 stores and close approximately 35 stores during the current fiscal year. Such plans are continually reviewed and subject to change depending on economic conditions and other factors. From September 1, 1995, through November 1, 1995, the Company opened 41 new stores, closed 6 stores and expanded 1 store. All stores opening in the fiscal year ending August 31, 1996, will have a new interior store layout that features increased emphasis on promotional goods, improved presentation
of merchandise, lower fixtures and wider aisles for an attractive, customer- friendly shopping environment. Ten existing stores have been remodeled to the new prototype, and the Company will consider remodeling additional stores in the second half of the fiscal year.
As of November 1, 1995, the Company had in the aggregate approxi- mately 18,600,000 square feet of total store space (including receiving rooms and other non-selling areas). The typical store has approximately 6,000 to 8,000 square feet of total area. The stores are in both rural and urban areas, and they are typically freestanding or located in shopping centers with adequate parking available. As of November 1, 1995, there were approximately 1,275 stores located in communities with populations of less than 15,000; approximately 460 stores in communities with populations of 15,000 to 50,000; and approximately 716 stores in communities with populations of over 50,000. All stores are similar in appearance and display highly visible red and white "Family Dollar Stores" or "Family Dollar" signs.
The Company's stores are operated on a self-service, cash-and- carry basis, and low overhead permits the sale of merchandise at a relatively moderate markup. During the fiscal year ended August 31, 1994, in the face of increasing competition, the Company began to change its merchandising strategy away from promotional pricing and towards everyday low prices. In December 1993, prices were reduced on a limited number of items in 400 stores and in June 1994, this program was expanded to 1,000 stores. In September and October 1994, the number of stores with merchandise at reduced prices increased to 1,800, and the number of stockkeeping units with price reductions increased from approximately 500 to approximately 2,500. A lesser number of price reductions were taken in the balance of the stores in less competitive markets. No single store accounted for more than one-fifth of one percent of sales during the fiscal year ended August 31, 1995. Most of the stores are open six evenings a week, and many remain open on Sunday afternoons.
The stores offer a variety of merchandise including men's, women's, boys', girls' and infants' clothing, shoes, household products, health and beauty aids, domestics, toys, school supplies, candy and snack food, electronics, housewares, paint and automotive supplies. During the fiscal year ended August 31, 1995, soft goods, including wearing apparel, shoes, linens, blankets, bedspreads and curtains, accounted for approx- imately 39 percent of the Company's sales. During the fiscal year ended August 31, 1995, nationally advertised brand merchandise accounted for approximately 25 percent of sales, Family Dollar label merchandise accounted for approximately 6 percent of sales and merchandise sold under other labels, or which was unlabeled, accounted for the balance of sales. Irregular merchandise accounted for approximately 2 percent of sales during such period. The Company does not accept credit cards or extend credit.
The Company has a policy of uniform pricing of items in the majority of its stores. A zone pricing system in which selected merchandise in stores in less competitive markets carries higher prices is utilized in approximately 250 stores. The Company advertises through circulars which are inserted in newspapers or mailed directly to consumers' residences, and also advertises to a limited degree in newspapers and on radio in portions of its operating area. As part of the Company's plan to reduce expenses to support the program of price reductions on merchandise in its stores, in
the fiscal year ended August 31, 1995, the number of advertising circulars distributed to consumers' homes was cut from 22 to 15. All seven adver- tising coupon booklets that were distributed in the fiscal year ended August 31, 1994, also were eliminated. In the fiscal year ending August 31, 1996, the plan is to reduce the number of advertising circulars distributed to consumers' homes from 15 to 14, and to again distribute no coupon booklets. Advertising circulars that are passed out in the stores will be utilized. An unadvertised internal maximum price policy is followed, and the policy currently is to price most items of merchandise under $17.99. In the fiscal year ended August 31, 1995, as part of the Company's emphasis on the sale of lower priced merchandise, the Company reduced the average price point of merchandise sold in its stores.
The Company purchases its merchandise from approximately 1,400 suppliers and generally has not experienced difficulty in obtaining adequate quantities of merchandise. Approximately 55 percent of the merchandise is manufactured in the United States and substantially all such merchandise is purchased directly from the manufacturer. Purchases of imported merchandise are made directly from the manufacturer or from importers. No single supplier accounted for more than 2.5 percent of the merchandise sold by the Company in the fiscal year ended August 31, 1995. Each of the Company's 17 buyers specializes in the purchase of specific categories of goods.
During the fiscal year ended August 31, 1995, approximately 2.5 percent of the merchandise purchased by the Company was shipped directly to its stores by the manufacturer or importer. Most of the balance of the merchandise was received at the Company's Distribution Centers in Matthews, North Carolina, and West Memphis, Arkansas. Merchandise is delivered to the stores from the Distribution Centers in Matthews and West Memphis by Company-owned trucks and by common and contract carriers. During the last fiscal year, approximately 65 percent of the merchandise delivered was by common or contract carriers. The average distance between the Distribution Center in Matthews and the approximately 1,516 stores served by that facility on August 31, 1995, is approximately 390 miles. The average distance between the Distribution Center in West Memphis and the approximately 900 stores served by that facility on August 31, 1995, is approximately 440 miles.
The Company also operates satellite distribution buildings in Salisbury, North Carolina, and Memphis, Tennessee. High volume, bulk items of merchandise are shipped by vendors directly to these facilities and then delivered to the stores by contract carriers. During the fiscal year ended August 31, 1995, the Company also utilized public freight handlers to a limited degree to receive from vendors, store and then ship to the Company's stores selected merchandise.
The business in which the Company is engaged is highly competi- tive. The principal competitive factors include location of stores, price and quality of merchandise, in-stock consistency, merchandise assortment and presentation, and customer service. The Company competes for sales and store locations in varying degrees with national and local retailing estab- lishments, including department stores, discount stores, variety stores, dollar stores, discount clothing stores, drug stores, grocery stores, outlet stores, warehouse stores and other stores. Many of the largest retail merchandising companies in the nation have stores in areas in which
the Company operates. The relatively small size of the Company's stores permits the Company to open new units in rural areas and small towns, as well as in large urban centers, in locations convenient to the Company's low and low-middle income customer base. As the Company's sales are focused on low priced, basic merchandise, the stores offer customers a reasonable selection of competitively priced merchandise within a relatively narrow range of price points.
Generally, in a typical store the highest monthly volume of sales occurs in December, and the lowest monthly volume of sales occurs in January and February.
The Company maintains a substantial variety and depth of basic and seasonal merchandise inventory in stock in its stores (and in distribution centers for weekly store replenishment) to attract customers and meet their shopping needs. Vendors' trade payment terms are negotiated to help finance the cost of carrying this inventory. The Company must balance the value of maintaining high inventory levels to meet customers' demands with the cost of having inventories at levels that exceed such demands and that must be marked down in price in order to sell.
The Company has registered with the U. S. Patent and Trademark Office the name "Family Dollar Stores" as a service mark.
On August 31, 1995, the Company had approximately 10,000 full- time employees and approximately 8,500 part-time employees. Approximately 900 additional employees were hired on a temporary basis for the 1994 Christmas season. None of the Company's employees are covered by collective bargaining agreements. The Company considers its employee relations to be good.
ITEM 2.

ITEM 2. PROPERTIES
As of November 1, 1995, the Company operated 2,451 stores in 38 states and the District of Columbia. See "Business" herein. With the exception of 144 stores owned by the Company, all of the Company's stores were occupied under lease. Most of the leases are for fixed rentals. A large majority of the leases contain provisions which may require additional payments based upon a percentage of sales or property taxes, insurance premiums or common area maintenance charges.
Of the Company's 2,307 leased stores at November 1, 1995, all but 97 leases contain options to renew for additional terms; in most cases for a number of successive five-year periods. The following table sets forth certain data, as of November 1, 1995, concerning the expiration dates of all leases with renewal options:
Of the 144 Company-owned stores, 18 are located in Texas, 16 in North Carolina, 13 each in Georgia and Virginia, 12 in Indiana, 11 in Illinois, 8 in Tennessee, 7 in Michigan, 6 in Ohio, 5 each in Alabama and Arkansas, 4 each in South Carolina, West Virginia, Florida, Kentucky and Louisiana, 3 in Mississippi, 2 each in Iowa and Oklahoma and one each in New Jersey, Missouri and Kansas. In these owned stores, there are approximately 1,150,000 total square feet of space.
The Company also owns its Executive Offices and Distribution Center which are located on a 64.5 acre tract of land in Matthews, North Carolina, just outside of Charlotte, in a building containing approximately 810,000 square feet of which approximately 740,000 square feet are used for the Distribution Center which includes receiving, warehousing and shipping facilities, and approximately 70,000 square feet are used for Executive Offices.
During the fiscal year ended August 31, 1995, the Company leased buildings in Salisbury, North Carolina (approximately 300,000 square feet) and Memphis, Tennessee (approximately 270,000 square feet) to serve as satellite distribution facilities, and a buiding in Charlotte, North Carolina (approximately 57,000 square feet) to serve as a reclamation facility for merchandise returned from the stores. These leases continue in effect in the fiscal year ending August 31, 1996.
In 1992, the Company purchased a 75 acre parcel of land in West Memphis, Arkansas, and construction began in 1993 on a 550,000 square foot full-service distribution center. This facility became operational in the spring of 1994, and currently serves approximately 900 stores. The approximate $25 million cost for the land, building and equipment was financed with cash flow from current operations and short-term borrowing under the Company's bank lines of credit. In October 1995, construction began on a 300,000 square foot addition to this facility. It is presently anticipated that construction will be completed by the end of the Company's fiscal year on August 31, 1996. The estimated $15 million cost for the expansion and the related equipment is expected to be financed in the same manner as the financing of the original facility.
The Company owns and operates a fleet of tractor-trailers and trucks to distribute its merchandise.
ITEM 3.

ITEM 3. LEGAL PROCEEDINGS
The Company knows of no material pending legal proceedings, other than ordinary routine litigation incidental to the business, to which the Company is a party or of which any of its property is subject.
ITEM 4.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted during the fourth quarter of the fiscal year ended August 31, 1995, to a vote of security holders through the solicitation of proxies or otherwise.
ITEM 4a. EXECUTIVE OFFICERS OF THE REGISTRANT
The following information is furnished with respect to each of the executive officers of the Company as of November 1, 1995:
(1) Mr. Leon Levine founded the Company's business in 1959 and was its President, Chief Executive Officer and Treasurer from 1959 until September 1977 when he was elected Chairman of the Board, Chief Executive Officer and Treasurer.
(2) Mr. John D. Reier was employed by the Company as Senior Vice President-General Merchandise Manager in August 1987, and was promoted to Senior Vice President-Merchandising and Advertising in that month. He was elected President in November 1994.
(3) Mr. George R. Mahoney, Jr. was employed by the Company as General Counsel in October 1976. He was elected Vice President-General Counsel and Secretary in April 1977, Senior Vice President-General Counsel and Secretary in January 1984 and Executive Vice President-General Counsel and Secretary in October 1991.
(4) Mr. R. David Alexander, Jr. was employed by the Company as Senior Vice President-Distribution and Transportation in August 1995. Prior to his employment by the Company, he was employed by Northern Automotive Co., Inc., a chain of discount automotive supply stores, from June 1993 to August 1995, where he was Senior Vice President-Distribution and Transportation. Prior to his employment by Northern Automotive Co., Inc., he was employed by Best Products Co., Inc., a chain of catalogue showroom stores, from June 1985 to May 1993 where he was Senior Vice President-Distribution and Transportation.
(5) Mr. Albert S. Rorie was employed by the Company in various capacities in the Data Processing area from March 1973 through January 1981, including employment as Director of Data Processing. Mr. Rorie was self-employed as a data processing consultant from January 1981 through May 1982, when he rejoined the Company and was elected Vice President-Data Processing. He was elected Senior Vice President-Data Processing in January 1988.
(6) Mr. C. Martin Sowers was employed by the Company as an Accountant in October 1984 and was promoted to Assistant Controller in January 1985. He was elected Controller in January 1986, Vice President-Controller in July 1989 and Senior Vice President-Finance in December 1991.
(7) Mr. Phillip W. Thompson was employed by the Company in January 1984 in the Store Operations Department. He was elected Vice President-Store Operations in January 1985, and Senior Vice President-Store Operations in January 1992.
(8) Mr. Edward L. Zimmerlin was employed by the Company in March 1995 as Senior Vice President-Merchandising and Advertising. For more than five years prior to his employment by the Company, he was employed by Hills Stores, a chain of discount stores, where he was Vice President- Merchandising.
(9) Mr. Daniel R. Burns was employed by the Company as Vice President-Loss Prevention in October 1994. For more than five years prior to his employment by the Company, he was employed by Kay-Bee Toy Stores where he was Vice President- Loss Prevention and Shortage Control.
(10) Mr. Terry A. Cozort was employed by the Company as Director of Human Resources in April 1988. He was elected Vice President-Human Resources in July 1989.
(11) Mr. Owen R. Humphrey was employed by the Company in August 1979, and was promoted to Distribution Center Operations Manager in December 1983. Mr. Humphrey was promoted to Director of Distribution in January 1988, and was elected Vice President-Distribution and Transportation in July 1989.
(12) Mr. Gilbert A. LaFare was employed by the Company in August 1992 as Vice President-Real Estate. For more than five years prior to his employment by the Company, he was Vice President-Real Estate with Little Caesars Enterprises, Inc., a restaurant chain.
(13) Mr. Edgar L. Paxton was employed by the Company in December 1985 as Director of Advertising. He was elected Vice President-Advertising and Sales Promotion in January 1988.
(14) Mr. Kenneth T. Smith was employed by the Company as a financial analyst in October 1990. Mr. Smith was promoted to Director of Information Services-Operations in February 1992 and to Director of Accounting in October 1992. He was elected Vice President-Controller in October 1995.
All executive officers of the Company are elected by and serve at the pleasure of the Board of Directors.
PART II
ITEM 5.

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information required by this item is included in the Company's Annual Report to Stockholders for the fiscal year ended August 31, 1995, on page 16 under the captions "Market Price and Dividend Information" and "Market Prices and Dividends" and is incorporated herein by reference.
ITEM 6.

ITEM 6. SELECTED FINANCIAL DATA
The information required by this item is included in the Company's Annual Report to Stockholders for the fiscal year ended August 31, 1995, on pages 14 and 15 under the caption "Summary of Selected Financial Data" and is incorporated herein by reference. The Company did not have any long- term debt at the end of each of its last five fiscal years.
ITEM 7.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The information required by this item is included in the Company's Annual Report to Stockholders for the fiscal year ended August 31, 1995, on pages 14 through 16 under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" and is incorporated herein by reference.
ITEM 8.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is included in the Company's Annual Report to Stockholders for the fiscal year ended August 31, 1995, on pages 17 through 24 and is incorporated herein by reference.
ITEM 9.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item as to Directors is included in the Company's proxy statement dated November 22, 1995, on pages 5 and 6 under the caption "Election of Directors" and is incorporated herein by reference. The information required by this item as to executive officers is included in Item 4A in Part I of this report.
ITEM 11.

ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is included in the Company's proxy statement dated November 22, 1995, on pages 6 through 12 under the caption "Executive Compensation" and is incorporated herein by reference.
ITEM 12.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is included in the Company's proxy statement dated November 22, 1995, on pages 3 and 4 under the caption "Ownership of the Company's Securities" and is incorporated herein by reference.
ITEM 13.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is included in the Company's proxy statement dated November 22, 1995, on page 12 under the caption "Related Transactions" and is incorporated herein by reference.
PART IV
ITEM 14.

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents filed as part of this report:
1 and 2. Financial Statements and Financial Statement Schedules:
The consolidated financial statements of Family Dollar Stores, Inc., and subsidiaries which are incorporated by reference to the Annual Report to Stockholders for the fiscal year ended August 31, 1995, are set forth in the index on page 16 of this report.
All schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions, are inapplicable or the information is included in the consolidated financial statements, and therefore, have been omitted.
The financial statements of Family Dollar Stores, Inc. (Parent Company) are omitted because the registrant is primarily an operating company and all subsidiaries included in the consoli- dated financial statements being filed, in the aggregate, do not have minority equity and/or indebtedness to any person other than the registrant or its consolidated subsidiaries in amounts which together exceed 5 percent of the total assets as shown by the most recent year-end consolidated balance sheet.
3. Exhibits:
Exhibits incorporated by reference:
3(a)(i) Certificate of Incorporation, dated November 24, 1969, (filed as Exhibit 3(a) to the Company's Registration Statement on Form S-1, No. 2-35468).
(ii) Certificate of Amendment, dated February 2, 1972, of Certificate of Incorporation (filed as Exhibit 3(a)(ii) to the Company's Form 10-K (File No. 1-6807) for the year ended August 31, 1980).
(iii) Certificate of Amendment, dated January 23, 1979, of Certificate of Incorporation (filed as Exhibit 2 to the Company's Form 10-Q (File No. 1-6807) for the quarter ended February 28, 1979).
(iv) Certificate of Amendment, dated January 20, 1983, of Certificate of Incorporation (filed as Exhibit 4(iv) to the Company's Registration Statement on Form S-3, No. 2-85343).
(v) Certificate of Amendment, dated January 16, 1986, of Certificate of Incorporation (filed as Exhibit 3(a)(v) to the Company's Form 10-K (File No. 1-6807) for the year ended August 31, 1986).
(vi) Certificate of Amendment, dated January 15, 1987, of Certificate of Incorporation (filed as Exhibit 3(a)(vi) to the Company's Form 10-K (File No. 1-6807) for the year ended August 31, 1987).
(b) By-Laws, as amended as of November 6, 1987 (filed as Exhibit 3(b) to the Company's Form 10-K (File No. 1-6807) for the year ended August 31, 1987).
* 10 (i) Incentive Profit Sharing Plan (filed as Exhibit 13(b) to the Company's Registration Statement on Form S-1, No. 2-35468).
* 10 (ii) 1979 Non-Qualified Stock Option Plan, amended as of April 17, 1991 (filed as Exhibit 10(vii) to the Company's Form 10-K (File No. 1-6807) for the year ended August 31, 1991).
* 10 (iii) 1989 Non-Qualified Stock Option Plan, amended as of April 17, 1991 (filed as Exhibit 10(viii) to the Company's Form 10-K (File No. 1-6807) for the year ended August 31, 1991).
* 10 (iv) Savings and Retirement Plan and Trust of Family Dollar Stores, Inc. adopted as of August 1, 1986 (filed as Exhibit 10(ix) to the Company's Form 10-K (File No. 1-6807) for the year ended August 31, 1986).
* 10 (v) Amendment No. One dated August 18, 1988, to Savings and Retirement Plan and Trust of Family Dollar Stores, Inc. adopted August 1, 1986 (filed as Exhibit 10 (xi) to the Company's Form 10-K (File No. 1-6807) for the year ended August 31, 1988).
10 (vi) Revolving/Term Loan Agreement dated as of February 28, 1993, between the Company and NationsBank of North Carolina, N.A., as amended by letter agreement dated March 31, 1993 (filed as Exhibit 10(vii) to the Company's Form 10-K (File No. 1-6807) for the year ended August 31, 1993).
* 10 (vii) Employment Agreement dated November 10, 1994, between the Company and John D. Reier (filed as Exhibit 10 (viii) to the Company's Form 10-K (File No. 1-6807) for the year ended August 31, 1994).
Exhibits filed herewith:
* 10 (viii) Family Dollar Employee Savings and Retirement Plan and Trust, amended and restated as of January 1, 1987.
11 Statement Re: Computations of Per Share Earnings.
13 Annual Report to Stockholders for the fiscal year ended August 31, 1995 (only those portions specifically incorporated by reference herein shall be deemed filed).
21 Subsidiaries of the Company.
27 Financial Data Schedule
* Exhibit represents a management contract or compensatory plan.
(b) No reports on Form 8-K have been filed by the Company during the last quarter of the period covered by this report.
FAMILY DOLLAR STORES, INC., AND SUBSIDIARIES
Index
The consolidated financial statements of Family Dollar Stores, Inc., and subsidiaries together with the report of Price Waterhouse LLP incorporated in this report appear on the following pages of the Annual Report to Stockholders for the fiscal year ended August 31, 1995.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
FAMILY DOLLAR STORES, INC. (Registrant)
Date November 16, 1995 By LEON LEVINE LEON LEVINE Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the date indicated.
Signature Title Date
LEON LEVINE Chairman of the Board and November 16, 1995 LEON LEVINE Director (Chief Executive Officer and Chief Financial Officer)
JOHN D. REIER President and Director November 16, 1995 JOHN D. REIER
GEORGE R. MAHONEY, JR. Executive Vice President November 16, 1995 GEORGE R. MAHONEY, JR. and Director
C. MARTIN SOWERS Senior Vice President- November 16, 1995 C. MARTIN SOWERS Finance
KENNETH T. SMITH Vice President-Controller November 16, 1995 KENNETH T. SMITH (Principal Accounting Officer)
THOMAS R. PAYNE Director November 16, 1995 THOMAS R. PAYNE
MARK R. BERNSTEIN Director November 16, 1995 MARK R. BERNSTEIN
JAMES H. HANCE, JR. Director November 16, 1995 JAMES H. HANCE, JR.