SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
[X] Quarterly report pursuant to Section 13 or 15 (d) of the Securities Exchange
Act of 1934 for the quarterly period ended June 30,1997 or
[ ] Transition report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934 for the transition period from ____ to ____
Commission file number: 0-18793
VITAL SIGNS, INC.
(Exact name of registrant as specified in its charter)
New Jersey 11-2279807
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
20 Campus Road
Totowa, New Jersey 07512
(Address of principal executive office, including zip code)
973-790-1330
(Registrant's telephone number, including area code)
________________________________________________________________________________
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 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
_____ ____
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
At August 1, 1997, there were 12,657,243 shares of Common Stock, no par
value, outstanding.
<PAGE>
VITAL SIGNS, INC.
INDEX
Page
Number
Part I. Financial Information 1
Item 1. Financial Statements
Consolidated Balance Sheet as of
June 30, 1997 (Unaudited) and
September 30, 1996 2
Consolidated Statement of Operations
for the Nine Months Ended
June 30, 1997 and 1996 (Unaudited) 3
Consolidated Statement of Operations
for the Three Months ended
June 30, 1997 and 1996 (Unaudited) 4
Consolidated Statement of Cash
Flows for the Nine Months Ended
June 30, 1997 and 1996 (Unaudited) 5
Notes to Consolidated Financial
Statements (Unaudited) 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 7-10
Part II.
Item 1. Legal Proceedings 11-12
Item 4. Submission of Matters to a Vote of Security Holders 12-13
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
PART I. Financial Information
Item 1. Financial Statements
Certain information and footnote disclosures required under generally
accepted accounting principles have been condensed or omitted from the following
consolidated financial statements pursuant to the rules and regulations of the
Securities and Exchange Commission. Vital Signs, Inc. (the "registrant" or the
"Company" or "Vital Signs") believes that the disclosures are adequate to assure
that the information presented is not misleading in any material respect. It is
suggested that the following consolidated financial statements be read in
conjunction with the year-end consolidated financial statements and notes
thereto included in the registrant's Annual Report on Form 10-K for the year
ended September 30, 1996.
The results of operations for the interim periods presented herein are not
necessarily indicative of the results to be expected for the entire fiscal year.
<PAGE>
<TABLE>
<CAPTION>
VITAL SIGNS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
June 30, 1997 September 30, 1996
_____________ __________________
(In Thousands)
ASSETS
(Unaudited)
Current Assets:
<S> <C> <C>
Cash and cash equivalents $ 11,281 $ 17,747
Marketable securities 2,295 602
Accounts receivable, less allowance for
doubtful accounts of $293 and $169, respectively 17,841 13,887
Inventory 19,555 13,013
Prepaid expenses and other current assets 9,050 8,279
______ ______
Total Current Assets 60,022 53,528
Property, Plant and Equipment - net 35,322 21,131
Marketable Securities 27,516 28,187
Goodwill 28,881 16,619
Other Assets 4,157 4,291
______ ______
Total Assets $ 155,898 $ 123,756
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 5,573 $ 4,066
Current portion of long-term debt 860 500
Accrued expenses 7,597 2,406
Amounts payable relating to acquisitions 18,894 236
Deferred income taxes payable 1,536 1,500
_______ ______
Total Current Liabilities 34,460 8,708
Deferred Income Taxes Payable 1,270 1,334
Long-term debt 6,836 2,700
Other 4,715 775
______ ______
Total Liabilities 47,281 13,517
______ ______
Commitments and Contingencies
Stockholders' Equity
Common stock - no par value:
authorized 40,000,000 shares, issued and outstanding
12,657,243 and 13,062,701 shares, respectively 21,868 29,666
Allowance for aggregate unrealized loss
on marketable securities (225) (426)
Retained earnings 86,974 80,999
_______ _______
Stockholders' Equity 108,617 110,239
_______ _______
Total Liabilities and Stockholders' Equity $ 155,898 $ 123,756
======= =======
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
<TABLE>
VITAL SIGNS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
For the Nine Months Ended June 30,
___________________________________
1997 1996
____ ____
(In Thousands Except Per Share Amounts)
<S> <C> <C>
Net sales - continuing product lines $ 75,036 $ 67,329
Net sales - product line disposed --- 808
______ ______
Net sales - total 75,036 68,137
Cost of goods sold 34,743 29,053
__________ _________
Gross profit 40,293 39,084
__________ _________
Operating expenses:
Selling, general and administrative 19,340 16,862
Research and development 2,791 2,695
Interest income (1,828) (1,826)
Interest expense 371 240
Other income, net 116 (924)
Goodwill amortization 438 509
Special charge related to acquisition (see note 4) 6,700 ---
____________ ____________
Income before provision for income taxes 12,365 21,528
Provision for income taxes 4,817 7,520
___________ ___________
Net income $ 7,548 $ 14,008
=========== ===========
Net income per share $ .58 $ 1.07
=========== ===========
Weighted average number of shares 12,947 13,040
=========== =========
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
<TABLE>
<CAPTION>
VITAL SIGNS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
For the Three Months Ended June 30,
___________________________________
1997 1996
____ ____
(In Thousands Except Per Share Amounts)
<S> <C> <C>
Net sales - continuing product lines $ 28,361 $ 23,018
___________ ___________
Net sales - total 28,361 23,018
Cost of goods sold 14,397 9,711
___________ ___________
Gross profit 13,964 13,307
___________ ___________
Operating expenses:
Selling, general and administrative 7,733 5,494
Research and development 1,064 920
Interest income (594) (560)
Interest expense 232 72
Other expense (income), net 626 (159)
Goodwill amortization 151 239
Special charge related to acquisition (see note 4) 6,700 ---
___________ __________
Income (loss) before provision for income taxes (1,948) 7,301
Provision for income taxes 153 2,488
___________ __________
Net income (loss) $ (2,101) $ 4,813
============ ============
Net income (loss) per share $ (.16) $ .37
============ ============
Weighted average number of shares 12,819 13,067
=========== ============
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
<TABLE>
<CAPTION>
VITAL SIGNS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
For the Nine Months Ended June 30,
____________________________________
1997 1996
____ ____
(In Thousands)
Cash Flows from Operating Activities:
<S> <C> <C>
Net Income $ 7,548 $ 14,008
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Depreciation and amortization 1,684 1,308
Deferred income taxes (324) (7)
Amortization of goodwill 438 509
Amortization of deferred credit (75) (75)
Net gain (loss) on sales of available for sale securities (772) 279
Gain on sale of subsidiary (229)
Special charge related to acquisition 4,200
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (1,064) 1,831
(Increase) in inventory (3,767) (1,535)
(Increase)decrease in prepaid expenses and
other current assets (590) 1,235
Increase (decrease) in accounts payable
and accrued expenses 3,138 (2,045)
(Increase) in other assets (327) (1,865)
________ _______
Net cash provided by operating activities 10,089 13,414
________ _______
Cash Flows from Investing Activities:
Proceeds from sales of available-for-sale securities 16,404 50,816
Purchases of available-for-sale securities (16,453) (44,357)
Acquisition of property, plant and equipment (6,498) (4,375)
Payment for purchase of subsidiaries net of
cash acquired (137) (8,431)
Assets held for sale 2,786
_______ _______
Net cash used in investing activities (6,684) (3,561)
________ _______
Cash Flows from Financing Activities:
Net reissuance (purchase) of treasury stock (8,066) 160
Dividends paid (1,569) (1,171)
Proceeds from exercise of stock options 264 636
Principal payments of long-term debt and
notes payable (500) (1,011)
________ _______
Net cash used in financing activities (9,871) (1,386)
________ _______
Net (decrease) increase in cash and cash equivalents (6,466) 8,467
Cash and cash equivalents at beginning of period 17,747 8,334
________ _______
Cash and cash equivalents at end of period $ 11,281 $ 16,801
============= ===========
Supplemental disclosures of cash flow information:
Cash paid during the six months for:
Interest $ 247 $ 285
Income taxes 7,703 7,200
Supplemental schedule of noncash investing activities:
Accrued amounts relating to purchase of subsidiaries $ 18,649 $ 125
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
VITAL SIGNS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. The consolidated balance sheet as of June 30, 1997, the consolidated
statements of income for the three and nine months ended June 30, 1997 and
1996 and the consolidated statement of cash flows for the nine months ended
June 30, 1997 and 1996 have been prepared by Vital Signs, Inc. (the
"Company" or "VSI") and are unaudited. In the opinion of management, all
adjustments (consisting solely of normal recurring adjustments) necessary
to present fairly the financial position, results of operations and cash
flows at June 30, 1997 and 1996 and for all periods presented have been
made.
2. Earnings per share are computed using the weighted average number of common
shares outstanding during the period. The dilutive effect of common stock
equivalents is not material. The Company will be required to adopt
Statement of Financial Accounting Standards #128 - "Earnings Per Share" in
the quarter ending December 31, 1997. The effect of this adoption is not
expected to be significant to the consolidated financial statements.
3. See the Company's annual report on Form 10-K for the year ended September
30, 1996 (the "Form 10-K") for additional disclosures relating to the
Company's financial statements.
4. On March 14, 1997, Vital Signs, Inc. (the "Company") announced that it had
entered into a definitive agreement to acquire Marquest Medical Products,
Inc.("Marquest"). Separately, the Company entered into an agreement with
Scherer Healthcare, Inc. ("Scherer"), the majority shareholder of Marquest,
to acquire, for cash, certain product rights previously sold by Marquest to
Scherer. The Company also entered into inducement agreements with Scherer
and Robert Scherer, Scherer's principal shareholder, in connection with the
commitment of Scherer and Robert Scherer to vote their shares in favor of
the transaction. The agreements were approved by the shareholders of
Marquest and Scherer on July 28, 1997. As a result of these transactions
the Company paid approximately $18.5 million in cash and assumed Marquest's
debt of approximately $5 million. See the current reports on Form 8-K filed
on March 19, 1997 and August 1, 1997.
This transaction has been accounted for as a purchase, and will result in
an excess of purchase price over assets acquired of approximately $15
million (net of the special charge discussed below). This goodwill will be
amortized to income over a forty year period.
The effective date of the acquisition for financial reporting purposes is
April 1, 1997. The balance sheet and results of operations for Marquest
have been included in these consolidated financial statements as of and for
the quarter ended June 30, 1997.
5. In connection with the acquisition of Marquest discussed above, the Company
recorded a special charge of $6.7 million in the quarter ended June 30,
1997. This charge represents $2,500,000 of in process research and
development acquired in the Marquest transaction (which must be expensed in
accordance with purchase accounting rules) along with $4,200,000 in costs
for the consolidation of certain manufacturing operations.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Introduction
The results of operations include the results of Marquest Medical Products,
Inc. ("Marquest") as of and for the quarter ended June 30, 1997 (see footnotes 4
and 5). In addition the comparison of net sales excludes the sales of the
Company's endoscopic products in fiscal 1996. This operation was disposed of in
fiscal 1996.
Results of Operations
The following table sets forth, for the periods indicated, the percentage
increase (decrease) of certain items included in the Company's consolidated
statement of income.
Increase/(Decrease) From
Prior Period
_______________________________________________
Nine Months Ended Three Months Ended
June 30, 1997 compared June 30,1997 compared
with Nine Months Ended with Three Months ended
June 30, 1996 June 30, 1997
_______________________________________________
Net sales -continuing product lines 11.4 % 23.2%
Cost of goods sold 19.6 48.3
Gross profit 3.1 4.9
Selling, general and administrative
expense 14.7 40.8
Research and development expenses 3.6 15.7
Income before provision for
income taxes (42.6) (126.7)
Provision for income taxes (35.9) (93.9)
Net income (46.1) (143.7)
COMPARISON: QUARTER ENDED JUNE 30, 1997
AND QUARTER ENDED JUNE 30, 1996
Results of Operations (continued)
Three Months Ended June 30, 1997
Net sales for the quarter ended June 30, 1997 increased by 23.2% compared
with the same period last year. The increase primarily was due to higher
activity at Vital Pharma, Inc. ("VPI"), and the acquisition of Marquest Medical
Products.
Sales of anesthesia products (representing 50.0% of net sales) declined
1.6% from the quarter ended June 30, 1996 to the quarter ended June 30, 1997.
This decrease is the result of lower selling prices due to the implementation of
certain group contracts offset by increased unit volume. Sales of critical care
and respiratory products (representing 43.7% of net sales) increased by 74.1%
due to the Marquest acquisition. Other products, accounting for 6.3% of net
sales, increased by 20.2% from the comparable period in Fiscal 1996, reflecting
the increased activity of VPI.
While net sales increased by 23.2%, gross profit increased by 4.9% in
absolute dollar amount. This increase is the result of increased sales combined
with the effects of sales of certain products with gross margins below the
Company's average gross margin, as well as the sales price pressure that is
evident within the cost conscious health care industry today. The gross profit
percentage was lower in 1997 as a result of (i) the effect of price discounts
(3.1%), (ii) higher raw material costs (1%) and (iii)the gross profit percentage
realized by Marquest (4.5%). The gross profit percentage is expected to improve
as the Company executes its cost improvement programs at Marquest. This
statement constitutes a forward-looking statement under the Private Securities
Litigation Reform Act of 1995. Gross profit could be adversely impacted if costs
are higher than anticipated, cost savings programs are not implemented within
expected time frames or do not achieve anticipated results, or adverse events
affect the Company's operations.
Selling, general and administrative expenses increased by 40.8% in dollar
amount, as the result of the acquisition of Marquest, increases in costs to
support international sales growth, higher costs at certain locations incurred
in preparation for product launches and the increased activity at VPI.
Research and development (R&D) expenses increased by 15.7% due to the
acquisition of Marquest and to an increase in new product opportunities. The
Company continues to make an active commitment to new product development.
The Company recorded a special charge related to the acquisition of
Marquest in the amount of $6.7 million. $2,500,000 ($.20 per share net of tax)
of this charge represents the cost of in process research and development
acquired in the Marquest transaction (which must be expensed in accordance with
purchasing accounting rules) and $4,200,000 in costs to consolidate certain
manufacturing operations as a result of the Marquest transaction ($.22 per share
net of tax).
Other income/expense, which includes dividend income, realized capital
gains and losses, currency gains and losses and legal and other expenses related
to non-operational items, decreased by $785,000 from the quarter ended June 30,
1996 to the quarter ended June 30, 1997. In the 1996 quarter the Company
realized capital gains and other income while in the 1997 quarter, no
significant capital gain or other income occurred. The June 1997 quarter also
includes increased expenses related to the defense of a patent lawsuit against
the Company. For a further discussion of this action see Part II, Item I (Page
11).
The Company's effective tax rates were (7.9%) and 34.1% for the three
months ended June 30, 1997 and 1996 respectively. The tax rate for the quarter
ended June 30, 1997 is primarily the result of the charge for the research and
development purchased in the Marquest acquisition for which no tax benefit is
available. The tax rate for the quarter ended June 30, 1996 reflects the
utilization of capital loss carry forwards. The Company's effective tax rate is
expected to increase in fiscal 1998.
COMPARISON: NINE MONTHS ENDED JUNE 30, 1997
AND NINE MONTHS ENDED JUNE 30, 1996
Results of Operations (continued)
Nine Months Ended June 30, 1997
Net sales--continuing product lines for the nine months ended June 30, 1997
increased by 11.4% compared with the same period last year. The increase was due
primarily to the acquisition of Marquest Medical Products, Inc., and increased
activity at Vital Pharma, Inc. ("VPI"). Prices on existing products declined
approximately 1.6% in the nine months ended June 30, 1997 when compared to the
same period in 1996.
Sales of anesthesia products (representing 58.2% of net sales--continuing
product lines) grew 2.2% from the nine months ended June 30, 1996 to the nine
months ended June 30, 1997 as unit increases offset selling price declines.
Sales of critical care and respiratory products (representing 37.8% of net
sales--continuing product lines) increased by 21.6% largely due to the
acquisition of Marquest. Other products, accounting for 4.0% of net sales,
increased by 44.1% from the comparable period in Fiscal 1996, reflecting the
increased activity at VPI.
While net sales increased by 11.4%, gross profit increased by 3.1% in
absolute dollar amount. This increase is the result of higher sales combined
with sales of certain products with gross margins below the Company's average
gross margin (primarily sales of Marquest products and the increase in activity
at VPI), as well as the sales price pressure that is evident within the cost
conscious health care industry today. On a consolidated basis the Company's
gross profit percentage for the nine months ended June 30, 1997 was 53.7%
compared to 58.1% in the same time period of the last fiscal year. The gross
profit percentage was lower in 1997 as a result of (i) the effect of price
discounts (1.8%), and (ii) the gross profit percentage realized by Marquest.
Selling, general and administrative expenses increased by 14.7% in dollar
amount, as the result of the acquisition of Marquest, increases in costs to
support international sales growth, higher costs at certain locations incurred
in preparation for product launches and the increased activity at VPI.
Research and development (R&D) expenses increased slightly, due to the
acquisition of Marquest. The Company continues to make an active commitment to
new product development.
In the third quarter of fiscal 1997, the Company recorded a special charge
related to the acquisition of Marquest in the amount of $6.7 million. $2,500,000
($.20 per share net of tax) of this charge represents the cost of in process
research and development acquired in the Marquest transaction (which must be
expensed in accordance with purchasing accounting rules) and $4,200,000 in costs
to consolidate certain manufacturing operations as a result of the Marquest
transaction ($.22 per share net of tax).
Other income/expense, which includes dividend income, realized capital
gains and losses, legal and other expenses related to non-operational items and
currency gains and losses, decreased by $1,040,000 from the nine months ended
June 30, 1996 to the nine months ended June 30, 1997. In the 1996 period the
Company realized capital gain and other income while in the 1997 period, no
significant capital gain or other income occurred. In addition, higher legal
costs incurred in conjunction with the defense of a patent lawsuit impacted
other income/expense adversely. For a further discussion of this action see Part
II, Item I (Page 11).
The Company's effective tax rates were 39.0% and 34.9% for the nine months
ended June 30, 1997 and 1996 respectively. The rate for the nine months ended
June 30, 1997 approximates the federal and state combined statutory rate as the
research and development portion of the special charge does not give rise to a
tax benefit. The rate for the nine months ended June 30, 1996 is less than the
combined Federal and State statutory rates primarily as a result of the
utilization of capital loss carry forwards. The Company's effective tax rate is
expected to be somewhat lower in fiscal 1998 than the fiscal 1997 rate.
On November 18, 1996, the Company announced it won a dual source supply
agreement with Premier Purchasing Partners LP ("Premier"), an affiliate of the
largest healthcare purchasing group in the United States (see page 9 of the
Company's Annual Report on Form 10-K for the year ended September 30, 1996).
This agreement covers a variety of anesthesia products and provides for
favorable pricing for the group in exchange for committed purchasing volume
(90%) of usage from the member hospitals. The agreement covers a five year term
and is effective starting February 1, 1997. To date, conversion of the Premier
supply agreement to Vital Signs products is progressing slower than the Company
had previously anticipated.
Liquidity and Capital Resources
The Company continues to rely upon cash flow from its operations as well as
the funds generated from its initial and second public offerings. During the
nine months ended June 30, 1997, cash and cash equivalents and short-term
investments decreased by $4,773,000 while long-term marketable securities
decreased by $671,000. Long-term debt was reduced by $500,000, $8,145,000 of
treasury stock was acquired pursuant to a previously announced buy-back plan,
and the Company paid $1,569,000 of dividends during the first nine months of
Fiscal 1997. Capital expenditures of $6,498,000 were made to improve
efficiencies and support new business opportunities. The combined total of cash
and cash equivalents, short-term investment and long-term investments was
approximately $41.1 million at June 30, 1997 as compared to $46.5 million at
September 30, 1996. Subsequent to June 30, 1997 the Company's cash and
marketable securities decreased by $18.5 million disbursed in the acquisition of
Marquest.
At June 30, 1997, the Company had $11.3 million in cash and cash
equivalents. On that date, the Company's working capital was $25.6 million and
the current ratio was 1.7 to 1, as compared to $44.8 million and 6.1 to 1 at
September 30, 1996. The decline in the current ratio is due to the recognition
of the liability to the former shareholders of Marquest (see below).
Approximately $10 million of this liability was paid on July 28, 1997 with
proceeds from the sale of securities which are classified as long term. The
pro-forma current ratio after this transaction is approximately 3.3 to 1.
The Company's current policy is to retain working capital and earnings for
use in its business, subject to the payment of certain cash dividends and
treasury stock repurchases. Such funds may be used for product development,
product acquisitions and business acquisitions, among other things. The Company
regularly evaluates and negotiates with domestic and foreign medical device
companies regarding potential business or product line acquisitions or licensing
arrangements by the Company.
On March 14, 1997, Vital Signs, Inc. (the "Company") announced that it had
entered into a definitive agreement to acquire Marquest Medical Products, Inc.
("Marquest"). Separately, the Company entered into an agreement with Scherer
Healthcare, Inc. ("Scherer"), which is the majority shareholder of Marquest, to
acquire, for cash, certain product rights previously sold by Marquest to
Scherer. The Company entered into inducement agreements with Scherer and Robert
Scherer, Scherer=s principal shareholder, in connection with the commitment of
Scherer and Robert Scherer to vote their shares in favor of the transaction. The
transaction was approved by the shareholders of Marquest and Scherer on July 28,
1997. As a result of the transaction the Company paid approximately $18.5
million and assumed Marquest's debt of approximately $5 million. See the current
reports on Form 8-K filed on March 19, 1997 and August 1, 1997 and the notes to
the financial statements for additional information.
The Company has a $10 million line of credit with Chase Manhattan Bank
("Chase"). Chase has also expressed its intention to provide additional funds
for the Company's future acquisitions, provided that each such acquisition meets
certain criteria. The terms for any borrowing would be negotiated at the date of
origination.
Management believes that the funds generated from operations, along with
the Company's current working capital position and bank credit, will be
sufficient to satisfy the Company's capital requirements for the foreseeable
future. This statement constitutes a forward-looking statement under the Private
Securities Litigation Reform Act of 1995. The Company's liquidity could be
adversely impacted and its need for capital change if costs are higher than
anticipated, operating results differ significantly from recent experience or
adverse events affect the Company's operations.
<PAGE>
PART II. Other Information
Item 1.Legal Proceedings.
In September, 1994 a complaint was filed against the Company in the U.S.
District Court for the Northern District of Illinois alleging patent
infringement with regard to the Company's resuscitator products seeking
monetary damages and injunctive relief. The matter is scheduled for trial
commencing on August 25, 1997. While the Company has vigorously defended
this matter since its inception and will continue to do so at trial, the
outcome of any litigation cannot be predicted with certainty.
In May, 1995 the Company filed an action, subsequently amended, against a
former employee and his patent attorney alleging, inter alia, causes of
action for breach of contract, misappropriation of trade secrets and
tortious interference with contractual relations. The patent at issue in
the case relates to the Company's vascular flush device, Vasceze(TM). The
defendants had counter-claimed for, inter alia, breach of contract and
patent infringement. Subsequently, the ex-employee defendant added the
Company's outside patent counsel as a defendant in the counter-claim.
Separately, an arbitration was held in connection with an employment
agreement between the ex-employee and the Company. Pursuant to an
arbitration award the company paid the ex-employee approximately $100,000
under the employment agreement. In June, 1997, the defendants filed a
Motion for Summary Judgement asking for dismissal of the Company's case and
judgement for the defendants on each of their causes of action including a
declaration of their ownership rights to the subject patents. The Summary
Judgement Motion is scheduled for oral argument before the judge in
October, 1997. In order to protect its interests, the Company filed a
corresponding action in Germany in December, 1996 in order to oppose
defendants' actions with regard to a possible European patent. The Company
intends to continue to vigorously protect its rights and will continue to
prosecute its legal actions to the full extent of the law and to defend
itself against defendants' counter-claims.
On March 24, 1997 and on April 9, 1997 separate actions were commenced
against the Company in New Jersey and California, respectively, by dealers
of Marquest Medical Products, Inc. who had received notification that their
dealer relationships with Marquest were to be terminated. While the
lawsuits are not identical, they assert similar claims against the Company
with regard to misappropriation of confidential information and violation
of certain statutory provisions relating to the protection of dealership
rights. In addition the action in California asserts claims for violation
of the Robinson-Patman Act. Each of the actions also names Marquest as a
defendant and similar claims are asserted against it. The Company and
Marquest had responded to the California action by asserting that the
exclusive venue for such a proceeding was in an arbitration proceeding in
Denver, Colorado. The court granted the defendants' motion and the
California action has been dismissed. To date the plaintiff has not
initiated arbitration proceedings. The New Jersey action is in the
discovery phase.
On July 10, 1997, the Company was served with a summons and complaint
alleging causes of action in strict products liability and negligence for
the sale of products containing latex resulting in plaintiff's allergic
reaction. The Company is one of ten defendants named in the action. The
matter is covered by insurance. The Company's insurance carrier has
responded and is defending the action. While certain of the Company's
products contain latex and the Company has sold latex gloves, it is not a
manufacturer of latex gloves.
<PAGE>
The Company intends to vigorously defend these actions and does not believe
that such proceedings will materially adversely impact the Company's
consolidated financial condition, results of operations or liquidity.
Predictions regarding the impact of such proceedings constitute
forward-looking statements under the Private Securities Litigation Reform
Act of 1995. The actual impact of such proceedings could differ materially
from the impact anticipated, primarily as a result of uncertainties
involved in the proof of facts in legal proceedings.
For further discussion also see Item 3 of the Company's Annual Report on
Form 10-K for the year ended September 30, 1996.
Item 4. Submission of Matters to a Vote of Security Holders.
The Company held its annual meeting of shareholders on July 9, 1997. At
that meeting, each of the Board's nominees were re-elected to the Board and
the shareholders approved the grant of stock options for Terence D. Wall,
the grant of stock options for Barry Wicker, amendments to the 1990
Employee Stock Option Plan and Investment Plan to provide for a maximum
number of shares subject to options which may be granted during any fiscal
year and amendments to the 1990 Employee Stock Option Plan and Investment
Plan revising the termination provisions of such plans. Shares were voted
for the election of directors as follows:
<PAGE>
For Authority Withheld
David J. Bershad 8,967,553 30,888
Anthony J. Dimun 8,967,553 30,888
Joseph Thomas 8,967,553 30,888
John Toedtman 8,967,353 31,088
Terence D. Wall 8,967,453 30,988
C. Barry Wicker 8,967,553 30,888
Shares were voted for the approval of the grant of stock options for
Terence D. Wall as follows:
For: 8,519,593
Against: 380,268
Abstentions: 54,966
Broker Non-Votes: 43,614
Shares were voted for the approval of the grant of stock options for Barry
Wicker as follows:
For: 8,516,799
Against 382,747
Abstentions: 55,281
Broker Non-Votes: 43,614
Shares were voted for the approval of amendments to the 1990 Employee Stock
Option Plan and Investment Plan to provide for a maximum number of shares
subject to options which may be granted during any fiscal year as follows:
For: 8,839,410
Against: 127,711
Abstentions: 9,987
Broker Non-Votes: 21,333
Shares were voted for the approval of amendments to the 1990 Employee Stock
Option Plan and Investment Plan revising the termination provisions of such
plans as follows:
For: 8,923,321
Against: 42,816
Abstentions: 10,972
Broker Non-Votes: 21,333
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits: 27.1 - Financial Data Schedule
(b) Reports on Form 8-K filed during the quarter ended June 30, 1997.
- None -
<PAGE>
Signatures
Pursuant to the requirements 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.
VITAL SIGNS, INC.
By: /s/ Anthony J. Dimun
Anthony J. Dimun
Executive Vice President of
Finance and Chief Financial Officer
Date: August 19, 1997
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE COMPANY'S BALANCE SHEET AT JUNE 30, 1997 AND NINE MONTH
INCOME STATEMENT ENDING JUNE 30, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S.
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> JUN-30-1997
<CASH> 11,281
<SECURITIES> 2,295
<RECEIVABLES> 18,134
<ALLOWANCES> 293
<INVENTORY> 19,555
<CURRENT-ASSETS> 60,022
<PP&E> 43,831
<DEPRECIATION> (8,509)
<TOTAL-ASSETS> 155,898
<CURRENT-LIABILITIES> 34,460
<BONDS> 6,836
0
0
<COMMON> 21,868
<OTHER-SE> (225)
<TOTAL-LIABILITY-AND-EQUITY> 155,898
<SALES> 75,036
<TOTAL-REVENUES> 75,036
<CGS> 34,743
<TOTAL-COSTS> 34,743
<OTHER-EXPENSES> 3,220
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 371
<INCOME-PRETAX> 12,365
<INCOME-TAX> 4,817
<INCOME-CONTINUING> 7,548
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,548
<EPS-PRIMARY> .58
<EPS-DILUTED> .58
</TABLE>
