<PAGE>
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, 2000 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 8, 2000, there were 12,191,756 shares of Common Stock, no par
value, outstanding.
<PAGE>
VITAL SIGNS, INC.
INDEX
PAGE
NUMBER
PART I.
Financial information 1
ITEM 1. Financial Statements:
Independent Accountant's Report 2
Consolidated Balance Sheet as of June 30, 2000
(Unaudited) and September 30, 1999 3
Consolidated Statement of Income for the Nine
Months ended June 30, 2000 and 1999
(Unaudited) 4
Consolidated Statement of Operations for the
Three Months Ended June 30, 2000 and 1999
(Unaudited) 5
Consolidated Statement of Cash Flows for the
Nine Months Ended June 30, 2000 and 1999
(Unaudited) 6
Notes to Consolidated Financial Statements
(Unaudited) 7
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-12
ITEM 3. Quantitative and Qualitative Disclosure About
Market Risks 13
PART II.
ITEM 1. Legal Proceedings 14
ITEM 6. Exhibits and Reports on Form 8-K 15
Signatures 16
<PAGE>
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, 1999.
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. The financial statements included herein for the three and nine months
ended June 30, 2000, have been reviewed by the Company's independent accountants
in accordance with Statement on Auditing Standards No. 71.
1
<PAGE>
INDEPENDENT ACCOUNTANT'S REPORT
To the Board of Directors
Vital Signs, Inc.
We have reviewed the accompanying consolidated balance sheet of Vital Signs,
Inc. as of June 30, 2000, and the related consolidated statements of income and
cash flows for the nine-month period then ended and the consolidated statement
of operations for the three-month period then ended. These financial statements
are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying consolidated financial statements for them to be in
conformity with generally accepted accounting principles.
GOLDSTEIN GOLUB KESSLER LLP
New York, New York
July 28, 2000
2
<PAGE>
VITAL SIGNS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
June 30, September 30,
-------- -------------
2000 1999
---- ----
(Dollars in thousands)
ASSETS
(Unaudited)
-----------
Current Assets:
<S> <C> <C>
Cash and cash equivalents $ 3,604 $ 6,655
Accounts receivable, less allowance for doubtful accounts of
$468 and $244 24,598 21.153
Inventory 26,041 23,892
Prepaid expenses and other current assets 8,503 5,416
-------- --------
Total Current Assets 62,746 57,116
Property, plant and equipment - net 51,253 45,960
Other investments and marketable securities 553 11,006
Goodwill and other intangible assets 47,565 34,978
Deferred income taxes 1,132 1,478
Other assets 7,934 6,772
-------- --------
Total Assets $171,183 $157,310
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 5,989 $ 5,629
Current portion of long-term debt 2,867 423
Accrued expenses 5,782 4,423
Notes payable - bank -- 4,850
Other Liabilities 10,996 --
-------- --------
Total Current Liabilities 25,634 15,325
Long term debt 5,891 2,179
Other liabilities 245 4,827
-------- --------
Total Liabilities 31,770 22,331
-------- --------
Commitments and contingencies:
Minority interest in subsidiary 4,687 3,739
-------- --------
Stockholder's Equity
Common stock - no par value; authorized 40,000,000 shares,
outstanding 12,137,256 and 12,295,162 shares, respectively 12,854 16,095
Accumulated other comprehensive loss (426) (2)
Retained earnings 122,298 115,147
-------- --------
Stockholders' equity 134,726 131,240
-------- --------
Total Liabilities and Stockholders' Equity $171,183 $157,310
======== ========
</TABLE>
(See Notes to Consolidated Financial Statements)
3
<PAGE>
VITAL SIGNS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
For the Nine Months Ended
-------------------------
June 30,
--------
2000 1999
---- ----
(In Thousands Except Per Share Amounts)
<S> <C> <C>
Net sales $109,679 $95,888
Cost of goods sold 52,433 47,411
-------- -------
Gross profit 57,246 48,477
-------- -------
Operating expenses:
Selling, general and administrative 28,512 24,602
Research and development 5,893 4,266
Interest (income) (368) (187)
Interest expense 359 230
Other expense 1,542 205
Goodwill amortization 784 528
Special Charge 7,785 --
-------- -------
44,507 29,644
-------- -------
Income before provision for income taxes and minority interest in
income of consolidated subsidiary 12,739 18,833
Provision for income taxes 3,609 5,760
-------- -------
Income before minority interest in income of consolidated subsidiary
(see Note 5) 9,130 13,073
Minority interest in income of consolidated subsidiary 500 60
-------- -------
Income from continuing operations 8,630 13,013
-------- -------
Discontinued Operations (Note 6)
Loss from operations of Vital Pharma Machine Division (net of
income taxes of $119) -- 277
-------- -------
Net income $ 8,630 $12,736
======== =======
Earnings per Common Share:
Basic income per share from continuing operations $ .71 $ 1.06
======== =======
Diluted income per share from continuing operations $ .70 $ 1.05
======== =======
Discontinued operations $ -- $ (.02)
======== =======
Basic net income per share $ .71 $ 1.04
======== =======
Diluted net income per share $ .70 $ 1.03
======== =======
Basic weighted average number of shares 12,208 12,286
======== =======
Diluted weighted average number of shares 12,356 12,349
======== =======
Dividends paid per share $ .12 $ .12
======== =======
</TABLE>
(See Notes to Consolidated Financial Statements)
4
<PAGE>
VITAL SIGNS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
--------------------------
June 30,
--------
2000 1999
---- ----
(In Thousands Except Per Share Amounts)
<S> <C> <C>
Net sales $37,085 $32,331
Cost of goods sold 17,767 15,732
------- -------
Gross profit 19,318 16,599
------- -------
Operating expenses:
Selling, general and administrative 9,343 8,438
Research and development 2,030 1,535
Interest (income) (142) (15)
Interest expense 115 62
Other expense 1,026 62
Goodwill amortization 299 176
Special Charge 7,785 --
------- -------
20,456 10,258
Income (loss) before provision (credit) for income taxes and minority interest
in income of consolidated subsidiary (1,138) 6,341
Provision (credit) for income taxes (446) 1,828
------- -------
Income (loss) before minority interest in income of consolidated
subsidiary (see Note 5) (692) 4,513
Minority interest in income of consolidated subsidiary 140 60
------- -------
Income (loss) from continuing operations (832) 4,453
------- -------
Discontinued Operations (Note 6):
Loss from operations of Vital Pharma Machine Division (net of
income taxes of $37) -- 89
------- -------
Net income (loss) $ (832) $ 4,364
======= =======
Earnings per Common Share:
Basic income (loss) per share from continuing operations $ (.07) $ .37
======= =======
Diluted income (loss) per share from continuing operations $ (.07) $ .36
======= =======
Discontinued operations $ -- $ (.01)
======= =======
Basic net income (loss) per share $ (.07) $ .36
======= =======
Diluted net income (loss) per share $ (.07) $ .36
======= =======
Basic weighted average number of shares 12,192 12,155
======= =======
Diluted weighted average number of shares 12,192 12,246
======= =======
Dividends paid per share $ .04 $ .04
======= =======
</TABLE>
(See Notes to Consolidated Financial Statements)
5
<PAGE>
VITAL SIGNS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the Nine Months Ended
June 30,
2000 1999
----------------------------
(In Thousands)
<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ 8,630 $12,736
Adjustments to Reconcile Net Income to Net Cash Provided by
Operating Activities:
Depreciation and amortization 3,182 2,916
Deferred income taxes (213) 412
Amortization of goodwill 784 528
Amortization of deferred credit -- (75)
Net loss on sales of available for sale securities -- 16
Minority interest in income of consolidated subsidiary 500 60
Changes in operating assets and liabilities:
Increase in accounts receivable (1,225) (683)
Increase in inventory (1,948) (2,736)
Decrease (increase) in prepaid expenses and other current assets (3,117) 669
Increase in other assets (1,030) (1,455)
Decrease in accounts payable and accrued expenses (427) (2,150)
Increase (decrease) in other liabilities 6,973 (423)
------ -------
Net cash provided by operating activities 12,109 9,815
------ -------
Cash Flows from Investing Activities:
Proceeds from sales of available-for-sale securities 13 6,854
Purchases of available-for-sale securities and other investments -- (6,436)
Acquisition of property, plant and equipment (6,557) (3,959)
Acquisition of subsidiary, net of $2,344 of cash acquired in 1999 (585) (2,256)
------ -------
Net cash used in investing activities (7,129) (5,797)
------ -------
Cash Flows from Financing Activities:
Net purchase of treasury stock (4,234) (6,701)
Dividends paid (1,479) (1,485)
Proceeds from exercise of stock options and warrants 993 62
Proceeds from long term debt and notes payable 3,247 6,854
Principal payments of long-term debt and notes payable (6,558) (871)
------ -------
Net cash used in financing activities (8,031) (2,141)
------ -------
Net (decrease) increase in cash and cash equivalents (3,051) 1,877
Cash and cash equivalents at beginning of period 6,655 2,600
------ -------
Cash and cash equivalents at end of period $ 3,604 $ 4,477
====== =======
Supplemental disclosures of cash flow information:
Cash paid during the nine months for:
Interest $ 380 $ 228
Income taxes 6,890 4,085
</TABLE>
(See Notes to Consolidated Financial Statements)
6
<PAGE>
VITAL SIGNS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. The consolidated balance sheet as of June 30, 2000, the consolidated
statements of operations for the three months ended June 30, 2000
and 1999, the consolidated statements of income for the nine months
ended June 30, 2000 and 1999 and the consolidated statement of cash
flows for the nine months ended June 30, 2000 and 1999 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, 2000 and for
all periods presented have been made.
2. See the Company's Annual Report on Form 10-K for the year ended September
30, 1999 (the "Form 10-K") for additional disclosures relating to the
Company's consolidated financial statements.
3. Statement of Financial Accounting Standards No. 130 "Reporting
Comprehensive Income" has not been applied since it is not material to
the Company's financial statements.
4. The Company adopted Statement of Financial Accounting Standards No. 131
"Disclosures about segments of an enterprise and related information" at
September 30, 1999. The Company designs, manufactures and distributes
single-use medical products. The Company's other business segments do not
meet the criteria for separate disclosures.
5. Vital Signs acquired a 53% interest in Breas AB, a European manufacturer
of personal ventilators for Obstructive Sleep Apnea (OSA) and other
applications, for an aggregate investment of approximately $13 million of
which $4.6 million was expended in June 1999. Vital Signs has reflected
the operations of Breas as a consolidated subsidiary for the nine months
ended June 30, 2000 with sales of $12,492,000. Breas contributed net
income of $564,000 after minority interest of $500,000 to Vital Signs'
operating results for the nine months ended June 30, 2000.
6. At June 30, 2000, the Company's inventory was comprised of raw materials,
$14,514,000, work-in-process, $2,333,000 and finished goods, $9,194,000.
7. The Company converted its preferred stock in National Sleep Technologies,
Inc. ("NST") into common stock giving it 80% ownership of the common
equity of NST effective June 1, 2000. NST provides sleep diagnostic
services and sells sleep related therapeutic devices. The aggregate
investment in NST is approximately $10.5 million, all of which was
expended prior to the 2000 fiscal year. The net sales and net income for
the month of June, 2000 were $1,100,000 and $62,000, respectively.
8. In July, 2000 the Company entered into a settlement agreement with
respect to a patent litigation. A special charge of $7.8 million relating
to such settlement and other litigation matters was reflected in the
Company's results for the three and nine months ended June 30, 2000. For
details of legal proceedings, see Part II, Item 1, "Legal Proceedings".
7
<PAGE>
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
FORWARD LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains, and from time to time the
Company expects to make, certain forward-looking statements regarding its
business, financial condition and results of operations. In connection with the
"safe harbor" provisions of the Private Securities Litigation Reform Act of 1995
(the "Reform Act"), the Company intends to caution investors that there are
important factors that could cause the Company's actual results to differ
materially from those projected in its forward-looking statements, whether
written or oral, made herein or that may be made from time to time by or on
behalf of the Company. Investors are cautioned that such forward-looking
statements are only predictions and that actual events or results could differ
materially from such statements. The Company undertakes no obligation to
publicly release the results of any revisions to its forward-looking statements
to reflect subsequent events or circumstances or to reflect the occurrence of
unanticipated events.
The Company wishes to ensure that any forward-looking statements are
accompanied by meaningful cautionary statements in order to comply with the
terms of the safe harbor provided by the Reform Act. Accordingly, the Company
has set forth a list of important factors that could cause the Company's actual
results to differ materially from those expressed in forward-looking statements
or predictions made herein and from time to time by the Company. Specifically,
the Company's business, financial condition, liquidity and results of operations
could be materially different from such forward-looking statements and
predictions as a result of (i) competitive factors that could affect the
Company's primary markets, including the results of competitive bidding
procedures implemented by group purchasing organizations and/or the success of
the Company's sales force, (ii) interruptions or delays in manufacturing and/or
sources of supply, (iii) the Company's ability to develop or acquire new
products and to control costs, (iv) technological change, (v) the scope, timing
and effectiveness of changes to manufacturing, marketing and sales programs and
strategies, (vi) market acceptance of competitors' existing or new products,
(vii) adverse determinations arising in the context of regulatory matters or
legal proceedings (see Part II, Item 1 of this Quarterly Report on Form 10-Q),
and (viii) healthcare reform and legislative and regulatory changes impacting
the healthcare market.
8
<PAGE>
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.
<TABLE>
<CAPTION>
INCREASE/(DECREASE) FROM PRIOR PERIOD
----------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, 2000 JUNE 30, 2000
COMPARED WITH COMPARED WITH
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, 1999 JUNE 30, 1999
----------------------------------------------------
<S> <C> <C>
Net sales 14.7% 14.4%
Cost of goods sold 12.9 10.6
Gross profit 16.4 18.1
Selling, general and administrative
expenses 10.7 15.9
Research and development expenses 32.2 38.1
Income from operations before special charge,
provision for income taxes and minority
interest in income 19.9% 19.2
Income (loss) before provision for income
taxes and minority interest in income of
consolidated subsidiary (117.9) (32.4)
Provision (credit) for income taxes (124.4) (37.3)
Net income (loss) (119.1) (32.2)
</TABLE>
9
<PAGE>
COMPARISON: QUARTER ENDED JUNE 30, 2000
AND QUARTER ENDED JUNE 30, 1999
Net sales for the quarter ended June 30, 2000 increased by 14.7%
compared with the same period last year. The Company's interest in Breas is
reflected in the results of operations for one month in the three months results
of operations for 1999, and is reflected fully for the three months results of
operations for 2000. NST is reflected in the results of operations only for the
month of June, 2000. The increase was due in large part to unit increases
(offset by selling price declines), as well as the acquisition of Breas AB (see
Note 5) and the conversion of the Company's preferred stock investment in
National Sleep Technologies, Inc. (see Note 7). Prices on existing products
declined on average approximately .1% in the three months ended June 30, 2000
when compared to the same period in 1999.
Sales of anesthesia products, representing 43.4% of net sales, grew
5.3% from the quarter ended June 30, 1999. Sales of respiratory/critical care
products, representing 41.4% of net sales, decreased by 2.1%. Sales of
sleep/ventilator products, representing 15.1% of net sales, increased by $4.2
million as a result of the acquisition of a 53% interest in Breas AB effective
June 1, 1999 and the conversion of the Company's preferred stock in National
Sleep Technologies, Inc. effective June 1, 2000.
While net sales increased in dollars by 14.7%, gross profit dollars
increased by 16.4%. The increase in gross profit is primarily the result of the
Company's cost improvement program. The Company's gross profit percentage for
the quarter ended June 30, 2000 was 52.1% compared to 51.3% in the same time
period of the last fiscal year.
Selling, general and administrative expenses (S, G & A) increased by
$905,000 primarily due to the acquisition of Breas AB in June, 1999. The
acquisition of Breas AB accounts for an increase of $1,019,000 of S, G & A
expenses in the current quarter over last year.
Research and development expenses ("R&D") increased 32.2% primarily due
to increased expenditures on several new anesthesia/respiratory devices and five
new sleep products.
Other expense, net, primarily includes severance expenses and other
expenses related to non-operational items. Such expenses increased by $964,000
in the June 30, 2000 quarter over the comparable quarter in 1999.
The Company incurred a special charge of $7.8 million for the quarter
ending June 30, 2000 to cover the cost of certain previous disclosed litigation
and settlement and other litigation matters.
10
<PAGE>
COMPARISON: NINE MONTHS ENDED JUNE 30, 2000
AND NINE MONTHS ENDED JUNE 30, 1999
Net sales for the nine months ended June 30, 2000 increased by 14.4%
compared with the same period last year. The Company's interest in Breas is
reflected in the results of operations for one month in the three months results
of operations for 1999, and is reflected fully for the three months results of
operations for 2000. NST is reflected in the results of operations only for the
month of June, 2000. The increase was due to unit increases offset slightly by
selling price declines and to a large extent to the acquisition of Breas AB (see
Note 5) and the conversion of the Company's preferred stock investment in NST
(see Note 7). Prices on existing products declined on average approximately .4%
in the nine months ended June 30, 2000 when compared to the same period in 1999.
Sales of anesthesia products, representing 43.9% of net sales, grew
6.9% from the nine months ended June 30, 1999. Sales of respiratory/critical
care products, representing 43.5% of net sales, decreased by 2.9%. Sales of
sleep/ventilator products, representing 12.5% of net sales, increased by $11.9
million due to the acquisition of a 53% interest in Breas AB effective June 1,
1999 and the acquisition of National Sleep Technologies, Inc. effective June 1,
2000.
While net sales increased in dollars by 14.4%, gross profit dollars
increased by 18.1%. The increase in gross profit is primarily the result of the
Company's cost improvement program. The Company's gross profit percentage for
the nine months ended June 30, 2000 was 52.2% compared to 50.6% in the same time
period of the last fiscal year.
Selling, general and administrative expenses (S, G & A) increased by
$3,910,000 primarily due to the acquisition of Breas AB in June, 1999. The
acquisition of Breas AB accounts for an increase of $3,399,000 of S, G & A
expenses in the current nine month period. In addition, freight expense
increased by $452,000 due to unit increases and fuel surcharges.
Research and development expenses ("R&D") increased 38.1% primarily due
to increased expenditures on several new anesthesia/respiratory devices and five
new sleep products.
Other expense, net expenses related to non-operational items, increased
by $1,337,000 from the nine months ended June 30, 1999 to the nine months ended
June 30, 2000 primarily due to net investment income of $715,000 realized in
1999 and severance expense of $432,000 in 2000.
The Company's effective tax rates were 28.3 % and 30.6% for the nine
months ended June 30, 2000 and 1999, respectively.
11
<PAGE>
Liquidity and Capital Resources
The Company relies upon cash flow from its operations as well as credit
lines established with the Company's lender. During the nine months ended
June 30, 2000, cash and cash equivalents and short-term marketable securities
decreased by $3,051,000 and long-term marketable securities and other
investments decreased by $10,453,000 due to the conversion of the Company's
preferred stock investment in National Sleep Technologies, Inc. (see Note 7).
During the period, the Company paid dividends of approximately $1,479,000, spent
$6,557,000 on capital expenditures, repurchased $4,234,000 of treasury stock and
had a net reduction of long term debt and notes payable of $3,311,000. The
combined total of cash and cash equivalents, long-term marketable securities and
other investments was approximately $4,157,000 million at June 30, 2000 as
compared to $17,661,000 million at September 30, 1999.
At June 30, 2000, the Company had approximately $3,604,000 million in
cash and cash equivalents. On that date, the Company's working capital was
$37,112,000 million and the current ratio was 2.4 to 1, as compared to $41.8
million and 3.7 to 1 at September 30, 1999. The reduction in the Company's
working capital and current ratio was primarily a result of the obligations
reflected in June 2000 relating to the settlement of litigation discussed in
Note 8.
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.
The Company has a $25 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. No amount was outstanding at June 30, 2000 under this line of
credit.
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 Reform
Act. The Company's liquidity could be adversely impacted and its need for
capital could materially change if costs are higher than anticipated, the
Company were to undertake acquisitions demanding significant capital, operating
results were to differ significantly from recent experience or adverse events
were to affect the Company's operations.
12
<PAGE>
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
NOT APPLICABLE
13
<PAGE>
PART II.
OTHER INFORMATION
ITEM 1.
LEGAL PROCEEDINGS:
(a) Reference is made to Item 3 of the Company's Annual Report on Form 10-K
for the year ended September 30, 1999, Item 1 of the Company's
Quarterly Report on Form 10-Q for the quarter ended December 31, 1999,
Item 1 of the Company's Quarterly Report on Form 10-Q for the quarter
ended March 31, 2000, and Item 5 of the Company's Current Report on
Form 8-K dated July 27, 2000.
(b) On July 27, 2000, the Company entered into a settlement agreement with
SIMS Portex, Inc. to settle the patent infringement action pending
against the Company in the United States District Court for the
Northern District of Illinois concerning certain of the Company's
manual resuscitators. The parties agreed to dismiss the current action
with prejudice and the Company was granted a non-exclusive license
under the SIMS Portex, Inc. patent. Item 5 of the Company's Current
Report on Form 8-K dated July 27, 2000 is incorporated by reference.
The Company incurred a special charge of $7.8 million (equal to $0.45
per share) for the quarter ended June 30, 2000 to cover the cost of
this litigation and settlement, and other litigation matters.
(c) In the pending patent infringement action in Japan against a
distributor of the Company's ABG syringe products that the Company's
predecessor has indemnified, on June 23, 2000, the Court awarded
damages and interest against the defendant totaling approximately $3.7
million. Plaintiff's claim for damages had been approximately $6.5
million, plus interest and costs. The Company has filed an appeal of
this decision with the Tokyo High Court. The Company continues to
believe that its ABG syringe products do not infringe the plaintiff's
patent, that bases exist for reversing any finding of liability and
damages, and will vigorously pursue its appeal. In the Company's patent
infringement action in Japan against the same competitor for
infringement of an ABG patent issued to the Company in Japan,
additional briefs on infringement have been filed with the Court.
(d) In the pending action by a former shareholder of Vital Pharma, Inc.
(VPI), a Company subsidiary, brought by such shareholder on his own
behalf and purportedly on behalf of several other former VPI
shareholders for breach of contract, fraud and several other claims
against the Company in the United States District Court for the
District of New Jersey, on June 26, 2000 the Court granted the
Company's motion to have the matter resolved by arbitration.
The Company cannot predict the outcome of its legal proceedings with
certainty. However, based upon its review of pending legal proceedings,
the Company does not believe the ultimate disposition of its pending
legal proceedings will be material to its financial condition.
Predictions regarding the impact of pending legal proceedings
constitute forward-looking statements under the Private Securities
Litigation Reform Act of 1995. The actual results and 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.
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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, 2000:
On July 28, 2000, the Company filed a Current Report on Form 8-K
concerning settlement of the patent infringement action brought against
the Company by SIMS Portex, Inc.
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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 14, 2000
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