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, 2001 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 9, 2001, there were 12,914,742 shares of Common Stock, no par
value, outstanding.
VITAL SIGNS, INC.
INDEX
PAGE NUMBER
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PART I.
Financial information 1
Item 1. Financial Statements:
Independent Accountant's Report 2
Consolidated Balance Sheet as of June 30, 2001
(Unaudited) and September 30, 2000 3
Consolidated Statements of Income for the Nine
Months ended June 30, 2001 and 2000 (Unaudited)
4
Consolidated Statements of Operations for the
Three Months ended June 30, 2001 and 2000
(Unaudited) 5
Consolidated Statements of Cash Flows for the
Nine Months Ended June 30, 2001 and 2000
(Unaudited) 6
Notes to Consolidated Financial Statements
(Unaudited) 7 - 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
9 - 13
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
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, 2000.
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.
1
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, 2001, and the related consolidated
statements of income (operations) for the three month periods and nine
month periods ended June 30, 2001 and 2000, and cash flows for the
nine month periods ended June 30, 2001 and 2000. 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
August 3, 2001
2
VITAL SIGNS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
June 30, September 30,
2001 2000
---- ----
ASSETS (in thousands)
(Unaudited)
---------
Current Assets:
Cash and cash equivalents $ 24,500 $ 7,606
Accounts receivable, less allowance for doubtful accounts of $672 and $571
respectively 30,869 26,377
Inventory 26,322 23,964
Prepaid expenses and other current assets 10,947 6,361
------------ -----------
Total Current Assets 92,638 64,308
Property, plant and equipment - net 35,669 53,016
Marketable securities 486 551
Goodwill and other intangible assets 49,997 47,253
Deferred income taxes 5,113 2,235
Other assets 2,719 5,468
------------ -----------
Total Assets $ 186,622 $ 172,831
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 5,039 $ 4,772
Current portion of long-term debt 484 535
Accrued expenses 6,444 4,858
Notes payable - bank 5,678 8,756
Other current liabilities 11,767 6,103
------------ -----------
Total Current Liabilities 29,412 25,024
Long term debt 2,256 2,711
Other liabilities 245 245
------------ -----------
Total Liabilities 31,913 27,980
Commitments and contingencies
Minority interest in subsidiary 1,479 4,171
Stockholder's Equity
Common stock - no par value; authorized 40,000,000 shares, issued and
outstanding 12,914,742 and 12,307,831 shares, respectively
26,313 15,132
Accumulated other comprehensive loss (2,322) (1,540)
Retained earnings 129,239 127,088
------------ -----------
Stockholders' equity 153,230 140,680
------------ -----------
Total Liabilities and Stockholders' Equity $ 186,622 $ 172,831
============ ===========
(See Notes to Consolidated Financial Statements)
3
VITAL SIGNS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
For the Nine Months Ended
June 30,
--------
2001 2000
---- ----
(In Thousands Except Per Share Amounts)
Net sales $ 123,976 $ 109,679
Cost of goods sold 60,240 52,433
---------- ---------
Gross Profit 63,736 57,246
Operating expenses:
Selling, general and administrative 31,729 28,512
Research and development 5,903 5,893
Interest (income) (641) (368)
Interest expense 586 359
Other (income) expense (125) 1,542
Goodwill amortization 957 784
Special charge 20,351 7,785
----------- ---------
58,760 44,507
----------- ---------
Income before provision for income taxes and minority interest in income of
consolidated subsidiary 4,976 12,739
Provision for income taxes 1,292 3,609
----------- ---------
Income before minority interest in income of consolidated subsidiary
3,684 9,130
Minority interest in income of consolidated subsidiary 26 500
----------- ---------
Net income $ 3,658 $ 8,630
=========== ==========
Earnings per Common Share:
Basic net income per share $ .29 $ .71
=========== =========
Diluted net income per share $ .29 $ .70
=========== =========
Basic weighted average number of shares 12,554 12,208
=========== =========
Diluted weighted average number of shares 12,810 12,356
=========== =========
Dividends paid per share $ .12 $ .12
=========== =========
Comprehensive Income
Net income $ 3,658 $ 8,630
Adjustment for aggregate unrealized gain (loss) on marketable securities
10 (2)
Foreign currency gain (loss) (792) (422)
------------ ---------
Total comprehensive income $ 2,876 $ 8,206
============ =========
(see Notes to Consolidated Financial Statements)
4
VITAL SIGNS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the Three Months Ended
June 30,
--------
2001 2000
---- ----
(In Thousands Except Per Share Amounts)
Net sales $ 42,504 $ 37,085
Cost of goods sold 20,718 17,767
---------- ----------
Gross Profit 21,786 19,318
Operating expenses:
Selling, general and administrative 11,060 9,343
Research and development 2,073 2,030
Interest (income) (152) (142)
Interest expense 181 115
Other expense 190 1,026
Goodwill amortization 300 299
Special charge 20,351 7,785
----------- ----------
34,003 20,456
----------- ----------
Loss before credit for income taxes and minority interest in income (loss) of
consolidated subsidiary (12,217) (1,138)
Credit for income taxes (3,879) (446)
------------ -----------
Loss before minority interest in consolidated subsidiary (8,338) (692)
Minority interest in income (loss) of consolidated subsidiary (5) 140
------------ ----------
Net loss $ (8,333) $ (832)
============ ===========
Loss per Common Share:
Basic net loss per share $ (.65) $ (.07)
============ ===========
Diluted net loss per share $ (.65) $ (.07)
============ ===========
Basic weighted average number of shares $ 12,875 $ 12,192
============ ===========
Diluted weighted average number of shares $ 12,875 $ 12,192
============ ===========
Dividends paid per share $ .04 $ .04
============ ===========
Comprehensive Loss
Net loss $ (8,333) $ (832)
Adjustment for aggregate unrealized gain on marketable securities --- 2
Foreign currency loss (716) ---
------------ ----------
Total comprehensive loss $ (9,049) $ (830)
============ ==========
(see Notes to Consolidated Financial Statements)
5
VITAL SIGNS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Nine Months Ended
June 30,
2001 2000
----------------------------
(in thousands)
----------------------------
Cash Flows from Operating Activities:
Net income $ 3,658 $ 8,630
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
Depreciation and amortization 3,307 3,182
Decrease (increase) in tax asset (368) (213)
Impairment charge 20,351
Amortization of goodwill 957 784
Minority interest in income of consolidated subsidiary 26 500
Changes in operating assets and liabilities:
Increase in accounts receivable (4,834) (1,225)
Increase in inventory (3,144) (1,948)
Increase in prepaid expenses and other current assets (2,719) (3,117)
Decrease in other liabilities 200 6,973
Decrease (increase) in other assets (5,417) (1,303)
(Increase) decrease in accounts payable and accrued expenses 608 (427)
------- -------
Net cash provided by operating activities 12,625 12,109
------- -------
Cash Flows from Investing Activities:
Proceeds from sales of available-for-sale securities 65 13
Acquisition of property, plant and equipment (2,002) (6,557)
Acquisition of subsidiary (increased to 94% ownership in 2001) (3,698) (585)
------- -------
Net cash used in investing activities (5,635) (7,129)
------- -------
Cash Flows from Financing Activities:
Purchase of treasury stock (155) (4,775)
Issuance of treasury stock 96 541
Dividends paid (1,507) (1,479)
Proceeds from exercise of stock options and warrants 11,240 993
Proceeds from short term notes payable 4,761 3,247
Principal payments of long-term debt and notes payable (4,478) (6,558)
------- -------
Net cash provided by (used in) financing activities 9,957 (8,031)
------- -------
Effect of foreign currency (53)
-------
Net increase (decrease) in cash and cash equivalents 16,894 (3,051)
Cash and cash equivalents at beginning of period 7,606 6,655
------- -------
Cash and cash equivalents at end of period $24,500 $ 3,604
======= =======
Supplemental disclosures of cash flow information: Cash paid during the nine
months for:
Interest $ 768 $ 380
Income taxes 7,245 6,890
(See Notes to Consolidated Financial Statements)
6
VITAL SIGNS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. The consolidated balance sheet as of June 30, 2001, the
consolidated statements of income (operations) for the three and
nine months ended June 30, 2001 and 2000 and the consolidated
statement of cash flows for the nine months ended June 30, 2001 and
2000 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 at June 30, 2001
and September 30, 2000 and the results of operations and cash flows
for the three and nine months ended June 30, 2001 and 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, 2000 (the "Form 10-K") for additional disclosures
relating to the Company's consolidated financial statements.
3. The Company operates in one business segment. The Company designs,
manufactures and distributes single use medical products.
4. At June 30, 2001, the Company's inventory was comprised of raw
materials, $17,242,000, and finished goods, $9,080,000.
5. In the third quarter of Fiscal 2000, the Company converted its
preferred stock holdings in privately held National Sleep
Technologies, Inc. ("NST") into common stock. Upon such conversion
the Company acquired an 84% ownership in NST. The total value of
the Company's investment in NST as of September 30, 2000 was
$10,439,000. The assets acquired amounted to approximately $4
million and liabilities assumed approximately $6 million. This
acquisition has been accounted for as a purchase resulting in an
excess of purchase price over the fair value of net assets acquired
of approximately $12.8 million. The Company has reflected the
operations of NST as a consolidated subsidiary as of June 1, 2000.
The net sales and net income for the nine months ended June 30,
2001 were $9,598,000 and $119,000, respectively.
6. For Details of Legal Proceedings, see Part II, Item 1, "Legal
Proceedings".
7. As of May 2, 2001, the Company purchased 41% of Breas Medical AB
bringing the Company's ownership percentage to 94%. The Company
paid approximately $3.7 million upon signing a definitive agreement
with the balance payable based on a multiple of Breas' sales and
earnings for the twelve months ending March 31, 2002. The total
purchase price for the additional 41% ownership interest will be no
less than $9.8 million or more than $30.8 million.
7
8. 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. The Company incurred a special
charge of $7.8 million for the quarter ended June 30, 2000 to
cover the cost of this litigation and settlement, and other
litigation matters.
9. During the quarter ended June 30, 2001, the Company conducted a
review to assess the carrying value of the Company's investments.
A major consulting firm was engaged to assist the Company in an
impairment analysis of the Company's subsidiary, Vital Pharma,
Inc., which has sustained significant sales erosion and operating
losses. The Company recorded a special charge relating to the
Vital Pharma subsidiary of approximately $18.2 million dollars.
Further special charges were taken for various other impairments
and charges aggregating $2.2 million.
10. In June 2001, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards (SFAS) No. 141
"Business Combinations". SFAS No. 141 is effective for business
combinations initiated after June 30, 2001 and purchase business
combinations for which the date of acquisition is July 1, 2001 or
later. The Company is in the process of analyzing SFAS No. 141 but
at this time does not believe that it will have a material effect
on its financial position or results of operations. Also in
June 2001, the FASB issued SFAS No. 142 "Goodwill and Other
Intangible Assets". SFAS No. 142 is required to be applied for
fiscal years beginning after December 15, 2001. Earlier
application is permitted for certain entities and the Company will
consider adopting SFAS No. 142 as of October 1, 2001. SFAS No. 142
eliminates the amortization of goodwill and certain other
intangible assets. It also requires a test for impairment of these
assets at least annually. The Company is in the process of
analyzing SFAS No. 142 but is unable to report the effect the
adoption will have on its financial position or results of
operations.
8
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) cost containment pressures on hospitals and
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) slow downs
in the healthcare industry or interruptions or delays in manufacturing and/or
sources of supply, (iii) the Company's ability to develop or acquire new and
improved products and to control costs, (iv) market acceptance of the Company's
new products, (v) technological change in medical technology, (vi) the scope,
timing and effectiveness of changes to manufacturing, marketing and sales
programs and strategies, (vii) intellectual property rights and market
acceptance of competitors' existing or new products, (viii) 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), (ix) healthcare
industry consolidation resulting in customer demands for price concessions, (x)
the reduction of medical procedures in a cost conscious environment, (xi)
efficacy or safety concerns with respect to marketed products, whether
scientifically justified or not, that may lead to product recalls, withdrawals
or declining sales, and (xii) healthcare reform and legislative and regulatory
changes impacting the healthcare market both domestically and internationally.
9
Results of Operations
The following table sets forth, for the periods indicated, the percentage
increase of certain items included in the Company's consolidated statement of
income.
INCREASE/(DECREASE) FROM PRIOR PERIOD
------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, 2001 JUNE 30, 2001
COMPARED WITH COMPARED WITH
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, 2000 JUNE 30, 2000
------------------------------------------------------
Net Sales 14.6% 13.0%
Cost of goods sold 16.6% 14.9%
Gross profit 12.8% 11.3%
Selling, general and administrative
expense 18.4% 11.3%
Research and development expenses 2.1% .2%
Income (loss) before provision (credit) for income taxes and
minority interest in income (loss) of consolidated
subsidiary (973.6)% 60.9%
Provision (credit) for income taxes (769.7)% 64.2%
Net income (loss) (901.6)% 57.6%
10
COMPARISON: QUARTER ENDED JUNE 30, 2001
AND QUARTER ENDED JUNE 30, 2000
Net sales for the quarter ended June 30, 2001 increased by 14.6%
compared with the same period last year. The increase was due to unit increases
and in part, to the acquisition of National Sleep Technologies, Inc. ("NST")
which was acquired effective June 1, 2000 (see Note 5).
Sales of anesthesia products, representing 42.4% of net sales,
increased 11.6% from the quarter ended June 30, 2000 due largely to increased
shipments internationally and at the Company's Thomas Medical Products
subsidiary. Sales of respiratory/critical care products, representing 37.8% of
net sales, increased by approximately 3.6%. Sales of sleep services and
products, representing 19.8% of net sales, increased due largely to the
acquisition of NST.
While net sales increased in dollars by 14.6%, gross profit dollars
increased by 12.8%. The Company's gross profit percentage for the quarter ended
June 30, 2001 was 51.3% compared to 52.1% in the same time period of the last
fiscal year. The decrease in gross profit percentage is due to a decline in
three subsidiaries, Vital Pharma, Inc, Breas Medical AB and National Sleep
Technologies.
Selling, general and administrative expenses (S, G & A) increased by
$1,717,000 primarily due to the acquisition of National Sleep Technologies,
Inc., and Breas Medical AB.
Research and development expenses ("R&D") increased by $43,000.
Other expense, net, which includes realized capital gains and losses,
legal and currency gains and losses, decreased by $836,000 from the quarter
ended June 30, 2000 to the quarter ended June 30, 2001 primarily due to legal
and severance expenses which did not reoccur.
During the quarter ended June 30, 2001, the Company conducted a review
to assess the carrying value of the Company's investments. A major consulting
firm was engaged to assist the Company in an impairment analysis of the
Company's subsidiary, Vital Pharma, Inc., which has sustained significant sales
erosion and operating losses. The Company recorded a special charge relating to
the Vital Pharma subsidiary of approximately $18.2 million dollars. Further
special charges were taken for various other impairments and charges aggregating
$2.2 million.
The Company's effective tax rates were benefits of 31.8% and 39.2% for
the quarters ended June 30, 2001 and 2000, respectively. The Company's tax
benefit rate in the current period is lower than statutory rates primarily due
to benefits realized from its international operations.
11
COMPARISON: NINE MONTHS ENDED JUNE 30, 2001
AND NINE MONTHS ENDED JUNE 30, 2000
Net sales for the nine months ended June 30, 2001 increased by 13.0%
compared with the same period last year. The increase was due to unit increases
and in part, to the acquisition of National Sleep Technologies, Inc. ("NST")
which was acquired effective June 1, 2000 (see Note 5).
Sales of anesthesia products, representing 40.7% of net sales,
increased by approximately 3.5% from the nine months ended June 30, 2001. Sales
of respiratory/critical care products, representing 40.6% of net sales,
increased by approximately 5.8%. Sales of sleep services and products,
representing 18.7% of net sales, increased 73.3% due largely to the acquisition
of NST.
While net sales increased in dollars by 13.0%, gross profit dollars
increased by 11.3%. The Company's gross profit percentage for the nine months
ended June 30, 2001 was 51.4% compared to 52.2% in the same time period of the
last fiscal year. The decrease in gross profit percentage is due to a decline in
gross profit percentage in Vital Pharma, Inc., Breas Medical AB and National
Sleep Technologies, Inc.
Selling, general and administrative expenses (S, G & A) increased by
$3,217,000 primarily due to the acquisition of National Sleep Technologies,
Inc., in June, 2000 and Breas Medical AB.
Research and development expenses ("R&D") increased by $10,000 as the
Company continues its efforts to develop new and improve its existing products.
Other expense, net, which includes realized capital gains and losses,
legal and currency gains and losses, decreased by $1,667,000 from the nine
months ended June 30, 2000 to the nine months ended June 30, 2001 primarily due
to the sale of an investment, currency transaction gains on certain liabilities
payable in other than U.S. dollars and severance payments incurred in fiscal
2000.
During the quarter ended June 30, 2001, the Company conducted a review
to assess the carrying value of the Company's investments. A major consulting
firm was engaged to assist the Company in an impairment analysis of the
Company's subsidiary, Vital Pharma, Inc., which has sustained significant sales
erosion and operating losses. The Company recorded a special charge relating to
the Vital Pharma subsidiary of approximately $18.1 million dollars. Further
special charges were taken for various other impairments and charges aggregating
$2.2 million.
The Company's effective tax rates were 26.0% and 28.3% for the nine
months ended June 30, 2001 and 2000, respectively. The Company's tax rate in the
current period is lower than statutory rates primarily due to benefits realized
from its international operations. The decrease in effective tax rate is related
to the decrease in taxable income, while the amounts of permanent tax deductions
in excess of book remained constant.
12
Liquidity and Capital Resources
The Company continues to rely upon cash flow from its operations.
During the nine months ended June 30, 2001, cash and cash equivalents increased
by $16,894,000 of which approximately $11.2 million represents proceeds from the
exercise of stock options. During the period, the Company paid dividends of
approximately $1,507,000 and spent $2,002,000 on capital expenditures. In May,
2001 $3.7 million was used as an initial payment to acquire an additional 41%
of Breas Medical AB bringing total ownership to 94%. An additional payment will
be made in April, 2002 for a minimum of $6.1 million and maximum of $27.1
million based on a sales and earnings test. The combined total of cash and
cash equivalents and long-term marketable securities was approximately $25
million at June 30, 2001 as compared to $8.2 million at September 30, 2000.
At June 30, 2001, the Company had approximately $24.5 million in cash
and cash equivalents. On that date, the Company's working capital was $63.2
million and the current ratio was 3.1 to 1, as compared to $39.3 million and 2.6
to 1 at September 30, 2000.
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. 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. There were no amounts outstanding at June 30, 2001.
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.
ITEM 3.
Quantitative and Qualitative Disclosure About Market Risk
Not Applicable
13
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, 2000.
(b) In September 1996, a patent infringement action was filed in Japan
against an OEM medical device distributor in connection with the sale in
Japan of Marquest Medical Products, Inc.'s ABG syringe product line. On
June 23, 2000 the Court entered a judgment against the Company's
distributor for Yen 336,872,689 ($2,887,645) plus five percent annual
interest on 137 million Yen from September 20, 1996 and on 199.9 million
Yen from August 30, 1999 through the time of payment. The distributor
(which has patent indemnification protection from Marquest) has appealed
the judgment to the Tokyo Supreme Court. The matter is in the appelate
process. The Company continues to believe that Marquest ABG syringe
products do not infringe the plaintiff's patent and will continue to
vigorously defend the action.
(c) On December 6, 1999 a complaint was filed against the Company on behalf
of the former shareholders of Vital Pharma, Inc. ("VPI") alleging breach
of contract for failure to pay earnout payments allegedly due under the
stock purchase agreement for the sale of VPI in December, 1995. The
Company answered the complaint, filed counter-claims and moved to
transfer the case to arbitration. In August, 2000 the court ordered
plaintiff to submit such claims to binding arbitration and stayed all
other proceedings pending the outcome of the arbitration. An arbitrator
has been selected and the parties are in the discovery stages of the
arbitration.
The Company is also involved in other legal proceedings arising in the
ordinary course of business.
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 Reform Act. 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.
14
ITEM 6.
Exhibits and Reports on Form 8-K
a) Reports on Form 8-K filed during the quarter ended June 30,
2001: None.
15
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/ Herbert M. Javer
-----------------------------
Herbert M. Javer
Chief Financial Officer
Date: August 14, 2001
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