Shares of Vital Signs ( VITL) were dropping a day after the company posted a loss for the latest quarter and found itself fending off allegations of accounting improprieties from its former chief financial officer.

The former CFO, Joseph Bourgart, filed a lawsuit against the company, saying that he had warned other Vital Signs executives about accounting rules violations. Bourgart resigned in January, the company said, after being told he would be fired. Vital Signs denied the allegations and said the lawsuit was "asserting baseless claims."

The stock was lately down $4.10, or 14%, to $25.25.

Vital Signs, in a press release, said that Bourgart was told he would be fired because of evidence that he had anonymously forwarded confidential corporate information to an investor. At least some of the allegations regarding accounting rules violations would have occured while Bourgart was CFO. During that time, the company said, he certified the accounting results in filings made with the Securities and Exchange Commission.

The company, which makes products for use in, among other things, anesthesia and respiratory procedures, also said Bourgart had no objections to the presentation of the company's 10-K annual report after being asked to review it last year.

Bourgart told Reuters he initially had doubts that the company's inventory was accurately reported in August and suggested a writedown might be needed. Because his doubts couldn't be fully proven, Bourgart said he certified the company's financial results, according to the report. When evidence did appear in September, he brought it to the attention of other executives, but his allegations were ignored, Bourgart told Reuters.

Vital Signs replaced Bourgart with Frederick Schiff, the former financial chief at Bristol-Myers Squibb ( BMY). Schiff left his previous employer in April 2002. The SEC last year investigated Bristol's accounting methods. Bourgart also named Schiff and Vital Signs President and CEO Terry Wall in his lawsuit.

"We are appalled at the allegations made today by a disgruntled former employee, and look forward to proving in court that these claims are erroneous and without merit," Vital signs said in a press release. "We are continuing our investigation into the ramifications of Mr. Bourgart's conduct while at Vital Signs, and this may well support a counterclaim against him."

Separately, Vital Signs posted results for the second quarter. The company said revenue slipped to $42.1 million from $42.3 million a year ago. The company lost $1.2 million, or 9 cents a share, compared with net income of $7.9 million, or 61 cents a share, in the year-ago second quarter.

Excluding several items, income from continuing operations rose to $5.6 million, or 43 cents a share, from $5 million, or 38 cents a share a year ago.

"As we look to the third quarter of fiscal 2003, earnings per share from continuing operations on a fully diluted basis are expected to be closer to our earnings per share from continuing operations reported in our first quarter (51 cents a share) this year, rather than per share earnings from continuing operations for this quarter, before the one-time items," the company said.

Analysts polled by Thomson First Call were looking for earnings of 52 cents for the second quarter. The third-quarter consensus estimate is 55 cents.

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