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                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   ----------
                                    FORM 10-K

|X|   Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
      Act of 1934 [No Fee Required] For the fiscal year ended September 30,
      2001.

| |   Transition Report Pursuant to Section 13 or 15(d) of the Securities
      Exchange Act of 1934 [No Fee Required] 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 Identification
incorporation or organization)                              Number)

            20 Campus Road, Totowa, New Jersey 07512; (973) 790-1330
 (Address and telephone number, including area code, of registrant's principal
                               executive office)

Securities registered pursuant to Section 12(b) of the Act: none.

          Securities registered pursuant to Section 12(g) of the Act:

                               Title of each class
                               -------------------

                           Common Stock, no par value

      Indicate by checkmark 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 by checkmark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |X|

      Aggregate market value of voting stock held by non-affiliates as of
November 27, 2001 was approximately $199,378,641.

      Number of shares of Common Stock outstanding as of November 27, 2001:
12,935,656.

      Documents incorporated by reference: Definitive Proxy Statement for 2001
Annual Meeting of Shareholders (Part III).





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                                VITAL SIGNS, INC.

                                TABLE OF CONTENTS

                                     PART I

                                                                           PAGE
                                                                           ----
Item 1       Business                                                        2

Item 2       Properties                                                     14

Item 3       Legal Proceedings                                             14-15

Item 4       Submission of Matters to a Vote of Security Holders            15

Item 4A      Executive Officers of the Registrant                           16

                                     PART II

Item 5       Market for the Registrant's Common Equity and Related
                  Stockholder Matters                                       18

Item 6       Selected Financial Data                                       18-20

Item 7       Management's Discussion and Analysis of Results of
                  Operations and Financial Condition                       20-23

Item 7A      Quantitative and Qualitative Disclosures About Market Risk     24

Item 8       Financial Statements and Supplementary Data*                   24

Item 9       Changes in and Disagreements with Accountants on
                  Accounting and Financial Disclosure                       24

                                    PART III

Item 10      Directors of the Registrant                                    25

Item 11      Executive Compensation                                         25

Item 12      Security Ownership of Certain Beneficial Owners and
                  Management                                                25

Item 13      Certain Relationships and Related Transactions                 25

                                     PART IV

Item 14      Exhibits, Financial Statement Schedules and Reports on
                  Form 8-K                                                  26

*Financial Statements follow page 24


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                                     PART I

ITEM 1. Business

Introduction

      Vital Signs, Inc. was initially incorporated in New York in 1972 and
reincorporated in New Jersey in 1988. Unless otherwise indicated, all references
in this Annual Report to the "Company" refer to Vital Signs, Inc., and its
consolidated subsidiaries. References to "Vital Signs" refer solely to the
parent company. Vital Signs' principal executive offices are located at 20
Campus Road, Totowa, New Jersey 07512; its telephone number at that location is
(973) 790-1330.

      Vital Signs and its subsidiaries design, manufacture and market
single-patient use medical products for the anesthesia, respiratory, critical
care, sleep therapy and emergency markets. A number of single-patient use
products are increasing their share of the medical products market primarily
because of their cost advantages and improved patient care features, including
reducing the potential of transmitting infections from one patient to another.
With the acquisition of Breas Medical AB ("Breas") in 1999 and National Sleep
Technologies, Inc. in 2000 (see below), Vital Signs' product focus has been
expanded into the sleep therapy and personal ventilation markets.

      The Company pioneered the development and introduction of a variety of
single-patient use products. In 1975, the Company commenced the marketing of
clear, non-conductive anesthesia breathing circuits. The first clear plastic,
single-use air-filled cushion face mask for anesthesia delivery and
resuscitation was launched by the Company in 1981. The Company was the first
organization to introduce a single-patient use manual resuscitator in 1984. The
first single-patient use laryngoscope system for use in the anesthesia and
critical care arenas was developed and launched by the Company in 1988. The
Company also developed a general anesthesia kit, which can combine over 20
disposable items in one convenient, cost-effective package, and the first
single-patient use infant resuscitation circuit with an adjustable pressure
limiting valve, used to protect the infant's lung against over pressurization.

      In 1997, the Company acquired the outstanding stock of Marquest Medical
Products, Inc. ("Marquest"), and began manufacturing and distributing arterial
blood gas syringes and kits, small volume nebulizers and heated humidification
circuits.

      In 1999, the Company made an additional investment in Breas, a
manufacturer of CPAP machines and personal ventilators, based in Sweden,
bringing the investment to 53%. In May, 2001 the Company purchased another 41%
bringing the Company's total ownership to 94%. Substantially all of the minority
interest is held by Breas management. Breas has grown to be among the market
leaders in its product categories in Europe through its own direct sales force
in several European markets together with focused distributors. The Breas
products were introduced to the South American and Asian markets in late 1999 by
Vital Signs. In September, 2000 the Company received FDA clearance to market the
Breas PV10 CPAP device in the United States. The Company plans to introduce
additional Breas products in the United States once regulatory clearance has
been achieved.

      In 2000, the Company converted its investment in the preferred shares of
stock of National Sleep Technologies, Inc. ("NST") into common stock and assumed
control of NST. NST provides sleep


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diagnostic testing services in the United States through free standing labs and,
through contracts with hospitals, in hospital facilities, for patients suspected
of suffering from sleep disorders, such as Obstructive Sleep Apnea.

      For additional information regarding these products, see
"Business-Products" and for additional information regarding the accounting
treatment of the Breas and NST transaction, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Overview."

      The Company sells its anesthesia and respiratory/critical care products to
hospitals in the United States through its own sales force and through national
distributors. Sales of the Company's products internationally are largely
through distributors, except in England and the Peoples Republic of China where
the Company maintains a direct sales force. The Company sells its emergency and
alternate site/homecare products through third party distributors.

      This Annual Report on Form 10-K contains, and from time to time the
Company expects to make, certain forward-looking statements regarding its
business, financial condition and results of operations. The forward-looking
statements are typically identified by the words "anticipates", "believes",
"expects", "intends", "forecasts", "plans", "future", "strategy", or words of
similar import. 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 may 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, certain of which are outside of
management's control, 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,
(ii) slowdowns 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) technological
change in medical technology, (v) the scope, timing and effectiveness of changes
to manufacturing, marketing and sales programs and strategies, (vi) intellectual
property rights and market acceptance of competitors' existing or new products,
(vii) adverse determinations arising in the context of regulatory matters (see
"Regulation") or legal proceedings (see Item 3 of this Annual Report on Form
10-K), (viii) the sufficiency of the Company's product liability insurance
coverage, (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 (xi) healthcare reform and
legislative and regulatory changes impacting the healthcare market, both
domestically and


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internationally.

Acquisitions

      Historically, the Company has made both product and business acquisitions.
Although no assurances can be given with respect to future acquisitions, the
Company's acquisition strategy is focused upon the following principal
objectives: (i) identification and acquisition of companies and/or products in
the anesthesia, respiratory/critical care, emergency, homecare and sleep markets
with the goal of expanding the products that can be sold by the Company's sales
force, (ii) expansion to international markets, and (iii) acquiring unique
research and development capabilities. Such acquisitions may consume substantial
amounts of capital, both to fund the purchase price and to fund the working
capital needs of acquired companies and acquired product lines.

Principal Products

      The Company markets a wide variety of single-patient use anesthesia,
respiratory/critical care, sleep therapy and emergency products. Its principal
products are described below:

ANESTHESIA PRODUCTS:

      Face Masks. In 1981, the Company introduced the first clear plastic
air-filled cushion face mask for single-patient anesthesia and respiratory use.
The soft air-filled cushion face mask has been clinically documented to provide
a better seal on most patients than other face masks, thus improving the
delivery of anesthetic gases and oxygen to the patient. A clear face mask also
permits the clinician to better observe certain patient problems, such as
life-threatening aspiration. The Company offers various sizes and types of face
masks. The Company anticipates that the usage of single-patient use face masks
in surgical procedures internationally will continue to expand as single-patient
use products become increasingly accepted in international hospitals.

      Anesthesia Breathing Circuits. The Company offers a wide variety of
single-patient use anesthesia breathing circuits, which are used to connect the
patient to the anesthesia machine and to various patient monitors. Each
breathing circuit consists of flexible hoses, a breathing bag, and a "Y" and
elbow attachment. Since the breathing circuit needs of hospitals vary
significantly, the Company offers a large variety of circuits designed to be
compatible with anesthesia equipment manufactured by numerous other companies.
With the Marquest acquisition in 1997, the Company began offering circuits that
deliver heated humidification to patients. Technological advances in the areas
of gas sampling, temperature monitoring and humidification have provided the
Company with opportunities to expand its breathing circuit offerings.

      General Anesthesia Systems (GAS'TM'). The Company assembles and markets
General Anesthesia Systems (generically considered customized anesthesia kits),
which can include more than 20 products, such as air-filled cushion face masks,
breathing circuits, blood pressure cuffs and temperature monitoring probes. In
marketing the GAS'TM' kits, the Company's sales representatives use detailed
questionnaires to assist in determining the particular products the hospital
desires in its anesthesia kits. The Company then assembles GAS'TM' kit to meet
the hospital's specific needs.

      Limb[T]'TM'. In the first quarter of Fiscal 2001, the Company
introduced a single limb breathing circuit used for general anesthesia,
transport or critical care situations. It incorporates a patented


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technology developed with a septum to separate inspiratory and expiratory gases.
It competes with the traditional two limb system and is an alternative to the
F-type circuit.

      PAXpress'TM'. In the first quarter of Fiscal 2001, the Company introduced
a pharyngeal airway (PAXpress), a single use airway device promoted as an
alternative to the LMA (laryngeal mask airway) device. The PAXpress'TM' is used
for airway management during general anesthesia procedures, and with just one
size, can accommodate all adults over 90 pounds.

      INFUSABLE'r' Disposable Pressure Infusor. Invasive pressure monitoring has
been used since the early 1970's as a means of monitoring blood and other fluid
pressures of patients in certain critical care situations. The monitoring
process involves inserting a catheter into the artery of the patient, connecting
the catheter to a transducer (a device which converts the pressure impulse from
the patient's blood into an electrical signal), and transmitting the electrical
signal to a monitoring screen. The monitoring process uses a fluid-filled
conduit to connect the catheter to the transducer. The fluid generally is a
saline solution forced into the system by a pressure infusor. The Company's
patented INFUSABLE'r' disposable pressure infusor consists of an inflatable
bladder, a bulb to pump air into the bladder and a patented pressure gauge. The
Infusable'r' also has a mesh netting into which a package of sterile fluid or
"solution bag" is placed. The fluid is connected to the monitoring system and
the pressure on the solution bag is set at a pressure level designed to maintain
the pressure required by the monitoring system. The Infusable'r' is also used to
deliver blood or fluids to a patient at a rapid rate; usually under trauma
conditions.

      Vital View'TM' Single-Patient Use Fiberoptic Laryngoscope System This
disposable system is designed to assist the anesthesiologist in correctly
placing an endotracheal tube within the trachea of the patient. This system has
several advantages over traditional metal blade laryngoscope systems, including
lowering the risk to both the patient and physician of infection associated with
reusable metal blades and handles. In addition, hospital capital outlays for
stocking emergency crash carts can be reduced by purchasing the Vital View'TM'
system rather than a reusable fiberoptic system.

      Thomas Medical Products.

      Thomas Medical Products, Inc. ("TMP"), a wholly-owned subsidiary of the
Company, is an OEM manufacturer and contract development organization which is
driven by significant scientific, technical, engineering, manufacturing and
QA/Regulatory expertise in the disposable medical device area. TMP manufactures
devices which provide access primarily to the vascular system by medical
professionals and include products such as introducers, sheaths, dilators,
hemostasis valves and catheters. TMP's products are sold primarily to other
healthcare product providers to be used in their products or as part of surgical
kits.


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RESPIRATORY AND CRITICAL CARE PRODUCTS:

      Code Blue II'TM' The Company was the first to offer single-patient use
manual resuscitators. Manual resuscitators are ventilation devices which are
squeezed by hand to force oxygen into a patient's lungs. They are used
throughout the hospital in a variety of settings. For example, patients on a
ventilator require the use of a resuscitator prior to tracheal suctioning
procedures. Another use is in providing oxygen while transporting the patient
between the operating room and other critical care units. In addition,
resuscitators are typically placed strategically throughout the hospital to
provide assistance to patients who have stopped breathing and require
resuscitation.

      The Company's Code Blue II'TM' resuscitators are used in emergency
situations and in a variety of medical procedures. Code Blue II'TM'
resuscitators are sold in different sizes for infants, children and adults.
These resuscitators alleviate certain problems involved in mouth-to-mouth
emergency resuscitation, including the risk to both the rescuer and the
individual of transmitting infections. Most reusable manual resuscitators are
costly to sterilize and difficult to fully reassemble. In contrast, Code Blue
II'TM' resuscitators are relatively inexpensive, and already fully assembled.

      Pocket Blue'TM' Manual Resuscitators . The Pocket Blue'TM' was introduced
at the end of 1999. It combines the utility of a manual resuscitation bag with
the compact design of a pocket mask. This patented device offers first
responders to a patient requiring CPR to perform the life-saving maneuver
without worrying about contaminating either themselves or the victim.

      Babysafe'TM' Manual Resuscitators. The Company also offers a specialized
line of infant resuscitation products (BabySafe'TM', PediBlue'TM' and
BabyBlue'TM' resuscitators) used in labor and delivery rooms and in neonatal
intensive care units, where controlling the spread of infection is particularly
critical. BabySafe'TM' resuscitators offer the ability to adjust and limit the
level of pressure that can be delivered during resuscitation. Oxygen can be
delivered without the risk of barotrauma. Baby Safe'TM', PediBlue'TM' and
BabyBlue'TM' resuscitators are available in a variety of configurations and
sizes to meet the needs of infants and children.

      CleenCuff'TM' and CUFF-ABLE'r' Blood Pressure Cuffs. The Company
manufactures and sells single-patient use blood pressure cuffs which provide
hospitals with an alternative to traditional reusable blood pressure cuffs that
can become contaminated with blood and other body fluids. While all patients
admitted to hospitals are candidates for their own dedicated blood pressure
cuff, the Company believes that to date the primary market for disposable cuffs
has been for cases where infection control is a high priority. The Company's
cuffs are sold in a variety of sizes (including neonatal) and are adaptable to
all manual and electronic blood pressure monitors that utilize blood pressure
cuffs.

      Gas-Lyte'r' and Quick-ABG'r'. The Company offers a broad line of
disposable arterial blood gas ("ABG") syringes and collection systems. Blood gas
syringes are used to collect blood for blood gas analysis routinely performed in
hospitals on patients suspected of having metabolic, respiratory or other
cardiopulmonary difficulties. The blood gas sample is processed through a blood
gas analyzer. Blood gas analyzers are manufactured by a wide range of
manufacturers. The Company offers its ABG products in both standard
configurations and in kits that are customized to meet a specific hospital's
needs.


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      SCT3000'TM' Heated Humidification Systems. The Company manufactures a set
of products to provide a flow of warm moist air to patients who are at risk from
loss of body temperature and drying of the lung linings. These products consist
of an electronic humidifier, the SCT3000'TM', that utilizes single use heated
and non-heated wire breathing circuits, as well as single use humidification
chambers. In addition to their use in respiratory care, these products also have
anesthesia applications.

      Continuous Positive Airway Pressure ("CPAP") Systems. The Company's face
mask CPAP systems provide a less invasive and more comfortable way of providing
oxygen to certain patients than conventional ventilator-based systems. The
Company's face mask CPAP systems eliminate the need to insert an endotracheal
tube into the patient's trachea and attach the patient to a ventilator. The
Company believes that its CPAP systems generally represent a significant advance
in the treatment of Adult Respiratory Distress Syndrome (ARDS) and have been
found to be clinically effective in the treatment of certain traumatic chest
injuries including postoperative atelectasis (collapse of the air sacs in the
lungs and other disease states). Mask CPAP systems are now being used
successfully in the pre-hospital setting to treat patients with cardiogenic
pulmonary edema. The system consists of a compact flow generator connected to a
dual-valved, air-filled cushion face mask. The face mask is attached to a
single-patient use PEEP (positive end expiratory pressure) valve designed to
maintain positive airway pressure in the lung, thus allowing for more oxygen to
diffuse into the patient's blood system.

      Misty Ox'r' Respiratory Products. The MistyOx 'r' line consists of three
respiratory product lines that deliver hydration to a patient. The first is a
pre-filled bubble humidifier to deliver low flow and low concentration of oxygen
to patients, the second is a nebulizer to deliver medium to high flow and high
concentrations of oxygen to patients, and the third is the addition of a
regulated heater to the nebulizer. These products may be used on infants,
children and adults in many areas of the hospital, including emergency, recovery
and critical care.

      ACTAR'r' and INFANTRY'r' CPR Training Manikins. The Company manufactures a
product line of patented cardiopulmonary resuscitation ("CPR") training
manikins. The ACTAR'r' manikin was re-designed in Fiscal 2000 to meet changing
market demands. The new Actar D Fib incorporates additional functionality to
meet the updated requirements of the American Heart Association and the Red
Cross. These include jaw thrust, abdominal thrust and anatomical landmarks for
proper defibrillation training. While maintaining the necessary features and
anatomical landmarks for CPR practices, ACTAR'r' and INFANTRY'r', Actar D Fib
manikins are far smaller and less expensive than full size manikins typically
used for CPR training. The smaller size and affordable pricing enable each
person in a CPR training class to practice with his or her own manikin, rather
than sharing a single demonstration model.

      Broselow/Hinkle'TM' Pediatric Emergency System. The Broselow/Hinkle'TM'
pediatric emergency system is the product of extensive clinical efforts by James
Broselow, M.D., and Alan Hinkle, M.D.. This system takes advantage of the direct
correlation between a pediatric patient's body length and the proper size of
emergency supplies and correct drug dosages. This patented system, licensed to
the Company, consists of: a tape measure having eight color zones, a
corresponding series of color-coded single-patient use emergency kits or modules
and a nylon organizer bag custom-designed to hold all the supplies needed in
either a trauma, cardiac or respiratory pediatric emergency. With this system,
emergency room and EMS personnel can be confident that all the supplies
necessary to manage a pediatric emergency are readily identified, available and
organized in a manner that minimizes reaction time. The Broselow/Hinkle'TM'
pediatric emergency system may also be sold to the pediatrician office market.


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      Aero(2) Mask'TM'. In the first quarter of fiscal 2001, the Aero[u]2 Mask
was introduced. This mask is an alternative to the traditional vinyl mask used
for oxygen, nebulization and aerosol mask treatments. It is cost effective and
eliminates PVC (polyvinyl chloride) and latex found in the traditional masks.

      Vital Pharma, Inc.

      Vital Pharma, Inc. ("Vital Pharma"), also a wholly-owned subsidiary of the
Company, was acquired by Vital Signs in January 1996. Vital Pharma's principal
focus is utilization of the Company's expertise in blow-fill-seal technology for
third party contract packaging customers that require sterile packaging
(primarily pharmaceutical and medical device manufacturers).

      The Validation Group

      The Validation Group provides consulting services to companies engaged in
the manufacture of medical devices and pharmaceuticals, mainly in the area of
compliance with regulations promulgated by the Food and Drug Administration. The
Validation Group's employees includes a professional staff with extensive
knowledge and industry experience involving FDA manufacturing and validation
requirements.

SLEEP THERAPY AND PERSONAL VENTILATION PRODUCTS:

      Breas Medical, AB

      The Breas product line marketed primarily internationally includes the
following:

      PV10 and PV100 Nasal CPAP. The PV10 and PV100 are nasal CPAP devices used
to treat patients suffering from sleep disorders; most typically, obstructive
sleep apnea ("OSA"). These devices deliver continuous positive airway pressure
to patients in order to keep their airway open during sleep. This treatment
regime has proven to be an effective method of caring for OSA patients.

      PV101 and 102. The PV101 and 102 are advanced Bi-Level CPAP device which
allows inspiration and expiration pressure levels to be pre-set. Ventilation
can be matched to the patient's own breathing pattern by setting levels which
promote more comfortable and natural respiration. While the PV101 is designed
for sleep disorders, the PV102 has additional features to treat other forms of
respiratory insufficiency such as COPD.

      PV401 and PV403 Ventilators. The PV400 series ventilator supports the
ventilation needs of patients suffering from, among other things, respiratory
insufficiency. Patients benefiting from the PV401/3 may suffer from
neuromuscular weakened duchene's disease and paralysis, among other diseases.
The PV403 is an upgraded version of the PV401 with improved displays of
monitoring and control systems.

      PV502 Ventilator. The PV502 is a fully functioning ventilator. This
life-sustaining device may be used on home ventilator patients as well as the
less acute, longer term ventilator patients that remain inside a hospital. This
ventilator is a cost effective alternative to the rather narrow range of
competitive products currently available in this field.

      HA50 The HA50 is a humidification system for patients on ventilators.

      SC 20 The SC 20 is a screening device to assess patients at home for
potential OSA.


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NATIONAL SLEEP TECHNOLOGIES, INC.

      National Sleep Technologies, Inc. ("NST") provides sleep diagnostic
testing services in the United States through free standing labs and, through
contracts with hospitals, in hospital facilities, for patients suspected of
suffering from sleep disorders, such as OSA. Devices sold for home use include
nasal CPAP (continuous positive airway pressure) generators and masks, tubing
sets, and humidifiers.

Market Data

      The following table sets forth, for each of the past three fiscal years,
the dollar amount and approximate percentage of total revenue represented by the
Company's anesthesia products, respiratory/critical care products, and sleep
therapy products:

<TABLE>
<CAPTION>
                                                       YEAR ENDED SEPTEMBER 30,
                                  -------------------------------------------------------------------
                                         2001                   2000                    1999
                                  --------------------   --------------------    --------------------
                                   AMOUNT        %        AMOUNT        %         AMOUNT        %
                                  ---------   --------   ---------    -------    ----------   -------
                                                         (DOLLARS IN MILLIONS)
                                                         ---------------------
<S>                               <C>            <C>     <C>             <C>     <C>             <C>
ANESTHESIA                        $  68.8        41.4    $  65.1         43.3    $  61.0         46.8
RESPIRATORY/CRITICAL CARE            67.0        40.3       64.4         42.8       64.6         49.6
SLEEP THERAPY                        30.4        18.3       20.8         13.9        4.7          3.6
                                  ---------   --------   ---------    -------    ----------   -------
TOTAL                             $ 166.2        100%    $ 150.3         100%    $ 130.3         100%
                                  =========   ========   =========    =======    ==========   =======
</TABLE>

Sales, Marketing and Customers

      The Company sells its anesthesia and respiratory/critical care products to
hospitals in the United States through its own sales force. As of September 30,
2001, the Company's U.S. direct sales force consisted of 57 individuals. The
Company also uses national distributors, such as Cardinal, McKesson/General
Medical, and Owens & Minor, to deliver these products to hospitals. Sales
through these distributors aggregated 27%, 26% and 32% of total
Anesthesia/Critical Care revenue during fiscal 2001, 2000 and 1999,
respectively.

      In the fiscal years 2001, 2000 and 1999, one of the large national
distributors represented approximately 13%, 14%, and 13%, respectively, of total
revenue. The same customer represented approximately 17% and 14% of outstanding
accounts receivable at September 30, 2001 and 2000, respectively.


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      The Company utilizes independent distributors in the United States and
internationally for its Actar'r' CPR training manikins and other emergency care
products.

      As new products are developed which can be sold by the Company's sales
force, management educates and trains its sales force in the need, use,
application and advantages of the Company's products. The Company also holds
quarterly training sessions for all of its salespersons and conducts additional
training as it deems appropriate.

      The Company's marketing staff, which works closely with its sales force,
collects and analyzes customer responses to new and existing products,
participates in the Company's product development program and assists in product
training. In addition, the Company's marketing staff develops and helps
implement various internal and external promotional activities.

      As have other providers within the medical and healthcare industries, the
Company has been challenged with the rising purchasing power of group purchasing
organizations such as Broadlane, Consorta, Healthsouth, Healthtrust, Med-Assets,
Inc. (HSCA), Novation and Premier. The Company has successfully signed
agreements with Broadlane, Consorta, Healthsouth, Healthtrust, Med-Assets (HSCA)
and Premier in various product categories both for sole and dual source awards.

International Sales

      For the year ended September 30, 2001, international sales accounted for
approximately 23% of total revenue as compared with approximately 23% during
fiscal 2000 and approximately 17% during fiscal 1999.

      The Company sells its Anesthesia/Critical Care products in European and
other international markets primarily through distributors. The Company has 7
international sales managers and has built a network of over 160 independent
distributors to sell the Company's anesthesia, respiratory/critical care and
emergency products in major international markets. In the United Kingdom and
China, these products are sold through a direct sales force. Breas has 4
country managers and 21 sales representatives selling CPAP and ventilator
devices in Europe.

      It is the Company's intention to augment the international sales effort
through strategic alliances and OEM agreements wherever possible, although no
assurance can be made that any such agreements can be completed.

Research and Development

      The Company regards the element of innovation in its product line to be an
essential part of its overall success. The principal focus of the Company's
research and development effort is to develop product solutions to problems
experienced by healthcare professionals. The Company's development activities
are directed toward expanding the Company's product offering in anesthesia,
respiratory/critical care, emergency and sleep products. The principal focus is
on new patentable products as well as improvements to existing products.
Moreover, the internal research and development ("R&D") staff maintains
collaborative relationships with external professionals.

      The Company expects to continue to rely in part on its internal staff and
on outside professionals to perform research and development in the Company's
primary areas of expertise. The Company's research and development expenses
aggregated $5,810,000, $8,563,000 and $7,870,000


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respectively, for fiscal 1999, 2000 and 2001.

Product Liability Exposure

      As with other healthcare product suppliers, the Company is exposed to
potential product liability resulting from the use of the Company's products.
The Company presently carries product liability insurance coverage which
generally protects the Company against claims of bodily injury or property
damage arising out of any products manufactured, sold or distributed by the
Company. If a product liability suit were filed and a judgment entered against
the Company or the Company entered into a settlement agreement, the business,
results of operations and financial condition of the Company could be materially
adversely affected if such judgment or settlement exceeded the limits of the
Company's coverage.

      There can be no assurance that the Company's insurance will be sufficient
to cover product liability claims that could arise or that such coverage will
remain available to the Company on satisfactory terms, if at all.

Manufacturing and Quality Control

      General

      The Company's facilities in Totowa, New Jersey; Englewood, Colorado;
Burnsville, Minnesota; Malvern, Pennsylvania; Riviera Beach, Florida; Orange,
California and Molnlyke, Sweden are the principal manufacturing locations for
the Company's products, including anesthesia breathing circuits, filters, blood
pressure cuffs, infusables, ABG syringes, heated humidification circuits,
nebulizers, manual resuscitators, introducers, and sleep therapy products. The
Company performs extrusion, corrugation, molding, assembly, testing, packaging
and shipping in these locations. In some instances, plastic components
incorporated in certain products are molded to the Company's specifications by
outside custom injection molders who utilize molds that are designed and, in
most instances, owned by the Company. The Company's suppliers typically are
presented with written specifications to assure that components are manufactured
in conformity with the Company's design.

      Given the ultimate use of many of the Company's products within the
operating room and critical care units of hospitals, the Company conducts
quality control testing in all of its facilities. Substantially all such testing
is subject to governmental regulation. Pursuant to United States Food and Drug
Administration ("FDA") regulations, the Company is required to maintain records
of all raw materials received and used in the manufacturing process along with
complete histories of all devices manufactured. See "Regulation."

      In addition to meeting the FDA Quality System Regulation, the Company's
quality system is certified by a recognized Notified Body to be in compliance
with ISO 9001 and EN46001 standards. The Company's products carry the Mark that
indicates compliance with the European Unions Medical Device Directive
93/42/EEC.


                                       11




<Page>

      Significant Suppliers

      In 1980, the Company acquired the rights to its air-filled cushion
anesthesia face mask through a collaboration arrangement with Respironics, Inc.
("Respironics"). Face masks are used in a variety of the Company's circuits and
are sold individually to customers. The Company purchases its face masks from
Respironics, a single source which manufactures the face mask in the People's
Republic of China. The Company's supply agreement with Respironics requires
Respironics to supply air-filled cushion face masks of various specifications to
the Company on an exclusive basis for anesthesia purposes, and obligates the
Company to purchase all of its anesthesia face masks from Respironics as long as
Respironics is the low cost supplier. The Company has had a series of supply
agreements with Respironics for many years. The current supply agreement with
Respironics was renewed in 1999 to extend its term until 2006, with an
additional option to further extend the term of the agreement through 2011,
providing the Company with a secure supplier relationship on this key product.

      If the supply of face masks from Respironics should be interrupted for any
reason, the Company would seek to find alternative suppliers of face masks. In
such event, the Company may experience disruption in its business. No assurance
can be given that, in the event of such an interruption or cessation, the
Company could, in fact, maintain its required supply of face masks in a quantity
and at a cost that would not have a material adverse effect on the business and
operating results of the Company. The Company's policy is to maintain a
sufficient stock of face masks to lessen the impact of any temporary production
or supply disruption.

Sales Backlog

      The Company's objective is to ship all orders within relatively short time
frames.

Competition

      The Company faces substantial competition. The principal competitive
factors in the Company's markets include innovative product design, product
quality, established customer relationships, name recognition, distribution and
price. The Company believes that its products compete favorably with respect to
these factors, although certain of the Company's competitors may have greater
financial and marketing resources or broader product lines.

      The Company's competitive environment can be characterized as fragmented,
often with many different companies competing with regard to a specific product.
As a result, the Company's competition varies from product to product but
includes a number of competitors with substantially greater resources. The
Company's primary competitors include SIMS Portex, Inc., a subsidiary of Smith
Industries, PLC (face masks, breathing circuits, resuscitators, nebulizers, ABG
kits, anesthesia kits and closed suction products), Baxter International Inc.,
(face masks, breathing circuits and anesthesia kits), Tyco International, Inc.
(breathing circuits, CPAP and ventilators), King Systems (face masks and
anesthesia circuits), Critikon, Inc. (blood pressure cuffs), Respironics, Inc.
(CPAP and ventilators), Resmed, Inc. (CPAP), Ambu (resuscitators), Allegiance,
Inc. (resuscitators), Kimberly-Clark (blood pressure cuffs), Sleep Services of
America and Sleep Med (sleep labs).

Regulation

      As a manufacturer of medical devices, the Company is subject to regulation
by, among other


                                       12




<Page>

governmental entities, the FDA and the corresponding agencies of the states and
foreign countries in which the Company sells its products. The Company must
comply with a variety of regulations, including the Quality System Regulations
("QSR") of the FDA, and is subject to periodic inspections by the FDA and
applicable state and foreign agencies. Enforcement of QSR requirements has
increased significantly in recent years, and the FDA has publicly stated that
compliance would be more strictly scrutinized. If the FDA believes that its
regulations have not been fulfilled, it may invoke extensive enforcement powers.
Noncompliance with applicable requirements can result in, among other things,
warning letters, fines, injunctions, civil penalties, recall or seizure of
products, total or partial suspension of production, failure to receive
pre-market clearances or approvals, withdrawal of approvals and criminal
prosecution. The FDA also has the authority to request recall, repair,
replacement or refund of the cost of any device manufactured or distributed by
the Company.

      Medical devices are classified by the FDA into three classes that
determine the degree of regulatory control to which the manufacturer of the
device is subject. In general, Class I devices involve compliance with QSR
requirements. Class II devices are subject to the same controls as Class I and
also may be subject to specific controls (for example; design controls,
performance standards, post market surveillance, patient registries and FDA
guidelines) and can be subject to pre-market notification ("510(k)"). Class III
devices are those devices for which pre-market approval ("PMA") (as distinct
from pre-market notification) is required before commercial marketing to assure
the products' safety and effectiveness.

      To date, all of the Company's products are classified as either Class I or
Class II. Many new medical devices and some modifications to existing medical
devices, including most of the Company's products, are subject to a pre-market
notification process pursuant to Section 510(k) of the Federal Food, Drug and
Cosmetic Act. Further, current FDA enforcement policy prohibits the marketing of
approved or cleared medical devices for unapproved or uncleared uses. Products
which do not receive clearance through the FDA's 510(k) notification process are
subject to much lengthier and more complex PMA procedures.

      No assurance can be given that the FDA or foreign regulatory agencies will
give on a timely basis, if at all, the requisite clearances or approvals for any
of the Company's medical devices which are under development. Moreover, after
clearance or approval is given, these agencies may withdraw clearances or
approvals or require the Company to change the device or its manufacturing
process or labeling, to supply additional proof of its safety and effectiveness
or to recall, repair, replace or refund the cost of the medical device, if it is
shown to be hazardous or defective. The process of obtaining clearances or
approvals to market products can be costly and time consuming and can delay the
marketing and sale of the Company's products.

      Federal, state and foreign regulations regarding the manufacture and sale
of medical devices are subject to change. In the future, the Company cannot
predict what impact, if any, such changes might have on its business.

      The Company is also subject to numerous federal, state and local laws
relating to such matters as safe working conditions, environmental protection
and fire hazard control. There can be no assurance that the Company will not be
required to incur significant expenses to comply with such laws and regulations
in the future.

Patents


                                       13




<Page>

      At September 30, 2001, the Company owned or licensed 127 domestic and
foreign patents. The Company has filed certain patent applications and continues
its efforts to acquire and develop patented products. The Company has pursued
patent protection when in the reasonable judgment of management such efforts may
tend to provide the Company with competitive advantages.

Employees

      At September 30, 2001, the Company had 1090 full-time employees and 37
part-time employees. The Company believes that its relations with its employees
are satisfactory.

Item 2. Properties

      The Company's executive offices, principal manufacturing plant and
principal warehouse facilities are located in Totowa, New Jersey. These
facilities, consisting of approximately 154,000 square feet, are owned by the
Company. The Company also owns manufacturing, warehouse and office space in
Englewood, Colorado consisting of 88,000 square feet and also owns the facility
utilized by Vital Pharma consisting of 13,600 square feet in Riviera Beach,
Florida and 27,000 square feet in Molnlyke, Sweden. The Company's other
substantial facilities -- approximately 35,000 square feet in Burnsville,
Minnesota; 26,000 square feet in Aurora, Colorado; 20,000 square feet in
Malvern, Pennsylvania; and 18,000 square feet in Orange, California -- are
leased by the Company. The Company also leases office, assembly and warehouse
space in Riviera Beach, Florida; Conshohocken, Pennsylvania; Dallas, Texas;
Syracuse, New York; Tulsa, Oklahoma; Arnold, Maryland and in Barnham, the United
Kingdom.

Item 3. Legal Proceedings

      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's ABG syringe product line. In July 1999 the Court indicated at a
hearing that, based on one exhibit submitted by the plaintiff, the Marquest ABG
syringe products appear to infringe the plaintiff's patent, and requested that
the plaintiff submit an updated proof of damages. In July 1999, plaintiff filed
an updated proof of damages of approximately $6.5 million, plus interest and
costs. On June 23, 2000 the Court entered a judgment against the Company's
distributor for Yen 336,872,689 ($2,853,146) plus five percent annual interest.
The distributor (which has patent indemnification protection from Marquest) has
appealed the judgment to the Tokyo Supreme Court. The appelate court has closed
the proceedings on the presentation of additional evidence. A decision is
expected by the end of the Company's second fiscal quarter. 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.

      On December 6, 1999 a complaint was filed against the Company on behalf of
the former shareholders of 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. The parties
are in the discovery phase of the arbitration proceeding.

      The Company is also involved in other legal proceedings arising in the
ordinary course of business.


                                       14




<Page>

      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.

Item 4. Submission of Matters to a Vote of Security Holders

      The annual meeting of the Company's shareholders was held on August 17,
2001. At that meeting, each of the nominees for election to the Board, as
identified in the Company's proxy statement, were elected. The following number
of shares were voted for and against each nominee.

        NOMINEE                  FOR           AUTHORITY WITHHELD
--------------------------------------------------------------------
Terence D. Wall              10,927,470               1,519,001
David J. Bershad             12,205,049                 241,422
Anthony J. Dimun             12,205,049                 241,422
Stuart M. Essig              12,205,049                 241,422
E. David Hetz                12,205,049                 241,422
Joseph J. Thomas             11,118,116               1,328,355
Barry Wicker                 11,118,116               1,328,355


                                       15




<Page>

Item 4A. Executive Officers of the Registrant

The Company's executive officers are as follows:

NAME               AGE*   POSITIONS WITH THE COMPANY
----               ----   --------------------------
Terence D. Wall     60    President, Chief Executive Officer and Director

Joseph Bourgart     42    Executive Vice President, New Business Development

Herbert Javer       58    Chief Financial Officer

Joseph J. Thomas    65    President, Thomas Medical Products, Inc. and Director

Barry Wicker        61    Executive Vice President -Sales and Director

*     As of September 30, 2001.

      Terence D. Wall founded the Company in 1972 and has been President, Chief
Executive Officer and a director of the Company since that time. He has also
invested in and serves on the Board of Directors of certain healthcare
businesses, including Bionx Implants, Inc., a manufacturer of bioabsorbable
medical devices for orthopedic and other applications ("Bionx"). He received a
Bachelor of Science degree in 1963 from the University of Maryland and a Master
of Business Administration degree from Pace University in 1975. For the
foreseeable future, the Company will remain dependent upon the efforts of Mr.
Wall. The Company does not maintain key man life insurance on Mr. Wall's life.

      Joseph F. Bourgart has served as the Executive Vice President of New
Business Development of Vital Signs since June, 2001. Previously, he was the
acting Vice President of Finance and Business Development for Biosyn, Inc., and
was the Chief Financial Officer and Vice President of New Business Development
for Datex-Ohmeda, Inc. Prior to his experiences in medical technology and life
sciences, he began his career with IBM and PepsiCo with increasing
responsibilities in engineering, marketing, finance, strategic planning and
management roles. Mr. Bourgart has a B.S. in Engineering from the Georgia
Institute of Technology and an MBA in finance from The Wharton School,
University of Pennsylvania.

      Herbert Javer has served as the Chief Financial Officer of Vital Signs
since May, 2001. For the prior eighteen years, he was the Senior Vice President,
Chief Financial Officer and member of the Board of Directors of Gemini
Industries, Inc. of Clifton, New Jersey. He began his career as an auditor with
the firm of Seidman and Seidman, where he spent four years and became a CPA. He
was then recruited by a client of Seidman and Seidman as its Chief Financial
Officer and later took that company public. Mr. Javer has been a Chief Financial
Officer for over thirty years with various manufacturing and distribution
companies.

      Joseph J. Thomas has served as a director of the Company and President of
Thomas Medical Products, Inc. ("TMP") since the Company acquired TMP on October
1, 1992. Prior to the acquisition of TMP, Mr. Thomas was President of TMP from
1990 - 1992. Mr. Thomas was President and General Manager of Access Devices,
Inc., (a catheter manufacturer) from 1982 to 1989 and has held various research
and development positions with various companies including Johnson & Johnson.

      Barry Wicker has served as a director and an Executive Vice President of
the Company since


                                       16




<Page>

1985 (with primary responsibility for sales and marketing). Mr. Wicker joined
the Company in 1978 as National Sales Manager and became Vice President - Sales
in 1981. Prior to joining the Company, he held various marketing and sales
positions with The Foregger Co. over a 20 year period.

      Each of the Company's executive officers serves as such at the pleasure of
the Board.


                                       17




<Page>

                                     PART II

Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters

      The Company's Common Stock (the "Common Stock") is traded in the
over-the-counter market and quoted on the National Market System of the National
Association of Securities Dealers Automated Quotation System ("NASDAQ"). The
following table sets forth the high and low closing sales prices of the Common
Stock on the NASDAQ National Market System, and the cash dividends declared per
share of Common Stock, for the periods indicated:

                                                                     DIVIDEND
                                             HIGH          LOW       PER SHARE

Fiscal Year Ended September 30, 2000:

        Quarter ended December 31, 1999:    $ 28.50     $  20.81       $ .04
        Quarter ended March 31, 2000:         25.38        20.44         .04
        Quarter ended June 30, 2000:          23.75        16.00         .04
        Quarter ended September 30,2000:      26.69        15.00         .04

Fiscal Year Ended September 30, 2001:

        Quarter ended December 31, 2000:    $ 34.56     $  25.38       $ .04
        Quarter ended March 31, 2001:         39.38        29.19         .04
        Quarter ended June 30, 2001:          42.11        29.19         .04
        Quarter ended September 30, 2001:     30.60        24.00         .04

      As of September 30, 2001, there were approximately 367 holders of record
of the Common Stock.

      During Fiscal 2001, the Company declared and paid cash dividends of $.16
per share. Payment of cash dividends in the future will depend upon the
financial condition, capital requirements, loan agreement restrictions and
earnings of the Company, as well as such other factors as the Board of Directors
may deem relevant.

Item 6. Selected Financial Data

      The following selected consolidated financial data have been derived from
the Company's audited consolidated financial statements. The information below
should be read in conjunction with the consolidated financial statements and
related notes included elsewhere in this Annual Report on Form 10-K.

      Acquisitions occurring during the past five years including National Sleep
Technologies (acquired in June, 2000), Breas Medical AB (acquired in June,
1999), Marquest Medical Products, Inc. (effective for financial reporting
purposes on April 1, 1997), Vital Pharma, Inc. (formerly known as HealthStar
Pharmaceutical Services, Inc.) (acquired in January 1996) have been accounted
for as purchases and, accordingly, are only reflected herein for dates and
periods on and after the respective dates noted above. See Note 2 of the
Company's Consolidated Financial Statements.

      For additional information regarding the NST and Breas acquisitions, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Overview."


                                       18




<Page>

                          VITAL SIGNS AND SUBSIDIARIES
                        CONSOLIDATED STATEMENT OF INCOME

<TABLE>
<CAPTION>
                                                                             YEAR ENDED SEPTEMBER 30,
                                                         --------------------------------------------------------------
                                                            2001         2000         1999         1998         1997
                                                         --------------------------------------------------------------
                                                                  (IN THOUSANDS EXCEPT PER SHARE DATA)

<S>                                                      <C>          <C>          <C>          <C>          <C>
Total revenue--continuing product lines                  $ 166,236    $ 150,311    $ 130,304    $ 123,335    $ 103,271
Cost of goods sold                                          81,013       72,223       63,938       60,288       48,610
                                                         ---------    ---------    ---------    ---------    ---------
Gross profit                                                85,223       78,088       66,366       63,047       54,661
                                                         ---------    ---------    ---------    ---------    ---------

Operating expenses:
   Selling, general and administrative                      41,981       39,005       33,258       36,513       27,186
   Research and development                                  7,870        8,563        5,810        5,715        3,869
   Interest income                                            (976)        (619)        (500)        (893)      (2,242)
   Interest expense                                          1,028          676          377          399          537
   Special charges                                          20,351        7,785           --        1,100        6,700
   Other (income) expense                                     (328)       2,079          457          815          844
   Goodwill amortization                                     1,120        1,117          796          700          862
                                                         ---------    ---------    ---------    ---------    ---------
                                                            71,046       58,606       40,198       44,349       37,756
                                                         ---------    ---------    ---------    ---------    ---------

Income before provision for income taxes and minority
    interest in income of consolidated subsidiary           14,177       19,482       26,168       18,698       16,905
Provision for income taxes                                   4,065        5,163        8,012        5,698        5,619
                                                         ---------    ---------    ---------    ---------    ---------

Income before minority interest in income of
    consolidated subsidiary                                 10,112       14,319       18,156       13,000       11,286
Minority interest in income of consolidated subsidiary           9          387          220           --           --
                                                         ---------    ---------    ---------    ---------    ---------
Income from continuing operations                           10,103       13,932       17,936       13,000       11,286
                                                         ---------    ---------    ---------    ---------    ---------

Discontinued Operations:
    Income (loss) from operations of Vital Pharma
        Machine Division (net of income taxes of
        ($265), and $59, respectively                           --           --         (590)         135           --
                                                         ---------    ---------    ---------    ---------    ---------
Income before cumulative effect of change in
    accounting principal                                    10,103       13,932       17,346       13,135       11,286
                                                         ---------    ---------    ---------    ---------    ---------
Cumulative effect of change in accounting principle
    (net of income taxes of $803)                               --           --           --        1,524           --
                                                         ---------    ---------    ---------    ---------    ---------
    Net Income                                           $  10,103    $  13,932    $  17,346    $  11,611    $  11,286
                                                         =========    =========    =========    =========    =========

Earnings per Common Share:
Basic income per share from continuing operations        $    0.80    $    1.14    $    1.46    $    1.03    $     .88
                                                         =========    =========    =========    =========    =========
Diluted income per share from continuing operations      $    0.79    $    1.13    $    1.46    $    1.02    $     .87
                                                         =========    =========    =========    =========    =========
Discontinued operations per share                        $      --    $      --    $    (.04)   $     .01    $      --
                                                         =========    =========    =========    =========    =========
Cumulative effect of change in accounting principle
    per share                                            $      --    $      --    $      --    $    (.12)   $      --
                                                         =========    =========    =========    =========    =========
Basic net income per share                               $    0.80    $    1.14    $    1.42    $     .92    $     .88
                                                         =========    =========    =========    =========    =========
Diluted net income per share                             $    0.79    $    1.13    $    1.41    $     .91    $     .87
                                                         =========    =========    =========    =========    =========
Basic weighted average number of shares                     12,633       12,177       12,250       12,665       12,881
                                                         =========    =========    =========    =========    =========
Diluted weighted average number of shares                   12,850       12,318       12,325       12,746       12,953
                                                         =========    =========    =========    =========    =========
</TABLE>


                                       19




<Page>

<TABLE>
<CAPTION>
                                        ----------------------------------------------------
                                                            SEPTEMBER 30,
                                        ----------------------------------------------------
                                          2001       2000       1999       1998       1997
<S>                                     <C>        <C>        <C>        <C>        <C>
Balance Sheet Data:
Working capital:                        $ 70,492   $ 39,284   $ 41,791   $ 35,579   $ 38,102
Total assets                             191,560    172,831    157,310    138,186    136,948
Long-term debt, excluding current
installments                               1,842      2,711      2,179      2,462      5,529
Cash dividends paid ($0.16 per share)      1,974      1,991      1,975      2,044      2,082
Total stockholders' equity               160,626    140,680    131,240    121,310    112,229
</TABLE>

ITEM 7. Management's Discussion and Analysis of Results of Operations and
Financial Condition

OVERVIEW

      As part of the Company's strategic plan to expand significantly into the
obstructive sleep apnea field, the Company embarked on two strategic
acquisitions that occurred over a two year time frame in which the controlling
interest in a European sleep therapeutic business was acquired in 1999 followed
by the acquisition of a sleep diagnostic business in the United States in 2000.
The details of these two acquisitions are described below.

Results of Operations

      The following table sets forth, for the periods indicated, the percentage
increase or decrease of certain items included in the Company's consolidated
statements of income.

<TABLE>
<CAPTION>
                                                                INCREASE (DECREASE) FROM
                                                                     PREVIOUS YEAR
                                                         ---------------------------------------
                                                           FISCAL 2001           FISCAL 2000
                                                          COMPARED WITH         COMPARED WITH
                                                           FISCAL 2000           FISCAL 1999
                                                         -----------------    ------------------
<S>                                                             <C>                  <C>
Total revenue                                                    10.6%                15.4%
Total cost of revenue                                            12.2%                13.0%
Gross profit                                                      9.1%                17.7%
Selling, general and administrative expenses                      7.6%                17.3%
Research and development expenses                                (8.1%)               47.4%
Income before minority interest and special charge               26.6%                 4.2%
Income from continuing operations before provision for
income taxes and minority interest in income of
consolidated subsidiary                                         (27.2%)              (25.6%)
Provision for income taxes                                      (21.3%)              (35.6%)
Net income                                                      (27.5%)              (19.7%)
</TABLE>


                                       20




<Page>

Fiscal 2001 Compared to Fiscal 2000:

      Net revenue for the twelve months ended September 30, 2001 increased by
10.6% compared with the same period last year. National Sleep Technologies, Inc.
("NST") is reflected in the results of operations only for four months of Fiscal
2000. The increase in net revenue was due in large part to the acquisition and
to unit increases.

      Sales of anesthesia products, representing 41.4% of net revenue, grew 6.0%
during Fiscal 2001, primarily due to the introduction of the Company's
Limbo'TM' breathing circuit product line as well as increased shipments at
the Company's Thomas Medical Products subsidiary. Sales of respiratory/critical
care products, representing 40.3% of net revenue, increased by 3.9%, primarily
due to unit increases. Sales of sleep/therapy and diagnostics, representing
18.3% of net revenue, increased 45.6% due largely to the acquisition of NST.

      While net revenue increased in dollars by 10.6%, gross profit dollars
increased by 9.1%. The Company's gross profit percentage for the year ended
September 30, 2001 was 51.3% compared to 52.0% in the same period of the last
fiscal year. The decrease in gross profit percentage is due in part to a change
in product mix.

      Selling, general and administrative expenses (S, G & A) increased by
$2,976,000 primarily due to the acquisition of National Sleep Technologies, Inc.
($2,240,000).

      Research and development expenses ("R&D") decreased by $693,000, largely
due to lower expenditures at Breas Medical AB, where five new products were
completed for introduction in FY 2000. Breas R & D expenses in 2001 represents
13% of sales.

      Other expense, net, which includes realized capital gains and losses,
legal expenses and currency gains and losses, decreased by $2,406,000 from the
twelve months ended September 30, 2000 to the twelve months ended September 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 consulting firm was
engaged to assist the Company in an impairment analysis of the Company's
subsidiary, Vital Pharma, Inc., which has sustained significant 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 28.7% and 26.5% for the years ended
September 30, 2001 and 2000, respectively. The rates for the year, ended
September 30, 2001 and 2000 are less than the federal and state statutory rates
primarily due to the utilization of deductions for tax return purposes and R & D
credits which do not effect book earnings.


                                       21




<Page>

Fiscal 2000 Compared to Fiscal 1999:

      Net revenue for the twelve months ended September 30, 2000 increased by
15.4% compared with the same period last year. The Company's interest in Breas
is reflected in the results of operations for four months of fiscal 1999 and for
the entire fiscal year 2000. National Sleep Technologies, Inc. is reflected in
the results of operations only for four months of Fiscal 2000. The increase in
net sales was due in large part to unit increases (offset by modest selling
price declines), as well as the acquisition of Breas Medical AB (see Note 2 of
the Notes to the Consolidated Financial Statements) and the conversion of the
Company's preferred stock investment in National Sleep Technologies, Inc. Prices
on existing products declined on average approximately .4% in the twelve months
ended September 30, 2000 when compared to the same period in 1999.

      Sales of anesthesia products, representing 43.3% of net revenue, which
grew 6.7% during Fiscal 2000 was largely a function of (i) increased sales of
the Company's breathing circuit products caused by increased demand, and (ii)
new customers for the Company's OEM manufacturing services. Sales of
respiratory/critical care products, representing 42.8% of net revenue, decreased
by .3%. Sales of sleep/therapy and diagnostics, representing 13.9% of net
revenue, increased by 34% excluding the effect of acquisitions and by 343% when
including acquisitions.

      While net revenue increased by 15.4%, gross profit increased by 17.7% in
absolute dollar amount. The discrepancy between the increase in sales and the
increase in gross profit is partially due to higher margin products resulting
from a full year of operations from the acquisition of Breas. The Company's cost
reduction program positively effected gross profit in Fiscal Year 2000 by
slightly over 1%. On a consolidated basis the Company's gross profit percentage
for the year ended September 30, 2000 was 52% compared to 50.9% for the year
ended September 30, 1999.

      Selling, general and administrative expenses (S, G & A) increased by
$5,747,000 primarily due to the acquisition of National Sleep Technologies, Inc.
($1,588,000), a full year of operating results for Breas Medical AB
($3,525,000), which was acquired in June 1999, and increased freight costs
($454,000) partially due to fuel surcharge costs.

      Research and development expenses ("R&D") increased by $2,753,000 (47.4%),
largely due to the development in Fiscal 2000 of the PAXpress'TM' and
Limbo'TM' products and the results of a full year of R & D efforts at
Breas Medical AB, where five new products were completed for introduction in
FY 2000. The Company continues to make an active commitment to new product
development.

      Other expense, net increased by $1,622,000 from the year ended September
30, 1999 to the year ended September 30, 2000 due to severance costs of
$573,000, the write down of non-performing assets of $453,000 and other non
recurring charges. See Note 10 of Notes to Consolidated Financial Statements.

      In July, 2000 the Company entered into a settlement agreement with respect
to patent litigation. A special charge of $7,785,000 relating to such settlement
and other litigation matters was reflected in the Company's results for the
twelve months ended September 30, 2000.


                                       22




<Page>

      The Company's effective tax rates were 26.5% and 30.6% for the years ended
September 30, 2000 and 1999 respectively. The rate for the year ended September
30, 2000 is less than the federal and state statutory rates primarily due to the
utilization of deductions for tax return purposes and R & D credits which do not
effect book earnings.

Liquidity and Capital Resources

      The Company continues to rely upon cash flows from its operations. During
the year ended September 30, 2001, cash and cash equivalents increased by $23.4
million. Operating activities provided $23 million of net cash. Financing
activities provided $6.2 million of net cash, as proceeds of $11.2 million from
the exercise of stock options offset $2.6 million of various other items and
$2.0 million of dividend payments. A total of $5.6 of net cash was used in
investing activities, including $3.7 million applicable to subsidiary
acquisitions and $1.9 million applicable to capital expenditures to improve
efficiencies and support new business opportunities. Cash and cash equivalents
were $31 million and together with long-term marketable securities aggregated
$31.5 million at September 30, 2001 as compared to $8.2 million at September 30,
2000. (see Note 5 to the Company's Consolidated Financial Statements).

      At September 30, 2001, the Company's working capital was $70.5 million
including an increase of $24.0 million in cash and the current ratio was 3.5 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 and
treasury stock repurchases. Such funds may be used for product development,
licenses, and product 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 JP Morgan Chase Bank.
There was no outstanding amount on this line of credit at September 30, 2001. JP
Morgan Chase has also expressed its willingness 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 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 differ significantly from recent experience or adverse events affect the
Company's operations.


                                       23




<Page>

ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk

      The Company is exposed to market risks, including the impact of commodity
price changes and changes in the market value of its investments and, to a
lesser extent, interest rate changes and foreign currency fluctuations. In the
normal course of business as described below, the Company employs policies and
procedures with the objective of limiting the impact of market risks on earnings
and cash flows and to lower its overall borrowing costs.

      The impact of interest rate changes and foreign currency fluctuations is
not material to the Company's financial condition. The Company does not enter
into interest rate and foreign currency transactions for speculative purposes.
It is also the Company's policy to price products from vendors and to customers
in U.S. dollars and to receive payment in U.S. dollars. Historically, the
international portion of the Company's sales has been relatively small and the
effect of changes in interest rates and foreign exchange rates on the Company's
earnings generally has been small relative to other factors that also affect
earnings, such as unit sales and operating margins. However, the international
segment is expected to grow both in terms of actual sales and as a percentage of
the Company's total sales and the Company may in the future need to revise or
change its approach to managing interest rate and foreign currency transactions.

      The Company's risks involving commodity price changes relate to prices of
raw materials used in its operations. The Company is exposed to changes in the
prices of latex and various plastics and resins for the manufacture of its
products. The Company does not enter into commodity futures or derivative
instrument transactions. Except with respect to its single source for face masks
discussed above in Item 1, it is the Company's policy to maintain commercial
relations with multiple suppliers and when prices for raw materials rise to
attempt to source alternative supplies.

Item 8. Financial Statements and Supplementary Data

      The following audited consolidated financial statements and related report
are set forth in this Annual Report on the following pages:

                                                                       PAGE
                                                                       ----
Independent Auditor's Report                                           F-1
Consolidated Balance sheet as of September 30, 2001 and 2000           F-2
Consolidated Statement of Income for the years ended
      September 30, 2001, 2000 and 1999                                F-3
Consolidated Statement of Stockholders' Equity for the years
      ended September 30, 2001, 2000 and 1999                          F-4
Consolidated Statement of Cash flows for the years ended
      September 30, 2001, 2000 and 1999                                F-5
Notes to Consolidated Financial Statements                             F-6

Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure

      Not applicable.


                                       24




<Page>

                          INDEPENDENT AUDITOR'S REPORT

To the Board of Directors
Vital Signs, Inc.

We have audited the accompanying consolidated balance sheets of Vital Signs,
Inc. and Subsidiaries as of September 30, 2001 and 2000 and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the three years in the period ended September 30, 2001. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Vital Signs, Inc.
and Subsidiaries as of September 30, 2001 and 2000 and the results of their
operations and their cash flows for each of the three years in the period ended
September 30, 2001, in conformity with accounting principles generally accepted
in the United States of America.


GOLDSTEIN GOLUB KESSLER LLP
New York, New York

November 19, 2001


                                      F-1




<Page>

                       VITAL SIGNS, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEET

                                     ASSETS

<TABLE>
<CAPTION>
                                                                        SEPTEMBER 30,
                                                                   ----------------------
                                                                      2001         2000
                                                                   ---------    ---------
                                                                       (IN THOUSANDS)
<S>                                                                <C>          <C>
Current Assets:
    Cash and cash equivalents (Note 1)                             $  31,029    $   7,606
    Accounts receivable, less allowance for doubtful accounts of
        $436 and $571, respectively (Notes 16 and 17)                 33,329       26,377
    Inventory (Notes 1 and 3)                                         25,984       23,964
    Prepaid expenses and other current assets (Note 4)                 8,899        6,361
                                                                   ---------    ---------
        Total current assets                                          99,241       64,308

    Property, plant and equipment - net (Notes 1 and 6)               35,710       53,016
    Marketable securities (Notes 1 and 5)                                486          551
    Goodwill -net (Notes 1 and 2)                                     48,178       47,253
    Deferred income taxes (Notes 1 and 15)                             5,002        2,235
    Other assets                                                       2,943        5,468
                                                                   ---------    ---------
        Total Assets                                               $ 191,560    $ 172,831
                                                                   =========    =========

                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
    Accounts payable                                               $   5,347    $   4,772
    Current portion of long-term debt (Note 7)                           357          535
    Accrued expenses (Note 8)                                          5,652        4,858
    Notes payable - bank (Note 7)                                      5,645        8,756
    Other current liabilities (Note 9)                                11,747        6,103
                                                                   ---------    ---------
        Total current liabilities                                     28,748       25,024

Long-term debt (Note 7)                                                1,842        2,711
Other liabilities                                                                     245
                                                                   ---------    ---------
        Total Liabilities                                             30,590       27,980
                                                                   ---------    ---------

Minority interest in subsidiaries                                        344        4,171
                                                                   ---------    ---------

Commitments and contingencies (Notes 2, 12 and 13)
Stockholders' Equity (Note 14)
    Common stock - no par value; authorized 40,000,000 shares,
    issued and outstanding 12,935,656, and 12,307,831
    respectively                                                      27,679       15,132
    Accumulated other comprehensive loss (Notes 1 and 5)              (2,270)      (1,540)
    Retained earnings                                                135,217      127,088
                                                                   ---------    ---------
    Stockholders' equity                                             160,626      140,680
                                                                   ---------    ---------
        Total Liabilities and Stockholders' Equity                 $ 191,560    $ 172,831
                                                                   =========    =========
</TABLE>

See Notes to Consolidated Financial Statements


                                      F-2




<Page>

                       VITAL SIGNS, INC. AND SUBSIDIARIES
                        CONSOLIDATED STATEMENT OF INCOME

<TABLE>
<CAPTION>
                                                              FOR THE YEAR ENDED SEPTEMBER 30,
                                                            ------------------------------------
                                                               2001         2000         1999
                                                            ----------   ----------   ----------
                                                          (IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S>                                                         <C>          <C>          <C>
Revenue:
    Net sales                                               $ 143,606    $ 138,457    $ 123,198
    Service revenue                                            22,630       11,854        7,106
                                                            ---------    ---------    ---------
                                                              166,236      150,311      130,304
                                                            ---------    ---------    ---------
Cost of goods sold and services performed:

    Cost of goods sold                                         68,317       65,709       59,628
    Cost of services performed                                 12,696        6,519        4,310
                                                            ---------    ---------    ---------
                                                               81,013       72,223       63,938
                                                            ---------    ---------    ---------

Gross profit                                                   85,223       78,088       66,366
                                                            ---------    ---------    ---------

Operating expenses:
    Selling, general and administrative                        41,981       39,005       33,258
    Research and development                                    7,870        8,563        5,810
    Interest income                                              (976)        (619)        (500)
    Interest expense                                            1,028          676          377
    Special charges (Note 11 and 13)                           20,351        7,785           --
    Other (income)expense-net (Notes 1 and 10)                   (328)       2,079          457
    Goodwill amortization                                       1,120        1,117          796
                                                            ---------    ---------    ---------
                                                               71,046       58,606       40,198
                                                            ---------    ---------    ---------

Income before provision for income taxes and minority
     interest in income of consolidated subsidiary             14,177       19,482       26,168
Provision for income taxes                                      4,065        5,163        8,012
                                                            ---------    ---------    ---------
Income before minority interest in income of consolidated
     subsidiary                                                10,112       14,319       18,156
Minority interest in income of consolidated subsidiary              9          387          220
                                                            ---------    ---------    ---------
Income from continuing operations                              10,103       13,932       17,936
                                                            ---------    ---------    ---------

Discontinued Operations (Note 2):
    Loss from operations of Vital Pharma Machine Division
      net of income tax benefit of ($265)                          --           --         (590)
                                                            ---------    ---------    ---------
Net income                                                  $  10,103    $  13,932    $  17,346
                                                            =========    =========    =========

Earnings (loss) per Common Share:
Basic income per share from continuing operations           $    0.80    $    1.14    $    1.46
                                                            =========    =========    =========
Diluted income per share from continuing operations         $    0.79    $    1.13    $    1.46
                                                            =========    =========    =========
Discontinued operations                                     $      --    $      --    $    (.04)
                                                            =========    =========    =========
Basic net income per share                                  $    0.80    $    1.14    $    1.42
                                                            =========    =========    =========
Diluted net income per share                                $    0.79    $    1.13    $    1.41
                                                            =========    =========    =========
Basic weighted average number of shares outstanding            12,633       12,177       12,250
                                                            =========    =========    =========
Diluted weighted average number of shares outstanding          12,850       12,318       12,325
                                                            =========    =========    =========
</TABLE>

 See Notes to Consolidated Financial Statements


                                      F-3




<Page>

                       VITAL SIGNS, INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                             (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                      ACCUMULATED
                                                                        OTHER
                                             COMMON STOCK            COMPREHENSIVE     RETAINED     STOCKHOLDERS' COMPREHENSIVE
                                        SHARES          AMOUNT       INCOME (LOSS)     EARNINGS        EQUITY         INCOME
                                      -----------------------------------------------------------------------------------------
<S>                                   <C>             <C>             <C>             <C>            <C>            <C>
Balance at September 30, 1998         12,628,194          21,520              14          99,776        121,310

Net income                                                                                17,346         17,346     $   17,346
Purchase of common stock                (418,814)         (7,302)                                        (7,302)
Reissuance of common stock                77,757           1,480                                          1,480
Exercise of stock options                  8,025              68                                             68
Adjustment for aggregate
   unrealized loss on marketable
   securities                                                                (16)                           (16)           (16)
Dividends paid ($.16 per share)                                                           (1,975)        (1,975)
Tax benefit from employees' and
   directors' stock option plans
   (Note 14)                                  --             329              --              --            329
                                      ----------      ----------      ----------      ----------     ----------     ----------
Balance at September 30, 1999:        12,295,162      $   16,095      $       (2)     $  115,147     $  131,240
Comprehensive Income                                                                                                $   17,330
                                                                                                                    ==========

Net income                                                                                13,932         13,932     $   13,932
Purchase of common stock                (237,551)         (4,775)                                        (4,775)
Reissuance of common stock                76,214           1,168                                          1,168
Exercise of stock options                174,006           2,268                                          2,268
Adjustment for aggregate
   unrealized loss on marketable
   securities                                                                 (3)                            (3)            (3)
Tax benefit from employees' and
   directors' stock option plans
   (Note 14)                                  --              76              --              --             76
Foreign currency translation loss                                         (1,535)                        (1,535)        (1,535)
Dividends paid ($.16 per share)                                                           (1,991)        (1,991)
                                      ----------      ----------      ----------      ----------     ----------     ----------
Balance at September 30, 2000:        12,307,831      $   15,132      $   (1,540)     $  127,088     $  140,680
Comprehensive Income                                                                                                $   12,394
                                                                                                                    ==========

Net income                                                                                10,103         10,103         10,103
Purchase of common stock                 (47,414)           (154)                                          (154)
Reissuance of common stock                31,157             695                                            695
Exercise of stock options                644,082          11,247                                         11,247
Adjustment for aggregate
   unrealized loss on marketable
   securities                                                                 17                             17             17
Tax benefit from employees' and
   directors' stock option plans
   (Note 14)                                                 759                                            759
Foreign currency translation loss                                           (747)                          (747)          (747)
Dividends paid ($.16 per share)                                                           (1,974)        (1,974)
                                      ----------      ----------      ----------      ----------     ----------     ----------
Balance at September 30, 2001:        12,935,656      $   27,679      $   (2,270)     $  135,217     $  160,626
                                      ==========      ==========      ==========      ==========     ==========
Comprehensive income                                                                                                $    9,373
                                                                                                                    ==========
</TABLE>

See Notes to Consolidated Financial Statements


                                      F-4




<Page>

                       VITAL SIGNS, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                           FOR THE YEAR ENDED SEPTEMBER 30,
                                                                        ----------------------------------------
                                                                            2001          2000          1999
                                                                        ----------------------------------------
<S>                                                                     <C>           <C>            <C>
Cash flows from operating activities:                                                (IN THOUSANDS)
    Net income                                                          $  10,103     $  13,932      $  17,346
    Adjustments to reconcile net income to net cash provided by
    operating activities:
        Depreciation and amortization                                       4,264         4,435          3,726
        Impairment charge                                                  20,351            --             --
        Deferred income taxes                                                 998          (638)           431
        Minority interest in income of consolidated subsidiary                  9           387            220
        Amortization of goodwill                                            1,120         1,117            796
        Tax benefit for stock options                                         759            76            329
        Amortization of deferred credit                                        --                          (91)
        Net gain on sales of available-for-sale securities                     --            --             16

    Changes in operating assets and liabilities:

        Increase in accounts receivable                                    (7,250)       (3,057)        (1,005)
        (Increase) decrease in inventory                                   (2,910)          102         (2,466)
        (Increase) decrease in prepaid expenses and other current          (3,242)       (1,140)           531
        assets

        (Increase) decrease in other assets                                (1,478)        1,370           (566)
        Decrease (increase) in accounts payable and accrued expenses          892        (2,801)          (541)
        Increase (decrease) in other liabilities                             (666)        1,521             --
                                                                        ---------     ---------      ---------
           Net cash provided by operating activities                       22,950        15,304         18,726
                                                                        ---------     ---------      ---------

    Cash flows from investing activities:

        Acquisition of property, plant and equipment                       (1,945)       (9,574)        (7,533)
        Purchases of other investments                                                       --         (6,368)
        Proceeds from sales of available-for-sale securities                   65            13          6,195
        Acquisition of subsidiaries, net of $2,344 of cash
           acquired (1999)                                                 (3,695)         (585)        (3,204)
                                                                        ---------     ---------      ---------

           Net cash used in investing activities                           (5,575)      (10,146)       (10,910)
                                                                        ---------     ---------      ---------

    Cash flows from financing activities:

        Dividends paid                                                     (1,974)       (1,991)        (1,975)
        Reissuance of common stock                                            695         1,671          1,480
        Purchase of common stock                                             (154)       (4,978)        (7,302)
        Proceeds from exercise of stock options                            11,247         2,268             68
        Proceeds from short term notes payable                             (2,607)        4,024          4,850
        Increase in long term debt and notes payable                           --         3,829             --
        Principal payments of long-term debt and notes payable               (970)       (7,250)          (882)
                                                                        ---------     ---------      ---------
           Net cash provided by financing activities                        6,237        (2,427)        (3,761)
                                                                        ---------     ---------      ---------

           Effect of foreign currency translation                            (189)       (1,780)            --
                                                                        ---------     ---------      ---------
    Net increase in cash and cash equivalents                              23,423           951          4,055
    Cash and cash equivalents at beginning of year                          7,606         6,655          2,600
                                                                        ---------     ---------      ---------
    Cash and cash equivalents at end of year                            $  31,029     $   7,606      $   6,655
                                                                        =========     =========      =========

    Supplemental disclosures of cash flow information:
        Cash paid during the year for:
           Interest                                                     $   1,034     $     486      $     421
           Income taxes                                                 $   5,769     $   6,646      $   6,264
</TABLE>

See Notes to Consolidated Financial Statements


                                      F-5




<Page>

Note 1 - Summary of Significant Accounting Policies and Principal Business
Activities:

      Business Activities:

      Vital Signs, Inc. ("VSI") and its subsidiaries (collectively the
"Company") design, manufacture and market single-patient use products for the
anesthesia, respiratory, critical care, sleep therapy and emergency markets.

      Principles of Consolidation:

      The consolidated financial statements include the accounts of VSI and its
majority-owned subsidiaries. All significant intercompany transactions and
balances have been eliminated.

      For comparability, certain 1999 and 2000 amounts have been reclassified,
where appropriate, to confirm to the financial statement presentation used
in 2001.

      Inventory:

      Inventory is stated at the lower of cost (first-in, first-out method) or
market.

      Depreciation:

      Depreciation and amortization of property, plant and equipment is provided
for by the straight-line method over the estimated useful lives of the related
assets.

      Income Taxes:

      Income taxes are based upon amounts included in the Consolidated Statement
of Income. Deferred income taxes represent the tax effect of temporary
differences between the basis of assets and liabilities for income tax and
financial reporting purposes.

      Revenue Recognition:

      In the case of product sales, the point of sales for the Company's
products is upon shipment to the customer pursuant to the customer's purchase
order and the Company's sales policy is that title to the sales passes upon
shipment from Vital Signs' manufacturing facility. Two subsidiaries earn their
revenue from service activities. In the case of service activities, their sales
are recorded when the service is performed and completed.

      As also noted in Note 17, certain of the Company's sales are made through
national and regional medical supply distributors. Sales to distributors are
made at a sales amount that includes a premium charge. Once the distributor has
provided documentation that the product was shipped to the end user (the
hospital), the distributor is then due a rebate against this sales price. The
rebate amount is specified in the sales agreement between the Company, the
distributor and the hospital. The Company records the sale upon shipment of the
product in accordance with its sales policy and in the same period records an
estimated sales allowance for the expected sales rebate to the distributor. This
sales rebate allowance is recorded as a reduction of the gross sale and is
calculated based on a historical moving average of sales rebates granted to
gross amounts sold to distributors.

      In December 1999, the SEC issued SAB 101 Revenue Recognition in Financial
Statements. SAB 101, as amended was implemented by the Company during the year
ended September 30, 2001.


                                      F-6




<Page>

The implementation of SAB 101 had no effect on the Company's consolidated
financial position, results of operations or cash flows.

      Goodwill and Other Intangible Assets:

      Goodwill and other intangible assets arising from business acquisitions
accounted for under the purchase method are amortized over periods up to 40
years using the straight-line method.

      The Company reviews the carrying value of long-lived assets, including
goodwill, whenever events or changes in circumstances indicate that the amounts
may not be recoverable. If the events or circumstances indicate that the
carrying amount of an asset may not be recoverable, the Company estimates the
future undiscounted cash flows expected to result from the use of the asset and
its eventual disposition. An impairment loss will be recognized if the carrying
value of the assets exceeds the estimated future undiscounted cash flows of
those assets. In addition, at each balance sheet date, the Company evaluates the
period of amortization of intangible assets. The factors used in evaluating the
period of amortization include (i) current operating results, (ii) projected
future operating results, and (iii) any other material factors that effect the
continuity of the business.

      Goodwill, consists of the following:

                         -------------------------------------------------------
                                              ACCUMULATED       AMORTIZATION
                               COST           AMORTIZATION         PERIOD
                         -------------------------------------------------------
                                             (in thousands)

      Goodwill    2001      $   61,929         $   13,751         40 years
                  2000          59,885             12,632         40 years

      Cash and Cash Equivalents:

      The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents. The Company believes
it is not exposed to any significant credit risk with respect to its highly
liquid investments in money market securities and its commercial banking
facilities.

      Net Income Per Share of Common Stock:

      Basic earnings per common share is computed using the weighted average
number of shares outstanding. Diluted earnings per common share is computed
using the weighted average number of shares outstanding adjusted for the
incremental shares attributed to outstanding options and warrants to purchase
common stock. Incremental shares of 217,000, 141,000 and 75,000 in 2001, 2000
and 1999, respectively, were used in the calculation of diluted earnings per
common share.

      Marketable Securities:

      Management determines the appropriate classification of securities at the
time of purchase and reevaluates such designation as of each balance sheet date.
The Company's marketable securities are debt securities and are classified as
available-for-sale. Available-for-sale securities are carried at fair value,
with the unrealized gains and losses, net of tax, reported in a separate
component of stockholders' equity. The amortized cost of debt securities in this
category is adjusted for amortization of premiums and discounts to maturity.
Such amortization is included in investment income.


                                      F-7




<Page>

      Realized gains and losses and declines in value judged to be
other-than-temporary on available-for-sale securities are included in investment
income. The cost of securities sold is determined in accordance with the
specific identification method. Dividends on securities classified as
available-for-sale are included in other expenses - net.

      Estimates:

      The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect reported amounts in the financial statements. Actual
results could differ from those estimates.

      Accounting for Stock-Based Compensation:

      The Company measures stock-based compensation cost for its employees and
directors using Accounting Principles Board ("APB") Opinion No. 25, as is
permitted by Statement of Financial Accounting Standards ("SFAS") No. 123,
Accounting for Stock-Based Compensation, and complies with the other provisions
and the disclosure-only requirements of SFAS No. 123. Accordingly, the Company
recognizes compensation expense for options granted to employees and directors
as the difference, if any, between the market price of the underlying common
stock on the date of grant and the exercise price of the option.

      Business Segment Reporting:

      The Company has adopted SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information. The Company designs, manufactures and
distributes single-use medical products and therapeutic devices. The Company's
other business segments do not meet the criteria for separate disclosures.

      Translation of Foreign Currency Financial Statements:

      The financial position and results of operations of the Company's foreign
subsidiaries are measured using local currency as the functional currency.
Assets and liabilities of these subsidiaries have been translated at current
exchange rates, and related revenue and expenses have been translated at average
monthly exchange rates. The aggregate effect of translation adjustments, net of
deferred taxes, is reflected as a separate component of stockholders' equity
(accumulated other comprehensive loss) until there is a sale or liquidation of
the underlying foreign subsidiary.

      Recent Accounting Pronouncements:

      In June, 2001 the FASB issued 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 does not believe that SFAS 141 will have a material impact
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 is considering 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 that the adoption of SFAS No. 142


                                      F-8




<Page>

will have on its financial position or results of operations.

      In August 2001, the FASB issued SFAS No. 144 "Accounting for the
Impairment or Disposal of Long-Lived Assets". SFAS No. 144 addresses financial
accounting and reporting for the impairment or disposal of long-lived assets.
SFAS No. 144 is effective for fiscal years beginning after December 15, 2001,
and interim periods within those fiscal years, with early application
encouraged. The Company is in the process of analyzing SFAS No. 144 but at this
time does not believe that SFAS No. 144 will have a material effect on its
financial position or results of operations upon its adoption.

Note 2 - Acquisitions/Dispositions:

      As part of the Company's strategic plan to expand significantly into the
obstructive sleep apnea field, the Company embarked on two strategic
acquisitions in which an interest in a European sleep therapeutic business was
acquired in 1999 followed by the acquisition of a sleep diagnostic business in
the United States in 2000. The Company purchased an additional interest in the
European sleep therapeutic business during 2001. The financial details of these
acquisitions are described below.

NATIONAL SLEEP TECHNOLOGIES, INC.

      The Company invested cash of $5.3 million in 1998 and $5.1 million in 1999
for common share ownership in National Sleep Technologies, Inc.("NST"), a
privately held company. In 1999, the common share ownership in NST was
renegotiated into a convertible preferred stock investment. In the third quarter
of Fiscal 2000, the Company converted its preferred stock holdings in 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 $10.4 million. 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 goodwill
is being amortized over 40 years.

      The Company has reflected the operations of NST as a consolidated
subsidiary as of June 1, 2000.

BREAS MEDICAL AB

      Through September 30, 2000, the Company had acquired a 53% interest in
Breas Medical AB, ("Breas") a European manufacturer of personal ventilators for
Obstructive Sleep Apnea ("OSA") and other applications, for an aggregate
investment of approximately $15.2 million, of which $585,000 was expended in
2000. The assets acquired amounted to approximately $7 million and liabilities
assumed approximately $2 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 $11.5 million. As of May 2, 2001, the Company
purchased an additional 41% of Breas, 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
102 million Swedish Krona (currently $9.8 million) or more than 322 million
Swedish Krona (currently $30.8 million). Goodwill relating to the Breas
transactions amounted to $17.9 million at September 30,2001 and is being
amortized over 40 years.

      Vital Signs has reflected the operations of Breas as a consolidated
subsidiary effective June 1,


                                      F-9




<Page>

1999.

      The investments in NST and Breas were accounted for under the equity
method of accounting for periods prior to the acquisition of the controlling
interest in Breas and the conversion of Common Stock to Preferred Stock in NST.
Earnings or losses from investments in which the Company maintains a minority
common stock interest are reflected in the Company's earnings based on the
Company's prorata ownership interest. Net earnings (loss) from these investments
for the years ended September 30, 2000 and 1999 aggregated ($235,000) and
$178,000, respectively.

Disposition:

      In September 1999, the Company made a decision to sell its Blow-Fill-Seal
("BFS") machine fabrication division (the Vital Pharma machine division) and,
accordingly, the statement of income for all periods presented has been restated
to reflect the net operations of this division as a discontinued operation.

      The following summary, pro forma, unaudited data of the Company reflects
the acquisitions of Breas and National Sleep Technologies as if they had
occurred on October 1, 1999.

                                  ----------------------------------------------
                                               PROFORMA/UNAUDITED
                                  ----------------------------------------------
                                     (in thousands except per share amounts)
                                  ----------------------------------------------
                                   FISCAL 2001     FISCAL 2000     FISCAL 1999
                                  ----------------------------------------------
Net sales                           $  166,236     $   158,336      $  147,801
Net income                          $   10,431     $    13,105      $   16,547
Basic net income per share          $      .83     $      1.08      $     1.35
Diluted net income per share        $      .81     $      1.06      $     1.34

Note 3 - Inventory:

Inventory consists of the following:

                                             -----------------------------------
                                                         SEPTEMBER 30,
                                             -----------------------------------
                                                   2001                 2000
                                             ------------------   --------------
                                                         (IN THOUSANDS)

      Raw materials                          $       14,832          $    13,323
      Finished goods                                 11,152               10,641
                                             --------------          -----------

                                             $       25,984          $    23,964
                                             ==============          ===========

Note 4 - Prepaid Expenses and Other Current Assets:

Prepaid expenses and other current assets consist of the following:

                                                          SEPTEMBER 30,
                                              ----------------------------------
                                                    2001                2000
                                              -----------------   --------------
                                                         (IN THOUSANDS)

      Note and related party receivables      $        1,417         $     1,478
      Prepaid taxes                                    4,516               2,556
      Deferred tax asset  (see Note 15)                  923                 382
      Prepaid insurance                                  390                 271
      Other                                            1,653               1,674
                                              --------------         -----------


                                      F-10




<Page>

                                              $        8,899         $     6,361
                                              ==============         ===========

      Related party receivables at September 30, 2001, consist principally of
(i) a $1 million note (September 30, 2001 balance of interest due was $200,000)
due from the CEO and minority shareholder of Breas Medical that bears interest
at 6.0%, is payable June 30, 2002 and is collateralized by the purchase price
due from the Company for his shares, and (ii) $217,000 due from a related
company that was paid in full within 30 days after the year end.

      Related party receivables at September 30, 2000 consist principally of (i)
a $1 million note (September 30, 2000 balance of interest due was $137,000) due
from the CEO and minority shareholder of Breas Medical that bears interest at
6.0%, is payable June 30, 2002 and is collateralized by his shares of Breas,
(ii) a $281,000 receivable from two companies in which the Company had made
minority investments and (iii) $46,000 due from a related company that was paid
in full within 30 days after the year end.

Note 5 - Marketable Securities:

      The following is a summary of available-for-sale securities and other
investments:

<TABLE>
<CAPTION>
                                                       AVAILABLE-FOR-SALE-SECURITIES
                               -------------------------------------------------------------------------
                                       SEPTEMBER 30, 2001                      SEPTEMBER 30, 2000
                               -----------------------------------    ----------------------------------
                                                             (IN THOUSANDS)
                               -------------------------------------------------------------------------
                                                       GROSS                                    GROSS
                                                     UNREALIZED                               UNREALIZED
                                FAIR                  HOLDING           FAIR                   HOLDING
                                VALUE      COST        GAINS            VALUE       COST        LOSSES
                               -------------------------------------------------------------------------
<S>                            <C>        <C>        <C>              <C>          <C>         <C>
Available-for-sale securities:

Federal mortgage obligations   $    486   $   466    $      20        $     551    $   560     $     (9)
                               ========   =======    =========        =========    =======    =========
</TABLE>

      At September 30, 2001 investments in debt securities classified as
available-for-sale securities mature in 5 - 10 years.

      Realized gains and losses are determined on the basis of specific
identification. During the years ended September 30, 2001 and 2000, sales
proceeds for securities classified as available for sale securities were $65,000
and $13,000, respectively. There were no gains or losses in Fiscal 2001 and
2000. During the year ended September 30, 1999, sales proceeds and gross
realized gains and losses on securities classified as available for sale
securities were $6,195,637, $8,622 and $(25,089), respectively. Stockholders'
equity at September 30, 2001, 2000, and 1999 includes a change in unrealized
holding gain (loss), net of related tax effect, on available-for-sale securities
of $17,000, $(3,000), and $(16,000), respectively.


                                      F-11




<Page>

Note 6 - Property, Plant and Equipment:

      Property, plant and equipment, at cost, consists of the following:

<TABLE>
<CAPTION>
                                          -------------------------------------------------------
                                                    SEPTEMBER 30,
                                          -----------------------------------       ESTIMATED
                                               2001               2000             USEFUL LIFE
                                          ----------------   ----------------    ----------------
                                                    (IN THOUSANDS)

<S>                                       <C>                <C>                  <C>
Land                                      $       3,222      $       3,250
Building and building improvements               19,090             23,157        30 to 40 years
Equipment and molds                              33,542             42,596         5 to 20 years
Fixtures and office equipment                     1,276              2,334         5 to 15 years
Transportation equipment                             74                 47               5 years
                                          -------------      -------------
                                          $      57,204      $      71,384
Less accumulated depreciation and
    amortization                                 21,494             18,368
                                          -------------      -------------
                                          $      35,710      $      53,016
                                          =============      =============
</TABLE>

      Certain portions of the Company's property, plant and equipment is pledged
as collateral for the Company's long-term debt (see Note 7).

Note 7 - Notes Payable and Long-term Debt:

      Long term debt consists of the following:

                                                     -------------------------
                                                           SEPTEMBER 30,
                                                       2001             2000
                                                     -------------------------
                                                           (IN THOUSANDS)
                                                     -------------------------

Industrial Revenue Bonds ("IRB") payable             $   1,900       $   2,100
Other                                                      299           1,146
                                                     ---------       ---------
Total long-term debt                                     2,199           3,246
Less current portion                                       357             535
                                                     ---------       ---------
                                                     $   1,842       $   2,711
                                                     =========       =========

      Based on the borrowing rates currently available to the Company for loans
with similar terms and average maturities, the fair value of the long-term debt
approximates the carrying amount.

      The IRB is payable in varying installments with interest at rates ranging
from 8.10% to 8.625% per annum through December 2009. The IRB agreement, among
other matters, contains certain financial covenants, limits the payment of
dividends to any class of stock and restricts the incurrence of additional debt,
as defined in the agreement. For the year ended September 30, 2001 and 2000, the
Company was in compliance with all financial covenants.

      At September 30, 2001 and 2000, the Company also had $5,645,000 and
$8,756,000, respectively, outstanding under a credit line. At September 30, 2001
and 2000 the credit line of $5,541,000 and $4,732,000, respectively, had
interest rates that ranged between 3.99% and 5.28%. The credit line is due
within one year.


                                      F-12




<Page>

      Maturities of notes payable and long-term debt are as follows:

      -----------------------------------
          YEAR ENDING SEPTEMBER 30,
      -----------------------------------
                                              (IN THOUSANDS)

                     2002                       $    6,003
                     2003                              257
                     2004                              256
                     2005                              228
                     2006                              200
                  Thereafter                           900
                                                ----------
                                                $    7,844
                                                ==========

Note 8 - Accrued Expenses:

Accrued expenses consist of the following:

                                              -----------------------------
                                                       SEPTEMBER 30,
                                              -----------------------------
                                                  2001              2000
                                              -----------       -----------
                                                       (IN THOUSANDS)

Interest                                      $       148       $       162
Payroll and vacations                               2,620             2,166
Professional fees                                   1,149               546
Sales expenses                                        150               252
Income and other taxes payable                        309               579
Other                                               1,276             1,153
                                              -----------       -----------
                                              $     5,652       $     4,858
                                              ===========       ===========

Note 9 - Other Current Liabilities:

      Other currant liabilities consist of:

                                                --------------------------------
                                                         SEPTEMBER 30,
                                                --------------------------------
                                                     2001             2000
                                                --------------------------------
                                                         (in thousands)

Amount related to acquisitions                  $      11,747    $       6,103


                                      F-13




<Page>

Note 10 - Other Expense - Net:

      Other expense - net consists of the following:

<TABLE>
<CAPTION>
                                                  -----------------------------------------------
                                                                FOR THE YEAR ENDED
                                                                  SEPTEMBER 30,
                                                  -----------------------------------------------
                                                      2001             2000             1999
                                                  -----------      -----------      -----------
                                                                 (IN THOUSANDS)
<S>                                               <C>              <C>               <C>
Amortization of deferred credit                   $       ---      $       ---       $      (91)
Charitable contributions of inventory                     485              428              417
Non performing investments (a)                            ---              453              ---
Severance                                                  56              573              ---
Litigation costs                                          ---              ---              162
Other                                                    (869)             625              (31)
                                                  -----------      -----------      -----------
                                                  $      (328)     $     2,079      $       457
                                                  ===========      ===========      ===========
</TABLE>

      (a) At year end September 30, 2000, two of the Company's assets,
consisting of a minority equity interest in a medical device company and
advances relating to a license agreement, were determined to be impaired. The
impairment analysis included reference to the trading value of the medical
device company and discounted cash flow analysis with respect to advances made
under a license agreement. The valuation shortfall resulted in charges to
earnings of $248,000 and $205,000, respectively.

Note 11 - Special Charge:

      During the quarter ended June 30, 2001, the Company conducted a review by
an outside appraiser 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 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.

      During the year ended September 30, 2000, the Company recorded a special
charge of $7.8 million relating to a legal settlement and other litigation
matters. See Note 13.

Note 12 - Commitments:

      Leases:

      The Company has entered into noncancelable operating leases providing for
the lease of office and warehouse facilities, equipment and certain other
assets. Rent expense, aggregating $1,752,000, $1,826,000, and 1,523,000 has been
charged to operations for the years ended September 30, 2001, 2000, and 1999,
respectively. The Company's commitment under such leases is as follows:


                                      F-14




<Page>

      ------------------------------------------------------------
          YEAR ENDING SEPTEMBER 30,             (IN THOUSANDS)
      ------------------------------------------------------------
                     2002                                1,692
                     2003                                  717
                     2004                                  350
                     2005                                  116
                                                  ------------
                                                  $      2,875
                                                  ============

      Employment Agreements:

      The Company has entered into employment agreements, aggregating $2,300,429
which expire at various dates through September, 2005.

Note 13 - Contingent Liabilities:

      Various lawsuits, claims and proceedings have been or may be instituted or
asserted against the Company in the normal course of business, including those
pertaining to patent and trademark issues and product liability matters. Where
the Company has deemed a loss probable, the amount of the expected loss, has
been accrued. While the amounts claimed or expected to be claimed in other
matters may be substantial, the ultimate liability cannot now be determined
because of the inherent uncertainties surrounding the litigation and the
considerable uncertainties that exist. However, based on facts currently
available, management believes that the disposition of matters that are pending
or asserted will not have a materially adverse effect on the financial position
of the Company.

      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 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.

      For a detailed discussion of current legal actions, see Item 3 of this
annual report on Form 10-K.

Note 14 - Stockholders' Equity:

Preferred Stock:

      The Company has authorized 10,000,000 shares of no par value preferred
stock. No shares were issued or outstanding at September 30, 2001 or 2000.


                                      F-15




<Page>

Stock Options:

Transactions relating to stock options are as follows:

                                   ---------------------------------------------
                                                             WEIGHTED AVERAGE
                                     NUMBER OF SHARES        PRICE PER SHARE
                                   ---------------------   ---------------------

Balance September 30, 1998:               1,025,865               $   18.84
        Granted                             150,186               $   19.49
        Exercised                            (8,025)              $    8.61
        Expired/canceled                    (61,510)              $   17.97
                                         ----------               ---------

Balance September 30, 1999:               1,106,516               $   19.05
        Granted                             276,897               $   19.33
        Exercised                          (174,006)              $   14.14
        Expired/canceled                    (35,061)              $   20.96
                                         ----------               ---------

Balance September 30, 2000:               1,174,346               $   19.72
        Granted                              83,015               $   31.37
        Exercised                          (644,082)              $   19.61
        Expired/canceled                   (157,022)              $   19.04
                                         ----------               ---------
Balance September 30, 2001:                 456,257               $   22.23
                                         ==========               =========

      The weighted average fair value per share calculated using the
Black-Scholes method for options granted during the years ended September 30,
2001, 2000, and 1999 amounted to $11.69, $6.90, and $7.18 respectively.

      The Company's Board of Directors and stockholders have approved the
adoption of a stock option plan for employees, a stock option plan for directors
and a stock option plan for two executive officers which provide for the grant
of options to purchase a maximum of 775,000 shares, 100,000 shares and 200,000
shares, respectively, of the Company's common stock. Options may be granted at
prices not less than fair value at the date of grant. In addition to options
granted pursuant to Company benefit plans, the Company has granted certain stock
options to employees independent of any such plans. As such, these options
represent contractual commitments by the Company to the individual involved.

      In addition to options granted pursuant to Company benefit plans, the
Company has granted certain stock options to employees independent of any such
plans. As such, these options represent contractual commitments by the Company
to the individual involved.

      Additionally, the Company has adopted a stock option and investment plan
(covering a maximum of 900,000 shares), whereby participants were granted two
stock options for each share of the Company's common stock that they acquired.
The options are granted at fair value at date of grant. Such stock options are
subject to a defined vesting schedule. Shares purchased by employees may be
financed by payroll deductions.

      Under the employee stock option plan, options vest ratably over a 5 year
period with respect to certain options and over 2 years with respect to the
Company's options granted as part of its investment plan. Both plans provide
that options have a maximum life of ten years. Under the director stock option
plan, options vest in a similar manner as the employee plans and have a maximum
life of


                                      F-16




<Page>

10 years. Under a stock option plan established for two of the executive
officers, options vest over 5 years and have a maximum life of 10 years.

      In connection with the plans described above, options covering 1,282,470
shares (excluding lapsed shares) have been granted through September 30, 2001.

      The Company has elected, in accordance with the provisions of SFAS No.
123, to apply the current accounting rules under APB Opinion No. 25 and related
interpretations in accounting for its stock options and, accordingly, has
presented the disclosure-only information as required by SFAS No. 123. If the
Company had elected to recognize compensation cost based on the fair value of
the options granted at the grant date as prescribed by SFAS No. 123, the
Company's net income and net income per common share for the years ended
September 30, 2001, 2000, and 1999, would approximate the pro forma amounts
indicated in the table below (dollars in thousands):

--------------------------------------------------------------------------------
      YEAR ENDED SEPTEMBER 30            2001           2000            1999
--------------------------------------------------------------------------------

Net income - as reported              $   10,103      $   13,932      $   17,346

Net income - pro forma                $    9,557      $   12,684      $   15,825

Basic net income per common
share - as reported                   $     0.80      $     1.14      $     1.42

Diluted net income per common
    share - as reported               $     0.79      $     1.13      $     1.41

Basic net income per common
    share - pro forma                 $     0.76      $     1.04      $     1.29

Diluted net income per common
    share - pro forma                 $     0.74      $     1.03      $     1.28
--------------------------------------------------------------------------------

      The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted-average
assumptions used for the years ended September 30, 2001, 2000 and 1999,
respectively: expected volatility of 36%, 30% and 35% respectively, risk-free
interest rate of 4.8%, 6.3% and 5.4% respectively, dividend yield rate of .6%,
 .9%, and .8%, respectively, and all options have expected lives of 5 years.


                                      F-17




<Page>

      The following table summarizes information about fixed stock options
outstanding at September 30, 2001:

<TABLE>
<CAPTION>
                            -----------------------------------------------------------------------
                                     OPTIONS OUTSTANDING                    OPTIONS EXERCISABLE
                            ----------------------------------------    ---------------------------
                                             WEIGHTED-
                               NUMBER         AVERAGE       WEIGHTED-        NUMBER       WEIGHTED-
                             OUTSTANDING     REMAINING       AVERAGE       EXERCISABLE     AVERAGE
             RANGE OF       AT SEPTEMBER    CONTRACTUAL     EXERCISE      AT SEPTEMBER    EXERCISE
         EXERCISE PRICES      30, 2001      LIFE (YEARS)      PRICE         30, 2001        PRICE
        -----------------   ----------------------------------------    ---------------------------
<S>     <C>                      <C>              <C>     <C>               <C>         <C>
1.      $   9.25 $  15.75        15,987           3.7     $    13.26         15,337     $    13.16
2.      $  16.87 $  19.25       119,475           7.3          18.00         64,327          18.08
3.      $  20.00 $  24.50       237,780           6.3          21.77        179,854          21.75
4.      $  29.00 $  29.25        67,015           9.7          29.02          1,425          29.25
5.      $  41.20 $  41.20        16,000           9.4          41.20          8,000          41.20
                                -------           ---     ----------        -------     ----------

                  Total:        456,257           7.1     $    22.23        268,943     $    21.00
                                =======           ===     ==========        =======     ==========
</TABLE>

Note 15 - Income Taxes:

The provision for income taxes consists of the following components:

                       ------------------------------------------------------
                                 FOR THE YEAR ENDED SEPTEMBER 30,
                       ------------------------------------------------------
                            2001               2000               1999
                       ----------------   ----------------   ----------------
                                           (IN THOUSANDS)

Current:
    Federal            $     2,684        $     4,875           $  6,782
    State                      219                422                384
    Foreign                    164                504                415

Deferred:
    Federal                    953               (595)               315
    State                       45                (43)               116
                       -----------        -----------           --------

                       $     4,065        $     5,163           $  8,012
                       ===========        ===========           ========

      Below is a breakdown of U.S. and Foreign pre-tax accounting income:

                            ---------------------------------------------------
                                 2001              2000              1999
                            ---------------------------------------------------
                                              (IN THOUSANDS)
United States                  $ 13,530          $ 16,731           $ 25,167
Foreign                             647             2,751              1,001
                               --------          --------           --------
Total Pre-Tax Income:          $ 14,177          $ 19,482           $ 26,168
                               ========          ========           ========


                                      F-18




<Page>

      The tax effect of temporary differences that give rise to the net
short-term deferred tax assets are presented below:

                                             --------------------------------
                                                        SEPTEMBER 30,
                                             --------------------------------
                                                   2001               2000
                                             --------------------------------
                                                       (IN THOUSANDS)

Undistributed DISC earnings                  $        (96)      $        (96)
Net operating loss carryforward from
    acquisition (Note 2)                              715                439
Other                                                 304                 39
                                             ------------       ------------
                                             $        923       $        382
                                             ============       ============

      The tax effects of temporary differences that give rise to the net
long-term deferred tax assets are presented below:

                                      -------------------------------------
                                                 SEPTEMBER 30,
                                      -------------------------------------
                                            2001               2000
                                      -------------------------------------
                                                 (IN THOUSANDS)

Net operating loss carryforward
    from acquisition (Note 2)         $       3,362      $       2,248
Accelerated depreciation                     (1,007)            (1,139)
State net operating loss
    carryforward                                739                316
Undistributed DISC earnings                    (226)              (320)
Accrued expenses                              1,762                936
Other                                           372                194
                                      -------------      -------------
                                      $       5,002      $       2,235
                                      =============      =============

      At September 30, 2001, the Company has federal net operating loss
carryforwards of approximately $11,244,000 to offset future taxable income.
These net operating loss carryforwards expire from 2007 through 2010. The annual
amount available to offset consolidated taxable income is limited to
approximately $1,887,000 under Section 382 of the Internal Revenue Code. In
addition, at September 30, 2001, the Company has available $8,207,000 of net
operating loss carryforwards to offset future state taxable income. These state
operating loss carryforwards expire in 2005 through 2006.


                                      F-19




<Page>

      The total provision for income taxes differs from that amount which would
be computed by applying the U.S. federal income tax rate to income before
provision for income taxes. The reasons for these differences are as follows:

                                                --------------------------------
                                                FOR THE YEAR ENDED SEPTEMBER 30,
                                                --------------------------------
                                                    2001     2000     1999
                                                    ----     ----     ----

Statutory federal income tax rate                   34.1%    34.3%    35.0%
State income taxes net of federal tax benefit        1.0      1.3      1.2
Product contributions                                (.9)     (.6)     (.6)
Tax credit for Research and Development             (1.3)    (3.0)     (.6)
Benefit from foreign sales corporation              (2.8)    (2.5)     (.8)
Amortization of acquired intellectual property       (.9)     (.9)     (.7)
Foreign net operating loss carryforward               --     (1.0)     (.8)
Other                                                (.5)    (1.1)    (2.1)
                                                    ----     ----     ----
    Effective income tax rate                       28.7%    26.5%    30.6%
                                                    ====     ====     ====

      For the years ended September 30, 2001, 2000 and 1999, the Company
recognized for income tax purposes a tax benefit of $759,000, $76,000 and
$329,000, respectively, for compensation expense related to its stock option
plan for which no corresponding charge to operations has been recorded. Such
amount has been added to common stock in each year.

Note 16 - Allowance for Doubtful Accounts:

Information relating to the allowance for doubtful accounts is as follows:

<TABLE>
<CAPTION>
                                        ---------------------------------------------------------
                                         BALANCE AT    CHARGED TO
                                         BEGINNING      COSTS AND                    BALANCE AT
             DESCRIPTION                  OF YEAR       EXPENSES       DEDUCTIONS    END OF YEAR
-------------------------------------------------------------------------------------------------
                                                     (IN THOUSANDS)
<S>                                     <C>            <C>             <C>            <C>
Allowance for doubtful accounts:
    Year ended September 30,

              1999                      $   638        $     158       $   552 (A)    $   244
                                        =======        =========       ===========    =======

              2000                      $   244        $     515       $   188 (A)    $   571
                                        =======        =========       ===========    =======

              2001                      $   571        $     363       $   498 (A)    $   436
                                        =======        =========       ===========    =======
</TABLE>

(A) Write-off of uncollectible accounts receivable.

Note 17 - Significant Customers:

      A portion of the Company's hospital customers are serviced by national and
regional medical supply distributors. During fiscal years 2001, 2000 and 1999,
respectively, 27%, 26% and 32% of the Company's sales were made in this
distribution channel. In each fiscal year 2001, 2000 and 1999, one of the larger
national distributors represented approximately 13%, 14% and 13%, respectively,
of net sales. The same customer represented approximately 17% and 14% of
outstanding accounts receivable at September 30, 2001 and 2000, respectively.


                                      F-20




<Page>

      The following table sets forth, for each of the past three fiscal years,
the amount of revenues represented by the Company's anesthesia products,
respiratory/critical care products, and sleep therapy products:

                             ---------------------------------------------------
                                           YEAR ENDED SEPTEMBER 30
                             ---------------------------------------------------
                                    2001             2000              1999
                             ---------------------------------------------------
                                                  (in millions)
Anesthesia                      $   68.8           $  65.1          $    61.0
Respiratory/Critical Care           67.0              64.4               64.6
Sleep Therapy                       30.4              20.8                4.7
                             ---------------   ---------------    --------------
Total                           $  166.2           $ 150.3          $   130.3

Note 18 - International Sales:

      The international sales for the fiscal years ended September 30, 2001,
2000 and 1999 of approximately $37,801,000, $35,000,000 and $22,000,000,
respectively, were sold principally to customers in Europe, Asia and Australia.

Note 19--Related Party:

      One of the Company's subsidiaries, Thomas Medical Products, provides
product development and manufacturing services to X-Site, LLC ("X-Site"), a
company engaged in the development of specialized cardiovascular products. Three
of the shareholders of X-Site are also shareholders and officers of the Company
and one additional shareholder of X-Site is an outside member of the Company's
Board of Directors. X-Site paid Thomas Medical Products approximately $298,000,
$113,000 and $227,000 during the fiscal years ended September 30, 2001, 2000 and
1999, respectively, for these services. In addition, the Company provides
certain accounting services for X-Site, in which various suppliers of X-Site,
including the Company's subsidiary, were paid by the Company. X-Site, in turn,
reimburses the Company. During the years ended December 31, 2001, 2000 and 1999,
X-Site reimbursed the Company in the amount of approximately $854,000,
$1,162,000 and $1,209,000, respectively. Amounts due from X-Site are included in
other current assets on the Company's consolidated balance sheet and amounted to
approximately $217,000 and $46,000 at September 30, 2001 and 2000, respectively.
The Company believes that the overall terms of the above described arrangements
with X-Site are no less favorable to the Company than terms that would be
available from similarly situated third parties.


                                      F-21




<Page>

Note 20 - Quarterly Financial Data (unaudited):

      The following is a summary of the unaudited quarterly results of
operations for the years ended September 30, 2001 and 2000:

Fiscal Year Ended September 30, 2001:

<TABLE>
<CAPTION>
                                                                              DILUTED
                                                            BASIC EARNINGS  EARNINGS PER
                 TOTAL REVENUE  GROSS PROFIT   NET INCOME     PER SHARE        SHARE
----------------------------------------------------------------------------------------
<S>                <C>           <C>             <C>           <C>            <C>
1st Quarter        $  40,598     $  20,931       $  5,903      $   .48        $   .47
2nd Quarter           40,874        21,019          6,088          .49            .48
3rd Quarter           42,504        21,786         (8,333)        (.65)          (.65)
4th Quarter           42,260        21,487          6,445          .50            .50
                   $ 166,236     $  85,223       $ 10,103      $   .80        $   .79
----------------------------------------------------------------------------------------

<CAPTION>
Fiscal Year Ended September 30, 2000:
<S>                <C>           <C>             <C>           <C>            <C>
1st Quarter        $  37,113     $  19,543       $  4,975      $   .41        $   .40
2nd Quarter           35,481        18,385          4,487          .37            .36
3rd Quarter           37,085        19,318           (832)        (.07)          (.07)
4th Quarter           40,632        20,842          5,302          .44            .44
                   $ 150,311     $  78,088       $ 13,932      $  1.14        $  1.13
</TABLE>


                                      F-22




<Page>

                                    PART III

      Item 10. Directors of the Registrant

      The registrant incorporates by reference herein information to be set
forth in its definitive proxy statement for its 2002 annual meeting of
stockholders that is responsive to the information required with respect to this
Item. If such proxy statement is not mailed to stockholders and filed with the
Securities and Exchange Commission within 120 days after the end of the
registrant's most recently completed fiscal year, the registrant will provide
such information by means of an amendment to this Annual Report on Form 10-K.

      Item 11. Executive Compensation

      The registrant incorporates by reference herein information to be set
forth in its definitive proxy statement for its 2002 annual meeting of
stockholders that is responsive to the information required with respect to this
Item. If such proxy statement is not mailed to stockholders and filed with the
Securities and Exchange Commission within 120 days after the end of the
registrant's most recently completed fiscal year, the registrant will provide
such information by means of an amendment to this Annual Report on Form 10-K.

      Item 12. Security Ownership of Certain Beneficial Owners and Management

      The registrant incorporates by reference herein information to be set
forth in its definitive proxy statement for its 2002 annual meeting of
stockholders that is responsive to the information required with respect to this
Item. If such proxy statement is not mailed to stockholders and filed with the
Securities and Exchange Commission within 120 days after the end of the
registrant's most recently completed fiscal year, the registrant will provide
such information by means of an amendment to this Annual Report on Form 10-K.

      Item 13. Certain Relationships and Related Transactions

      The registrant incorporates by reference herein information to be set
forth in its definitive proxy statement for its 2002 annual meeting of
stockholders that is responsive to the information required with respect to this
Item. If such proxy statement is not mailed to stockholders and filed with the
Securities and Exchange Commission within 120 days after the end of the
registrant's most recently completed fiscal year, the registrant will provide
such information by means of an amendment to this Annual Report on Form 10-K.


                                     25




<Page>

                                     PART IV

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K

      (a)   The financial statements listed in the index set forth in Item 8 of
            this Annual Report on Form 10-K are filed as part of this Annual
            Report.

      (b)   All schedules have been omitted because they are not applicable or
            the required information is included in the financial statements or
            notes thereto.

      (c)   The following exhibits are incorporated by reference herein or
            annexed to this Annual Report:

Exhibit     Description
-------     -----------

 3.1        Restated Certificate of Incorporation is incorporated by reference
            to Exhibit 3.1 to the Company's Annual Report on Form 10-K for the
            year ended September 30, 1995.

 3.2        By-laws, as amended, are incorporated by reference to Exhibit 3.2 to
            the Company's Registration Statement on Form S-1 (No. 33-35864)
            initially filed with the Commission on July 13, 1990.

 4.1        1984 Economic Development Authority Loan Agreement is incorporated
            by reference to Exhibit 4.2 to the Company's Registration Statement
            on Form S-1 (No. 33 - 35864) initially filed with the Commission on
            July 13, 1990.

 4.2        Amended and Restated Loan Agreement between the Company and the New
            Jersey Economic Development Authority, dated as of November 1, 1990,
            is incorporated by reference to Exhibit 4.2 to the Company's
            Registration Statement on Form S-1 (No. 33-34107) initially filed
            with the Commission on February 21, 1991.

 4.3        Letter of Credit and Reimbursement Agreement, dated August 27, 1993,
            between the Company and Chemical Bank New Jersey N.A. is
            incorporated by reference to Exhibit 4.3 to the Company's Annual
            Report on Form 10-K for the year ended September 30, 1993.


                                      26




<Page>

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(continued):

10.1        1990 Employee Stock Option Plan, as amended, is incorporated by
            reference to Exhibit 10.1 to the Company's Annual Report on Form
            10-K for the year ended September 30, 1997.

10.2        1991 Director Stock Option Plan, as amended is incorporated by
            reference to Exhibit 10.2 to the Company's Annual Report on Form
            10-K for the year ended September 30, 1999.

10.3        Agreement between the Company and Respironics, Inc., dated effective
            as of July 1, 1993, is incorporated by reference to Exhibit 10.4 to
            the Company's Annual Report on Form 10-K for the year ended
            September 30, 1993. Amendment to Agreement between the Company and
            Respironics, Inc., dated September 14, 1999 is incorporated by
            reference to Exhibit 10.3 to the Company's Annual Report on Form
            10-K for the year ended September 30, 1999.

10.4        Forms of Option Agreements with various employees of the Company are
            incorporated by reference to Exhibit 10.6 to the Company's
            Registration Statement on Form S-1 (No. 33-39107) initially filed
            with the Commission on February 21, 1991.

10.5        Vital Signs Investment Plan, as amended is incorporated by reference
            to Exhibit 10.45 to the Company's Annual Report on Form 10-K for the
            year ended September 30, 1999.

10.6        Stock Option Grants to Terence D. Wall and Barry Wicker, replacing
            stock options granted to Messrs. Wall and Wicker pursuant to the
            1993 Executive Stock Option Plan, is incorporated by reference to
            Exhibit 10.8 to the Company's Annual Report on Form 10-K for the
            year ended September 30, 1996.

10.7        Form of Stock Option Agreement for certain employees of Thomas
            Medical Products, Inc.

21.1        Subsidiaries of the Registrant.

23.1        Consent of Goldstein Golub Kessler LLP.

24.1        Power of Attorney.

27.1        Financial Data Schedule.


                                      27




<Page>

                                   SIGNATURES

      Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, this 19th day of
December, 2001.

                                        VITAL SIGNS, INC.

                                        By:    /s/  Herbert Javer
                                               ---------------------------------
                                               Herbert Javer
                                               Chief Financial Officer

        Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

SIGNATURES                TITLE                                DATE
----------                -----                                ----


/s/ Terence D. Wall*      President, Chief Executive Officer   December 19, 2001
-----------------------   and Director
Terence D. Wall


/s/ David J. Bershad*     Director                             December 19, 2001
-----------------------
David J. Bershad


/s/ Anthony J. Dimun      Director                             December 19, 2001
-----------------------
Anthony J. Dimun


/s/ Stuart M. Essig*      Director                             December 19, 2001
-----------------------
Stuart M. Essig


/s/ E. David Hetz*        Director                             December 19, 2001
-----------------------
E. David Hetz


/s/ Joseph J. Thomas*     Director                             December 19, 2001
-----------------------
Joseph J. Thomas


/s/ Barry Wicker*         Executive Vice President, Sales      December 19, 2001
-----------------------   and Director
Barry Wicker


*By:    /s/
        ----------------------------
        Herbert Javer, Chief Financial and Accounting Officer


                                      28

                           STATEMENT OF DIFFERENCES
                           ------------------------

The trademark symbol shall be expressed as..............................'TM'
The registered trademark symbol shall be expressed as................... 'r'
Characters normally expressed as subscript shall be preceded by......... [u]
The Greek letter Theta shall be expressed as............................ [T]