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, 1999.

|_|  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
 incorporation or organization)                 Identification 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 30, 1999 was approximately $135,503,511.

     Number of shares of Common  Stock  outstanding  as of  November  30,  1999:
12,297,519.

     Documents  incorporated by reference:  Definitive  Proxy Statement for 2000
Annual Meeting of Shareholders (Part III).

<PAGE>

                                VITAL SIGNS, INC.

                                TABLE OF CONTENTS

                                                                            PAGE
                                                                            ----

Item 1     Business                                                            2

Item 2     Properties                                                         13

Item 3     Legal Proceedings                                                  13

Item 4     Submission  of  Matters  to a  Vote  of  Security                  14
           Holders

Item 4A    Executive Officers of the Registrant                               15

                                     PART II

Item 5     Market for the Registrant's Common Equity and
               Related Stockholder Matters                                    17

Item 6     Selected Financial Data                                            17

Item 7     Management's Discussion and Analysis of Results
               of Operations and Financial Condition                          19

Item 7A    Quantitative and Qualitative Disclosures About                     24
               Market Risk

Item 8     Financial Statements and Supplementary Data*                       25

Item 9     Changes in and Disagreements with Accountants on
               Accounting and Financial Disclosure                            25

                                    PART III

Item 10    Directors of the Registrant                                        26

Item 11    Executive Compensation                                             26

Item 12    Security Ownership of Certain Beneficial Owners
               and Management                                                 26

Item 13    Certain Relationships and Related Transactions                     26

                                     PART IV

Item 14    Exhibits, Financial Statement Schedules and
               Reports on Form 8-K                                         27-28


*Financial Statements follow page ____25_______


                                       1
<PAGE>

                                     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 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 AB ("Breas")  (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 distributing arterial blood gas syringes
and kits, small volume nebulizers and heated humidification circuits.

     In 1999, the Company  completed an investment in Breas,  a manufacturer  of
CPAP  machines  and  personal  ventilators  based in Sweden.  The Company owns a
majority  interest in Breas, with  substantially  all of the remaining  minority
interest  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.  The Company  plans to introduce  the Breas  products in the United
States once regulatory clearance has been achieved.

     For    additional     information    regarding    these    products,    see
"Business-Products."


                                       2
<PAGE>

     The Company's sells its anesthesia and  respiratory/critical  care products
to hospitals  in the United  States  through its own sales  force.  Sales of the
Company's products  internationally are largely through distributors,  except in
England 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  and the  Company's  ability  to assure  that its
hardware  and  software  are Year 2000  compliant,  (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,  and (ix) healthcare reform and
legislative  and  regulatory  changes  impacting  the  healthcare  market,  both
domestically and 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 and homecare 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.


                                       3
<PAGE>

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.

     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.

     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.

     Vital  View(TM)   Single-Patient  Use  Fiberoptic  Laryngoscope  System  is
designed to assist the  anesthesiologist  in correctly  placing an  endotracheal
tube within the trachea of the patient.  This


                                       4
<PAGE>

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.

Respiratory and Critical Care Products:

     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.

     Code Blue(TM) The Company was the first to offer  single-patient use manual
resuscitators.  The Company's Code Blue(TM)  resuscitators are used in emergency
situations and in a variety of medical procedures.  Code Blue(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(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),  Flufficuff(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


                                       5
<PAGE>

hospital's needs.

     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 utilize 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  postoperative  atelectasis  (collapse of the air sacs in the lungs and
other disease states). 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.

     VASCEZE(R) is a needleless,  disposable, pre-filled vascular catheter flush
device used with IV sets in the homecare and hospital  market.  Vasceze(R)  is a
one-piece design,  manufactured using a "blow-fill-seal" process.  Vasceze(R) is
filled with either sodium chloride or heparin solutions. The product is uniquely
designed  to  deliver a flush  solution  at  pressures  less than  those of 10cc
syringe and other flush devices.  The Company is in the process of expanding its
product offerings of the Vasceze(R) product line to accommodate  systems that do
not use needles.

     ACTAR(R) and INFANTRY(R) CPR Training Manikins.  The Company manufactures a
product  line  of  patented   cardiopulmonary   resuscitation  ("CPR")  training
manikins. ACTAR(R) manikins are made from four basic components -- a head, chest
plate,  compression  piston and  disposable  lung.  The  Company  also sells the
INFANTRY(R)  infant-size CPR training manikins.  While maintaining the necessary
features and anatomical  landmarks for CPR practices,  ACTAR(R) and  INFANTRY(R)
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.,  which 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


                                       6
<PAGE>

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.

SLEEP THERAPY AND PERSONAL VENTILATION PRODUCTS:

     The Breas product line includes the following:

     PV100 Nasal CPAP.  The PV100 is a nasal CPAP device used to treat  patients
suffering from sleep disorders; most typically, obstructive sleep apnea ("OSA").
It delivers  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.

     PV102 CPAP. The PV102 produces  continuous  positive airway pressure with a
series of additional features not available in the PV100.

     PV401  Bi-Level  Ventilator.  The  PV400  series  ventilator  supports  the
ventilation  needs of patients  suffering from, among other things,  respiratory
insufficiency.  Patients  benefiting from the PV401/3 may include  neuromuscular
weakened duchene's disease and paralysis, to name a few.

     PV501  Ventilator.  The  PV501  is a  fully  functioning  ventilator.  This
life-sustaining  device may be used on home  ventilator  patients as well as the
less  acute,  longer term vent  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.

OEM AND OTHER ACTIVITIES:

Thomas Medical Products.

     Thomas Medical  Products,  Inc. ("TMP") 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
product  or  as  part  of  surgical  kits.  TMP  sells  to  many  of  the  major
cardiovascular and critical care device manufacturers.

Vital Pharma, Inc.

     Vital Pharma,  Inc.  ("Vital  Pharma") was acquired in January 1996.  Vital
Pharma's   principal  focus  is  utilization  of  the  Company's   expertise  in
blow-fill-seal  technology for manufacturing the Vasceze(R) product line and for
third  party  contract  packaging   customers  that  require  sterile  packaging
(primarily pharmaceutical and medical device manufacturers).

     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 requirements.

Market Data


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<PAGE>

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

                                         YEAR ENDED SEPTEMBER 30,
                            ---------------------------------------------------
                                  1999             1998               1997
                            ---------------   ---------------   ---------------
                            AMOUNT      %     AMOUNT      %     AMOUNT      %
                            ------   ------   ------   ------   ------   ------
                                      (DOLLARS IN MILLIONS

ANESTHESIA                  $ 61.0     46.8   $ 61.3     49.7   $ 56.2     54.2
RESPIRATORY/CRITICAL CARE     64.6     49.6     62.0     50.3     47.1     45.8
SLEEP THERAPY                  4.7      3.6     --       --       --       --
                            ======   ======   ======   ======   ======   ======
TOTAL                       $130.3      100%  $123.3      100%  $103.3      100%
                            ======   ======   ======   ======   ======   ======

Sales, Marketing and Customers

     The Company's sells its anesthesia and  respiratory/critical  care products
to hospitals in the United States through its own sales force.  The Company also
uses national distributors, such as Cardinal, Owens & Minor and McKesson/General
Medical, approximate 32% of sales for fiscal 1999 to deliver the products to the
hospital.

     In each of the  fiscal  years  1999,  and 1998,  one of the large  national
distributors  represented  approximately  13% of net  sales.  The same  customer
represented  approximately  17% and 16% of  outstanding  accounts  receivable at
September 30, 1999 and 1998 respectively.

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


                                       8
<PAGE>

     As new  products are  developed  which can be sold by the  Company's  sales
force,  management  educates  and  trains  the  sales  force in the  need,  use,
application  and  advantages of the Company's  products.  The Company also holds
quarterly  training  sessions  for  all  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 buying groups
such as Premier Purchasing Partners,  Novation,  Tenet,  Columbia Healthcare and
others.  While the  Company has been  successful  in signing an  agreement  with
Premier   for   a   broad   range   of    anesthesia    products   and   certain
respiratory/critical    care   products,   Tenet   for   both   anesthesia   and
respiratory/critical  care  products,  Columbia  for its ABG  products and other
buying groups,  no assurances can be given as to the Company's ability to secure
other contracts or as to the impact of such contracts on the Company.

International Sales

     For the year ended  September 30, 1999,  international  sales accounted for
approximately 17% of net sales as compared with  approximately 12% during fiscal
1998 and approximately 10% during fiscal 1997.

     Historically,  the  Company has sold its  products  in  European  and other
international  markets through distributors.  However,  approximately five years
ago the  Company  sought  expansion  in Europe by  establishing  a direct  sales
organization  in the United  Kingdom.  The  Company  has 8  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.

     It is the  Company's  intention to augment the  international  sales effort
through strategic alliances wherever possible, although no assurance can be made
that any such alliances 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   our  product   offering   in   anesthesia,
respiratory/critical  care, emergency and sleep products. The principal activity
is 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.

     During fiscal 1999, the Company completed and launched the Pocket Blue(TM),
(described above),  CUFF-ABLE Plus(R) an antimicrobially  treated single patient
blood pressure cuff and ASPIRATOR PLUS(TM), an arterial sampling syringe with an
improved method of venting the air out of the blood sample.  Improvements to the
Company's Code Blue(TM)  product and PEEP valves and Aspirator ABG products were
introduced as a result of internal development efforts.

     Development  continued during 1999 on VASCEZE(R).  Although  VASCEZE(R) was
commercially


                                       9
<PAGE>

available in 1999, the addition of a needleless valve compatible  product was an
area of focus for the R&D team with sales roll out expected in 2000.

     The R&D team also made  progress  during 1999 in the design of a pharyngeal
airway device intended to allow easy insertion without the use of a laryngoscope
blade.  This project offers the Company the opportunity to market a product well
suited  for their  sale force call  pattern,  while  facing a minimal  number of
smaller existing competitors.

     The Company  expects to continue to rely in part on its internal  staff and
on outside  professionals  to perform  research and  development  in our focused
areas.. The Company's research and development  expenses aggregated  $3,869,000,
$5,715,000 and $5,810,000 respectively, for fiscal 1997, 1998 and 1999.

Medical Director

     The Company utilizes Bernard Wetchler,  M.D. as its Medical  Director.  Dr.
Wetchler is Clinical  Professor of  Anesthesiology at the University of Illinois
College of Medicine, as well as Vice President, World Federation of Societies of
Anaesthesiologists;   and  past   President   of:   the   American   Society  of
Anesthesiologists;  the  Society for  Ambulatory  Anesthesia;  and the  Illinois
Society of Anesthesiologists.

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 and Malvern, Pennsylvania, 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  and  introducers..  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.


                                       10
<PAGE>

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."

     Significant Suppliers

     In 1980,  the Company  acquired the rights to its  air-filled  cushion 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  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.,
(breathing   circuits  and  anesthesia  kits),  King  Systems  (face  masks  and
anesthesia circuits),  and Critikon,  Inc. (blood pressure cuffs),  Respironics,
Inc. (CPAP and ventilators),  Resmed,  Inc. (CPAP) and Mallinckrodt,  Inc. (CPAP
and ventilators).

Regulation


                                       11
<PAGE>

     As a manufacturer of medical devices,  the Company is subject to regulation
by, among other 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 (510k").  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.

     Over the past several  years,  the public and the federal  government  have
focused considerable  attention on reforming the healthcare system in the United
States.  The  Clinton  Administration  pledged  to bring  about a reform  of the
nation's  healthcare  system  and,  in  September  1993,  presented  a plan  for
healthcare  reform.  Included  in the  proposal  were calls to control or reduce
public and private spending on healthcare, to reform the payment methodology for
healthcare  goods and services by both the public  (Medicare  and  Medicaid) and
private sectors, which could include overall limitations on federal spending for
healthcare  benefits,  and to provide universal access to healthcare.  While the
political  climate  appears to have changed with respect to sweeping  healthcare
reform,  healthcare  reforms on


                                       12
<PAGE>

an issue by issue basis are being  enacted.  No assurance  can be given that any
such reforms will not have a material  adverse  effect on the Company.  Any such
effect may be  magnified  by the advent of "managed  care,"  which has  rendered
sales to hospitals more cost sensitive.

     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

     At  September  30,  1999,  the Company  owned or licensed  122 domestic and
foreign patents. The Company has filed certain patent applications and continues
its efforts to acquire and develop patented products. While the Company believes
that the  ownership  of patents is not  critical to its ability to compete  with
respect to most of the products in its product line,  the Company has,  however,
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, 1999,  the Company had 1,064  full-time  employees and 24
part-time  employees.  The Company believe 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.  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  and  in  Barnham,  the  United  Kingdom.  Breas  currently  leases
approximately 11,500 square feet in Molndal,  Sweden, and expects to move during
2000 to a new facility of approximately  26,000 square feet being constructed on
land owned by Breas in Molndal, Sweden.

Item 3. Legal Proceedings

     In October  1997,  the U.S.  District  Court in the  Northern  District  of
Illinois  entered a judgment  in favor of the  Company in a patent  infringement
action brought by Smith  Industries  regarding manual  resuscitators.  The Court
found  that the Smith  Industries  patent to be invalid  and that the  Company's
products  did not  infringe.  In May 1999,  the U.S.  Court of  Appeals  for the
Federal  Circuit  reversed the U.S.  District  Court's  judgment of  invalidity,
vacated  the  judgment of non  infringement  and  remanded  the case to the U.S.
District  Court for further  proceedings,  and in July 1999  clarified  that its
earlier decision was applicable to all claims of the subject patent.  On remand,
the U.S.  District Court has received briefs from the parties as to what further
proceedings  should occur and has referred the case to a federal  magistrate  to
conduct  settlement  discussions  scheduled  to be held in  February  2000.  The
Company  continues to believe that its manual  resuscitators do not infringe the
plaintiff's patent and will continue to vigorously defend the action.


                                       13
<PAGE>

     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. In subsequent court hearings,  both parties have filed additional  briefs
as to whether or not the exhibit  referred to by the Court  proves  infringement
and the Court has  requested a response  to  plaintiff's  proof of damages.  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.

     In January 1999, an action was commended in the U.S. District Court for the
Southern District of Florida by a competitor of Vital Pharma,  Inc.  ("VPI"),  a
Company subsidiary, for patent infringement and theft of trade secrets involving
blow-fill-seal technology. VPI filed an answer denying the complaint, asserted a
counterclaim   that  the  plaintiff's   patent  is  invalid,   noninfringed  and
unenforceable,  and requested an award of costs and attorneys fees. In May 1999,
the Court denied the  plaintiff's  motion to strike VPI's claims of  inequitable
conduct in view of VPI's amended answer and counterclaim. Pretrial discovery was
commenced,  but the parties have agreed to temporarily  stay the  proceedings to
discuss possible settlement.

     In March  1999,  VPI  commenced  an action in the same  Court  against  the
plaintiff's  sister  company  seeking a  declaratory  judgment  that five  other
blow-fill-seal   patents  are  invalid,  non  infringed  and  unenforceable  and
requesting  an award of costs and attorneys  fees. In April 1999,  the defendant
made a motion to dismiss  VPI's  complaint  claiming the Court  lacked  personal
jurisdiction over the defendants and VPI submitted its opposition to the motion.
In April  1999,  the Court  transferred  this action to the judge  handling  the
action  referenced  above.  The  parties  have  agreed to  temporarily  stay the
proceedings  to discuss  possible  settlement.  The  Company  will  continue  to
vigorously defend such action,  and will continue to pursue the Company's claims
against the competitor in the companion action if a settlement is not reached.

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

     The  Company  cannot  predict  the  outcome of its legal  proceedings  with
certainty.  However,  based upon its review of pending  legal  proceedings,  the
Company  does  not  believe  the  ultimate  disposition  of  its  pending  legal
proceedings will be material to its financial condition.  Predictions  regarding
the impact of pending legal proceedings  constitute  forward-looking  statements
under the Reform Act. The actual  results and impact of such  proceedings  could
differ  materially  from  the  impact  anticipated,  primarily  as a  result  of
uncertainties involved in the proof of facts in legal proceedings.

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

     Not applicable.


                                       14
<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         58    President, Chief Executive Officer and
                                   Director

     Anthony J. Dimun        56    Executive Vice President, Chief Financial
                                   Officer, Treasurer and Director

     Dennis Fenstermaker     53    Vice President - Manufacturing

     Christian Malmqvist     48    Vice President - International Operations

     Daniel L. Reuvers       36    Vice President - Marketing and Group Sales

     Scott L. Spitzer        48    Vice President, General Counsel and Secretary

     Barry Wicker            59    Executive Vice President -Sales and Director

* As of September 30, 1999.

     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.

     Anthony J. Dimun, a certified public accountant, has been a director of the
Company since August 1987. On March 1, 1991,  Mr. Dimun became an Executive Vice
President and the Chief Financial Officer of the Company and on March 1, 1991 he
became the Treasurer of the Company.  Mr. Dimun is also a shareholder  and Board
member  of  EchoCath,  Inc.  and Bionx  Implants,  Inc.  From July 1989  through
February  1991,  he served as Senior Vice  President of First  Atlantic  Capital
Ltd., a United States affiliate of an international merchant banking group. From
1978 until August  1987,  he was a partner in the  accounting  firm of Goldstein
Golub Kessler LLP,  which has examined the Company's  financial  statements  for
more than the past five years.  He served as a senior audit manager with Ernst &
Whinney  (a  predecessor  of Ernst & Young)  prior to  joining  Goldstein  Golub
Kessler  LLP,  in 1976.  He  received a Bachelor  of Science  degree  from Rider
University in 1965.

     Dennis  Fenstermaker  joined  the  Company  in  June  1992 as  Director  of
Manufacturing and became Vice President  --Manufacturing  and General Manager in
October 1993. Prior to joining the Company,  he held various  manufacturing  and
engineering  management  positions  with  Sterling  Drug Inc. (a  pharmaceutical
manufacturer  and distributor)  for more than ten years,  including  Director of
Engineering   Services  and  Plant  Manager,  and  with  Johnson  &  Johnson  (a
manufacturer  and  distributor of healthcare  products) for more than ten years.
Mr. Fenstermaker earned a Bachelor of Science degree in Commerce and Engineering
Sciences from Drexel University in 1969 and a Master of Business  Administration
degree from Rider University in 1973.


                                       15
<PAGE>

     Christian  Malmqvist  joined the  Company in July,  1995 as Vice  President
International Operations. Prior to joining the Company he held various sales and
marketing  positions  with  Ohmeda,  Inc.,  a  healthcare  supplier  serving the
anesthesia and critical care fields,  during a 17 year tenure. Mr. Malmqvist has
a masters  degree in Business  Administration  from  Stockholm  University and a
Bachelor's degree in Business Administration from Lund University (Sweden).

     Dan Reuvers  joined the Company in 1987. He has served  virtually all sales
related functions over the last 12 years,  including Vice President of Sales and
his current position of Vice President of Marketing and Group Sales. In addition
to his experience at Vital Signs, Mr. Reuvers  previously  served as Director of
Sales for a start-up respiratory equipment company.

     Scott  Spitzer  joined the  Company in 1998 as Vice  President  and General
Counsel.  On March 3, 1999,  Mr.  Spitzer  became the  Secretary of the Company.
Prior to joining the Company, he has held legal positions for 22 years including
as Senior Director and Senior Counsel of United States Surgical Corporation from
1991 to 1998; Vice President,  General Counsel and Secretary of Balfour Maclaine
Corporation (an American Stock Exchange listed trading company);  Assistant Vice
President of First Boston  Corporation  (an  investment  banking  company);  and
Senior Attorney at the American Stock Exchange.  Mr. Spitzer graduated Magna Cum
Laude  with a  Bachelor  of Arts  degree in  Government  and Law from  Lafayette
College in 1973,  received a masters degree from the Cornell University Graduate
School of Business and Public  Administration  in 1976 and received a law degree
from the Cornell University Law School in 1977.

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


                                       16
<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 PER
                                              HIGH          LOW       SHARE

Fiscal Year Ended September 30, 1998:

     Quarter ended December 31, 1997         $21          $17 1/4      $.04
     Quarter ended March 31, 1998             22 5/8       18 1/16      .04
     Quarter ended June 30, 1998              22 1/8       16 5/18      .04
     Quarter ended September 30,1998          20 1/2       15 1/4       .04

Fiscal Year Ended September 30, 1999:

     Quarter ended December 31, 1998:        $17 1/2      $14 1/2      $.04
     Quarter ended March 31, 1999             20           17 1/8       .04
     Quarter ended June 30, 1999              21 1/2       17 1/4       .04
     Quarter ended September 30,1999          22 1/8       19           .04

     As of September 30, 1999, there were approximately 444 holders of record of
the Common Stock.

     During Fiscal 1999,  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.

     Certain  acquisitions  occurring on or before September 30, 1998, including
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),  Misty Ox  (acquired in December
1995), and Coast Medical,  Inc.  (acquired in October 1995), 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.


                                       17
<PAGE>

                          VITAL SIGNS AND SUBSIDIARIES
                        CONSOLIDATED STATEMENT OF INCOME

<TABLE>
<CAPTION>
                                                                              YEAR ENDED SEPTEMBER 30,
                                                              ----------------------------------------------------
                                                                1999       1998        1997       1996      1995
                                                              ----------------------------------------------------
                                                            (IN THOUSANDS EXCEPT PER SHARE DATA)
<S>                                                           <C>        <C>        <C>        <C>        <C>
Net sales--continuing product lines                           $130,304   $123,335   $103,271   $ 89,539   $ 87,651
Net sales - product line disposed (1)                             --         --         --          808      1,902
Cost of goods sold                                              63,938     60,288     48,610     38,035     38,279
                                                              --------   --------   --------   --------   --------
Gross profit                                                    66,366     63,047     54,661     52,312     51,274
                                                              --------   --------   --------   --------   --------
Operating expenses:
   Selling, general and administrative                          33,258     36,513     27,186     23,491     23,629
   Research and development                                      5,810      5,715      3,869      3,595      3,865
   Interest (income)                                              (500)      (893)    (2,242)    (2,508)    (2,406)
   Interest expense                                                377        399        537        346        382
   Special charges                                                --        1,100      6,700       --         --
   Other (income) expense (Notes 1, 10 and                         457        815        844     (1,635)       162

   Goodwill amortization                                           796        700        862        643        354
                                                              --------   --------   --------   --------   --------
                                                                40,198     44,349     37,756     23,932     25,986
                                                              --------   --------   --------   --------   --------
Income before provision for income taxes and
   minority interest in income of                               26,168     18,698     16,905     28,380     25,288
   consolidated subsidiary
Provision for income taxes                                       8,012      5,698      5,619      9,591      9,154
                                                              --------   --------   --------   --------   --------
Income before minority interest in income of
    consolidated subsidiary (see Note 7)                        18,156     13,000     11,286     18,789     16,134
Minority interest in income of consolidated
    subsidiary                                                     220       --         --         --         --
                                                              --------   --------   --------   --------   --------
Income from continuing operations                               17,936     13,000     11,286     18,789     16,134
                                                              --------   --------   --------   --------   --------
Discontinued Operations (Note 1):
    Income (loss) from operations of Vital
       Pharma Machine Division (net of
       income taxes of ($265), $59 respectively                   (590)       135       --         --         --
                                                              --------   --------   --------   --------   --------

Income before cumulative effect of change in
   accounting principal                                         17,346     13,135     11,286     18,789     16,134
                                                              --------   --------   --------   --------   --------
Cumulative effect of change in accounting
   principle (net of income taxes of $803)
   (Note 1)                                                       --        1,524       --         --         --
                                                              --------   --------   --------   --------   --------
   Net Income                                                 $ 17,346   $ 11,611   $ 11,286   $ 18,789   $ 16,134
                                                              ========   ========   ========   ========   ========
Earnings per Common Share:
Basic income per share from continuing operations             $   1.46   $   1.03   $    .88   $   1.44   $   1.24
                                                              ========   ========   ========   ========   ========
Diluted income per share from continuing  operations          $   1.46   $   1.02   $    .87   $   1.43   $   1.24
                                                              ========   ========   ========   ========   ========

Cumulative effect of discontinued operations per share        $   (.04)  $    .01   $   --     $   --     $   --
                                                              ========   ========   ========   ========   ========

Cumulative effect of change in accounting
    principle per share                                       $   --     $   (.12)  $   --     $   --     $   --
                                                              ========   ========   ========   ========   ========
Basic net income per share                                    $   1.42   $    .92   $    .88   $   1.44   $   1.24
                                                              ========   ========   ========   ========   ========
Diluted net income per share                                  $   1.41   $    .91   $    .87   $   1.43   $   1.24
                                                              ========   ========   ========   ========   ========
Basic weighted average number of shares                         12,250     12,665     12,881     13,045     12,991
                                                              ========   ========   ========   ========   ========
Diluted weighted average number of shares                       12,325     12,746     12,953     13,146     13,053
                                                              ========   ========   ========   ========   ========
</TABLE>

----------
1 The Company disposed of its endoscopic product line during Fiscal 1996 and has
reflected  net sales of that product  line as a separate  line item in the table
set forth above.


                                       18
<PAGE>

<TABLE>
<CAPTION>
                                                 -----------------------------------------------------------
                                                                       SEPTEMBER 30,
                                                 -----------------------------------------------------------
                                                   1999       1998       1997          1996       1995
<S>                                              <C>        <C>        <C>           <C>         <C>
Balance Sheet Data:
Working capital:                                 $ 41,791   $ 35,579   $ 38,102 (2)  $ 44,820    $32,885 (3)
Total assets                                      157,310    138,186    136,948       123,756    110,421
Long-term debt, excluding current installments      2,179      2,462      5,529         2,700      3,200
Total stockholders' equity                        131,240    121,310    112,229       110,239     92,645
</TABLE>

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

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.

                        INCREASE (DECREASE) FROM
                                                           PREVIOUS YEAR
                                                  ----------------------------
                                                   FISCAL 1999    FISCAL 1998
                                                  COMPARED WITH  COMPARED WITH
                                                   FISCAL 1998    FISCAL 1997
                                                  ----------------------------

Net sales                                             5.7%            19.4%
Cost of goods sold                                    6.1%            24.0%
Gross profit                                          5.3%            15.3%
Selling, general and administrative expenses         (8.9%)           34.3%
Research and development expenses                     1.7%            47.7%
Income from continuing operations before
provision for income taxes and minority
interest in income of consolidated subsidiary        40.0%            10.6%
Provision for income taxes                           40.6%             1.4%
Net income                                           49.4%             2.9%

Fiscal 1999 Compared to Fiscal 1998

     Net sales for the year ended  September 30, 1999 increased by 5.7% compared
with the same  period  last year.  The  increase  was  largely  attributable  to
sleep/ventilators  product line resulting from the  acquisition of a controlling
interest in Breas AB, 1.0% increase in  respiratory/critical  care products, and
an 11.5% increase at Thomas Medical Products, Inc. ("TMP").

----------
2 The decrease in working  capital and increase in long-term debt in Fiscal 1997
is due primarily to the acquisition of Marquest Medical  Products,  Inc. and the
acquisition of shares pursuant to a previously announced stock buyback.


3 The reduction in working  capital in Fiscal 1995 is primarily  attributable to
certain marketable securities which are not classified as current assets.


                                       19
<PAGE>

     While  net sales  increased  by 5.7%,  gross  profit  increased  by 5.3% in
absolute dollar amount.  The  discrepancy  between the increase in sales and the
increase in gross profit is primarily  due to higher margin  products  resulting
from the  acquisition  of Breas.  The effect of the sales  price  pressures  was
offset  primarily by the Company's  cost  reduction  program.  On a consolidated
basis the Company's  gross profit  percentage  for the year ended  September 30,
1999 was  50.9%  compared  to 51.1% in the same time  period of the last  fiscal
year.

     Selling,  general  and  administrative  expenses  (S, G & A)  decreased  by
$3,255,000  primarily due to the  realignment of the Company's  sales force from
182 to 90  sales  personnel,  representing  a  reduction  in sales  expenses  of
$5,372,000 for the year ended September,  1999 offset by $1,765,000 of S, G, & A
expense  reported  by Breas AB for the four  months  included  in the year ended
September, 1999.

     Research and development  expenses ("R&D")  increased 1.7%,  largely due to
the continued effort to expand the VASCEZE(R) product line and the R & D efforts
of Breas AB. The Company  continues to make an active  commitment to new product
development.

     Other expense,  which includes dividend income,  realized capital gains and
losses, legal and other expenses related to non-operational  items, decreased by
$358,000 from the year ended  September 30, 1998 to the year ended September 30,
1999 due to lower litigation expenses in 1999.

     In the fourth  quarter of 1999,  the Company  made a decision to divest the
Blow-Fill-Seal  machine  fabrication  business within the Vital Pharma operation
resulting in a loss of $.04 per share in 1999.

     The Company's  effective tax rates were 30.6% and 30.5% for the years ended
September 30, 1999 and 1998 respectively.  The rate for the year ended September
30,  1999  is less  than  the  federal  and  state  statutory  rates  due to the
utilization  of  deductions  for tax return  purposes  which do not effect  book
earnings.

     For  information  regarding a change in accounting  principle in 1998,  see
Note 1 of the Notes to the Company's Consolidated Financial Statements.

Fiscal 1998 Compared to Fiscal 1997

     Net sales for the year ended September 30, 1998 increased by 19.4% compared
with the same  period  last year.  The  increase  was  attributable  to an 11.6%
increase in  anesthesia  products,  a 19.9%  increase in  respiratory  products,
primarily  due  to  the   acquisition  of  Marquest   Medical   Products,   Inc.
("Marquest").

     While net sales  increased  by 19.4%,  gross  profit  increased by 24.0% in
absolute dollar amount.  The  discrepancy  between the increase in sales and the
increase in gross profit is the result of higher sales of certain  products with
gross  margins  below the Company's  average  gross margin  (primarily  sales of
Marquest  products and the increase in activity at VPI). The effect of the sales
price pressures resulted in a decline in gross margins.  On a consolidated basis
the Company's gross profit  percentage for the year ended September 30, 1998 was
51.1% compared to 52.9% in 1997.

     Selling,  general and administrative  expenses increased by 34.3% in dollar
amount,  as the result of the  acquisition  of  Marquest,  increases in costs to
support  international  sales  growth,  the  increased  activity  at VPI  and an
increase in the Company's  domestic  sales force.  The domestic  sales force was


                                       20
<PAGE>

doubled in late fiscal 1997 to take advantage of the  respiratory  product lines
acquired  in  the  Marquest  Medical   Products   acquisition  and  to  increase
participation in dual source group purchasing  contracts.  While the two primary
objectives  were met in the  first  half of 1998,  the cost of  maintaining  the
second sales force  (approximately $5.7 million in 1998) was no longer justified
from financial  perspective.  Accordingly,  in the third quarter of fiscal 1998,
the Company  decided to reduce the sales force to slightly  above its early 1997
level and took a one-time  charge of  $1,100,000  to cover the costs  associated
with the reduction.

     R & D increased  47.7%,  largely due to an expanded  effort to complete the
Vasceze(R) and Isocath(R) product lines.

     Other  income/expense,  which includes  dividend  income,  realized capital
gains and losses,  legal and other expenses  related to  non-operational  items,
decreased  by $28,000 from the year ended  September  30, 1997 to the year ended
September 30, 1998. In the 1997 period the Company realized net capital gains on
marketable  securities of $698,000 offset by  approximately  $1,800,000 of legal
expenses in  conjunction  with the successful  defense of a patent  infringement
lawsuit which impacted other income/expense  adversely.  In the 1998 period, the
reduced  litigation costs were offset by negligible capital gains. For a further
discussion of this legal action see Part I, Item 3.

     The Company's  effective tax rates were 30.5% and 33.2% for the years ended
September 30, 1998 and 1997 respectively.  The rate for the year ended September
30,  1998 is less than the  federal  and state  statutory  rates due to  product
contributions  and a tax credit for research and  development.  The tax rate for
the year ended  September  30, 1997 is less than the combined  federal and state
statutory  rates  primarily as a result of the utilization of capital loss carry
forwards.  The Company's effective tax rate is expected to be somewhat higher in
fiscal 1999 than the fiscal 1998 rate.

     For  information  regarding a change in accounting  principle in 1998,  see
Note 1 of the Notes to the Company's Consolidated Financial Statements.

Liquidity and Capital Resources

     The Company continues to rely upon cash flow from its operations as well as
the funds  remaining  from its initial and second public  offerings.  During the
year  ended  September  30,  1999,  cash and  cash  equivalents  and  short-term
marketable   securities   increased  by  $1,898,000  and  long-term   marketable
securities and other investments  decreased by $6,733,000.  Capital expenditures
of  $7,533,000  were made to  improve  efficiencies  and  support  new  business
opportunities.  Approximately  $13  million  ($5,500,000  during  the year ended
September 30, 1999) was expended to acquire Breas AB. In addition, $5,493,000 of
treasury stock was acquired  pursuant to a previously  announced  buy-back plan,
and the Company paid  $1,975,000 of dividends  during Fiscal 1999.  The combined
total  of cash  and  cash  equivalents,  short-term  marketable  securities  was
$7,222,000 and together with other long-term investments  aggregated $17,661,000
at September 30, 1999 as compared to $22,496,000 at September 30, 1998.

     The Company  manages its cash flow by  investing in  marketable  securities
and, from time to time,  supplementing  its portfolio by making  investments  in
privately  held  healthcare  companies.  The  aggregate  investment in long term
marketable  securities  and  other  investments  as of  September  30,  1999 was
$11,006,000 (see Note 5 to the Company's Consolidated Financial Statements).

     At  September  30,  1999,  the  Company  had $6.7  million in cash and cash
equivalents.  On that


                                       21
<PAGE>

date, the Company's  working capital was $41.8 million and the current ratio was
3.7 to 1, as compared to 4.5 to 1 at September 30, 1998.

     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, 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 $15 million  line of credit  with Chase  Manhattan  Bank
("Chase").  The  outstanding  amount on this line of credit  was  $4,850,000  at
September 30, 1999. Chase has also expressed its intention to provide additional
funds for the Company's future acquisitions, provided that each such acquisition
meets certain  criteria.  The terms for any borrowing would be negotiated at the
date of origination.

     Management  believes that the funds generated from  operations,  along with
the  Company's  current  working  capital  position  and  bank  credit,  will be
sufficient to satisfy the Company's  capital  requirements  for the  foreseeable
future. This statement constitutes a forward-looking  statement under the 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.

Year 2000 Compliance

     The Year 2000 problem is the result of computer  programs  written with two
digits  (rather than four) to define the  applicable  year.  A computer  program
written  in that  manner  would  recognize  the entry of "00" in a date field as
referring  to the year 1900 and not the year  2000.  An error of this type could
result in  various  types of  miscalculations,  systems  failures  and  business
process  interruption.  This issue is not unique to the Company and is sometimes
known as "Y2K", Year 2000 or the millennium bug (collectively, "Y2K issues").

     The Company has  examined  its  products and systems to assess and minimize
what problems may be encountered with regard to the Y2K issues and the Company's
ability to transact business without  interruption.  The Company's primary focus
on Y2K issues is to assure the ability to continue to provide safe and effective
products to its  customers  and end users.  A technical  review of the Company's
product lines  addressing Y2K issues has been  completed.  None of the Company's
single use products are affected by Y2K issues  because their  components do not
include any form of microprocessor or clock. In order to determine the potential
impact of Y2K issues on the Company's products,  the Company has inquired of its
suppliers or  subcontractors,  as appropriate,  to obtain an understanding  that
products will not be affected by Y2K issues.  Most of these  companies have been
aware of this  problem for several  years and have  advised  that they have been
working  to  prevent  disruption  in the  goods  and  service  they  provide  to
customers.

     The Company  has not  developed a formal  contingency  plan for  addressing
problems  resulting from vendors and suppliers of goods and services who are not
Year 2000  compliant.  However,  based upon the Company's Y2K issues  compliance
investigations,  the  Company  believes  that as to  most of the raw  materials,
supplies and services used in its business, alternative means of supply would be
available  to the extent a supplier  or vendor was unable to continue to provide
such  materials,  supplies or services  due to Y2K issues.  Notwithstanding  the
foregoing,  if the supply of face masks from Respironics,  Inc. were interrupted
as a result of Y2K issues (including, without limitation, Y2K issues


                                       22
<PAGE>

relating  to  common  carriers  in  transporting  face  masks  from the place of
manufacture in China), no assurance can be given that the Company could maintain
the  required  supply of face masks in the quantity and at a cost that would not
have a material  adverse  effect on the Company's  business,  including  sale of
compatible  products.  The Company  will  continue  its  communication  with its
suppliers  including  Respironics to address adverse  consequence of Y2K issues.
However,  no assurance  can be given and the  Company's  policy is to maintain a
sufficient   inventory   of  face  masks  to  lessen  the  impact  of  temporary
interruptions.

     The  Company   began  a  process  of  upgrading   its   computer   software
approximately  three years ago. While this effort was not undertaken in order to
address Y2K issues, the need to upgrade the software occurred  contemporaneously
with an increased  awareness of Y2K issues. The hardware and software components
purchased  or  licensed  by the  Company in  connection  with the upgrade of the
computer  software  were  analyzed  for Y2K  issues  compliance.  The  Company's
software upgrade became fully operational  during the fourth quarter of calendar
year 1999. Because the upgrade of the computer software was to address increases
in  volume,  number of users  and  unsupported  software,  the  Company  has not
ascribed any of these  computer costs to Y2K issues  compliance,  but as capital
expenditures made in the ordinary course of business.

     Several of the Company's in-house  manufacturing  lines used to manufacture
raw materials  into component  parts are  controlled by equipment  incorporating
microprocessors.  The Company also has certain other  operating  equipment which
incorporate  microprocessors.  The Company has made inquiry of manufacturers and
providers  of  certain  key  equipment  and  device  contract  companies  and is
upgrading certain equipment. The Company believes that the costs to upgrade such
equipment  are not  expected  to be  material to the Company and that such other
equipment material to the Company's  operations will not be materially  effected
by Y2K issues.

THE   ESTIMATES  AND   CONCLUSIONS   HEREIN  WITH  RESPECT  TO  Y2K  ISSUES  ARE
FORWARD-LOOKING  STATEMENTS  UNDER THE REFORM ACT AND ARE BASED ON  MANAGEMENT'S
BEST ESTIMATES OF FUTURE EVENTS. ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THE
COMPANY'S ESTIMATES AND CONCLUSIONS AS A RESULT OF A NUMBER OF FACTORS INCLUDING
THE AVAILABILITY OF RESOURCES, THE ABILITY TO DISCOVER AND CORRECT THE POTENTIAL
Y2K SENSITIVE  ISSUES WHICH COULD HAVE A SERIOUS  IMPACT ON CERTAIN  OPERATIONS,
AND THE ABILITY OF THE  COMPANY'S  VENDORS,  SUPPLIERS,  PROVIDERS  OF GOODS AND
SERVICES, THE UTILITY INFRASTRUCTURE (POWER, TRANSPORT,  TELECOMMUNICATIONS) AND
CUSTOMERS TO BRING THEIR SYSTEMS INTO Y2K ISSUES COMPLIANCE.


                                       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.

     The Company's marketable  securities and other investments are subject to a
variety  of market  risks,  including  interest  rates for U.S.  Government  and
federal mortgage obligations, and operating and a wide variety of other business
risks of corporate  obligations.  The Company's other  investments in healthcare
companies  are  subject to the wide  variety of  business  risks to which  those
companies are subject,  including generally all of those to which the Company is
subject,  and the lack of liquidity due to the fact that the  investments are in
non-public companies.  The Company's policy is to diversify its debt investments
among U.S. government  obligations,  corporate  obligations and federal mortgage
obligations  and to further  diversify  such  portfolio  by utilizing a lattered
portfolio of  maturities  for such  instruments.  This portion of the  Company's
portfolio  primarily  matures over the next 5 years (See Note 5 to the Company's
Consolidated Financial Statements). It is also the Company's policy to limit and
monitor the market risks exposure to its other investments.


                                       24
<PAGE>

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 1999 and 1998                  F-2

Consolidated Statement of Income for the years ended
        September 30, 1999, 1998 and 1997                                    F-3

Consolidated Statement of Stockholders' Equity for the years ended
        September 30, 1999, 1998 and 1997                                    F-4

Consolidated Statement of Cash flows for the years ended
        September 30, 1999, 1998 and 1997                                    F-5

Notes to Consolidated Financial Statements                                   F-6

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

     Not applicable.


                                       25
<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,  1999 and  1998  and the  related
consolidated statements of income, stockholders' equity, and cash flows for each
of the three years in the period  ended  September  30,  1999.  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  generally   accepted  auditing
standards.  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,  1999 and 1998 and the results of their
operations  and their cash flows for each of the three years in the period ended
September 30, 1999 in conformity with generally accepted accounting principles.

As discussed in Note 1 of notes to the  consolidated  financial  statements,  in
1998 the Company changed its method of accounting for sales rebates.

GOLDSTEIN GOLUB KESSLER LLP
New York, New York

November 12, 1999


                                      F-1

                 See notes to consolidated financial statements
<PAGE>

                       VITAL SIGNS, INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEET

                                     ASSETS

<TABLE>
<CAPTION>
                                                                           SEPTEMBER
                                                                       1999          1998
                                                                         (IN THOUSANDS)
Current Assets:
<S>                                                                <C>          <C>
    Cash and cash equivalents (Note 1)                             $   6,655    $   2,600
    Marketable securities (Notes 1 and 5)                               --          2,157
    Accounts receivable, less allowance for doubtful accounts of
        $244 and $638, respectively (Notes 16 and 17)                 21,153       17,837
    Inventory (Notes 1 and 3)                                         23,892       19,322
    Prepaid expenses and other current assets (Note 4)                 5,416        3,903
                                                                   ---------    ---------
        Total current assets                                          57,116       45,819

    Property, plant and equipment - net (Notes 1 and 6)               45,960       41,009
    Other investments and marketable securities (Notes 1 and 5)       11,006       17,739
    Goodwill and other intangible assets (Notes 1 and 2)              34,978       25,495
    Deferred income taxes (Notes 1 and 14)                             1,478        1,918
    Other assets                                                       6,772        6,206
                                                                   ---------    ---------
        Total Assets                                               $ 157,310    $ 138,186
                                                                   =========    =========

                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
    Accounts payable                                                   5,629        5,462
    Current portion of long-term debt (Note 7)                           423        1,022
    Accrued expenses (Note 8)                                          4,423        3,756
    Notes payable - bank (Note 7)                                      4,850         --
                                                                   ---------    ---------
        Total current liabilities                                     15,325       10,240

Long-term debt (Note 7)                                                2,179        2,462
Other liabilities (Note 9)                                             4,827        4,174
                                                                   ---------    ---------
        Total Liabilities                                             22,331       16,876
                                                                   ---------    ---------
Minority interest in subsidiary                                        3,739         --
                                                                   ---------    ---------
Commitments and contingencies (Notes 2, 11 and 12)
Stockholders' Equity (Note 13)
    Common stock - no par value; authorized 40,000,000
    shares, issued and outstanding 12,295,162, and 12,628,194
    shares respectively,                                              16,095       21,520
    Accumulated other comprehensive income (Loss) (Notes 1 and 5)         (2)          14
    Retained earnings                                                115,147       99,776
                                                                   ---------    ---------
    Stockholders' equity                                             131,240      121,310
                                                                   ---------    ---------
        Total Liabilities and Stockholders' Equity                 $ 157,310    $ 138,186
                                                                   =========    =========
</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,
                                                                        -----------------------------------
                                                                           1999         1998         1997
                                                                        ---------    ---------    ---------
                  (IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S>                                                                     <C>          <C>          <C>
Net sales-continuing product lines (Notes 1, 16 and 17)                 $ 130,304    $ 123,335    $ 103,271
Cost of goods sold                                                         63,938       60,288       48,610
                                                                        ---------    ---------    ---------
Gross profit                                                               66,366       63,047       54,661
                                                                        ---------    ---------    ---------

Operating expenses:
    Selling, general and administrative                                    33,258       36,513       27,186
    Research and development                                                5,810        5,715        3,869
    Interest income                                                          (500)        (893)      (2,242)
    Interest expense                                                          377          399          537
    Special charges (Note 2)                                                 --          1,100        6,700
    Other expense-net (Notes 1 and 10)                                        457          815          844
    Goodwill amortization                                                     796          700          862
                                                                        ---------    ---------    ---------
                                                                           40,198       44,349       37,756
                                                                        ---------    ---------    ---------

Income before provision for income taxes and minority interest in
     income of consolidated subsidiary                                     26,168       18,698       16,905
Provision for income taxes                                                  8,012        5,698        5,619
                                                                        ---------    ---------    ---------
Income before minority interest in
     income of consolidated subsidiary                                     18,156       13,000       11,286
Minority interest in income of consolidated subsidiary                        220         --           --
                                                                        ---------    ---------    ---------
Income from continuing operations                                          17,936       13,000       11,286
                                                                        ---------    ---------    ---------
Discontinued Operations (Note 2):
    Income  (loss) from  operations of Vital Pharma Machine
        Division (net of income taxes (benefit) of ($265),
        $59 respectively)                                                    (590)         135         --
                                                                        ---------    ---------    ---------
    Income before cumulative effect of change in accounting
        principle                                                          17,346       13,135       11,286
                                                                        ---------    ---------    ---------
Cumulative effect of change in accounting principle (net of
    income taxes of $803) (Note 1)                                           --         (1,524)        --
                                                                        ---------    ---------    ---------
Net income                                                              $  17,346    $  11,611    $  11,286
                                                                        =========    =========    =========
Earnings per Common Share:
Basic income per share from continuing operations                       $    1.46    $    1.03    $     .88
                                                                        =========    =========    =========
Diluted income per share from continuing operations                     $    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                                              $    1.42    $     .92    $     .88
                                                                        =========    =========    =========
Diluted net income per share                                            $    1.41    $     .91    $     .87
                                                                        =========    =========    =========
Basic weighted average number of shares outstanding                        12,250       12,665       12,881
                                                                        =========    =========    =========
Diluted weighted average number of shares outstanding                      12,325       12,746       12,953
                                                                        =========    =========    =========

Unaudited Pro Forma  Information  (assuming the change in
accounting  principle was applied retroactively) (Note 1):
      Income from continuing operations                                              $  12,741    $  11,172
                                                                                     =========    =========
      Net income                                                                     $  12,876    $  11,172
                                                                                     =========    =========
</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
                                                     COMMON STOCK          OTHER       RETAINED                    COMPREHENSIVE
                                                                        COMPEHENSIVE   EARNINGS  STOCKHOLDERS'        INCOME
                                                 SHARES       AMOUNT    INCOME (LOSS)               EQUITY
                                              -----------------------------------------------------------------------------------
<S>                                           <C>          <C>          <C>         <C>          <C>              <C>
Balance at September 30, 1996:                13,062,701   $   29,666   $     (426) $   80,999   $  110,239

Net income                                                                              11,286       11,286       $   11,286
Purchase of common stock, net of
reissuance                                      (410,689)      (7,788)                       6       (7,782)
Exercise of stock options                         22,661          271                                   271
Adjustment for aggregate
    unrealized gain on
    marketable securities                                                      297                      297              297
Dividends paid ($.16 per share)                                                         (2,082)      (2,082)
                                              ----------   ----------   ----------  ----------   ----------       ----------
Comprehensive income                                                                                                  11,583
                                                                                                                  ==========
Balance at September 30, 1997:                12,674,673       22,149       (129)       90,209      112,229

Net income                                                                              11,611       11,611           11,611
Purchase of common stock, net of
reissuance                                       (48,749)        (656)                                 (656)
Exercise of stock options                          2,270           27                                    27
Adjustment for aggregate unrealized gain on
    marketable securities                                                      143                      143              143
Dividends paid ($.16 per share)                                                         (2,044)      (2,044)
                                              ----------   ----------   ----------  ----------   ----------       ----------
Comprehensive income                                                                                                  11,754
                                                                                                                  ==========
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, net of
reissuance                                      (341,057)      (5,822)                               (5,822)
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
                                              ----------   ----------   ----------  ----------   ----------       ----------
Comprehensive income                                                                                              $   17,330
                                                                                                                  ==========
Balance at September 30, 1999:                12,295,162   $   16,095   $       (2) $  115,147   $  131,240
                                              ==========   ==========   ==========  ==========   ==========
</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,
                                                                      ---------------------------------
                                                                         1999        1998        1997
                                                                      ---------------------------------
                                                                               (IN THOUSANDS)
<S>                                                                   <C>         <C>         <C>
Cash flows from operating activities:
Net income                                                            $ 17,346    $ 11,611    $ 11,286
Adjustments  to  reconcile  net income to
   net cash  provided  by  operating activities:
   Depreciation and amortization                                         3,726       3,436       2,891
   Deferred income taxes                                                   431        (116)     (1,628)
   Minority interest in income of consolidated subsidiary                  220
   Amortization of goodwill                                                796         700         862
   Amortization of deferred credit                                         (91)       (100)       (100)
   Net (gain) loss on sales of available-for-sale securities                16         (42)       (698)
   Net gain on sale of fixed assets                                       --          --           (27)
   Write-off of purchased research and development                        --          --         2,500
   Plant consolidation special charge                                     --          --         4,200
Changes in operating assets and liabilities:
   (Increase) decrease in accounts receivable                           (1,005)     (1,432)         82
   (Increase) decrease in inventory                                     (2,466)         37      (3,738)
   (Increase) decrease in prepaid expenses and other current assets        531       7,622      (2,069)
   Increase in other assets                                               (566)     (1,651)       (841)
   Decrease in accounts payable and accrued expenses                      (541)     (4,121)       (495)
                                                                      --------    --------    --------
        Net cash provided by operating activities                       18,397      15,944      12,225
                                                                      --------    --------    --------
Cash flows from investing activities:
   Acquisition of property, plant and equipment                         (7,533)    (10,620)     (9,988)
   Sale of property, plant and equipment                                  --          --           543
   Purchases of other investments and available-for-sale securities     (6,368)    (15,910)    (57,165)
   Proceeds from sales of available-for-sale securities                  6,195      14,830      68,318
   Acquisition of subsidiaries, net of $2,344 of cash
        acquired (1999), $3,200 of cash acquired (1997)                 (3,204)       --       (16,791)
                                                                      --------    --------    --------
        Net cash used in investing activities                          (10,910)    (11,700)    (15,083)
                                                                      --------    --------    --------

Cash flows from financing activities:
   Dividends paid                                                       (1,975)     (2,044)     (2,082)
   (Purchase) reissuance of common stock                                (5,493)       (656)     (7,782)
   Proceeds from exercise of stock options                                  68          27         271
   Increase in short-term notes payable                                  4,850        --          --
   Increase in long-term debt and notes payable                           --          --         8,282
   Principal payments of long-term debt and notes payable                 (882)     (2,656)     (9,893)
                                                                      --------    --------    --------
        Net cash used in financing activities                           (3,432)     (5,329)    (11,204)
                                                                      --------    --------    --------

   Net increase (decrease) in cash and cash equivalents                  4,055      (1,085)    (14,062)
   Cash and cash equivalents at beginning of year                        2,600       3,685      17,747
                                                                      --------    --------    --------
   Cash and cash equivalents at end of year                           $  6,655    $  2,600    $  3,685
                                                                      ========    ========    ========

   Supplemental disclosures of cash flow information:
     Cash paid during the year for:
        Interest                                                      $    421    $    378    $    379
        Income taxes                                                  $  6,264    $  1,781    $  9,660

   Supplemental schedule of noncash investing activities:
        Accrued amounts relating to purchase of subsidiaries          $      0    $      0    $    100
        Forgiveness of note receivable as payment for purchase
           of subsidiary                                              $      0    $      0    $     67
</TABLE>


                 See notes to consolidated financial statements

                                      F-5

<PAGE>

                       VITAL SIGNS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 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.

     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  result  from  differences  between the time
certain  expenses are recognized for financial  reporting  purposes and the time
when the items are actually reported for income tax purposes.

     Revenue Recognition:

     Revenue  from sales of  products is  recognized  at the date of shipment to
customers.

     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.

     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:

     The Company adopted Statement of Financial Accounting Standards ("SFAS")No.
128,  Earning Per Share,  beginning  with the quarter  ended  December 31, 1997.
Earnings per share data for the year ended  September 30, 1997 has been restated
to conform to the provisions of this


                                      F-6
<PAGE>

statement.  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 75,000, 81,000, and 72,000 in 1999,
1998, and 1997,  respectively,  were used in the calculation of diluted earnings
per common share.

<TABLE>
<CAPTION>
                                                       ------------------------------
                                                             FOR THE YEAR ENDED
                                                                SEPTEMBER 30,
                                                       ------------------------------
                                                          1999       1998       1997
<S>                                                   <C>        <C>        <C>
Earnings per Common Share:

Basic income per share from continuing operations     $   1.46   $   1.03   $    .88
                                                      ========   ========   ========
Diluted income per share from continuing operations   $   1.46   $   1.02   $    .87
                                                      ========   ========   ========
Basic net income per share                            $   1.42   $    .92   $    .88
                                                      ========   ========   ========
Diluted net income per share                          $   1.41   $    .91   $    .87
                                                      ========   ========   ========

Unaudited Proforma Information
(assuming the change in account principle was
applied retroactively):

Basic income per share from continuing operations                $   1.01   $    .87
                                                                 ========   ========
Diluted income per share from continuing operations              $   1.00   $    .86
                                                                 ========   ========
Basic net income per share                                       $   1.02   $    .87
                                                                 ========   ========
Diluted net income per share                                     $   1.01   $    .86
                                                                 ========   ========
</TABLE>

     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.

     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 based on 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.

     Change in Accounting Principle:

     Effective  as of the  beginning of the second  quarter of fiscal 1998,  the
Company adopted a new accounting principle related to the accrual of distributor
rebates.  This  change in  principle  was adopted to more  precisely  record the
amounts due distributors who service the Company's hospital customers.


                                      F-7
<PAGE>

                       VITAL SIGNS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company's  prior method  resulted in  fluctuations  for financial  reporting
purposes that were the result of activities outside the Company's  control.  The
cumulative  effect of this change in accounting  principle,  after income taxes,
results in a reduction in net income of $1,524,000 or $.12 per share.  Pro forma
information  is  included  in the income  statement  indicating  the  results of
operations as if the newly adopted accounting principle had been in effect since
October 1, 1996.

     Accounting for Stock-Based Compensation:

     The  Company  measures  stock-based   compensation  cost  using  Accounting
Principles  Board  ("APB")  Opinion  No.  25 as is  permitted  by SFAS No.  123,
Accounting for Stock-Based Compensation.

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.  The Company's other business segments
do not meet the criteria for separate disclosures.

Recent Accounting Pronouncements:

     The  Company  does  not  believe  that  any  recently  issued,  but not yet
effective  accounting  standards  will have a material  effect on the  Company's
consolidated financial position, results of operations or cash flows.

Note 2 - Acquisitions/Dispositions:

1999 Acquisition/Disposition

     The Company acquired a 52% interest in Breas AB, a European manufacturer of
personal  ventilators for Obstructive Sleep Apnea (OSA) and other  applications,
for an aggregate  investment of approximately  $13 million of which $5.5 million
was expended in 1999.  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 $10,916,000.

     Vital  Signs  has  reflected  the  operations  of Breas  as a  consolidated
subsidiary effective June 1, 1999 (see Pro forma information below).

     In September  1999, the Company made a decision to sell its  Blow-Fill-Seal
("BFS") Machine  Fabrication  division consisting of net assets of $4.2 million.
The net sales for the BFS Machine Fabrication division were $498,000, $3,082,000
and $291,000 in fiscal years 1999, 1998, and 1997 respectively. Accordingly, the
statement of income for all periods  presented  has been restated to reflect the
net operations as a discontinued  operation.  The Company  expects to realize an
immaterial gain from the sale of the BFS division.

1997 Acquisition

     The Company  acquired  all of the  outstanding  stock of  Marquest  Medical
Products, Inc. ("Marquest"), a company engaged in the manufacture of respiratory
products.   The  Company  paid  approximately  $20  million  in  cash  including
acquisition  costs and incurred a $2.5 million  writeoff of in-process  research
and development,  which was charged to 1997 operations,  as discussed below. The
assets acquired  amounted to approximately  $19 million and liabilities  assumed
approximated $13


                                      F-8
<PAGE>

                       VITAL SIGNS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

million. This transaction has been accounted for as a purchase,  and resulted in
an excess of  purchase  price  over the fair  value of net  assets  acquired  of
approximately  $15 million;  subsequently  this amount was reduced by $4 million
relating to the realizability of the tax benefit from acquired tax losses.

     The effective date of the acquisition for financial  reporting  purposes is
April 1,1997. The balance sheet and results of operations for Marquest have been
included in these consolidated financial statements as of April 1, 1997.

     In connection  with the  acquisition  of Marquest,  the Company  recorded a
special  charge of $6.7 million in the quarter ended June 30, 1997.  This charge
represents  $2,500,000 of in process research and development  costs acquired in
the Marquest  transaction  (which must be expensed in  accordance  with purchase
accounting  rules)  along with $4.2  million in costs for the  consolidation  of
duplicative manufacturing operations as a result of this transaction.

     The Company  recorded a special charge of $1.1 million in the quarter ended
June 30, 1998. The charge  represents  severance and other costs associated with
reducing the domestic sales force  originally hired to sell the expanded product
line acquired in the Marquest acquisition.

     The following  summary,  pro forma,  unaudited data of the Company reflects
the  acquisition  of Breas as if it had occurred on October 1, 1997 and Marquest
as if it had occurred on October 1, 1996.

                                        ----------------------------------------
                                                  PRO FORMA/UNAUDITED
                                        ----------------------------------------
                                                 (DOLLARS IN THOUSANDS)
                                        FISCAL 1999   FISCAL 1998    FISCAL 1997
                                        -----------   -----------    -----------
Net sales - continuing operations         $139,665      $134,535      $114,801

Net income                                $ 19,508      $ 13,611      $ 10,904

Diluted net income per share              $   1.58      $   1.07      $    .84

Note 3 - Inventory:

Inventory consists of the following:

                                       -----------------------------
                                               SEPTEMBER 30,
                                       -----------------------------
                                          1999              1998
                                       -----------------------------
                                              (IN THOUSANDS)

Raw materials                            $15,366           $12,061
Finished goods                             8,526           $ 7,261
                                         -------           -------
                                         $23,892           $19,322
                                         =======           =======


                                      F-9
<PAGE>

                       VITAL SIGNS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 4 - Prepaid Expenses and Other Current Assets:

Prepaid expenses and other current assets consist of the following:

                                                              SEPTEMBER 30,
                                                         ---------------------
                                                           1999         1998
                                                         --------     --------
                                                             (IN THOUSANDS)

Note and related party receivables                        $3,115       $1,678
Prepaid income taxes                                         416          314
Deferred tax asset  (see Note 14)                            501          492
Prepaid insurance                                            288          341
Other                                                      1,096        1,078
                                                          ------       ------
                                                          $5,416       $3,903
                                                          ======       ======

Note 5 - Other Investments and Marketable Securities:

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

<TABLE>
<CAPTION>
                                                            AVAILABLE-FOR-SALE-SECURITIES
                                         ----------------------------------------------------------------
                                               SEPTEMBER 30, 1999                SEPTEMBER 30, 1998
                                         -------------------------------  -------------------------------
                                                                   (IN THOUSANDS)

                                                                 GROSS                           GROSS
                                                              UNREALIZED                      UNREALIZED
                                            FAIR                HOLDING     FAIR                HOLDING
                                           VALUE      COST      LOSSES      VALUE     COST       GAINS
                                           -----      ----      ------      -----     ----       -----
<S>                                      <C>        <C>         <C>       <C>       <C>        <C>
U.S. Government obligations              $   --     $   --      $   --    $  2,458  $  2,457   $        1
Federal mortgage obligations                  567        571          (4)    3,980     3,957           23
                                         --------   --------    --------  --------  --------   ----------
Total available-for-sale-securities           567        571          (4)    6,438     6,414           24
Other investments                          10,439     10,439        --      13,458    13,458         --
                                         --------   --------    --------  --------  --------   ----------
                                         $ 11,006   $ 11,010    $     (4) $ 19,896  $ 19,872   $       24
                                         ========   ========    ========  ========  ========   ==========
</TABLE>


                                      F-10
<PAGE>

                       VITAL SIGNS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

At  September   30,  1999   investments   in  debt   securities   classified  as
available-for-sale securities mature as follows:

                          -----------------------------------------------
                                             MATURITY
                          -----------------------------------------------
                                          (IN THOUSANDS)

                          1 - 5 YEARS      5 - 10 YEARS      10 - 30 YEARS
     Federal mortgage
       obligations        $      --        $        567       $       --
                          ===========      ============      =============

     The Company  manages its cash flow by  investing in  marketable  securities
and,  from time to time,  supplements  its  portfolio by making  investments  in
privately held  companies in the healthcare  field.  In 1998,  such  investments
included:  (i) a minority  equity  ownership in Breas AB, which in 1999 has been
included  in  the  consolidated   financial  statements  upon  acquiring  a  52%
ownership; (ii) an equity ownership in a medical services business. In 1999, the
common share ownership in the medical services  business was renegotiated into a
convertible Preferred Stock investment whereupon VSI increased its investment to
$10,439,000.

     The  investments  in the privately  held companies 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 the medical  services  company.  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 pro rata ownership  interest.  Net
earnings from these investments for the year ended September 30, 1999 aggregated
$178,000. The goodwill realized upon conversion of the Company's preferred stock
would be approximately $6,922,000.

     Realized  gains  and  losses  are  determined  on  the  basis  of  specific
identification.  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. During the year
ended September 30, 1998,  sales proceeds and gross realized gains and losses on
securities classified as available-for-sale securities were $14,830,852, $79,489
and $(37,311),  respectively.  During the year ended  September 30, 1997,  sales
proceeds  and gross  realized  gains  and  losses on  securities  classified  as
available-for-sale   securities  were   $68,318,052,   $784,014  and  $(86,576),
respectively.

     There were no trading  securities  at September  30, 1999 and September 30,
1998.  Trading securities at September 30, 1997 amounted to $425,000 and results
of operations for the year ended  September 30, 1997 includes an unrealized gain
of  $46,000.  There were no  unrealized  gains or losses  during the years ended
September  30,  1999 or 1998 on  trading  securities.  Stockholders'  equity  at
September 30, 1999,  1998, and 1997 includes an unrealized  holding gain (loss),
net of  related  tax  effect,  on  available-for-sale  securities  of  $(2,000),
$14,000, and ($129,000), respectively.


                                      F-11
<PAGE>

                       VITAL SIGNS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 6 - Property, Plant and Equipment:

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

                                      -----------------------------------------
                                           SEPTEMBER 30,           ESTIMATED
                                      ---------------------
                                        1999         1998         USEFUL LIFE
                                      ---------   ---------  ------------------
                                        ( IN THOUSANDS )

Land                                   $ 4,420      $ 3,015
Building and building improvements      18,474       17,821      30 to 40 years
Equipment and molds                     35,239       30,342       5 to 20 years
Fixtures and office equipment            2,389        1,085       5 to 15 years
Transportation equipment                    78          131             5 years
                                       -------      -------
                                       $60,600      $52,394
Less accumulated depreciation and
    amortization                        14,640       11,385
                                       -------      -------
                                       $45,960      $41,009
                                       =======      =======

     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:

     At September  30,1999,the  Company had a $15,000,000  line of credit with a
bank  secured by all of the  Company's  assets.  This line of credit  expires on
March 1, 2000.  The balance  outstanding  under this line of credit at September
30, 1999 was $4,850,000 with interest payable at the rate of 6%.

     Long term debt consists of the following:

                                                      -------------------
                                                         SEPTEMBER 30,
                                                       1999        1998
                                                        (IN THOUSANDS)

        Industrial Revenue Bonds ("IRB") payable      $2,300      $2,500
        Swiss Notes Payable                             --           683
        Other                                            302         301
                                                      ------      ------
        Total long-term debt                           2,602       3,484
        Less current portion                             423       1,022
                                                      ------      ------
                                                      $2,179      $2,462
                                                      ======      ======

     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,  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, 1999, the Company was
in compliance with all of the required financial covenants.


                                      F-12
<PAGE>

                       VITAL SIGNS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

            -----------------------------------------------
            YEAR ENDING SEPTEMBER 30,
            ------------------------
                                          (IN THOUSANDS)
                                          --------------
                      2000                    $5,273
                      2001                       261
                      2002                       218
                      2003                       200
                      2004                       200
                   Thereafter                  1,300
                                              ------
                                              $7,452
                                              ======

Note 8 - Accrued Expenses:

Accrued expenses consist of the following:

                                                --------------------
                                                     SEPTEMBER 30,
                                                --------------------
                                                  1999        1998
                                                --------    --------
                                                   (IN THOUSANDS)

             Interest                            $  193      $  220
             Payroll and vacations                1,997       1,688
             Professional fees                      444         382
             Sales expenses                         192          65
             Income and other taxes payable         955         435
             Other                                  642         966
                                                 ------      ------
                                                 $4,423      $3,756
                                                 ======      ======

Note 9 - Other Liabilities:

     Other liabilities consist of:

                                                --------------------
                                                     SEPTEMBER 30,
                                                --------------------
                                                  1999        1998
                                                --------    --------
                                                   (IN THOUSANDS)

             Amount related to acquisitions      $4,023      $4,083
             Other                                  804          91
                                                 ------      ------

                                                 $4,827      $4,174
                                                 ======      ======


                                      F-13
<PAGE>

                       VITAL SIGNS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 10 - Other Expense - Net:

     Other expense - net consists of the following:

                                           -----------------------------------
                                                   FOR THE YEAR ENDED
                                                      SEPTEMBER 30,
                                           -----------------------------------
                                             1999          1998          1997
                                           -------       -------       -------
                                                      (IN THOUSANDS)

Amortization of deferred credit            $   (91)      $  (100)      $  (100)
Charitable contributions of inventory          417           138           156
Net capital (gain) loss on sale of
    marketable securities                       16             4          (698)
Litigation costs                               162           472         1,878
Other                                          (47)          301          (392)
                                           -------       -------       -------
                                           $   457       $   815       $   844
                                           =======       =======       =======

Note 11 - 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  $1,523,000,  $1,861,000 and $1,185,000,  has
been charged to  operations  for the years ended  September  30, 1999,  1998 and
1997, respectively. The Company's commitment under such leases is as follows:

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

                    2000                     $     1,500
                    2001                           1,305
                    2002                             947
                    2003                             247
                    2004                              38
                                             -----------
                                             $     4,037
                                             ===========

     Employment Agreements:

     The Company has entered into  employment  agreements  aggregating  $891,000
which expire at various dates through September 2004.

Note 12 - 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.  While
the amounts claimed or expected to be claimed may be  substantial,  the ultimate
liability  cannot  now  be  determined  because  of the  inherent  uncertainties
surrounding  the  litigation  and the  considerable  uncertainties  that  exist.
Therefore,  it  is  possible  that  results  of  operations  or  liquidity  in a
particular  period  could  be  materially  affected  by  certain  contingencies.
However,  based on  facts  currently  available,  management  believes  that the
disposition  of matters  that are pending or  asserted  will not have a material
adverse effect on the financial


                                      F-14
<PAGE>

                       VITAL SIGNS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

position of the Company.

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

Note 13 - 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, 1999 or 1998.

Stock Options:

Transactions relating to stock options are as follows:

                                             ---------------------------------
                                              NUMBER OF       WEIGHTED AVERAGE
                                               SHARES         PRICE PER SHARE
                                             ----------       ---------------
            Balance at September 30, 1996:      616,460           $19.20
                 Granted                         67,607           $19.44
                 Exercised                      (22,661)          $12.04
                 Expired/canceled               (27,091)          $20.16
                                             ----------           ------

            Balance at September 30, 1997:      634,315           $19.44
                 Granted                        467,982           $17.99
                 Exercised                       (2,270)          $12.13
                 Expired/canceled               (74,162)          $18.68
                                             ----------           ------

            Balance at 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 at September 30, 1999:    1,106,516           $19.05
                                             ==========           ======

     The  weighted-average  fair value per share of options  granted  during the
years ended  September 30, 1999,  1998, and 1997 amounted to $7.18,  $6.82,  and
$7.60, 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.  The  Company  has also
granted options pursuant to contractual arrangements.

     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.


                                      F-15
<PAGE>

                       VITAL SIGNS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     In connection with the plans described above,  options  covering  1,114,641
shares (excluding lapsed shares) have been granted through September 30, 1999.

     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 diluted net income per common share for the years ended
September  30, 1999,  1998,  and 1997 would  approximate  the pro forma  amounts
indicated in the table below (dollars in thousands):

--------------------------------------------------------------------------------
   YEAR ENDED SEPTEMBER 30              1999             1998           1997
--------------------------------------------------------------------------------

 Net income - as reported           $   17,346      $   11,611      $   11,286

 Net income - pro forma             $   15,825      $   10,199      $   10,867

 Diluted net income per common
      share - as reported           $     1.41      $      .91      $      .87

 Diluted net income per common
      share - pro forma             $     1.28      $      .80      $      .84

     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,  1999,  1998  and  1997,
respectively: expected volatility of 35%, 37%, and 35%, respectively,  risk-free
interest rate of 5.4%, 5.5%, and 6.3% respectively,  dividend yield rate of .8%,
 .9%, and .8%, respectively, and all options have expected lives of 5 years.

     The  following  table  summarizes  information  about fixed  stock  options
outstanding at September 30, 1999:

<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, 1999        LIFE (YEARS)    PRICE       30, 1999       PRICE
      ---------------     --------------------------------------------  -------------------------
<S>  <C>       <C>          <C>                 <C>          <C>          <C>           <C>
1.   $ 5.55    $ 6.84          54,500            .85         $  6.84       54,500       $ 6.84
2.   $ 9.25    $10.50           9,909           4.78         $  9.60        9,606       $ 9.58
3.   $13.75    $15.75          45,402           4.21         $ 14.74       38,902       $14.57
4.   $16.75    $19.50         484,967           8.13         $ 17.97       60,431       $18.12
5.   $20.63    $22.50         497,970           6.95         $ 21.87      242,859       $22.01
6.   $24.50    $24.50          13,768           7.24         $ 24.50       13,768       $24.50
                            ---------           ----         -------      -------       ------
               Total:       1,106,516           7.04         $ 19.05      420,066       $18.59
                            =========           ====         =======      =======       ======
</TABLE>


                                      F-16
<PAGE>

                       VITAL SIGNS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 14 - Income Taxes:

The provision for income taxes consists of the following components:

                               ----------------------------------
                                FOR THE YEAR ENDED SEPTEMBER 30,
                               ----------------------------------
                                 1999         1998           1997
                               -------      -------       -------
                                         (IN THOUSANDS)
             Current:
                  Federal      $ 6,782      $ 5,103       $ 6,293
                  State            384          569           764
                  Foreign          415          142           190

             Deferred:
                  Federal          315          306        (1,295)
                  State            116         (422)         (333)
                               -------      -------       -------
                               $ 8,012      $ 5,698       $ 5,619
                               =======      =======       =======

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

                                              ---------------------
                                                  SEPTEMBER 30,
                                              ---------------------
                                                  1999        1998
                                              ---------------------
                                                   (IN THOUSANDS)

            Undistributed DISC earnings          $ (96)      $ (96)
            Net operating loss carryforward
                 from acquisition (See Note 2)     439         400
            State net operating loss
                 carryforward
                                                   100         242
            Other                                   58         (54)
                                                 -----       -----
                                                 $ 501       $ 492
                                                 =====       =====


                                      F-17
<PAGE>

                       VITAL SIGNS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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


                                                   ---------------------
                                                       SEPTEMBER 30,
                                                   ---------------------
                                                     1999         1998
                                                   ---------------------
                                                        (IN THOUSANDS)

       Net operating loss carryforward
            from acquisition (Note 2)             $ 2,654       $ 3,100
       Accelerated depreciation                    (1,042)         (943)
       State net operating loss carryforward
                                                      296           242
       Undistributed DISC earnings                   (413)         (506)
       Capital losses                                 294           294
       Valuation allowance attributable to
            capital loss carryforward                (294)         (294)
       Other                                          (17)           25
                                                  -------       -------
                                                  $ 1,478       $ 1,918
                                                  =======       =======

     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:

<TABLE>
<CAPTION>
                                                    ----------------------------------
                                                     FOR THE YEAR ENDED SEPTEMBER 30,
                                                    ----------------------------------
                                                      1999         1998          1997
                                                    -------      -------       -------
<S>                                                  <C>           <C>           <C>
Statutory federal income tax rate                    35.0%         34.3%         35.0%
Write-off of purchased Research and Development      --            --             5.2
Net capital gains on investments                     --            --            (1.5)
State income taxes, net of federal tax benefit        1.2           0.5           1.6
Benefit of tax loss in subsidiary                    --            --            (6.9)
Dividend exclusion/tax-exempt interest               --            --            (0.3)
Product contributions                                 (.6)         (1.7)         --
Tax credit for Research and Development               (.6)         (1.2)         --
Benefit from foreign sales corporation                (.8)          (.7)          (.4)
Amortization of acquired intellectual property        (.7)          (.9)          (.5)
Foreign net operating loss carryforward               (.8)         (1.1)          (.6)
Other                                                (2.1)          1.3           1.6
                                                     ----          ----          ----

     Effective income tax rate                       30.6%         30.5%         33.2%
                                                     ====          ====          ====
</TABLE>

     For the year ended  September 30, 1999,  the Company  recognized for income
tax purposes a tax benefit of $329 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 at September 30, 1999. No tax benefit
was recorded for the years ended September 30,1998 and 1997.


                                      F-18
<PAGE>

                       VITAL SIGNS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 15 - Allowance for Doubtful Accounts:

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

<TABLE>
<CAPTION>
                                 BALANCE AT     CHARGED TO                       BALANCE
                                 BEGINNING      COSTS AND                         AT END
     DESCRIPTION                  OF YEAR        EXPENSES        DEDUCTIONS      OF YEAR

                                                       (IN THOUSANDS)
Allowance for doubtful accounts:
    Year ended September 30,
        <S>                     <C>            <C>              <C>             <C>
        1997                    $      169     $        101     $     169 (A)   $     101
                                ==========     =============    ============    =========

        1998                    $      101     $        561     $      24 (A)   $     638
                                ==========     =============    ============    =========

        1999                    $      638     $        158     $     552 (A)   $     244
                                ==========     =============    ============    =========
</TABLE>

(A) Write-off of uncollectible accounts receivable.

Note 16 - Significant Customers:

     A portion of the Company's hospital customers are serviced via national and
regional  medical  supply  distributors.  During  fiscal  years  1999 and  1998,
respectively,  32% and 33% of the Company's sales were made in this distribution
channel.  In  each  fiscal  year  1999  and  1998,  one  of the  large  national
distributors  represented  approximately  13% of net  sales--continuing  product
lines. The same customer  represented  approximately  17% and 16% of outstanding
accounts receivable at September 30, 1999 and 1998, respectively.

Note 17 - International Sales:

     The international sales for the fiscal years ended September 30, 1999, 1998
and  1997  of   approximately   $22,000,000,   $15,000,000,   and   $10,700,000,
respectively, were sold principally to customers in Europe, Asia and Australia.


                                      F-19
<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 2000 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 2000 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 2000 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 2000 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.


                                       26
<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
-------   -----------

2.1     Agreement and Plan of Merger,  dated March 14, 1997,  among the Company,
        an acquisition subsidiary,  and Marquest Medical Products, Inc. ("MMPI")
        is  incorporated  by reference to Exhibit 2.1 to the  Company's  Current
        Report on Form 8-K dated March 20, 1997.

2.2     Inducement  Agreement,  dated  March 14,  1997,  between the Company and
        Scherer  Healthcare,  Inc., relating to the Registrant's MMPI merger, is
        incorporated by reference to Exhibit 2.2 to the Company's Current Report
        on Form 8-K dated March 20, 1997.

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.


                                       27
<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 attached to this Annual
        Report as Exhibit 10.2.

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 attached to this Annual  Report as Exhibit
        10.3.

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 attached to this Annual
        Report as Exhibit 10.5.

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    Agreement to sell the Registrant's 51% interest in Cardiologics, L.L.C.,
        including the related promissory note and guarantee,  is incorporated by
        reference to Exhibit 10.9 to the  Company's  Annual  Report on Form 10-K
        for the year ended September 30, 1996.

21.1    Subsidiaries of the Registrant.

23.1    Consent of Goldstein Golub Kessler LLP.

24.1    Power of Attorney.

27.1    Financial Data Schedule.


                                       28
<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 10th day of
December, 1999.

                                    VITAL SIGNS, INC.

                                    By:  /s/
                                            ---------------------------
                                         Anthony J. Dimun
                                         Executive Vice President

     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 and Director                 --------------
Terence D. Wall


                            Director                             --------------
------------------------
David J. Bershad


/s/ Anthony J. Dimun        Executive Vice President, Chief
------------------------    Financial Officer, Treasurer (Chief
Anthony J. Dimun            Financial and Accounting Officer)
                            and Director                         --------------


/s/ Stuart M. Essig*        Director
------------------------                                         --------------
Stuart M. Essig


/s/ Joseph J. Thomas*       Director
------------------------                                         --------------
Joseph J. Thomas


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


*By: /s/
     --------------------------
     Anthony J. Dimun


                                       29