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, 1998.

[ ]  Transition   Report  Pursuant  to  Section  13  or 15(d) of the  Securities
     Exchange Act of 1934 [No Fee Required] For the transition period from _____
     to ___

                         Commission File Number 0-18793

                                VITAL SIGNS, INC.

             (Exact name of registrant as specified in its charter)

             New Jersey                                   11-2279807
       (State or other jurisdiction of         (I. R. S. Employer Identification
        incorporation or organization)                     Number)

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

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

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

                               Title of each class

                           Common Stock, no par value

          Indicate by checkmark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
Registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days.

                    Yes   [X]                 No      

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

          Aggregate  market value of voting stock held by  non-affiliates  as of
December 1, 1998 was approximately $128,099,670.

          Number of shares of Common Stock  outstanding  as of December 1, 1998:
12,628,194.

          Documents  incorporated by reference:  Definitive  Proxy Statement for
1999 Annual Meeting of Shareholders (Part III). 

<PAGE>

                               VITAL SIGNS, INC.

                               TABLE OF CONTENTS
                                                                         Page
                                     Part I

Item 1.   Business                                                        2
Item 2.   Properties                                                     13
Item 3.   Legal Proceedings                                              13
Item 4.   Submission of Matters to a Vote of  Security Holders           14

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 Market Risk     24

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




*Financial Statements follow page 25

<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.,  its
predecessor New York corporation and their 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.

          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.

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

          The  Company's  strategy is to sell its  anesthesia,  respiratory  and
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  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. 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 

<PAGE>


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 that could cause the Company's actual
results to differ materially from those expressed in forward-looking  statements
or predictions  made herein and from time to time by the Company.  Specifically,
the Company's business, financial condition, liquidity and results of operations
could  be  materially  different  from  such   forward-looking   statements  and
predictions  as a result  of (i)  competitive  factors  that  could  affect  the
Company's  primary  markets,   including  the  results  of  competitive  bidding
procedures  implemented by group purchasing  organizations and/or the success of
the Company's reduced sales force, (ii) interruptions or delays in manufacturing
and/or sources of supply,  (iii) the Company's ability to develop or acquire new
products  and  to  control  costs,  (iv)  technological  change,  including  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)  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) and (viii)  healthcare  reform and
legislative and regulatory changes impacting the healthcare market.

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 and critical care and emergency markets
with the goal of expanding the products that can be sold by the Company's direct
sales  force,  (ii)  expansion  of sales to  international  markets,  and  (iii)
acquiring unique research and development capabilities.

<PAGE>

Principal Products

          The Company markets a wide variety of  single-patient  use anesthesia,
respiratory,  critical care 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,  usually into the artery or vein 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
pressure  gauge.  The infusor  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.

          General Anesthesia Systems.  The Company assembles and markets General
Anesthesia  System  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 General
Anesthesia  System  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 a General  Anesthesia
System kit to meet the hospital's specific needs.  

<PAGE>

          Thermadrape[R]  Heat Retentive and Insulating Drape is a patented heat
retentive  surgical  covering  designed to be a safe,  effective and  affordable
alternative  to the active warming  blanket.  Thermadrape[R]  products  minimize
preoperative  heat loss and allow patients to avoid (i) the increased  metabolic
rate  and  oxygen  uptake  associated  with   post-operative   shivering,   (ii)
vasoconstriction,  (iii) delayed drug  clearance and other side effects of "cold
stress" and (iv) needless  discomfort.  Configurations  include  blankets,  head
covers, leggings and wraps. Sizes range from pediatric to adult.

          Temp  Probe[TM]  Temperature  Probes.  The Company offers a variety of
temperature probes (esophageal,  tympanic,  skin and general purpose) to monitor
patients  undergoing  anesthetic  procedures.   The  Company  has  expanded  its
temperature line to accommodate the various physiological patient monitors found
in hospitals.  The Company's esophageal stethoscope monitors temperature,  while
also providing the clinician with the patient's heart and lung sounds.  In 1995,
the ESG[TM]  esophageal  stethoscope  with gastric suction was introduced.  This
stethoscope  adds a gastric  suction  function to the measurement of temperature
and amplification of heart and lung sounds.

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

          The  Company  was  the  first  to  offer   single-patient  use  manual
resuscitators.  The Company's CODE BLUE[TM] and VITAL 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. Both 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]  and VITAL  BLUE[TM]  resuscitators  are  relatively  inexpensive,  and
already fully  assembled.  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

<PAGE>

blood pressure cuffs.

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

          RespirGard II[R] Nebulizer  System,  Acorn II[R] and  Whisperjet[TM] .
The Company  manufactures  a product  line of  aerosolized  medication  delivery
systems, consisting primarily of disposable small volume nebulizers.  Nebulizers
atomize  medications  for  inhalation  into the lungs. A range of nebulizers are
offered  to  accommodate  user  preferences  as  well  as the  requirements  for
different types of respiratory treatment.

          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 electronic  humidifiers  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 and 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.

          HCH[TM] Heat and  Moisture  Exchangers  are designed to ensure  proper
humidification  and reduce heat loss for patients  either  during  anesthesia or
while attached to mechanical  ventilators.  Single-patient use heat and moisture
exchangers  also reduce the risk of infection  associated  with reusable  heated
humidifiers.

          Kurtis MSD[TM]  Meconium  Suction Device.  The Kurtis MSD[TM] meconium
suction device was developed by a practicing  neonatologist,  Peter Kurtis, M.D.
When an infant shows signs of having  aspirated  meconium,  the device  provides
rapid, controlled intubation and meconium suctioning of newborns in the delivery
room. The Kurtis MSD[TM]  meconium  suction device  combines three devices which
are normally  used in the procedure  and,  therefore,  makes the procedure  less
cumbersome.

          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.

<PAGE>

          Isocath[TM] is a closed suction system designed for hospital  patients
on a ventilator.  Isocath[TM] is used when an endotracheal tube is inserted in a
patient located in the intensive care setting of a hospital.  Suctioning, one of
the most common procedures in intensive care, is performed to keep the patient's
lungs free of secretions. Isocath[TM] allows the suction catheter to be advanced
into  the  endotracheal   tube  without   disconnecting  the  patient  from  the
ventilator.  Isocath[TM]  was designed  with a patented  "isolation"  chamber to
isolate the catheter from the patient's airway while permitting  cleaning of the
catheter without inadvertently lavaging the patient.

          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 size offerings of the  Vasceze[R]  product line to accommodate a wider range
of hospital needs.

Emergency Products

          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 Dr. James Broselow and Dr. Alan Hinkle 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 seven color
zones, a corresponding  series of color-coded  single-patient use emergency kits
or modules and a nylon  organizer bag  custom-designed  to hold all the supplies
needed in either a trauma, cardiac or respiratory pediatric emergency. With this
system,  emergency room and EMS personnel can be confident that all the supplies
necessary to manage a pediatric emergency are readily identified,  available and
organized in a manner that  minimizes  reaction  time.  The  Broselow/Hinkle[TM]
pediatric  emergency  system may also be sold by the Company in the pediatrician
office market.

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
medical 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

<PAGE>

(primarily  pharmaceutical  and  medical  device  manufacturers).  Vital  Pharma
designs and assembles  blow-fill-seal machines for sale to customers that desire
to manufacture in their own facilities.

Services

          Another  division of Vital  Pharma,  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 ("FDA").

Market Data

          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 and
critical care products, and other products/services:

                                            Year Ended September 30,            
                                    1998              1997  ____       1996 ____
                              Amount      %      Amount      %    Amount     %  
                                             (Dollars in Millions)

Anesthesia                   $   60.2   47.6   $ 58.0      56.0   $ 56.5   62.9

Critical Care                    28.0   22.2     18.4      17.8     15.5   17.2
Respiratory                      38.2   30.2     27.2      26.2     17.9   19.9
Total                        $  126.4  100.0%  $103.6     100.0%  $ 89.9  100.0%

Sales, Marketing and Customers

          Historically,  the Company's  principal  strategy has been to sell its
anesthesia  and  respiratory  products to hospitals in the United States through
its  own  sales  force.  The  Company's  sales  to  hospitals  through  national
distributors,  such as Allegiance,  Owens & Minor and McKesson/General  Medical,
approximate 33% of sales for fiscal 1998. The Company's sales force participates
with these national distributors in making sales to the hospital.

          In each of the fiscal years 1998 and 1997,  one of the large  national
distributors  represented  approximately  13% of net  sales.  The same  customer
represented  approximately  16% and 10% of  outstanding  accounts  receivable at
September 30, 1998 and 1997, respectively.

          The Company  utilizes an independent  distributor in the United States
for its Actar[R] CPR training manikins and other pre-hospital and emergency care
products.

          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,  Tenet,  Columbia  Healthcare  and
others.  While the  Company has been  successful  in signing an  

<PAGE>

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. The buying
power  exerted by these  entities  is  expected  to  continue to have a negative
impact on the Company's  margins.  Industry wide estimates  anticipate that such
buying groups will continue to exert their power to decrease prices.

          The  Company  doubled its sales  force  during  1997 to  maximize  the
broader  portfolio  resulting  from the  acquisition  of  Marquest as well as to
maximize the Company's  performance under several group purchasing  organization
contract  awards.  While the  expanded  sales force  produced  gains in both the
anesthesia  and  respiratory  categories,  sales growth  slowed during the third
quarter and the Company  decided during the third quarter to reduce its domestic
sales force to  approximately  90 sales personnel from  approximately  180 sales
personnel.

International Sales

          For the year ended September 30, 1998,  international  sales accounted
for  approximately  12% of net sales as compared with  approximately  10% during
fiscal 1997 and approximately 8% during fiscal 1996.

          Historically,  the Company has sold its products in European and other
international  markets through distributors.  However,  approximately four years
ago the  Company  sought  expansion  in Europe by  establishing  a direct  sales
organization in the United  Kingdom.  The Company has built a network of over 85
independent distributors to sell the Company's anesthesia, respiratory, critical
care and emergency products in major international markets. The Company also has
a sales  office in Beijing and  Shanghai  to support  sales  development  in the
Peoples Republic of China and Hong Kong through distributors.

          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  principal
development  activities are directed toward expanding  clinical  applications of
the Company's existing products, resulting in improvements to the products (such
as the face mask,  breathing  circuits  and  anesthesia  kits) where the Company
maintains a substantial  market position.  Moreover,  the internal  research and
development  ("R&D") staff maintains  collaborative  relationships with external
professionals.

          During fiscal 1998 the Company  continued to principally focus its R&D
efforts on two products.  The first product,  a flush device for vascular access
catheters (Vasceze[R]),  can be utilized in both the hospital setting and in the
rapidly expanding  alternate site field.  Versions of the device are offered for
both saline and heparin  applications.  R & D efforts focused on the development
of  additional  sizes of  Vasceze[R]  which  will  accommodate  needs at a wider
variety of hospitals and alternate site providers.

          The  second  product  focused  upon  during  1998  was  the  Company's
Isocath[TM]  product.  The  Company  continues  to enhance  the  features of the
Isocath[TM] closed suction system designed for use on ventilated  patients.  The
single-use system reduces the risk of infection for both patient and care giver.
See "Principal Products - Respiratory and Critical Care Products - Isocath[TM]".

<PAGE>

          The Company has also undertaken  research and  development  efforts in
fiscal  1998  in  the  following  areas:  (i)  developing  new  versions  of its
resuscitator  products;  (ii) new versions of its heated humidifiers;  (iii) new
versions of blood gas  syringes to enhance the ABG product line and (iv) various
other projects in both the anesthesia and critical care areas.

          The Company  expects to continue to rely in part on its internal staff
and on outside  professionals  to perform research and development on anesthesia
and  respiratory  products.  The  Company's  research and  development  expenses
aggregated $3,595,000, $3,869,000 and $6,150,000, respectively, for fiscal 1996,
1997 and 1998.

Medical Advisor

          The Company  retains the services of Bernard  Wetchler,  M.D.,  as the
Company's  Medical  Director,  in order to  provide  the  Company  with  medical
expertise in all facets of the delivery of anesthesia services.  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; Malvern,  Pennsylvania;  Orange, California; and Riviera
Beach,  Florida,  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 catheters, Vasceze[R] and blow-fill-seal  products. The
Company performs  assembly,  testing and packaging in these  locations.  In many
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.

          Pursuant  to  a  decision  made  in  1997,   the  Company  closed  its
manufacturing  facilities in Barkan,  Israel in 1998.  Manufacturing  operations
from the Israeli  facility  were moved to and  consolidated  with  manufacturing
operations  in the Company's  Englewood,  Colorado  facility.  See Note 2 to the
Company's Consolidated Financial Statements.

<PAGE>

          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 its  various  facilities.  Substantially  all such
testing is subject to  governmental  regulation.  Pursuant to United States Food
and Drug Administration ("FDA") regulations, the Company is required to maintain
records of all raw  materials  received  and used in the  manufacturing  process
along with complete histories of all devices manufactured. See "Regulation."

          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  since June 1980; the current supply agreement will
govern the supply of anesthesia face masks by Respironics to the Company through
June 2001.

          If the supply of face masks from Respironics  should be interrupted or
cease for any reason, the Company would seek to find alternative  developers and
suppliers of face masks. In such event, the Company would 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. The Company's agreement
with  Respironics  provides  certain  protections to the Company with respect to
molds utilized by Respironics.

Sales Backlog

          The Company does not believe  that backlog is a meaningful  measure of
its business,  since its 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), Hudson Respiratory Care, Inc.
(heated humidification systems and other respiratory products), Allegiance, Inc.
(nebulizers and heated humidification  systems),  Ballard Medical Products, Inc.
(Isocath[TM]  closed suction products) and 

<PAGE>

Critikon  (blood  pressure  cuffs).  The  Company's   Vasceze[R]  product  faces
competition  from  Wyeth/Ayerst  International,  Inc., and Abbott  Laboratories,
Hospital  Product  Division,  who  provide  pre-filled  syringe  catheter  flush
devices.

          Competition for Vital Pharma's contract  manufacturing  business comes
from  Automated  Liquid  Processing and Holopak both of whom are larger in scope
than VPI. The  Validation  Group  competes with a large number of privately held
organizations.

Regulation

          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  and are subject to other  general  controls  including  pre-market
notification  ("510k").  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, postmarket surveillance, patient registries and
FDA guidelines) and can be subject to pre-market notification. 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.

<PAGE>

          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 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

          The Company  possesses 70 domestic and 34 foreign patents and licensed
patents,  has filed certain patent applications and has increased 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, 1998, the Company had 1,052  full-time  employees and
10  part-time  employees.  The  Company  believes  that its  relations  with its
employees are satisfactory.

Item 2.  Properties

          The Company's  executive offices,  principal  manufacturing  plant and
principal  warehouse  facilities  are  located  in  Totowa,  New  Jersey.  These
facilities,  consisting of  approximately  154,000 square feet, are owned by the
Company.  The Company  also owns  manufacturing,  warehouse  and office space in
Englewood,  Colorado consisting of 88,000 square feet and also owns the facility
utilized by Vital  Pharma  consisting  of 13,600  square feet in Riviera  Beach,
Florida.  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.


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 the Smith Industries patent to be invalid and that the Company's  products
did not infringe.  Smith Industries  appealed that decision and oral argument on
its motion was heard by the U.S.  Court of Appeals  for the  Federal  Circuit on
November 3, 1998.

<PAGE>

          In March 1997 an action was  commenced  against  the  Company  and its
Marquest  subsidiary in the U.S.  District  Court in New Jersey,  by two related
Marquest dealers who had received  notification that their dealer  relationships
with  Marquest  were to be  terminated.  The action  asserts  claims  related to
misappropriation of confidential  information and violation of certain statutory
provisions  relating to the  protection  of  dealership  rights.  The action was
settled on terms  favorable  to the Company  during the first  quarter of fiscal
1999.

          In  September  1996, a patent  infringement  action was filed in Japan
against  a  Marquest  distributor  in  connection  with  the  sale in  Japan  of
Marquest's ABG syringes product line.  Pursuant to a written  agreement with the
distributor,  Marquest agreed to provide  indemnification to the distributor for
the patent  infringement  action.  Marquest has been  honoring the terms of that
indemnification  and has reimbursed the legal fees associated with defending the
litigation.  The Company continues to honor the indemnification  since acquiring
Marquest.

          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,  its  results  of
operations or its liquidity.  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.

<PAGE>

Item 4A.  Executive Officers of the Registrant

         The Company's executive officers are as follows:
<TABLE>

                                                                             Positions with
          Name                                      Age*                     the Company 

          <S>                                       <C>                     <C>
          Terence D. Wall                            57                      President, Chief Executive
                                                                             Officer and Director

          Anthony J. Dimun                           55                      Executive Vice President,
                                                                             Chief Financial Officer,
                                                                             Treasurer and
                                                                             Director

          Dennis Fenstermaker                        52                      Vice President - Manufacturing
                                                                             and General Manager

          Christian Malmqvist                        47                      Vice    President   -    International
                                                                             Operations

          Daniel L. Reuvers                          35                      Vice   President   -   Marketing   and
                                                                             National Accounts

          Scott L. Spitzer                           47                      Vice  President,  General  Counsel and
                                                                             Secretary

          Barry Wicker                               58                      Executive Vice President -
                                                                             Chief Operating Officer and Director

</TABLE>

*  As of September 30, 1998.

          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  biosorbable
medical  devices for orthopedic  and other  applications  ("Bionx"),  and Exogen
Inc., a manufacturer of an ultrasonic  bone healing device.  Until September 18,
1997,  Mr.  Wall also served as a Director of  EchoCath  Inc.,  a developer  and
manufacturer of catheter products that use ultrasound video technology. Prior to
founding the Company,  he held various  sales and marketing  positions  with The
Foregger  Co. (a  manufacturer  of  anesthesia  products  and a division  of Air
Products and Chemicals,  Inc.), the medical division of Westinghouse Corporation
and the medical division of American Optical Corporation. 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
December 1, 1991 he became the Secretary and 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  

<PAGE>

Atlantic Capital Ltd., a United States  affiliate of an  international  merchant
banking group. From August 1987 until December 1987, he served as Executive Vice
President, Chief Financial Officer and Treasurer of the Company. 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.

          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 10 years,  including  Vice  President of
Sales and his current  position of Vice  President  of  Marketing  and  National
Accounts.  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.  Prior to joining the Company, he has held legal positions for 21 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.

<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: 
<TABLE>
<CAPTION>

                                                                                                       Dividend
                                                                      High            Low              Per Share

Fiscal Year Ended September 30, 1997:

<S>                                                              <C>                <C>              <C>     
     Quarter ended December 31, 1996                             $    27-3/8        $ 19-1/2         $   .04
     Quarter ended March 31, 1997                                     25-7/8          21-3/4             .04
     Quarter ended June 30, 1997                                      24-3/4          16-3/4             .04
     Quarter ended September 30, 1997                                 19-1/4          15-3/8             .04

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          16-5/8             .04
     Quarter Ended September 30 1998                                  20-1/2          15-1/4             .04
</TABLE>

          As of September  30,  1998,  there were  approximately  457 holders of
record of the Common Stock.

          During Fiscal 1998,  the Company  declared and paid cash  dividends of
$0.16 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.

<TABLE>
<CAPTION>

                                                                           Year Ended
                                                                           September 30,
                                                          1998             1997            1996         1995           1994
                                                                                  (In thousands, except per share data)
Income Statement Data:

<S>                                                    <C>             <C>            <C>            <C>             <C>      
Net sales--continuing product lines                    $   126,417     $   103,562    $    89,922    $  87,651       $  82,937
Net sales--product line disposed()                             ---             ---            808        1,902           2,187
Cost of goods sold                                          62,193          48,840         38,418       38,279          37,594
                                                           -------       ---------        -------       ------          ------
Gross profit                                                64,224          54,722         52,312       51,274          47,530
Operating expenses:
   Selling, general and administrative                      37,060          27,247         23,491       23,629          27,317
   Research and development                                  6,150           3,869          3,595        3,865           4,493
    Interest income                                           (893)         (2,242)        (2,508)      (2,406)           (781)
     Interest expense                                          399             537            346          382             555
   Special charges                                           1,100           6,700            ---          ---          10,643
   Other (income) expense                                      816             844         (1,635)         162            (969)
   Goodwill amortization                                       700             862            643          354             462
                                                             -----         -------          ------       -----          -------

Income before provision for income taxes                    18,892          16,905         28,380       25,288           5,810
Provision for income taxes                                   5,757           5,619          9,591        9,154           4,132
                                                            ------         -------         ------       ------          ------
Income before cumulative effect of change
     in accounting principle                                13,135          11,286         18,789       16,134           1,678
Cumulative effect of change in accounting
     principle (net of income tax of $803)                   1,524             ---            ---          ---             ---
                                                            ------         -------         ------       ------           ------

Net income                                             $    11,611     $    11,286    $    18,789    $  16,134         $ 1,678
                                                            ======         =======         ======       ======           =====

Basic income per share before cumulative
     effect of change in accounting principle          $      1.04     $       .88    $      1.44    $    1.24         $   .13
                                                            ======          ======          =====       ======           =====
Diluted income per share before cumulative
     effect of change in accounting principle          $      1.03     $       .87    $      1.43    $    1.24         $   .13
                                                            ======          ======          =====        =====           =====
Cumulative effect of change in accounting
     principle per share                               $       .12     $       ---    $       ---    $     ---         $   ---
                                                            ======          ======          =====        =====           =====
Basic net income per share                             $       .92     $       .88    $      1.42    $    1.24         $   .13
                                                            ======          ======          =====        =====           =====
Diluted net income per share                           $       .91     $       .87    $      1.41    $    1.24         $   .13
                                                            ======          ======         ======       ======          ======
Basic weighted average number of shares                     12,665          12,881         13,045       12,991          12,994
                                                            ======          ======         ======       ======          ======
Diluted weighted average number of shares                   12,746          12,953         13,146       13,053          13,039
                                                            ======          ======         ======       ======          ======

                                                                                  September 30 

                                                            1998           1997            1996         1995           1994
                                                                                   (In thousands)
Balance Sheet Data:
Working capital                                        $    35,579     $    38,102(2) $    44,820    $  32,885(3)   $ 50,409
     Total assets                                          138,186         136,948        123,756      110,421        91,773
     Long-term debt, excluding current installments          2,462           5,529          2,700        3,200         3,700
     Total stockholders' equity                            121,310         112,229        110,239       92,645        77,658

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

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.

</TABLE>


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

Introduction

          The Company  disposed of its  endoscopic  product  line during  Fiscal
1996.  See Item 6 of this  Annual  Report on Form 10-K.  In its  analysis of the
Company's  results of  operations,  management  views net sales from  continuing
product lines (i.e.,  excluding the revenues derived from its endoscopic product
line) as the  relevant  revenue  base from which to make  analytic  comparisons.
Since the  expenses  of the  endoscopic  product  line were not  material to the
Company's  results of  operations  and did not vary  substantially  prior to the
discontinuation  of that product  line,  management's  analysis  below  includes
within all line items  other than sales the  results of  operations  of both the
Company's  continuing  product lines and the Company's  discontinued  endoscopic
product line.

Results of Operations

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

<TABLE>
<CAPTION>

                                                        Increase (Decrease) from Previous Year

                                                           Fiscal 1998                  Fiscal 1997
                                                          Compared with                Compared with
                                                           Fiscal 1997                  Fiscal 1996 

<S>                                                             <C>                          <C>  
Net sales                                                       22.1%                        15.2%
Cost of goods sold                                              27.3%                        27.1
Gross profit                                                    17.4%                         4.6
Selling, general and administrative expenses                    36.0%                        16.0
Research and development expenses                               59.0%                         7.6
Income before provision for income taxes                        11.8%                       (40.4)
Provision for income taxes                                       2.5%                       (41.4)
Net income                                                       2.9%                       (39.9)

</TABLE>


<PAGE>

Fiscal 1998 Compared to Fiscal 1997

          Net sales for the year ended  September  30, 1998  increased  by 22.1%
compared  with the same period last year.  The increase was  attributable  to an
3.8% increase in anesthesia products, a 40.4% increase in respiratory  products,
primarily  due  to  the   acquisition  of  Marquest   Medical   Products,   Inc.
("Marquest"), 21% increase in OEM product sales, and 70% from increased activity
at Vital Pharma,  Inc.  ("VPI") offset in part by a 50% decline in the Company's
emergency  product  sales.  Prices on  existing  products  declined  on  average
approximately  1.5% in the year ended  September  30, 1998 when  compared to the
same period in 1997.

          While net sales increased by 22.1%, gross profit increased by 17.4% 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  was  approximately  1.3%  decline  in  gross  margins.   On  a
consolidated  basis the  Company's  gross profit  percentage  for the year ended
September  30,  1998 was 50.8%  compared to 52.8% in the same time period of the
last fiscal year.

<PAGE>

          Selling,  general and  administrative  expenses  increased by 36.0% 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
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.

          Research and development  expenses ("R&D")  increased 59%, largely due
to an expanded effort to complete the Vasceze[R] and Isocath[TM]  product lines.
The Company continues to make an active commitment to new product development.

          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
carryforwards.  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, see Note 1
of the Notes to the Company's Consolidated Financial Statements.

Fiscal 1997 Compared to Fiscal 1996

          Net  sales--continuing  product lines for the year ended September 30,
1997  increased by 15.2%  compared with the same period last year.  The increase
was  due  primarily  to the  acquisition  of  Marquest  Medical  Products,  Inc.
("Marquest") and increased  activity at Vital Pharma,  Inc.  ("VPI").  Prices on
existing  products  declined  on  average  approximately  1.7% in the year ended
September 30, 1997 when compared to the same period in 1996.

          Sales   of   anesthesia    products    (representing    56%   of   net
sales--continuing product lines) grew 2.7% from the prior year as unit increases
offset selling price declines. Sales of respiratory products (representing 26.2%
of net  sales--continuing  product  lines)  increased  by 52% largely due to the
acquisition  of Marquest.  Critical care  products,  accounting for 17.8% of net
sales -- continuing product lines, increased by 18.7% from the comparable period
in Fiscal 1996, reflecting the increased activity at VPI.

          While net sales increased by 15.2%,  gross profit increased by 4.6% 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),  as well as the sales
price  pressure that is evident within the cost  conscious  healthcare  industry
today.  On a consolidated  basis the Company's 

<PAGE>



gross profit percentage for the year ended September 30, 1997 was 52.8% compared
to 57.6% in the same time period of the last fiscal year.

          Selling,  general and  administrative  expenses  increased by 16.0% in
dollar amount, as the result of the acquisition of Marquest,  increases in costs
to support international sales growth and the increased activity at VPI.

          Research and development  expenses ("R&D")  increased 7.6%, due to the
acquisition of Marquest.  The Company  continues to make an active commitment to
new product development.

          In the third  quarter of fiscal 1997,  the Company  recorded a special
charge  related to the  acquisition  of  Marquest  in the amount of  $6,700,000.
$2,500,000 ($.20 per share net of tax) of this charge  represents the cost of in
process  research and development  acquired in the Marquest  transaction  (which
must be expensed in accordance with purchase accounting rules) and $4,200,000 of
this charge  represents  costs to consolidate  certain  duplicate  manufacturing
facilities as a result of the Marquest transaction ($.22 per share net of tax).

          Other income/expense, which includes dividend income, realized capital
gains and losses, legal and other expenses related to non-operational  items and
currency gains and losses, decreased by $2,479,000 from the year ended September
30, 1996 to the year ended  September  30, 1997.  In the 1996 period the Company
realized  significant  capital  gain and other  income,  particularly  a gain of
$1,000,000  realized as the sale of a joint  venture in 1996,  while in the 1997
period the level of capital gain and other income declined. In addition,  higher
legal costs (approximately  $1,800,000) incurred in conjunction with the defense
of the Smith Industries lawsuit impacted other income/expense  adversely.  For a
further discussion of this action see Part I, Item 3.

          The  Company's  effective  tax rates were 33.2% and 33.8% for the year
ended  September  30,  1997 and 1996  respectively.  The rate for the year ended
September 30, 1997 is less than the federal and state  combined  statutory  rate
due to certain  non-recurring  deductions  and the  utilization  of capital loss
carryforwards.  The rate for the year ended  September 30, 1996 is less than the
combined  federal  and  state  statutory  rates  primarily  as a  result  of the
utilization of capital loss carryforwards.

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, 1998,  cash and cash  equivalents  and  short-term
marketable  securities increased by $647,000 and long-term marketable securities
and other investments decreased by $467,000. Capital expenditures of $10,620,000
were made to improve  efficiencies  and support new business  opportunities.  In
addition,  $656,000  of treasury  stock was  acquired  pursuant to a  previously
announced  buy-back  plan, and the Company paid  $2,044,000 of dividends  during
Fiscal  1998.  The  combined  total  of cash and  cash  equivalents,  short-term
marketable  securities and other long-term  investments was approximately  $22.5
million at  September  30, 1998 as compared to $22.3  million at  September  30,
1997.

          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,  typically  not  in the
Company's principal businesses. The aggregate investment in long term marketable
securities and other  investments as of September 30, 1998 was $17,739,000  (see
Note 5 to the Company's Consolidated Financial Statements).

          At September  30, 1998,  the Company had $2.6 million in cash and cash
equivalents.  On that date, the Company's  working capital was $35.6 million and
the current  ratio was 4.5 to 1, as  compared  to $38.1  million and 3.9 to 1 at
September 30, 1997.

<PAGE>

          The Company's current policy is to retain working capital and earnings
for use in its  business,  subject to the payment of certain cash  dividends and
treasury  stock  repurchases.  Such funds may be used for  product  development,
product acquisitions and business acquisitions,  among other things. The Company
regularly  evaluates and  negotiates  with domestic and foreign  medical  device
companies regarding potential business or product line acquisitions or licensing
arrangements by the Company.

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

          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. The Company has
also inquired of its major suppliers of raw materials to obtain their assurances
that key raw  materials  sold to the Company will not be impacted by Y2K issues.
There can be no assurance,  however,  that there will not be any interruption in
supply of any raw materials.  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.

          The Company has not as yet  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 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

<PAGE>

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  two 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 believes
that when the new  software is fully  installed  and  operational,  all material
computer  systems will be Y2K compliant.  Certain  components of the system have
already been installed and are operating  generally as anticipated.  The Company
anticipates  that the  software  upgrade  will be fully  operational  during the
second  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 affected 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 INCLUIDNG
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
AND CUSTOMERS TO BRING THEIR SYSTEMS INTO Y2K ISSUES COMPLIANCE.

Recent Accounting Pronouncements

          The Company adopted the Financial Accounting Standards Board Statement
No. 128 Earning Per Share,  beginning  with the quarter ended December 31, 1997.
Earnings per share data for all prior years have been restated to conform to the
provisions of this 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 81,000,  72,000 and
101,000 in 1998,  1997 and 1996,  respectively,  were used in the calculation of
diluted earnings per common share.

          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.

<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.

<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, 1997 and 1998                                      F-2

Consolidated Statement of Income
       for the years ended September 30, 1996, 1997 and 1998            F-3

Consolidated Statement of Stockholders' Equity
       for the years ended September 30,  1996, 1997 and 1998           F-4

Consolidated Statement of Cash Flows
       for the years ended September 30, 1996, 1997 and 1998            F-5

Notes to Consolidated Financial Statements                              F-6




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

          Not applicable.

<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, 1998 and 1997 and the
     related consolidated  statements of income,  stockholders' equity, and cash
     flows for each of the three years in the period ended  September  30, 1998.
     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 financial statements referred to above present fairly,
     in all material  respects,  the financial position of Vital Signs, Inc. and
     Subsidiaries  as of  September  30,  1998 and 1997 and the results of their
     operations  and their cash flows for each of the three  years in the period
     ended September 30, 1998 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 13, 1998
                     
<TABLE>
<CAPTION>

                           CONSOLIDATED BALANCE SHEET

                                     ASSETS
                                                                                                    September 30,         
                                                                                           1998                      1997
                                                                                                   (in thousands)
Current Assets:
<S>                                  <C>                                              <C>                     <C>
     Cash and cash equivalents (Note 1)                                              $      2,600        $    3,685
     Marketable securities (Notes 1 and 5)                                                   2,157              425
     Accounts receivable, less allowance for doubtful accounts
         of $638 and $101, respectively (Notes 16 and 17)                                   17,837           16,405
     Inventory (Notes 1 and 3)                                                              19,322           19,559
     Prepaid expenses and other current assets (Note 4)                                      3,903           11,187
                                                                                            ------           ------
         Total current assets                                                               45,819           51,261

     Property, plant and equipment - net (Notes 1 and 6)                                    41,009           33,825
     Marketable securities and  other investments (Notes 1 and 5)                           17,739           18,206
     Goodwill and other intangible assets (Notes 1 and 2)                                   25,495           28,907
     Deferred income taxes (Notes 1 and 14)                                                  1,918            ---
     Other assets                                                                            6,206            4,749
                                                                                           -------          -------
         Total Assets                                                                 $    138,186       $  136,948
                                                                                           =======          =======

                                       LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
     Accounts payable                                                                  $     5,462       $    6,204
     Current portion of long-term debt (Note 7)                                              1,022              611
     Accrued expenses (Note 8)                                                               3,756            6,344
                                                                                             -----           ------
         Total current liabilities                                                          10,240           13,159

Deferred income taxes payable (Notes 1 and 14)                                                 ---            1,366
Long-term Debt (Note 7)                                                                      2,462            5,529
Other liabilities (Note 9)                                                                   4,174            4,665
                                                                                            ------           ------
         Total Liabilities                                                                  16,876           24,719
                                                                                            ------           ------
Commitments and contingencies (Notes 2, 11 and 12)
Stockholders' Equity  (Note 13)
     Common stock - no par value; authorized 40,000,000 shares,
         outstanding 12,628,194 and 12,674,673 shares, respectively                         21,520           22,149
     Allowance for aggregate unrealized gain (loss) on
         marketable securities (Notes 1 and 5)                                                  14             (129)
     Retained earnings                                                                      99,776           90,209
                                                                                           -------          -------
     Stockholders' equity                                                                  121,310          112,229
                                                                                           -------          -------
         Total Liabilities and Stockholders' Equity                                    $   138,186       $  136,948
                                                                                           =======          =======

                 See Notes to Consolidated Financial Statements

</TABLE>

<TABLE>
<CAPTION>
                        CONSOLIDATED STATEMENT OF INCOME

                                                                                     For the Year Ended
                                                                                      September 30, 

                                                                                1998              1997             1996
                                                                                 (in thousands except per share amounts)

<S>                                       <C>       <C>                <C>                   <C>              <C>        
Net sales-continuing product lines (Notes 1, 17 and 18)                $     126,417         $   103,562      $    89,922
Net sales-product line disposed (Note 2)                                         ---                ---               808
Cost of goods sold                                                            62,193              48,840           38,418
                                                                             -------             -------           ------
Gross profit                                                                  64,224              54,722           52,312
                                                                             -------           ---------           ------
Operating expenses:
     Selling, general and administrative                                      37,060              27,247           23,491
     Research and development                                                  6,150               3,869            3,595
     Interest (income)                                                          (893)             (2,242)          (2,508)
     Interest expense (Note 7)                                                   399                 537              346
     Special charges (Note 2)                                                  1,100               6,700              ---
     Other (income) expense (Notes 1, 10 and 15)                                 816                 844           (1,635)
     Goodwill amortization                                                       700                 862              643
                                                                               -----              ------           -------
                                                                              45,332              37,817           23,932
                                                                              ------              ------           -------
Income before provision for income taxes                                      18,892              16,905           28,380
Provision for income taxes (Notes 1 and 14)                                    5,757               5,619            9,591
                                                                              ------              ------           -------
Income before cumulative effect of change in
     accounting principle
                                                                              13,135              11,286           18,789

Cumulative effect of change in accounting principle
     (net of income taxes of $803) (Note 1)                                    1,524                 ---              ---
                                                                              ------              ------           -------
Net income                                                               $    11,611         $    11,286        $  18,789
                                                                           =========           =========         =========
Earnings per Common Share:
Basic income per share before cumulative effect
     of change in accounting principle                                   $      1.04         $       .88        $    1.44
                                                                          ==========          ==========         ========
Diluted income per share before cumulative effect
     of change in accounting principle                                   $      1.03         $       .87        $    1.43
                                                                          ==========          ==========         ========
Cumulative effect of change in accounting principle per share            $       .12         $       ---        $     ---
                                                                          ==========          ==========         =========
Basic net income per share                                               $       .92         $       .88        $    1.44
                                                                          ==========          ==========         =========
Diluted net income per share                                             $       .91         $       .87        $    1.43
                                                                          ==========          ==========         =========
Basic weighted average number of shares                                       12,665              12,881           13,045
                                                                          ==========          ==========         =========
Diluted weighted average number of shares                                     12,746              12,953           13,146
                                                                          ==========          ==========         =========

The unaudited Pro forma Information (assuming the change in
     accounting principle was applied retroactively)
     ( Note 1):
Net income                                                               $    12,876         $    11,172        $  18,592
                                                                          ==========          ==========         ========
Basic net income per share                                               $      1.02         $       .87        $    1.43
                                                                          ==========          ==========         ========
Diluted net income per share                                             $      1.01         $       .86        $    1.41
                                                                          ==========          ==========         =========
Basic weighted average number of shares                                       12,665              12,881           13,045
                                                                          ==========          ==========         =========
Diluted weighted average number of shares                                     12,746              12,953           13,146
                                                                          ==========          ==========         =========

</TABLE>

                         See Notes to Consolidated Financial Statements
                                      F-3

<PAGE>

<TABLE>

                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

<CAPTION>

                                                                                Allowance for
                                                                            Aggregate Unrealized
                                                                               Gain (Loss) on
                                                        Common  Stock            Marketable        Retained     Stockholders'
                                                    Shares        Amount         Securities        Earnings        Equity     
                                                                           (dollars in thousands)

<S>                                              <C>            <C>             <C>                <C>           <C>     
Balance at September 30, 1995                    12,999,078     $  29,015       $   (100)          $  63,730     $ 92,645

Reissuance of common stock
   net of purchase                                     4,129           (8)                                45           37
Exercise of stock options                             59,494          659                                             659
Adjustment to the allowance for aggregate
   unrealized loss on marketable securities                                         (326)                            (326)
 Dividends paid ($.12 per share)                                                                      (1,565)      (1,565)

Net income                                                                                            18,789       18,789
                                                   ---------        ------          -----             ------      -------
Balance at September 30, 1996                     13,062,701        29,666          (426)             80,999      110,239

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


Purchase of common
     stock net of reissuance                         (48,749)        (656)                                           (656)
Exercise of stock options                              2,270           27                                              27
Adjustment to the allowance for aggregate
     unrealized gain on marketable
     securities                                                                      143                              143
Dividends paid ($.16 per share)                                                                       (2,044)      (2,044)
Net income                                                                                            11,611       11,611
                                                  ----------    ---------        -------           ---------   ----------
Balance at September 30, 1998                     12,628,194   $   21,520       $     14         $    99,776  $   121,310
                                                  ==========    =========        =======          ==========   ==========
</TABLE>

                         See Notes to Consolidated Financial Statements

                                      F-4

<PAGE>

<TABLE>
<CAPTION>

                                           CONSOLIDATED STATEMENT OF CASH FLOWS
                                                                                               For the Year Ended
                                                                                                  September 30,      
                                                                                      1998            1997           1996
Cash flows from operating activities:                                                             (in thousands)
<S>                                                                             <C>              <C>            <C>      
     Net income                                                                 $   11,611       $    11,286    $  18,789
     Adjustments to reconcile net income to net cash provided
     by operating activities:
         Depreciation and amortization                                               3,436             2,891        2,322
         Deferred income taxes                                                        (116)           (1,628)         438
         Amortization of goodwill                                                      700               862          643
         Amortization of deferred credit                                              (100)             (100)        (100)
         Net gain on sales of available-for-sale securities                            (42)             (698)        (608)
         Net gain on sale of product line                                              ---               ---         (174)
         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                               (1,432)               82        2,319
           (Increase) decrease in inventory                                             37            (3,738)      (1,963)
           (Increase) decrease in prepaid expenses and other current assets          7,622            (2,069)      (1,481)
            Increase in other assets                                                (1,651)             (841)        (431)
           Decrease in accounts payable and accrued expenses                        (4,121)             (495)      (4,068)
                                                                                     ------           ------       -------
                  Net cash provided by operating activities                         15,944            12,225       15,686
                                                                                    -------           ------       -------
Cash flows from investing activities:
     Acquisition of property, plant and equipment                                  (10,620)           (9,988)      (8,611)
     Sale of property, plant and equipment                                             ---               543          ---
     Cash received for the sale of product line                                        ---               ---        2,786
     Purchases of available-for-sale securities                                    (15,910)          (57,165)     (44,882)
     Proceeds from sales of available-for-sale securities                           14,830            68,318       53,057
     Acquisition of subsidiaries, net of $3,200 of cash acquired (1997)                ---           (16,791)      (7,254)
                                                                                   -------            ------       -------
                  Net cash used in investing activities                            (11,700)          (15,083)      (4,904)
                                                                                   --------           -------      -------
Cash flows from financing activities:
     Dividends paid                                                                 (2,044)           (2,082)      (1,565)
     (Purchase) reissuance of common stock                                            (656)           (7,782)          37
     Proceeds from exercise of stock options                                            27               271          659
     Increase in long-term debt and notes payable                                      ---             8,282          ---
     Principal payments of long-term debt and notes payable                         (2,656)           (9,893)        (500)
                                                                                     ------           -------       ------
                  Net cash used in financing activities                             (5,329)          (11,204)      (1,369)
                                                                                     ------           -------       ------
Net increase (decrease) in cash and cash equivalents                                (1,085)          (14,062)       9,413
Cash and cash equivalents at beginning of year                                       3,685            17,747        8,334
Cash and cash equivalents at end of year                                        $    2,600       $     3,685    $  17,747
                                                                                 =========        ==========     ========
Supplemental disclosures of cash flow information:
     Cash paid during the year for:
         Interest                                                               $      378       $       379    $     394
         Income taxes                                                           $    1,781       $     9,660    $   9,306
Supplemental schedule of noncash investing activities:
     Accrued amounts relating to purchase of subsidiaries                       $        0       $       100    $     125
     Forgiveness of note receivable as payment for purchase of subsidiary       $        0       $        67    $     333

</TABLE>

                  See Notes to Consolidated Financial Statements

                         F-5

<PAGE>

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

         Business Activities:

          Vital  Signs,  Inc.  ("VSI") and its  subsidiaries  (collectively  the
"Company")  design,  manufacture and market  single-patient use products for the
anesthesia, respiratory, critical care 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 the Financial Accounting Standards Board Statement
No. 128, Earnings Per Share, beginning with the quarter ended December 31, 1997.
Earnings per share data for all prior years have been restated to conform to the
provisions of this 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 81,000,  72,000 and
101,000 in 1998,  1997 and 1996,  respectively,  were used in the calculation of
diluted earnings per common share.

<PAGE>


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

          Marketable Securities:

          Management determines the appropriate  classification of securities at
the time of purchase and reevaluates  such  designation as of each balance sheet
date.  Debt securities are classified as  held-to-maturity  when the Company has
the  positive   intent  and  ability  to  hold  the   securities   to  maturity.
Held-to-maturity   securities  are  stated  at  amortized  cost,   adjusted  for
amortization  of premiums  and  discounts  to  maturity.  Such  amortization  is
included  in   investment   income.   Interest  on   securities   classified  as
held-to-maturity is included in investment income.

          Certain   marketable   equity   securities  and  debt  securities  not
classified   as   held-to-maturity   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 (income) expenses.

          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.  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 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, 1995.

          Accounting for Stock-Based Compensation:

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

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.

<PAGE>

Note 2 - Acquisitions/Dispositions:

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
approximately  $13  million.  This  transaction  has  been  accounted  for  as a
purchase,  and resulted in an excess of purchase price over 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  $4,200,000  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 Marquest as if it had occurred on October 1, 1996
and 1995, respectively:

                                                        Pro forma/Unaudited
                                                       (dollars in thousands)

                                                  Fiscal 1997      Fiscal 1996

         Net sales-continuing operations         $     114,801      $    112,693
                                                 =============      ============

         Net income                              $      10,904      $     17,955
                                                 =============      ============

         Diluted net income per common share     $         .84      $       1.37
                                                 =============      ============

1996 Acquisitions/Disposition

          In January 1996, the Company acquired, in a purchase transaction,  all
of  the  outstanding   stock  of  HealthStar   Pharmaceutical   Services,   Inc.
("HealthStar"),  a company  engaged in both the  manufacture  of  equipment  and
contract   manufacturing    services   utilizing   specialized    blow-fill-seal
manufacturing   technology  for  the   pharmaceutical   and  medical   industry.
HealthStar's name was changed to Vital Pharma, Inc. ("VPI") in 1997. The Company
paid $1,595,000 at closing.  The sellers are also eligible to receive contingent
payments  based on  earnings  before  taxes,  as  defined,  in each year  ending
December  31,  1996,  1997 and 1998.  The December 31, 1996 and the December 31,
1997 targets were not achieved.  The estimated fair value of the assets acquired
approximated  $2,850,000 and liabilities  assumed  approximated  $1,550,000 with
goodwill of approximately $1,300,000 reflected at the date of acquisition.

<PAGE>

Note 2 - Acquisitions/Dispositions (continued):

          In December 1995 the Company entered into a purchase agreement for all
of the net assets  related to the Misty Ox product line. The purchase price paid
at closing by the Company was $2,025,000. The estimated fair value of the assets
acquired  amounted to $2,014,000 and  liabilities  assumed  amounted to $113,000
with goodwill of $250,000 reflected at the date of acquisition.

          During  fiscal  1996,  the Company sold its O.R.  Concepts  endoscopic
product line and recognized a gain of $174,000 (see Note 10).

          The effect of the operations of VPI and the Misty Ox product line from
October  1,  1995 to the  dates  of  acquisition  on the  Company's  results  of
operations for the year ended September 30, 1996 was immaterial.


Note 3 - Inventory:

Inventory consists of the following:                   
                                                               September 30,
                                                             1998         1997
                                                              (in thousands)

            Raw materials                              $    12,061    $  14,474
            Finished goods                                   7,261        5,085
                                                         ---------      --------

                                                       $    19,322    $  19,559
                                                        ==========     ========

Note 4 - Prepaid Expenses and Other Current Assets:

Prepaid expenses and other current assets consist of the following:
                                                           September 30,
                                                      1998           1997
                                                        (in thousands)

Prepaid employee fringe benefits                     $     ---      $     3,744
Notes and interest receivable                            1,678            1,468
Prepaid income taxes                                       314            3,923
Deferred tax asset (see Note 14)                           492              160
Prepaid insurance                                          341              340
Other                                                    1,078            1,552
                                                      --------           ------
                                                     $   3,903      $    11,187
                                                      ========           ======

<PAGE>

Note 5 - Marketable Securities and Other Investments:

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

<TABLE>
<CAPTION>

                                                   Available-for-Sale-Securities
                                          September 30, 1998                    September 30, 1997
                                                                (in thousands)

                                                              Gross                                        Gross
                                                           Unrealized                                   Unrealized
                                  Fair                       Holding           Fair                       Holding
                                  Value         Cost          Gains            Value         Cost         Losses  


<S>                          <C>            <C>             <C>            <C>            <C>           <C>      
U.S. Government
     obligations             $     2,458    $   2,457       $       1      $    11,039    $  11,127     $    (88)
Corporate obligations                ---          ---             ---            2,970        3,000          (30)
Federal mortgage
     obligations                   3,980        3,957              23            4,197        4,297         (100)

Total available-for-sale
  securities                       6,438        6,414              24           18,206       18,424         (218)
Other Investments                 13,458       13,458             ---              ---          ---          ---
                                  ------       ------         -------        ---------       ------      --------
                             $    19,896    $  19,872       $      24      $    18,206    $  18,424     $   (218)
                              ==========     ========        ========       ==========     ========      ========
</TABLE>

At  September   30,  1998   investments   in  debt   securities   classified  as
available-for-sale securities mature as follows:

<TABLE>
<CAPTION>

                                                                   Maturity
                                                                (in thousands)
                                                1 - 5 Years      5 - 10 Years     10 - 30 Years

<S>                                            <C>                <C>               <C>        
       U.S. Government obligations             $     2,436        $       ---       $        22
       Federal mortgage obligations                  3,864                 62                54
                                                ----------          ---------        ----------
                                               $     6,300        $        62       $        76
                                                ==========         ==========        ==========

</TABLE>

          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  typically  not in the
Company's  principal  line  of  business.   As  of  September  30,  1998,  other
investments in privately held companies aggregated $13,458,000.

          Investments  in privately  held  companies are accounted for under the
equity method of accounting whereby earnings or losses from investments in which
the  Company  maintains  a minority  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, 1998 aggregated $106,000. The
excess of the  Company's  carrying  value  over the  proportionate  share of the
underlying net assets of the privately held  companies  aggregated  $12,332,000.
Such amount is being amortized over 40 years.

<PAGE>

Note 5 - Marketable Securities and Other Investments (continued):

          Realized  gains and losses  are  determined  on the basis of  specific
identification.  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.  During  the  year  ended
September  30,  1996,  sales  proceeds  and gross  realized  gains and losses on
securities  classified  as   available-for-sale   securities  were  $53,056,643,
$652,000 and ($44,000), respectively.

          There  were no trading  securities  at  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,
1998 or 1996 on trading securities.  Stockholders' equity at September 30, 1998,
1997 and 1996  includes an  unrealized  holding gain (loss),  net of related tax
effect, on available-for-sale securities of $14,000, ($129,000), and ($426,000),
respectively.

Note 6 -  Property, Plant and Equipment:

          Property, plant and equipment, at cost, consists of the following:
<TABLE>
<CAPTION>

                                                                  September 30,               Estimated
                                                              1998         1997             Useful Life
                                                                (in thousands)

<S>                                                       <C>            <C>                <C>
         Land                                             $     3,015    $   3,015
         Building and building improvements                    17,821       15,430          30 to 40 years
         Equipment and molds                                   30,342       23,778           5 to 20 years
         Fixtures and office equipment                          1,085        1,009           5 to 15 years
         Transportation equipment                                 131          309                 5 years
                                                               -------      ------
                                                               52,394       43,541
         Less accumulated depreciation
            and amortization                                   11,385        9,716
                                                               ------       ------
                                                          $    41,009    $  33,825
                                                            =========     ========
</TABLE>

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

Note 7 - Long-term Debt:

Long-term debt consists of the following:                      September 30, 
                                                             1998         1997
                                                               (in thousands)

         Industrial Revenue Bonds ("IRB") payable         $   2,500    $   2,700
         Swiss Notes Payable                                    683        3,007
         Other                                                  301          433
                                                              -----        -----
         Total long-term debt                                 3,484        6,140
         Less current portion                                 1,022          611
                                                              -----        -----
                                                          $   2,462    $   5,529
                                                           ========     ========

<PAGE>

Note 7 - Long-term Debt (continued):

          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 Company entered into the IRB payable in varying  installments with
interest at rates ranging from 6.75% 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,
1998, the Company was in compliance with all of the required financial covenants
with the  exception  of an  interest  coverage  ratio for which the  Company has
received a waiver.

          The Swiss notes bear interest at a rate of 8% per annum,  payable on a
semi-annual basis. The notes are due on March 31, 1999.

          Maturities of long-term debt are as follows:

                 Year ending September 30,                   (in thousands)
                         1999                                $     1,022
                         2000                                        263
                         2001                                        263
                         2002                                        236
                         2003                                        200
                      Thereafter                                   1,500
                                                                   -----
                                                             $     3,484
                                                              ==========

          At September 30, 1998,  the Company had a  $10,000,000  line of credit
with a bank,  which was  subsequently  increased  to  $15,000,000.  This line of
credit expires on November 30, 1999. No balance was outstanding  under this line
of credit at September 30, 1998.

Note 8 - Accrued Expenses:

Accrued expenses consist of the following:
                                                             September 30, 
                                                         1998             1997
                                                            (in thousands)

         Manufacturing plant consolidation           $       218       $  1,879
         Commissions                                         ---            501
         Interest                                            220            437
         Payroll and vacations                             1,688          1,485
         Professional fees                                   382            322
         Sales expenses                                       65             90
         Income and other taxes payable                      435            696
         Other                                               748            934
                                                           -----           -----
                                                     $     3,756       $  6,344
                                                     ===========        =======

<PAGE>

Note 9 - Other Liabilities:

          Other liabilities consist of:
                                                             September 30,      
                                                        1998               1997
                                                            (in thousands)

                 Amount related to acquisitions     $   4,083         $   4,474
                 Deferred tax credits                      91               191
                                                     --------          ---------
                                                    $   4,174         $   4,665
                                                     ========          =========

Note 10 - Other (Income) Expense:

          Other (income) expense consists of the following:

<TABLE>
<CAPTION>

                                                         For the Year Ended
                                                            September 30,         
                                                1998          1997             1996
                                                         (in thousands)
<S>                                          <C>            <C>             <C>     
  Dividend income                            $  (14)        $  (46)         $   (75)
  Amortization of deferred credit              (100)          (100)            (100)
  Charitable contributions of inventory         138            156              563
  Net capital (gain) loss  on sale of
    marketable securities                         4           (698)            (609)
  Gain on sale of building                      ---            (20)             ---
  Gain on sale of endoscopic product line       ---            ---             (174)
  Gain on sale of Cardiologics (Note 15)        ---            ---           (1,000)
  Litigation costs                              472          1,878              263
  Other                                         316           (326)            (503)
                                             ------         ------           -------
                                            $   816        $   844         $ (1,635)
                                             ======         ======          ========
</TABLE>

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 $1,861,000 $1,185,000, and $724,000, has been
charged to operations  for the years ended  September  30, 1998,  1997 and 1996,
respectively. The Company's commitment under such leases is as follows:

            Year ending September 30,                       (in thousands)
                     1999                                  $     1,477
                     2000                                        1,268
                     2001                                        1,223
                     2002                                          835
                     2003                                          134
                                                            ----------
                                                           $     4,937
                                                            ===========

          Employment Agreements:

          The Company  has entered  into  employment  agreements,  approximating
$942,000 annually which expire at various dates through September 2002.

<PAGE>


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 materially
adverse effect on the financial 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, 1998 or 1997.

Stock Options:

Transactions relating to stock options are as follows:

<TABLE>
<CAPTION>

                                                                                         Weighted Average
                                                                   Number                      Price
                                                                  of Shares                  Per Share

<S>                                                                <C>                       <C>       
Balance September 30, 1995                                          541,135                  $  15.16
   Granted                                                          409,044                  $  22.03
   Exercised                                                        (59,494)                 $  11.09
   Expired/canceled                                                (274,225)                 $  17.21
                                                                    --------                   ------

Balance September 30, 1996                                          616,460                  $  19.20
   Granted                                                           67,607                  $  19.44
   Exercised                                                        (22,661)                 $  12.04
   Expired/canceled                                                 (27,091)                 $  20.16
                                                                    --------                   ------

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

Balance September 30, 1998                                        1,025,865                  $  18.84
                                                                  =========                   =======

</TABLE>

          The weighted  average fair value per share of options  granted  during
the years ended September 30, 1998, 1997, and 1996 amounted to $6.82, $7.60, and
$9.38, respectively.

                                   F-14
<PAGE>

Note 13 - Stockholders' Equity (continued):

          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.

          In  connection  with  the  plans  described  above,  options  covering
1,025,965 shares  (excluding  lapsed shares) have been granted through September
30, 1998.

          The Company has elected, in accordance with the provisions of SFAS No.
123, to apply the current  accounting  rules under APB Option 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, 1998,  1997,  and 1996 would  approximate  the pro forma  amounts
indicated in the table below (dollars in thousands):

<TABLE>
<CAPTION>


             Year Ended September 30,                        1998               1997               1996

<S>                                                       <C>               <C>              <C>        
             Net income - as reported                     $    11,611       $   11,286       $    18,789

             Net income - pro forma                       $    10,199       $   10,867       $    18,380

             Diluted net income per common share-
                 as reported                              $       .91       $      .87       $      1.43

             Diluted net income per common share-
                 pro forma                                $       .80       $      .84       $      1.40

</TABLE>

          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,  1998,  1997  and  1996,
respectively: expected volatility of 37%, 35%, and 39%, respectively,  risk-free
interest rate of 5.5%, 6.3%, and 6.4%, respectively, dividend yield rate of .9%,
 .8%, and .6%, respectively, and all options have expected lives of 5 years. 

<PAGE>

Note 13 - Stockholders' Equity (continued):

          The following table summarizes  information  about fixed stock options
outstanding at September 30, 1998:

<TABLE>
<CAPTION>

                                          Options Outstanding                        Options Exercisable
                              Number            Weighted-                           Number
                            Outstanding         Average       Weighted-          Exercisable        Weighted-
                                at             Remaining       Average               at              Average
          Range of         September 30,      Contractual     Exercise          September 30,       Exercise
       Exercise Prices         1998           Life (Years)     Price               1998              Price    

<S>     <C>         <C>       <C>               <C>           <C>               <C>               <C>

1    $  5.55  -$   6.84       59,500            1.7         $     6.73             59,500        $     6.73
2    $  9.25  -$  10.50       11,478            5.8         $     9.60              9,215        $     9.57
3    $ 14.00  -$  15.25       42,536            4.5         $    14.74             42,536        $    14.74
4    $ 16.75  -$  19.50      483,781            9.2         $    17.97             30,537        $    18.51
5    $ 20.63  -$  22.50      414,758            7.3         $    22.10            166,486        $    21.88
6    $ 24.50  -$  24.50       13,812            8.3         $    24.50              ---          $     ---
                           ---------            ---          ---------            -------         ---------
               Total       1,025,865            7.7         $    18.84            308,274        $    17.27
                           =========           ====          =========            =======         =========

</TABLE>


Note 14 - Income Taxes:

The provision for income taxes consists of the following components:

<TABLE>
<CAPTION>

                                                         For the Year Ended
                                                           September 30, 
                                                 1998          1997         1996
                                                          (in thousands)

<S>      <C>                                <C>          <C>             <C>    
         Current:
                Federal                    $   5,156    $   6,293    $   8,130
                State                            575          764        1,004
                Foreign                          142          190           19

         Deferred:
                Federal                          306       (1,295)         383
                State                           (422)        (333)          55
                                             ---------      -------     -------

                                           $   5,757    $   5,619    $   9,591
                                             ========       ======     ========
</TABLE>

<PAGE>

Note 14 - Income Taxes (continued):

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

<TABLE>
<CAPTION>

                                                                September 30, 
                                                           1998             1997
                                                              (in thousands)

<S>                                                      <C>               <C>      
         Prepaid expenses                                $     ---         $   1,226
         Undistributed DISC earnings                            96                96
         Manufacturing plant consolidation cost                ---            (1,482)
         Net operating loss carryforward
            from acquisition (Note 2)                         (400)              ---
         State net operating loss carryforward                (242)              ---
         Other                                                  54               ---
                                                          --------          ---------
                                                         $    (492)        $    (160)
                                                          ========           ========
</TABLE>

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

<TABLE>
<CAPTION>

                                                                            September 30,
                                                                       1998             1997
                                                                           (in thousands)

<S>                                                               <C>                <C> 
                  Net operating loss carryforward
                     from acquisition (Note 2)                    $  (3,100)        $     ---
                  Accelerated depreciation                              943               823
                  Undistributed DISC earnings                           506               599
                  Other                                                (267)              (56)
                  Capital losses                                        294               211
                  Valuation allowance attributable to
                  capital loss carryforward                            (294)             (211)
                                                                   ---------         ---------
                                                                  $  (1,918)        $   1,366
                                                                   =========         =========

</TABLE>

          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,
                                                          1998           1997         1996

<S>                                                      <C>            <C>          <C>  
Statutory federal income tax rate                         34.3%          35.0%        35.0%
Write off of purchased Research and Development            ---            5.2          ---
Net capital gains on investments                           ---           (1.5)        (2.0)
State income taxes net of federal tax benefit               .5            1.6          2.4
Benefit of tax loss in subsidiary                          ---           (6.9)         ---
Dividend exclusion/tax exempt interest                     ---           (0.3)         (.3)
Product contributions                                     (1.7)           ---          ---
Tax credit for Research and Development                   (1.2)           ---          ---
Other                                                     (1.4)            .1         (1.3)
                                                          ----           ----         -----

     Effective income tax rate                            30.5%          33.2%        33.8%
                                                          ====           ====         ====

</TABLE>

Note 15 - Related Party Transactions:

          During  fiscal  1996,  the  Company   entered  into  a  joint  venture
arrangement  (Cardiologics,  L.L.C.) with the  objective to develop  specialized
cardio-vascular products,  ("Cardiologics").  Approximately $100,000 of research
and  development  expense was  incurred by the  Company in fiscal  1996.  During
fiscal  1996,  the  Company's  management  made a  decision  to sell its  equity
interest in the joint venture for several business  reasons,  including the time
frame to  commercially  introduce the product and the research,  development and
clinical  costs  that are  likely to be  incurred,  as well as that the  primary
market focus of the product is outside of the core  anesthesia and critical care
product focus of the Company.

          During  September  1996,  the  Company  sold its  interest  for a note
receivable of $1,000,000 plus repayment of expenses paid on Cardiologics  behalf
which  resulted in a gain of  $1,000,000.  The  investment was sold to a private
venture  capital fund whose  primary  investor is the  President  and  principal
stockholder of the Company.  The note was completely  satisfied  during the year
ended September 30, 1997.


Note 16 - 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>              <C>      
                1996                             $     285        $      45         $     161(A)     $     169
                                                  ========         ========           =======           ======
                1997                             $     169        $     101         $     169(A)     $     101
                                                  ========         ========           =======           ======
                1998                             $     101        $     561         $      24(A)     $     638
                                                  ========         ========           =======           ======
</TABLE>

(A)  Write-off of uncollectible accounts receivable.


Note 17 - Significant Customers:

          A  portion  of the  Company's  hospital  customers  are  serviced  via
national and regional medical supply distributors.  During fiscal years 1998 and
1997,  respectively,  33%  and  37% of the  Company's  sales  were  made in this
distribution  channel.  In each  fiscal  year  1998 and  1997,  one of the large
national  distributors  represented  approximately 13% of net  sales--continuing
product  lines.  The  same  customer  represented  approximately  16% and 10% of
outstanding accounts receivable at September 30, 1998 and 1997, respectively.

Note 18 - Export Sales:

          The export sales for the fiscal years ended  September 30, 1998,  1997
and 1996 of approximately $15,000,000, $10,700,000 and $7,300,000, respectively,
were sold principally to customers in Europe, Asia and Australia.

<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  1999  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  1999  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  1999  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  1999  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.

<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.

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

     10.2 1991  Director  Stock  Option Plan,  as amended,  is  incorporated  by
          reference to Exhibit 10.2 to the Company's  Annual Report on Form 10-K
          for the year ended September 30, 1993.

<PAGE>

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

Exhibit           Description

     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.

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

     10.5 Vital Signs Investment Plan, as amended,  is incorporated by reference
          to Exhibit 99.1 to the  Company's  registration  statement on Form S-8
          (No. 333-37927).

     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.

<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 23rd day of
December, 1998.

                                                VITAL SIGNS, INC.


                                                By:     /s/                     
                                                        Anthony J. Dimun,
                                                        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              December 23, 1998
Terence D. Wall                 Executive Officer
                                and Director


/s/ David J. Bershad*           Director                      December 23, 1998
David J. Bershad


/s/Anthony J. Dimun             Executive Vice President,     December 23, 1998
Anthony J. Dimun                Chief Financial Officer,
                                Treasurer (Chief Financial
                                and Accounting Officer)
                                and Director

/s/ Stuart M. Essig*            
Stuart M. Essig                 Director                      December 23, 1998


/s/ Joseph J. Thomas*           Director                      December 23, 1998
Joseph J. Thomas


/s/ Barry Wicker*               Executive Vice President,     December 23, 1998
Barry Wicker                    Chief Operating Officer 
                                and Director


* By: /s/ 
      Anthony J. Dimun.
      Attorney-in-Fact