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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549
__________

Form 10-Q

  X   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
   EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2004

OR

_____  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the transition period from ____________ to ____________

Commission file number 0-16061

CRITICARE SYSTEMS, INC
(Exact name of registrant as specified in its charter)

Delaware
39-1501563
 (State or other jurisdiction of incorporation or organization)    (IRS Employer Identification No.)

20925 Crossroads Circle, Suite 100
Waukesha, Wisconsin
  
53186
(Address of principal executive offices)
  
(Zip Code)

Registrant's telephone number including area code  (262) 798-8282

N/A
Former name, former address and former fiscal year, if changed since last report.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes   X     No ___

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
      Yes ___   No  X  

Number of shares outstanding of each class of the registrant's classes of common stock as of September 30, 2004: Class A Common Stock 11,452,321 shares.

 
   
 
CRITICARE SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2004 AND JUNE 30, 2004

(UNAUDITED)
ASSETS
  
September 30, 2004
  
June 30, 2004
  
   
 
 
CURRENT ASSETS:
          
Cash and cash equivalents
  
$
2,490,712
 
$
3,738,825
 
Accounts receivable, less allowance for doubtful accounts
              
of $300,075 and $260,000, respectively
    
5,924,548
   
6,489,884
 
Other receivables
    
76,646
   
359,806
 
Inventories
   
6,630,693
   
6,418,135
 
Prepaid expenses
    
224,225
   
364,375
 
   
 
 
Total current assets
    
15,346,824
   
17,371,025
 
               
Property, plant and equipment - net
    
2,062,816
   
2,094,330
  
               
License rights and patents - net
   
75,234
   
76,985
  
   
 
 
TOTAL ASSETS
  
$
17,484,874
  
$
19,542,340
  
   
 
 
LIABILITIES AND STOCKHOLDERS' EQUITY
              
               
CURRENT LIABILITIES:
              
Accounts payable
  
$
2,192,948
 
$
3,237,405
 
Accrued liabilities:
    
       
Compensation and commissions
    
825,114
   
863,113
 
Product warranties
   
460,000
   
444,000
 
Liability under guarantees
   
490,000
   
490,000
 
Out of court settlement
   
50,000
   
200,000
 
Obligations under capital lease
   
58,929
   
57,712
 
Other
   
45,903
   
174,395
 
   
 
 
Total current liabilities
    
4,122,894
   
5,466,625
 
               
LONG-TERM LIABILITIES:
              
Obligations under capital lease
    
249,574
   
264,770
 
Other long-term obligations
   
18,028
   
21,646
 
   
 
 
Total long-term liabilities
    
267,602
   
286,416
 
               
TOTAL LIABILITIES
    
4,390,496
   
5,753,041
 
               
STOCKHOLDERS' EQUITY:
              
Preferred stock - $.04 par value, 500,000 shares authorized
              
no shares issued or outstanding
    
-
    
-
  
Common stock - $.04 par value, 15,000,000 shares authorized, 11,574,749
              
shares issued, and 11,452,321 and 11,450,021 outstanding, respectively
    
462,990
    
462,990
  
Additional paid-in capital
    
23,967,004
    
23,965,900
  
Common stock held in treasury (122,428 and 124,728 shares, respectively)
    
(405,155
)
  
(409,439
)
Retained earnings (accumulated deficit)
    
(10,926,979
)
  
(10,226,670
)
Cumulative translation adjustment
    
(3,482
)
  
(3,482
)
   
 
 
Total stockholders' equity
    
13,094,378
    
13,789,299
  
   
 
 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
  
$
17,484,874
  
$
19,542,340
  
   
 
 

See notes to consolidated financial statements.

  2  
CRITICARE SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003

(UNAUDITED)
   
2004
2003
  
   
 
 
NET SALES
  
$
5,331,357
  
$
6,372,417
  
               
COST OF GOODS SOLD
    
3,459,923
    
3,798,010
  
   
 
 
GROSS PROFIT
    
1,871,434
    
2,574,407
  
               
OPERATING EXPENSES:
              
Sales and marketing
   
1,314,487
    
1,507,446
  
Research, development and engineering
    
541,118
    
600,593
  
Administrative
    
749,904
    
901,258
  
   
 
 
Total
    
2,605,509
    
3,009,297
  
               
LOSS FROM OPERATIONS
    
(734,075
)
  
(434,890
)
               
OTHER INCOME (EXPENSE):
              
Interest expense
    
(6,661
)
   -  
Interest income
    
8,608
    
9,739
  
Other income
    
31,819
    
33,421
  
   
 
 
Total
    
33,766
    
43,160
  
               
LOSS BEFORE INCOME TAXES
   
(700,309
)
  
(391,730
)
               
INCOME TAX PROVISION
   
-
     -  
   
 
 
NET LOSS
  
$
(700,309
)
$
(391,730
)
   
 
 
NET LOSS PER COMMON SHARE
              
Basic
  
$
(0.06
)
$
(0.04
)
Diluted
  
$
(0.06
)
$
(0.04
)
               
WEIGHTED AVERAGE NUMBER OF COMMON
              
SHARES OUTSTANDING:
              
Basic
    
11,451,465
    
11,074,738
  
Diluted
    
11,451,465
    
11,074,738
  

See notes to consolidated financial statements.


  3  


CRITICARE SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003

(UNAUDITED)

   
2004

 
2003
  
   
 
 
OPERATING ACTIVITIES:
          
Net loss
 
$
(700,309
)
$
(391,730
)
Adjustments to reconcile net loss to net cash