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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 December 31, 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  1-31943

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

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

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 December 31, 2004:  Class A Common Stock 11,457,111 shares.

CRITICARE SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2004 AND JUNE 30, 2004

(UNAUDITED)
ASSETS
December 31, 2004
June 30, 2004
  
           
CURRENT ASSETS:
          
Cash and cash equivalents
  
$
3,773,491
  
$
3,738,825
  
Accounts receivable, less allowance for doubtful accounts
              
of $300,000 and $260,000, respectively
    
6,266,174
   
6,489,884
 
Other receivables
    
352,224
   
359,806
 
Inventories
   
5,164,905
   
6,418,135
 
Prepaid expenses
    
137,643
   
364,375
 
Total current assets
    
15,694,437
   
17,371,025
 
               
Property, plant and equipment - net
    
1,892,465
   
2,094,330
  
               
License rights and patents - net
   
73,484
   
76,985
  
               
TOTAL ASSETS
  
$
17,660,386
  
$
19,542,340
  
               
               
LIABILITIES AND STOCKHOLDERS' EQUITY
              
               
CURRENT LIABILITIES:
              
Accounts payable
  
$
2,069,469
  
$
3,237,405
  
Accrued liabilities:
    
       
Compensation and commissions
    
926,659
   
863,113
 
Product warranties
   
487,000
   
444,000
 
Liability under guarantees
   
490,000
   
490,000
 
Out of court settlement
   
—
    
200,000
 
Obligations under capital lease
   
60,173
   
57,712
 
Other
   
125,759
   
174,395
 
Total current liabilities
    
4,159,060
   
5,466,625
 
               
LONG-TERM LIABILITIES:
              
Obligations under capital lease
    
234,056
   
264,770
 
Other long-term obligations
   
13,231
   
21,646
 
Total long-term liabilities
    
247,287
   
286,416
 
               
TOTAL LIABILITIES
    
4,406,347
   
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 11,457,111 and 11,450,021 shares outstanding, respectively
    
462,990
    
462,990
  
Additional paid-in capital
    
23,966,075
    
23,965,900
  
Common stock held in treasury (117,638 and 124,728 shares, respectively)
    
(396,232
)
  
(409,439
)
Retained earnings (accumulated deficit)
    
(10,775,312
)
  
(10,226,670
)
Cumulative translation adjustment
    
(3,482
)
  
(3,482
)
Total stockholders' equity
    
13,254,039
    
13,789,299
  
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
  
$
17,660,386
  
$
19,542,340
  

See notes to consolidated financial statements.

2
CRITICARE SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED DECEMBER 31, 2004 AND 2003

(UNAUDITED)
   
 2004
 
 2003
  
           
NET SALES
  
$
12,706,362
  
$
15,352,694
  
               
COST OF GOODS SOLD
    
7,733,536
    
9,093,679
  
               
GROSS PROFIT
    
4,972,826
    
6,259,015
  
               
OPERATING EXPENSES:
              
Sales and marketing
   
2,872,833
    
3,372,216
  
Research, development and engineering
    
1,174,935
    
1,224,313
  
Administrative
    
1,490,328
    
1,725,051
  
Total
    
5,538,096
    
6,321,580
  
               
LOSS FROM OPERATIONS
    
(565,270
)
  
(62,565
)
               
OTHER INCOME (EXPENSE):
              
Interest expense
    
(17,027
)
  
—
  
Interest income
    
20,073
    
20,749
  
Other income
    
13,582
    
62,510
  
Total
    
16,628
    
83,259
  
               
(LOSS) INCOME BEFORE INCOME TAXES
   
(548,642
)
  
20,694
  
               
INCOME TAX PROVISION
   
—
    
—
  
               
NET (LOSS) INCOME
  
$
(548,642
)
$
20,694
  
               
NET (LOSS) INCOME PER COMMON SHARE:
              
Basic
  
$
(0.05
)
$
0.00
  
Diluted
  
$
(0.05
)
$
0.00
  
               
WEIGHTED AVERAGE NUMBER OF COMMON
              
SHARES OUTSTANDING:
              
Basic
    
11,453,405
    
11,098,339
  
Diluted
    
11,453,405
    
11,432,539
  

See notes to consolidated financial statements.

3
CRITICARE SYSTEMS, INC.
CONSOLIDATED INCOME STATEMENTS
THREE MONTHS ENDED DECEMBER 31, 2004 AND 2003

(UNAUDITED)
   
 2004
 
 2003