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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 March 31, 2005

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 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 March 31, 2005: Class A Common Stock 11,581,766 shares.

 
CRITICARE SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2005 AND JUNE 30, 2004

(UNAUDITED)

ASSETS
  
March 31, 2005
  
June 30, 2004
  
           
CURRENT ASSETS:
              
Cash and cash equivalents
  
$
3,731,417
  
$
3,738,825
  
Accounts receivable, less allowance for doubtful accounts
              
of $300,000 and $260,000, respectively
    
6,345,700
   
6,489,884
 
Other receivables
    
446,233
   
359,806
 
Inventories
   
5,478,645
   
6,418,135
 
Prepaid expenses
    
190,913
   
364,375
 
Total current assets
    
16,192,908
   
17,371,025
 
               
Property, plant and equipment - net
    
1,640,645
   
2,094,330
  
               
License rights and patents - net
   
71,733
   
76,985
  
               
TOTAL ASSETS
  
$
17,905,286
  
$
19,542,340
  
               
LIABILITIES AND STOCKHOLDERS' EQUITY
              
               
CURRENT LIABILITIES:
              
Accounts payable
  
$
2,844,321
  
$
3,237,405
  
Accrued liabilities:
    
       
Compensation and commissions
    
844,926
   
863,113
 
Product warranties
   
486,000
   
444,000
 
Liability under guarantees
   
—
    
490,000
 
Out of court settlement
   
—
    
200,000
 
Obligations under capital lease
   
61,442
   
57,712
 
Other
   
146,731
   
174,395
 
Total current liabilities
    
4,383,420
   
5,466,625
 
               
LONG-TERM LIABILITIES:
              
Obligations under capital lease
    
218,211
   
264,770
 
Other long-term obligations
   
13,171
   
21,646
 
Total long-term liabilities
    
231,382
   
286,416
 
               
TOTAL LIABILITIES
    
4,614,802
   
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, 11,696,649 and 11,574,749 shares
issued, respectively, and 11,581,766 and 11,450,021 shares outstanding, respectively
              
 
    
467,865
    
462,990
  
Additional paid-in capital
    
24,237,384
    
23,965,900
  
Common stock held in treasury (114,883 and 124,728 shares, respectively)
    
(391,099
)
  
(409,439
)
Retained earnings (accumulated deficit)
    
(11,020,184
)
  
(10,226,670
)
Cumulative translation adjustment
    
(3,482
)
  
(3,482
)
Total stockholders' equity
    
13,290,484
    
13,789,299
  
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
  
$
17,905,286
  
$
19,542,340
  

See notes to consolidated financial statements.


2


CRITICARE SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED MARCH 31, 2005 AND 2004
 
(UNAUDITED)

   
2005
  
2004
  
           
NET SALES
  
$
18,760,733
  
$
21,923,864
  
               
COST OF GOODS SOLD
    
11,357,934
    
12,855,828
  
               
GROSS PROFIT
    
7,402,799
    
9,068,036
  
               
OPERATING EXPENSES:
              
Sales and marketing
   
4,231,575
    
5,316,293
  
Research, development and engineering
    
1,899,752
    
1,810,732
  
Administrative
    
2,140,193
    
2,484,791
  
Total
    
8,271,520
    
9,611,816
  
               
LOSS FROM OPERATIONS
    
(868,721
)
  
(543,780
)
               
OTHER INCOME (EXPENSE):
              
Interest expense
    
(23,091
)
  
—
  
Interest income
    
38,311
    
29,496
  
Other income
    
59,987
    
122,371
  
Total
    
75,207
    
151,867
  
               
LOSS BEFORE INCOME TAXES
   
(793,514
)
  
(391,913
)
               
INCOME TAX PROVISION
   
—
    
—
  
               
NET LOSS
  
$
(793,514
)
$
(391,913
)
               
NET LOSS PER COMMON SHARE:
              
Basic
  
$
(0.07
)
$
(0.04
)
Diluted
  
$
(0.07
)
$
(0.04
)
               
WEIGHTED AVERAGE NUMBER OF COMMON
              
SHARES OUTSTANDING:
              
Basic
    
11,469,066
    
11,173,768
  
Diluted
    
11,469,066
    
11,173,768
  

See notes to consolidated financial statements.


3


CRITICARE SYSTEMS, INC.
CONSOLIDATED INCOME STATEMENTS
THREE MONTHS ENDED MARCH 31, 2005 AND 2004
 
(UNAUDITED)

   
2005
  
2004
  
               
NET SALES
  
$
6,054,370