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

| Delaware                                                      |   | 39-1501563                                   |
|---------------------------------------------------------------|--------|----------------------------------------------|
| (State                or other jurisdiction of incorporation) |   | (I.R.S.                Employer I.D. Number) |

| 20925                Crossroads CircleSuite                100Waukesha,                Wisconsin |   |   53186         |
|--------------------------------------------------------------------------------------------------|--------|---------------------------|
| (Address                of Principal Executive Offices)                                          |   | (Zip                Code) |

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

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

----

|                                                                                                                                                                                                                                                |   | December                31, 2005 |       | June                30,2005 |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------|------------|-----------------------------|--------|
| ASSETS                                                                                                                                                                                                                                                   |   |                             |       |                        |   |
|                                                                                                                                                                                                                                                     |   |                             |       |                        |   |   |   |
| CURRENT                ASSETS:                                                                                                                                                                                                                           |   |                             |       |                        |   |   |   |
| Cash                and cash equivalents                                                                                                                                                                                                                 |   | $                                | 3,676,963  |                        | $      | 3,680,965 |   |
| Accounts                  receivable, less allowance for doubtful accounts of                  $300,000 and $300,000, respectively                                                                                                                       |   |                             | 7,441,928  |                        |   | 6,847,432 |   |
| Other                receivables                                                                                                                                                                                                                         |   |                             | 620,432    |                        |   | 645,479 |   |
| Inventories                                                                                                                                                                                                                                              |   |                             | 6,813,934  |                        |   | 5,551,093 |   |
| Prepaid                expenses                                                                                                                                                                                                                          |   |                             | 182,683    |                        |   | 255,104 |   |
| Total                current assets                                                                                                                                                                                                                      |   |                             | 18,735,940 |                        |   | 16,980,073 |   |
|                                                                                                                                                                                                                                                     |   |                             |       |                        |   |   |   |
| Property,                plant and equipment - net                                                                                                                                                                                                       |   |                             | 2,626,246  |                        |   | 2,010,417 |   |
|                                                                                                                                                                                                                                                     |   |                             |       |                        |   |   |   |
| License                rights and patents - net                                                                                                                                                                                                          |   |                             | 66,483     |                        |   | 69,983 |   |
|                                                                                                                                                                                                                                                     |   |                             |       |                        |   |   |   |
| TOTAL                ASSETS                                                                                                                                                                                                                              |   | $                                | 21,428,669 |                        | $      | 19,060,473 |   |
|                                                                                                                                                                                                                                                     |   |                             |       |                        |   |   |   |
| LIABILITIES                AND STOCKHOLDERS' EQUITY                                                                                                                                                                                                      |   |                             |       |                        |   |   |   |
|                                                                                                                                                                                                                                                     |   |                             |       |                        |   |   |   |
| CURRENT                LIABILITIES:                                                                                                                                                                                                                      |   |                             |       |                        |   |   |   |
| Accounts                payable                                                                                                                                                                                                                          |   | $                                | 4,054,395  |                        | $      | 3,033,559 |   |
| Accrued                liabilities:                                                                                                                                                                                                                      |   |                             |            |                        |   |   |   |
| Compensation                and commissions                                                                                                                                                                                                              |   |                             | 989,347    |                        |   | 900,636 |   |
| Product                warranties                                                                                                                                                                                                                        |   |                             | 412,000    |                        |   | 452,000 |   |
| Obligations                under capital lease                                                                                                                                                                                                           |   |                             | 65,415     |                        |   | 62,739 |   |
| Other                                                                                                                                                                                                                                                    |   |                             | 152,999    |                        |   | 191,807 |   |
| Total                current liabilities                                                                                                                                                                                                                 |   |                             | 5,674,156  |                        |   | 4,640,741 |   |
|                                                                                                                                                                                                                                                     |   |                             |       |                        |   |   |   |
| LONG-TERM                LIABILITIES:                                                                                                                                                                                                                    |   |                             |       |                        |   |   |   |
| Obligations                under capital lease                                                                                                                                                                                                           |   |                             | 168,640    |                        |   | 202,031 |   |
| Other                long-term obligations                                                                                                                                                                                                               |   |                             | 4,610      |                        |   | 8,561 |   |
| Total                long-term liabilities                                                                                                                                                                                                               |   |                             | 173,250    |                        |   | 210,592 |   |
|                                                                                                                                                                                                                                                     |   |                             |       |                        |   |   |   |
| TOTAL                LIABILITIES                                                                                                                                                                                                                         |   |                             | 5,847,406  |                        |   | 4,851,333 |   |
|                                                                                                                                                                                                                                                     |   |                             |       |                        |   |   |   |
| STOCKHOLDERS'                EQUITY:                                                                                                                                                                                                                     |   |                             |       |                        |   |   |   |
| Preferred                  stock - $.04 par value, 500,000 shares authorizedno                  shares issued or outstanding                                                                                                                             |   |                             | —    |                        |   | — |   |
| Common                  stock - $.04 par value, 15,000,000 shares authorized,                  12,171,961and                  11,925,086                  shares issued, and 12,062,268 and 11,812,493 shares outstanding,                  respectively |   |                             | 486,878    |                        |   | 477,003 |   |
| Additional                paid-in capital                                                                                                                                                                                                                |   |                             | 25,384,798 |                        |   | 24,775,995 |   |
| Common                stock held in treasury (109,693 and 112,593 shares,                respectively)                                                                                                                                                   |   |                             | (381,432   | )                           |   | (386,834 | ) |
| Retained                earnings (accumulated deficit)                                                                                                                                                                                                   |   |                             | (9,904,598 | )                           |   | (10,648,912 | ) |
| Cumulative                translation adjustment                                                                                                                                                                                                         |   |                             | (4,383     | )                           |   | (8,112 | ) |
| Total                stockholders' equity                                                                                                                                                                                                                |   |                             | 15,581,263 |                        |   | 14,209,140 |   |
| TOTAL                LIABILITIES AND STOCKHOLDERS’ EQUITY                                                                                                                                                                                          |   | $                                | 21,428,669 |                        | $      | 19,060,473 |   |

----

|                                                                                    |   | ** ****2005** |       | ** ****2004** |   |
|-----------------------------------------------------------------------------------------|--------|--------------------|------------|--------------------|--------|
| NET                SALES                                                                |   | $                  | 16,443,126 |               | $      | 12,706,362 |   |
|                                                                                    |   |               |       |               |   |   |   |
| COST                OF GOODS SOLD                                                       |   |               | 9,931,378  |               |   | 7,733,536 |   |
|                                                                                    |   |               |       |               |   |   |   |
| GROSS                PROFIT                                                             |   |               | 6,511,748  |               |   | 4,972,826 |   |
|                                                                                    |   |               |       |               |   |   |   |
| OPERATING                EXPENSES:                                                      |   |               |       |               |   |   |   |
| Sales                and marketing                                                      |   |               | 3,292,693  |               |   | 2,872,833 |   |
| Research,                development and engineering                                    |   |               | 1,299,666  |               |   | 1,174,935 |   |
| Administrative                                                                          |   |               | 1,613,900  |               |   | 1,490,328 |   |
| Total                                                                                   |   |               | 6,206,259  |               |   | 5,538,096 |   |
|                                                                                    |   |               |       |               |   |   |   |
| INCOME                (LOSS) FROM OPERATIONS                                            |   |               | 305,489    |               |   | (565,270 | ) |
|                                                                                    |   |               |       |               |   |   |   |
| OTHER                INCOME (EXPENSE):                                                  |   |               |       |               |   |   |   |
| Interest                expense                                                         |   |               | (10,565    | )                  |   | (17,027 | ) |
| Interest                income                                                          |   |               | 41,974     |               |   | 20,073 |   |
| Other                income                                                             |   |               | 407,417    |               |   | 13,582 |   |
| Total                                                                                   |   |               | 438,826    |               |   | 16,628 |   |
|                                                                                    |   |               |       |               |   |   |   |
| INCOME                (LOSS) BEFORE INCOME TAXES                                        |   |               | 744,315    |               |   | (548,642 | ) |
|                                                                                    |   |               |       |               |   |   |   |
| INCOME                TAX PROVISION                                                     |   |               | —    |               |   | — |   |
|                                                                                    |   |               |       |               |   |   |   |
| NET                INCOME (LOSS)                                                        |   | $                  | 744,315    |               | $      | (548,642 | ) |
|                                                                                    |   |               |       |               |   |   |   |
| NET                INCOME (LOSS) PER COMMON SHARE:                                      |   |               |       |               |   |   |   |
| Basic                                                                                   |   | $                  | 0.06       |               | $      | (0.05 | ) |
| Diluted                                                                                 |   | $                  | 0.06       |               | $      | (0.05 | ) |
|                                                                                    |   |               |       |               |   |   |   |
| WEIGHTED                  AVERAGE NUMBER OF COMMON SHARES                  OUTSTANDING: |   |               |       |               |   |   |   |
| Basic                                                                                   |   |               | 11,935,933 |               |   | 11,453,405 |   |
| Diluted                                                                                 |   |               | 12,241,949 |               |   | 11,453,405 |   |

----

|                                                                                   |   | ** ****2005** |       | ** ****2004** |   |
|----------------------------------------------------------------------------------------|--------|--------------------|------------|--------------------|--------|
| NET                SALES                                                               |   | $                  | 8,770,813  |               | $      | 7,375,005 |   |
|                                                                                   |   |               |       |               |   |   |   |
| COST                OF GOODS SOLD                                                      |   |               | 5,194,365  |               |   | 4,273,613 |   |
|                                                                                   |   |               |       |               |   |   |   |
| GROSS                PROFIT                                                            |   |               | 3,576,448  |               |   | 3,101,392 |   |
|                                                                                   |   |               |       |               |   |   |   |
| OPERATING                EXPENSES:                                                     |   |               |       |               |   |   |   |
| Sales                and marketing                                                     |   |               | 1,805,862  |               |   | 1,558,348 |   |
| Research,                development and engineering                                   |   |               | 673,015    |               |   | 633,816 |   |
| Administrative                                                                         |   |               | 849,153    |               |   | 740,423 |   |
| Total                                                                                  |   |               | 3,328,030  |               |   | 2,932,587 |   |
|                                                                                   |   |               |       |               |   |   |   |
| INCOME                FROM OPERATIONS                                                  |   |               | 248,418    |               |   | 168,805 |   |
|                                                                                   |   |               |       |               |   |   |   |
| OTHER                INCOME (EXPENSE):                                                 |   |               |       |               |   |   |   |
| Interest                expense                                                        |   |               | (5,122     | )                  |   | (10,366 | ) |
| Interest                income                                                         |   |               | 21,718     |               |   | 11,465 |   |
| Other                income (expense)                                                  |   |               | 341,923    |               |   | (18,237 | ) |
| Total                                                                                  |   |               | 358,519    |               |   | (17,138 | ) |
|                                                                                   |   |               |       |               |   |   |   |
| INCOME                BEFORE INCOME TAXES                                              |   |               | 606,937    |               |   | 151,667 |   |
|                                                                                   |   |               |       |               |   |   |   |
| INCOME                TAX PROVISION                                                    |   |               | —    |               |   | — |   |
|                                                                                   |   |               |       |               |   |   |   |
| NET                INCOME                                                              |   | $                  | 606,937    |               | $      | 151,667 |   |
|                                                                                   |   |               |       |               |   |   |   |
| NET                INCOME PER COMMON SHARE:                                            |   |               |       |               |   |   |   |
| Basic                                                                                  |   | $                  | 0.05       |               | $      | 0.01 |   |
| Diluted                                                                                |   | $                  | 0.05       |               | $      | 0.01 |   |
|                                                                                   |   |               |       |               |   |   |   |
| WEIGHTED                  AVERAGE NUMBER OF COMMONSHARES                  OUTSTANDING: |   |               |       |               |   |   |   |
| Basic                                                                                  |   |               | 12,027,943 |               |   | 11,455,344 |   |
| Diluted                                                                                |   |               | 12,334,894 |               |   | 11,564,946 |   |

----

|                                                                                                                              |   | **2005** |       | **2004** |   |
|-----------------------------------------------------------------------------------------------------------------------------------|--------|----------|------------|----------|--------|
| OPERATING                ACTIVITIES:                                                                                              |   |     |       |     |   |   |   |
| Net                income (loss)                                                                                                  |   | $        | 744,315    |     | $      | (548,642 | ) |
| Adjustments                to reconcile net income (loss) to net cash (used in)provided                  by operating activities: |   |     |       |     |   |   |   |
| Depreciation                                                                                                                      |   |     | 288,902    |     |   | 300,649 |   |
| Amortization                                                                                                                      |   |     | 3,500      |     |   | 3,501 |   |
| Provision                for doubtful accounts                                                                                    |   |     | —    |     |   | 40,000 |   |
| Provision                for obsolete inventory                                                                                   |   |     | (132,300   | )        |   | 200,000 |   |
| Changes                in assets and liabilities:                                                                                 |   |     |       |     |   |   |   |
| Accounts                receivable                                                                                                |   |     | (594,496   | )        |   | 183,710 |   |
| Other                receivables                                                                                                  |   |     | 25,047     |     |   | 7,582 |   |
| Inventories                                                                                                                       |   |     | (1,651,915 | )        |   | 1,045,029 |   |
| Prepaid                expenses                                                                                                   |   |     | 72,421     |     |   | 226,732 |   |
| Accounts                payable                                                                                                   |   |     | 1,020,836  |     |   | (1,167,936 | ) |
| Accrued                liabilities                                                                                                |   |     | 5,952      |     |   | (150,505 | ) |
| Net                cash (used in) provided by operating activities                                                                |   |     | (217,738   | )        |   | 140,120 |   |
|                                                                                                                              |   |     |       |     |   |   |   |
| INVESTING                ACTIVITIES:                                                                                              |   |     |       |     |   |   |   |
| Purchases                of property, plant and equipment, net                                                                    |   |     | (383,358   | )        |   | (90,583 | ) |
| Net                cash used in investing activities                                                                              |   |     | (383,358   | )        |   | (90,583 | ) |
|                                                                                                                              |   |     |       |     |   |   |   |
| FINANCING                ACTIVITIES:                                                                                              |   |     |       |     |   |   |   |
| Retirement                of obligations under capital lease                                                                      |   |     | (30,715    | )        |   | (28,253 | ) |
| Proceeds                from issuance of common stock                                                                             |   |     | 624,080    |     |   | 13,382 |   |
| Net                cash provided by (used in) financing activities                                                                |   |     | 593,365    |     |   | (14,871 | ) |
|                                                                                                                              |   |     |       |     |   |   |   |
| EFFECT                OF EXCHANGE RATE CHANGES ON CASH                                                                            |   |     | 3,729      |     |   | — |   |
|                                                                                                                              |   |     |       |     |   |   |   |
| NET                (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS                                                               |   |     | (4,002     | )        |   | 34,666 |   |
| CASH                AND CASH EQUIVALENTS, BEGINNING OF PERIOD                                                                     |   |     | 3,680,965  |     |   | 3,738,825 |   |
| CASH                AND CASH EQUIVALENTS, END OF PERIOD                                                                           |   | $        | 3,676,963  |     | $      | 3,773,491 |   |
|                                                                                                                              |   |     |       |     |   |   |   |
| SUPPLEMENTAL                CASH FLOW INFORMATION:                                                                                |   |     |       |     |   |   |   |
| Cash                paid for:                                                                                                     |   |     |       |     |   |   |   |
| Income                taxes paid-net                                                                                              |   |     | —    |     |   | — |   |
| Interest                                                                                                                          |   | $        | 10,565     |     | $      | 17,027 |   |

----

**1.       Basis of Presentation**

**2.       Inventory Valuation**

|                                          |   | December                31, 2005 |      | June                30, 2005 |   |
|-----------------------------------------------|--------|----------------------------------|-----------|------------------------------|--------|
| Component                parts                |   | $                                | 2,359,778 |                         | $      | 3,573,396 |   |
| Work                in process                |   |                             | 1,846,736 |                         |   | 1,085,172 |   |
| Finished                units                 |   |                             | 2,913,420 |                         |   | 1,330,825 |   |
| Total                inventories              |   |                             | 7,119,934 |                         |   | 5,989,393 |   |
| Less:                reserve for obsolescence |   |                             | 306,000   |                         |   | 438,300 |   |
| Net                inventory                  |   | $                                | 6,813,934 |                         | $      | 5,551,093 |   |

**3.       Property, Plant and Equipment**

|                                                |   | December                31,2005 |       | June                30, 2005 |   |
|-----------------------------------------------------|--------|---------------------------------|------------|------------------------------|--------|
| Machinery                and equipment              |   | $                               | 3,015,041  |                         | $      | 2,800,269 |   |
| Furniture                and fixtures               |   |                            | 951,276    |                         |   | 947,726 |   |
| Leasehold                improvements               |   |                            | 235,795    |                         |   | 220,407 |   |
| Production                tooling                   |   |                            | 2,159,458  |                         |   | 2,009,809 |   |
| Demonstration                and loaner monitors    |   |                            | 1,984,427  |                         |   | 1,352,267 |   |
| Property,                plant and equipment - cost |   |                            | 8,345,997  |                         |   | 7,330,478 |   |
| Less:                accumulated depreciation       |   |                            | (5,719,751 | )                            |   | (5,320,061 | ) |
| Property,                plant and equipment - net  |        | $                               | 2,626,246  |                              | $      | 2,010,417 |   |

----

**4.       Stock Options**

|                                                                                                                                                       |   | Three                Months Ended |    | Six                Months Ended |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------|---------|---------------------------------|--------|
|                                                                                                                                                       |   | December                31        |    | December                31      |   |
|                                                                                                                                                       |   | 2005                              |    | 2004                            |   | 2005 |   | 2004 |   |
|                                                                                                                                                       |   |                              |    |                            |   |   |   |   |   |   |   |   |   |
| Net                income (loss) - as reported                                                                                                             |   | $                                 | 606,937 |                            | $      | 151,667 |   | $ | 744,315 |   | $ | (548,642 | ) |
| Add:                Stock-based employee compensationexpense                included in reported net income                                                |   |                              | 41,123  |                            |   | -- |   |   | 81,140 |   |   | -- |   |
| Deduct:                Total stock-based employee compensationexpense                determined under fair value basedmethod                for all awards |   |                              | (41,123 | )                               |   | (108,937 | ) |   | (81,140 | ) |   | (217,874 | ) |
| Net                income (loss) - pro forma                                                                                                               |   | $                                 | 606,937 |                            | $      | 42,730 |   | $ | 744,315 |   | $ | (766,516 | ) |
|                                                                                                                                                       |   |                              |    |                            |   |   |   |   |   |   |   |   |   |
| Basic                net income (loss) per share - as reported                                                                                             |   | $                                 | 0.05    |                            | $      | 0.01 |   | $ | 0.06 |   | $ | (0.05 | ) |
| Diluted                net income (loss) per share - as reported                                                                                           |   | $                                 | 0.05    |                            | $      | 0.01 |   | $ | 0.06 |   | $ | (0.05 | ) |
|                                                                                                                                                       |   |                              |    |                            |   |   |   |   |   |   |   |   |   |
| Basic                net income (loss) per share - pro forma                                                                                               |   | $                                 | 0.05    |                            | $      | 0.00 |   | $ | 0.06 |   | $ | (0.07 | ) |
| Diluted                net income (loss) per share - pro forma                                                                                             |   | $                                 | 0.05    |                            | $      | 0.00 |   | $ | 0.06 |   | $ | (0.07 | ) |

----

**5.       Income Taxes**

**6.       Line of Credit Facility**

**7.       Net Income (Loss) Per Common Share**

----

**Results      of Operations**

** **

----

**Results      of Operations**

** **

----

**Liquidity      and Capital Resources**

**Forward      Looking Statements**

----

**Quantitative      and Qualitative Disclosures about Market Risk**

**Controls      and Procedures**

----

|                               | For       |   | Withheld  |   |
|------------------------------------|-----------|--------|-----------|--------|
| Jeffrey                T. Barnes   | 8,962,014 |   | 2,219,462 |   |
| Dr.                N.C. Joseph Lai | 8,873,755 |   | 2,307,721 |   |

|   | For       |   | Against   |   | Abstain |   | Broker                  Non-Votes |   |
|--------|-----------|--------|-----------|--------|---------|--------|-----------------------------------|--------|
|   | 4,004,970 |   | 2,569,032 |   | 62,768  |   | 4,544,706                         |   |

|   | For        |   | Against |   | Abstain |   | Broker                  Non-Votes |   |
|--------|------------|--------|---------|--------|---------|--------|-----------------------------------|--------|
|   | 10,876,324 |   | 282,952 |   | 22,200  |   | 0                                 |   |

----

|   |   | 3.1 | Restated                Certificate of Incorporation of the Company (incorporated by reference                to                the Registration Statement filed on Form S-1, Registration No.                33-13050). |
|--------|--------|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   |   | 3.2 | By-Laws                of the Company (incorporated by reference to the Registration Statement                filed on Form S-1, Registration No.                33-13050). |
|--------|--------|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 4.1 | Specimen                Common Stock certificate (incorporated by reference to the Registration                Statement filed on Form S-1, Registration No.                33-13050). |
|--------|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 4.2 | Rights                Agreement (incorporated by reference to the Company’s Current Report on                Form 8-K filed on April 18, 1997). |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 10.1 | Criticare                Systems, Inc. Stock Option Plan, as amended and restated effective                December 1, 2005 (incorporated by reference to the Company's Current                Report on Form 8-K filed on December 7,                2005). |
|--------|------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 10.2 | Form                of Stock Option Grant Agreement for the Criticare Systems, Inc. 2003                Stock                Option Plan (incorporated by reference to the Company's Current Report                on                Form 8-K filed on December 7,                2005). |
|--------|------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 10.3 | Form                of Stock Appreciation Right Grant Agreement for the Criticare Systems,                Inc. 2003 Stock Option Plan (incorporated by reference to the Company's                Current Report on Form 8-K filed on December 7,                2005). |
|--------|------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 10.4 | Form                of Restricted Stock Grant Agreement for the Criticare Systems, Inc.                2003                Stock Option Plan (incorporated by reference to the Company's Current                Report on Form 8-K filed on December 7,                2005). |
|--------|------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 31.1 | Certification                of Emil H. Soika, President and Chief Executive Officer (Principal                Executive Officer) pursuant to Section 302 of the Sarbanes-Oxley                Act of                2002. |
|--------|------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 31.2 | Certification                of Joel D. Knudson, Vice President - Finance and Secretary (Principal                Financial Officer) pursuant to Section 302 of the Sarbanes-Oxley                Act of                2002. |
|--------|------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 32* | Certification                  of Principal Executive Officer and Principal Financial Officer                  pursuant to                  18 U.S.C. Section 1350. |
|--------|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----