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

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

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

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

----

|  ASSETS                                                                                                                                                                                                                            |   | March                31, 2006 |       | June                30,2005 |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------|------------|-----------------------------|--------|
|                                                                                                                                                                                                                                    |   |                          |       |                        |   |
| CURRENT                ASSETS:                                                                                                                                                                                                          |   |                          |       |                        |   |   |   |
| Cash                and cash equivalents                                                                                                                                                                                                |   | $                             | 3,246,560  |                        | $      | 3,680,965 |   |
|  Accounts                receivable, less allowance for doubtful accounts of $300,000                                                                                                                                              |   |                          | 7,182,864  |                        |   | 6,847,432 |   |
| Other                receivables                                                                                                                                                                                                        |   |                          | 604,688    |                        |   | 645,479 |   |
| Inventories                                                                                                                                                                                                                             |   |                          | 7,646,107  |                        |   | 5,551,093 |   |
| Prepaid                expenses                                                                                                                                                                                                         |   |                          | 217,138    |                        |   | 255,104 |   |
| Total                current assets                                                                                                                                                                                                     |   |                          | 18,897,357 |                        |   | 16,980,073 |   |
|                                                                                                                                                                                                                                    |   |                          |       |                        |   |   |   |
| Property,                plant and equipment - net                                                                                                                                                                                      |   |                          | 2,395,925  |                        |   | 2,010,417 |   |
|                                                                                                                                                                                                                                    |   |                          |       |                        |   |   |   |
| License                rights and patents - net                                                                                                                                                                                         |   |                          | 64,732     |                        |   | 69,983 |   |
|                                                                                                                                                                                                                                    |   |                          |       |                        |   |   |   |
| TOTAL                ASSETS                                                                                                                                                                                                             |   | $                             | 21,358,014 |                        | $      | 19,060,473 |   |
|                                                                                                                                                                                                                                    |   |                          |       |                        |   |   |   |
| LIABILITIES                AND STOCKHOLDERS' EQUITY                                                                                                                                                                                     |   |                          |       |                        |   |   |   |
|                                                                                                                                                                                                                                    |   |                          |       |                        |   |   |   |
| CURRENT                LIABILITIES:                                                                                                                                                                                                     |   |                          |       |                        |   |   |   |
| Accounts                payable                                                                                                                                                                                                         |   | $                             | 3,440,550  |                        | $      | 3,033,559 |   |
| Accrued                liabilities:                                                                                                                                                                                                     |   |                          |            |                        |   |   |   |
| Compensation                and commissions                                                                                                                                                                                             |   |                          | 857,597    |                        |   | 900,636 |   |
| Product                warranties                                                                                                                                                                                                       |   |                          | 400,000    |                        |   | 452,000 |   |
| Obligations                under capital lease                                                                                                                                                                                          |   |                          | 66,796     |                        |   | 62,739 |   |
| Other                                                                                                                                                                                                                                   |   |                          | 182,075    |                        |   | 191,807 |   |
| Total                current liabilities                                                                                                                                                                                                |   |                          | 4,947,018  |                        |   | 4,640,741 |   |
|                                                                                                                                                                                                                                    |   |                          |       |                        |   |   |   |
| LONG-TERM                LIABILITIES:                                                                                                                                                                                                   |   |                          |       |                        |   |   |   |
| Obligations                under capital lease                                                                                                                                                                                          |   |                          | 151,415    |                        |   | 202,031 |   |
| Other                long-term obligations                                                                                                                                                                                              |   |                          | 2,635      |                        |   | 8,561 |   |
| Total                long-term liabilities                                                                                                                                                                                              |   |                          | 154,050    |                        |   | 210,592 |   |
|                                                                                                                                                                                                                                    |   |                          |       |                        |   |   |   |
| TOTAL                LIABILITIES                                                                                                                                                                                                        |   |                          | 5,101,068  |                        |   | 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, 12,382,461                  and11,925,086                  shares issued, and 12,274,054 and 11,812,493 shares outstanding,                  respectively |   |                          | 495,298    |                        |   | 477,003 |   |
| Additional                paid-in capital                                                                                                                                                                                               |   |                          | 26,060,052 |                        |   | 24,775,995 |   |
| Common                stock held in treasury at cost (108,407 and 112,593 shares,                respectively)                                                                                                                          |   |                          | (379,036   | )                           |   | (386,834 | ) |
| Retained                earnings (accumulated deficit)                                                                                                                                                                                  |   |                          | (9,912,574 | )                           |   | (10,648,912 | ) |
| Cumulative                translation adjustment                                                                                                                                                                                        |   |                          | (6,794     | )                           |   | (8,112 | ) |
| Total                stockholders' equity                                                                                                                                                                                               |   |                          | 16,256,946 |                        |   | 14,209,140 |   |
| TOTAL                LIABILITIES AND STOCKHOLDERS’ EQUITY                                                                                                                                                                         |   | $                             | 21,358,014 |                        | $      | 19,060,473 |   |

----

|                                                                                   |   | ** ****2006** |       | ** ****2005** |   |
|----------------------------------------------------------------------------------------|--------|--------------------|------------|--------------------|--------|
|                                                                                   |   |               |       |               |   |   |   |
| NET                SALES                                                               |   | $                  | 24,254,956 |               | $      | 18,760,733 |   |
|                                                                                   |   |               |       |               |   |   |   |
| COST                OF GOODS SOLD                                                      |   |               | 14,653,789 |               |   | 11,357,934 |   |
|                                                                                   |   |               |       |               |   |   |   |
| GROSS                PROFIT                                                            |   |               | 9,601,167  |               |   | 7,402,799 |   |
|                                                                                   |   |               |       |               |   |   |   |
| OPERATING                EXPENSES:                                                     |   |               |       |               |   |   |   |
| Sales                and marketing                                                     |   |               | 5,005,091  |               |   | 4,231,575 |   |
| Research,                development and engineering                                   |   |               | 1,913,355  |               |   | 1,899,752 |   |
| Administrative                                                                         |   |               | 2,450,762  |               |   | 2,140,193 |   |
| Total                                                                                  |   |               | 9,369,208  |               |   | 8,271,520 |   |
|                                                                                   |   |               |       |               |   |   |   |
| INCOME                (LOSS) FROM OPERATIONS                                           |   |               | 231,959    |               |   | (868,721 | ) |
|                                                                                   |   |               |       |               |   |   |   |
| OTHER                INCOME (EXPENSE):                                                 |   |               |       |               |   |   |   |
| Interest                expense                                                        |   |               | (15,360    | )                  |   | (23,091 | ) |
| Interest                income                                                         |   |               | 66,999     |               |   | 38,311 |   |
| Other                income                                                            |   |               | 452,740    |               |   | 59,987 |   |
| Total                                                                                  |   |               | 504,379    |               |   | 75,207 |   |
|                                                                                   |   |               |       |               |   |   |   |
| INCOME                (LOSS) BEFORE INCOME TAXES                                       |   |               | 736,338    |               |   | (793,514 | ) |
|                                                                                   |   |               |       |               |   |   |   |
| INCOME                TAX PROVISION                                                    |   |               | —    |               |   | — |   |
|                                                                                   |   |               |       |               |   |   |   |
| NET                INCOME (LOSS)                                                       |   | $                  | 736,338    |               | $      | (793,514 | ) |
|                                                                                   |   |               |       |               |   |   |   |
| NET                INCOME (LOSS) PER COMMON SHARE:                                     |   |               |       |               |   |   |   |
| Basic                                                                                  |   | $                  | 0.06       |               | $      | (0.07 | ) |
| Diluted                                                                                |   | $                  | 0.06       |               | $      | (0.07 | ) |
|                                                                                   |   |               |       |               |   |   |   |
| WEIGHTED                  AVERAGE NUMBER OF COMMONSHARES                  OUTSTANDING: |   |               |       |               |   |   |   |
| Basic                                                                                  |   |               | 11,997,319 |               |   | 11,469,066 |   |
| Diluted                                                                                |   |               | 12,215,149 |               |   | 11,469,066 |   |

----

|                                                                                   |   | ** ****2006** |       | ** ****2005** |   |
|----------------------------------------------------------------------------------------|--------|--------------------|------------|--------------------|--------|
|                                                                                   |   |               |       |               |   |   |   |
| NET                SALES                                                               |   | $                  | 7,811,830  |               | $      | 6,054,370 |   |
|                                                                                   |   |               |       |               |   |   |   |
| COST                OF GOODS SOLD                                                      |   |               | 4,722,411  |               |   | 3,624,399 |   |
|                                                                                   |   |               |       |               |   |   |   |
| GROSS                PROFIT                                                            |   |               | 3,089,419  |               |   | 2,429,971 |   |
|                                                                                   |   |               |       |               |   |   |   |
| OPERATING                EXPENSES:                                                     |   |               |       |               |   |   |   |
| Sales                and marketing                                                     |   |               | 1,712,397  |               |   | 1,358,781 |   |
| Research,                development and engineering                                   |   |               | 613,688    |               |   | 724,817 |   |
| Administrative                                                                         |   |               | 836,863    |               |   | 649,823 |   |
| Total                                                                                  |   |               | 3,162,948  |               |   | 2,733,421 |   |
|                                                                                   |   |               |       |               |   |   |   |
| LOSS                FROM OPERATIONS                                                    |   |               | (73,529    | )                  |   | (303,450 | ) |
|                                                                                   |   |               |       |               |   |   |   |
| OTHER                INCOME (EXPENSE):                                                 |   |               |       |               |   |   |   |
| Interest                expense                                                        |   |               | (4,794     | )                  |   | (6,064 | ) |
| Interest                income                                                         |   |               | 25,024     |               |   | 18,238 |   |
| Other                income                                                            |   |               | 45,323     |               |   | 46,405 |   |
| Total                                                                                  |   |               | 65,553     |               |   | 58,579 |   |
|                                                                                   |   |               |       |               |   |   |   |
| LOSS                BEFORE INCOME TAXES                                                |   |               | (7,976     | )                  |   | (244,871 | ) |
|                                                                                   |   |               |       |               |   |   |   |
| INCOME                TAX PROVISION                                                    |   |               | —    |               |   | — |   |
|                                                                                   |   |               |       |               |   |   |   |
| NET                LOSS                                                                |   | $                  | (7,976     | )                  | $      | (244,871 | ) |
|                                                                                   |   |               |       |               |   |   |   |
| NET                LOSS PER COMMON SHARE:                                              |   |               |       |               |   |   |   |
| Basic                                                                                  |   | $                  | 0.00       |               | $      | (0.02 | ) |
| Diluted                                                                                |   | $                  | 0.00       |               | $      | (0.02 | ) |
|                                                                                   |   |               |       |               |   |   |   |
| WEIGHTED                  AVERAGE NUMBER OF COMMONSHARES                  OUTSTANDING: |   |               |       |               |   |   |   |
| Basic                                                                                  |   |               | 12,122,819 |               |   | 11,501,085 |   |
| Diluted                                                                                |   |               | 12,122,819 |               |   | 11,501,085 |   |

----

|                                                                                                                  |   | **2006** |       | **2005** |   |
|-----------------------------------------------------------------------------------------------------------------------|--------|----------|------------|----------|--------|
| OPERATING                ACTIVITIES:                                                                                  |   |     |       |     |   |   |   |
| Net                income (loss)                                                                                      |   | $        | 736,338    |     | $      | (793,514 | ) |
| Adjustments                  to reconcile net income (loss) to net cash used inoperating                  activities: |   |     |       |     |   |   |   |
| Depreciation                                                                                                          |   |     | 488,231    |     |   | 448,691 |   |
| Amortization                                                                                                          |   |     | 5,251      |     |   | 5,252 |   |
| Provision                for doubtful accounts                                                                        |   |     | —    |     |   | 40,000 |   |
| Provision                for obsolete inventory                                                                       |   |     | (93,300    | )        |   | 340,000 |   |
| Changes                in assets and liabilities:                                                                     |   |     |       |     |   |   |   |
| Accounts                receivable                                                                                    |   |     | (335,432   | )        |   | 104,184 |   |
| Other                receivables                                                                                      |   |     | 40,791     |     |   | (86,427 | ) |
| Inventories                                                                                                           |   |     | (2,340,217 | )        |   | 683,561 |   |
| Prepaid                expenses                                                                                       |   |     | 37,966     |     |   | 173,462 |   |
| Accounts                payable                                                                                       |   |     | 406,991    |     |   | (393,084 | ) |
| Accrued                liabilities                                                                                    |   |     | (110,697   | )        |   | (702,326 | ) |
| Net                cash used in operating activities                                                                  |   |     | (1,164,078 | )        |   | (180,201 | ) |
|                                                                                                                  |   |     |       |     |   |   |   |
| INVESTING                ACTIVITIES:                                                                                  |   |     |       |     |   |   |   |
| Purchases                of property, plant and equipment, net                                                        |   |     | (535,236   | )        |   | (79,078 | ) |
| Net                cash used in investing activities                                                                  |   |     | (535,236   | )        |   | (79,078 | ) |
|                                                                                                                  |   |     |       |     |   |   |   |
| FINANCING                ACTIVITIES:                                                                                  |   |     |       |     |   |   |   |
| Retirement                of obligations under capital lease                                                          |   |     | (46,559    | )        |   | (42,828 | ) |
| Proceeds                from issuance of common stock                                                                 |   |     | 1,310,150  |     |   | 294,699 |   |
| Net                cash provided by financing activities                                                              |   |     | 1,263,591  |     |   | 251,871 |   |
|                                                                                                                  |   |     |       |     |   |   |   |
| EFFECT                OF EXCHANGE RATE CHANGES ON CASH                                                                |   |     | 1,318      |     |   | — |   |
|                                                                                                                  |   |     |       |     |   |   |   |
| NET                DECREASE IN CASH AND CASH EQUIVALENTS                                                              |   |     | (434,405   | )        |   | (7,408 | ) |
| CASH                AND CASH EQUIVALENTS, BEGINNING OF PERIOD                                                         |   |     | 3,680,965  |     |   | 3,738,825 |   |
| CASH                AND CASH EQUIVALENTS, END OF PERIOD                                                               |   | $        | 3,246,560  |     | $      | 3,731,417 |   |
|                                                                                                                  |   |     |       |     |   |   |   |
| SUPPLEMENTAL                CASH FLOW INFORMATION:                                                                    |   |     |       |     |   |   |   |
| Cash                paid for:                                                                                         |   |     |       |     |   |   |   |
| Income                taxes paid-net                                                                                  |   | $        | 4,385      |     | $      | 3,444 |   |
| Interest                                                                                                              |   | $        | 15,360     |     | $      | 23,091 |   |

----

**1.       Basis of Presentation**

**2.       Inventory Valuation**

|                                          |   | March                31, 2006 |      | June                30, 2005 |   |
|-----------------------------------------------|--------|-------------------------------|-----------|------------------------------|--------|
| Component                parts                |   | $                             | 2,796,752 |                         | $      | 3,573,396 |   |
| Work                in process                |   |                          | 1,092,061 |                         |   | 1,085,172 |   |
| Finished                units                 |   |                          | 4,102,294 |                         |   | 1,330,825 |   |
| Total                inventories              |   |                          | 7,991,107 |                         |   | 5,989,393 |   |
| Less:                reserve for obsolescence |   |                          | 345,000   |                         |   | 438,300 |   |
| Net                inventory                  |   | $                             | 7,646,107 |                         | $      | 5,551,093 |   |

**3.       Property, Plant and Equipment**

|                                                |   | March                31, 2006 |       | June                30, 2005 |   |
|-----------------------------------------------------|--------|-------------------------------|------------|------------------------------|--------|
| Machinery                and equipment              |   | $                             | 3,072,258  |                         | $      | 2,800,269 |   |
| Furniture                and fixtures               |   |                          | 952,032    |                         |   | 947,726 |   |
| Leasehold                improvements               |   |                          | 243,604    |                         |   | 220,407 |   |
| Production                tooling                   |   |                          | 2,245,553  |                         |   | 2,009,809 |   |
| Demonstration                and loaner monitors    |   |                          | 1,862,963  |                         |   | 1,352,267 |   |
| Property,                plant and equipment - cost |   |                          | 8,376,410  |                         |   | 7,330,478 |   |
| Less:                accumulated depreciation       |   |                          | (5,980,485 | )                            |   | (5,320,061 | ) |
| Property,                plant and equipment - net  |        | $                             | 2,395,925  |                              | $      | 2,010,417 |   |

----

**4.       Stock Options**

|                                                                                                                                                       |   | Three                Months EndedMarch                31 |    | Nine                Months EndedMarch                31 |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------------|---------|---------------------------------------------------------|--------|
|                                                                                                                                                       |   | 2006                                                     |    | 2005                                                    |   | 2006 |   | 2005 |   |
|                                                                                                                                                       |   |                                                     |    |                                                    |   |   |   |   |   |   |   |   |   |
| Net                income (loss) - as reported                                                                                                             |   | $                                                        | (7,976  | )                                                       | $      | (244,871 | ) | $ | 736,338 |   | $ | (793,514 | ) |
| Add:                Stock-based employee compensationexpense                included in reported net income                                                |   |                                                     | 48,054  |                                                    |   | -- |   |   | 129,194 |   |   | -- |   |
| Deduct:                Total stock-based employee compensationexpense                determined under fair value basedmethod                for all awards |   |                                                     | (48,054 | )                                                       |   | (112,118 | ) |   | (129,194 | ) |   | (336,353 | ) |
| Net                income (loss) - pro forma                                                                                                               |   | $                                                        | (7,976  | )                                                       | $      | (356,989 | ) | $ | 736,338 |   | $ | (1,129,867 | ) |
|                                                                                                                                                       |   |                                                     |    |                                                    |   |   |   |   |   |   |   |   |   |
| Basic                net income (loss) per share - as reported                                                                                             |   | $                                                        | 0.00    |                                                    | $      | (0.02 | ) | $ | 0.06 |   | $ | (0.07 | ) |
| Diluted                net income (loss) per share - as reported                                                                                           |   | $                                                        | 0.00    |                                                    | $      | (0.02 | ) | $ | 0.06 |   | $ | (0.07 | ) |
|                                                                                                                                                       |   |                                                     |    |                                                    |   |   |   |   |   |   |   |   |   |
| Basic                net income (loss) per share - pro forma                                                                                               |   | $                                                        | 0.00    |                                                    | $      | (0.03 | ) | $ | 0.06 |   | $ | (0.10 | ) |
| Diluted                net income (loss) per share - pro forma                                                                                             |   | $                                                        | 0.00    |                                                    | $      | (0.03 | ) | $ | 0.06 |   | $ | (0.10 | ) |

----

**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**

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**Quantitative      and Qualitative Disclosures about Market Risk**

**Controls      and Procedures**

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