<PAGE>   1




                                   EXHIBIT 13










                                       28



<PAGE>   2
MISSION STATEMENT


                                  [CSI LOGO]


                Founded in 1984, Criticare Systems, Inc. (CSI) is

             dedicated to addressing the needs of a rapidly changing

                 health care system by designing, manufacturing,

                 and marketing cost-effective patient monitoring

               systems and noninvasive sensors--using proprietary

                  technology--that reduce health care costs and

                          improve patient management.

FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
                                                        Years Ended June 30,
                                 --------------------------------------------------------------------
                                    1997            1996           1995           1994         1993
                                 --------------------------------------------------------------------
<S>                              <C>            <C>            <C>           <C>          <C> 
Net Sales                        $26,235,355    $31,528,266    $28,660,275   $30,114,679  $29,195,578
Income (Loss) Before Income
   Taxes and Extraordinary Gain   (2,749,435)    (4,280,989)       175,643       114,141      167,753
Net Income (Loss)                 (2,179,489)    (4,330,989)       105,643        64,141      114,753
Net Income (Loss) Per
   Common Share                        (0.30)         (0.63)          0.02          0.01         0.02

Average Shares
   Outstanding                     7,267,184      6,913,557      6,764,236     6,719,979    6,798,155
Stockholders' Equity              14,227,135     13,917,549     17,130,449    17,022,753   16,958,709

Convertible Debentures             1,836,323

Other Long-term Obligations        3,274,611      4,669,975      3,646,867     3,835,751    4,021,226
Working Capital                   12,053,165     10,282,033     13,401,741    13,258,880   12,725,583
Total Assets                      25,145,066     27,075,922     25,468,428    25,171,231   24,418,857

</TABLE>


                                      2
<PAGE>   3
LETTER TO STOCKHOLDERS



Dear Fellow Stockholders:

During this past fiscal year, your Company made significant  technical progress.
In January, we received clearance from the Food and Drug Administration (FDA) to
market our new  telemetry  system and filed for a number of patents to cover the
innovative  technologies  used in this remarkable  system.  The telemetry system
consists of three individual elements: the patient-borne monitor (MPT(TM)),  the
central  station   (VitalView(TM))  which  collects  and  displays  all  of  the
information and a total  disclosure  system  (MicroView(TM))  which analyzes the
cardiovascular status of a patient over a 72-hour period.

With FDA clearance,  your Company was able to start  promoting the MPT System
in  the  third  quarter  to  institutions  beyond  our beta  sites.  We are
proud to announce  that the  Company  has  already  sold  systems to several 
prestigious teaching  institutions  in the United  States and abroad.  In
addition,  several community-based  hospitals,  which are the backbone of the
American  health care system,  have also  acquired MPT Systems.  Many of these 
institutions  have been impressed with the system's capability and flexibility
as well as its ability to help reduce costs and improve patient care.

Criticare  is the first  company  in the  world to  introduce  a  patient-borne,
multi-parameter  monitoring  device  that  uses  state-of-the-art  telemetry  to
transmit its signal to a central  station.  We are especially  proud of the fact
that our  system  easily  and  economically  addresses  the four key  parameters
required of health care  professionals  to assess a patient's status (ECG, heart
rate, blood pressure and oxygen  saturation).  Our major competitors,  companies
with far  greater  resources,  are still  trying to  accomplish  the same.  This
achievement,  like many in the  health  care  industry,  is an  example  of true
innovation  coming  from a smaller  company  that can turn  concepts  into real,
marketable products more quickly and efficiently than its larger competitors. We
believe that multiple parameter telemetry will soon become the accepted standard
throughout the health care delivery system.

As we communicated  earlier, your Company made a strategic investment in Immtech
International,  Inc., a  Chicago-based  company  devoted to developing new drugs
that will improve "disease state management" in cancer and AIDS patients. During
the last year,  Immtech made major advances in the research of cancer treatment.
Pre-clinical  tests  have shown that the  growth of  prostatic  tumor  cells was
slowed and the  shedding of the PSA tumor  antigen is markedly  reduced with the
help of Immtech's  proprietary  compound rmCRP.  Further  research has indicated
that the  injection  of this  compound can slow the spread of cancer in advanced
stages,  such as metastasis.  Immtech's  researchers were also able to achieve a
major commercial breakthrough by lowering the production costs of rmCRP. Most of
Immtech's  technology is covered by patents;  and during this past year, a vital
patent covering the Company's proprietary compound was issued.  Although Immtech
will likely need significant  additional capital to continue as a going concern,
we believe that the advances  made by Immtech  during the last year  continue to
strengthen its viability.

With  today's  emphasis on managed  care,  Criticare  has  positioned  itself to
address its key  issues:  how to improve  clinical  outcomes,  reduce  costs and
better manage patients by managing their disease states.

While this past year's sales and earnings were disappointing, we believe we
have properly positioned the Company to increase sales, improve profit margins  
and ultimately enhance stockholder value.  In addition, we  intend to focus our
activities on reducing  inventory  levels and  increasing  our accounts 
receivable collection activities. Your management is looking at the future 
with  great confidence and is convinced that the decisions we have made
will  allow the Company to take advantage of opportunities that will
continue to surface as a result of the changing health care environment.

On behalf of the management  and the Board of Directors,  we would like to thank
our devoted associates,  our loyal customers, our quality-conscious  vendors and
our dedicated stockholders for their continued support.

Sincerely,



/s/ Gerhard J. Von der Ruhr
Gerhard J. Von der Ruhr                          N.C. Joseph Lai, Ph.D.
President and Chief Executive Officer            Senior Vice President

                                      3
<PAGE>   4


        INNOVATIVE AND CORE PRODUCTS SET STAGE FOR STABILITY AND GROWTH

Regardless   of   the   clinical   environment,   Criticare   offers   reliable,
cost-effective  monitors that facilitate  patient management and greatly improve
quality of care.  Since its inception,  Criticare pulse oximetry and capnography
systems  have  had a  strong  presence  wherever  patients  were  under  general
anesthesia or conscious sedation  (operating room,  surgicenter,  endoscopy lab,
cardiac cath lab, oral and  maxillofacial  surgery,  plastic and  reconstructive
surgery, etc.).

Now, with multiple parameter telemetry capability, Criticare has the opportunity
to expand its presence  throughout  the  hospital and other  patient care areas.
Because the MPT(TM) System employs  technologies unique to Criticare,  we have a
strong competitive  advantage over larger companies with greater market presence
in these broader  segments of the healthcare  market.  Further,  we believe that
establishing  Criticare as an innovator in monitor`ing  technology  will bolster
our  reputation  in  our   traditional   market   segments--anesthesiology   and
post-anesthesia  care as well as alternate care  (non-hospital)  areas. Thus, we
anticipate  that  sales of what have been our core  products  (pulse  oximeters,
capnographs and vital signs monitors) will benefit from this innovation.

Innovative Products Position Company for Growth

The MPT  System is the first  system in the  world  capable  of  comprehensively
monitoring   an   ambulatory    patient   for   multiple   vital   signs:    ECG
(electrocardiogram),  NIBP  (non-invasive  blood  pressure),  HR (heart  rate or
pulse)  and SpO2  (oxygen  saturation).  Knowledge  of  these  vital  signs  (in
real-time  and trend form) is essential in assessing  patient  condition  and in
determining  when it is safe to move a patient from a very  expensive  care area
(i.e.,  the ICU) to a less expensive care area (step-down ICU or general medical
unit) and eventually to patient discharge.

". . .  Multiparameter  telemetry and ECG  telemedicine  are the segments of the
market that will drive expansion in the overall market."


". . . The recent emphasis by managed care organizations on cost  containment
has translated  into a tendency to move patients  expeditiously  from high- cost
critical care units to step-down care facilities  where patients need continuous
vital  signs  monitoring  but do not  need  individuated  nursing  care.  This
represents a boom in demand for telemetry  systems,  especially the cutting edge
multi-parameter  systems  that are  capable  of  monitoring  non-invasive  blood
pressure and pulse oximetry in addition to ECG. . ."

          Telemetry Monitoring Report, MarketLine International, pg. 1

[ARTWORK]

The  addition  of  blood  pressure  and  oxygen   saturation   capabilities   in
patient-borne  telemetry  systems has  provided an  application  for  continuous
surveillance  of  subacute  respiratory  and  surgical  patients.  Many  of  the
hospitals  that are  presently  using the MPT System have  reported  substantial
improvements  in their  delivery  of patient  care along with  significant  cost
savings.


                                      4
<PAGE>   5
   INNOVATIVE AND CORE PRODUCTS SET STAGE FOR STABILITY AND GROWTH

"Criticare has been directly responsible for a dramatic reduction in cost at the
University of Maryland."

Tessa Abate, Senior Capital Equipment Buyer
University of Maryland Hospital
Baltimore, Maryland

". . . It really has been great to have the  technology  that allows a community
hospital of our size to have clinical data available  where you need it most--at
the bedside. . . Since we've gone with the MPT System  house-wide,  we went back
to a regular medical/  surgical room rate and only charge patients for their use
of telemetry . . ."

Roberta Horcher, RN, Director              
of Cardiology Services
Holy Family Medical Center
Des Plaines, Illinois

[ARTWORK]

In addition to the accurate monitoring of multiple parameters (ECG, NIBP, HR and
SpO2), another unique aspect of the MPT System is its transceiver technology and
the radio frequency it employs. Only the MPT telemetry system permits signals to
travel in both  directions  (data from the  patient to the  central  station and
commands from the central  station to the  patient).  Such  information  flow is
essential to maximize department efficiency and clinical efficacy.


     "MPT (ECG, HR, BP, SpO2) is vastly  superior to ECG only telemetry and has
the  potential to eliminate  routine  vital signs  gathering,  allowing the care
giver to spend more time with the critical patient."

Stephen Cohn, M.D. Chief of Trauma Surgery 
Ryder Trauma Center
Miami, Florida

According to Medical Strategic Planning, Inc.'s recent Emerging Hospital 
Monitoring Markets  report,  the MPT System from  Criticare is the only 
technology  in the field of ambulatory care rated "outstanding."

Another  unique  feature  of the  MPT  System  is the  Total  Disclosure  option
(MicroView(TM)).  With this,  clinicians can collect and analyze a full 72 hours
of patient data (this is the average  length of stay in an ICU or step-down ICU)
which can then be easily transferred into the hospital's information system. The
availability of such data is essential for proper analysis of clinical outcomes,
cost  justification  and  proper  patient  management.   By  having  a  flexible
multi-parameter  telemetry  system,  virtually  any bed in the  hospital  can be
turned into a monitored  bed.  Whether in the  emergency  room or on the general
medical  floor,  with Total  Disclosure a hospital is better  protected  against
potential misdiagnosis of acute MIs (heart attacks).  Historically, up to 13% of
acute MI patients are not  recognized by the emergency room  physician.  Rather,
they are sent home where the  mortality  rate can be as high as 25%.  Collecting
the most critical vital signs over a substantial period of time also enables the
hospital to perform outcome  research--the first step in assessing true costs by
type of patient and procedure.

An industry study  recently  concluded that  "multiparameter  telemetry  systems
definitely  represent the future of telemetry  monitoring and may well represent
the future of the overall  patient  monitoring  market." With its MPT System and
related  VitalView  Central  Station  and  MicroView  Total  Disclosure  System,
Criticare has positioned  itself to be a strong partner for any hospital that is
serious about analyzing its performance.

[ARTWORK]

                                      5
<PAGE>   6


CORE PRODUCTS ADDRESS EVERYDAY NEEDS OF HEALTH CARE PROVIDERS

MODEL 506DX

The Company's new Model 506DX improves patient care while enhancing productivity
by combining  three commonly used functions  (blood  pressure,  temperature  and
SpO2) in one portable, cost-effective monitor.

While competitive blood pressure monitors overinflate the cuff, then slowly step
down the pressure to take a reading,  Criticare's  proprietary  ComfortCuff (TM)
technology permits the reading to be taken on inflation, causing less discomfort
or even  trauma to the  patient.  Criticare's  unique  DOX(TM)  oximetry  offers
enhanced  performance on patients where  previously it was difficult to obtain a
reading.

        [ARTWORK]

Also  incorporated  in the  product  is  IVAC(R)  temperature  technology  which
provides temperature readings in seconds.  During fiscal 1997, Criticare entered
into a marketing  agreement  with Alaris  (formerly Imed and IVAC) to distribute
this  product  to  hospitals  in the U.S.  and  Canada.  The 506DX has been well
received  because it permits  hospital  staff to take the necessary  readings in
less time and with greater accuracy.

SCHOLAR I AND SCHOLAR II VITAL SIGN MONITORS

Criticare's  product  family of Scholar  monitors  are  addressing  the needs of
certain surgical environments as well as recovery rooms and step-down ICU areas.
Their  portability and broad range of parameter options make them ideal products
for a  variety  of  applications  in  hospitals  and  non-hospital  healthcare
settings.

        [ARTWORK]

POET(TM) GAS MONITORS

Criticare's  proprietary  gas  technology  is  still  the gold  standard  in the
industry.  Our POET IQ is the only bedside  system that can identify any of five
different  anesthetic  agents in a mixture.  In  addition  to our direct  sales,
Criticare  has  begun  to  aggressively  cultivate  the OEM  potential  for this
technology.  We  believe  there  will be a  continued  demand  for this  kind of
monitoring worldwide.

        [ARTWORK]

UPDATE ON IMMTECH INTERNATIONAL, INC.

Your Company's investment in Immtech has enabled several major accomplishments
this year, including:

- rmCRP has demonstrated the ability to reduce growth of prostatic tumor cells.

- Research has revealed that patients  with  advanced  cancers (i.e.  metastatic
  disease) lack the normal form of rmCRP. We believe that restoring a normal 
  level of rmCRP by injection could be helpful in limiting the spread of the 
  disease.

- Significant reduction in the cost to produce mCRP.

- A vital patent  covering  rmCRP has been granted  which will play a pivotal
  role in protecting Immtech's unique technology.

                                      6

<PAGE>   7
Results of Operations

The following table sets forth,  for the periods  indicated,  certain items from
the Company's Consolidated  Statements of Operations expressed as percentages of
net sales.

<TABLE>
<CAPTION>
                                                        Percentage of Net Sales
                                                           Years Ended June 30,
--------------------------------------------------------------------------------
                                                  1997      1996      1995
--------------------------------------------------------------------------------
<S>                                              <C>       <C>       <C> 
Net sales                                        100.0%    100.0%    100.0%
Cost of goods sold                                53.6      52.5      50.3
--------------------------------------------------------------------------------
Gross profit                                      46.4      47.5      49.7
--------------------------------------------------------------------------------
Operating expenses:
Marketing                                         33.4      37.1      34.9
Research, development and engineering              8.8       8.1       6.7
Administrative                                     9.6       6.0       6.3
--------------------------------------------------------------------------------
Total                                             51.8      51.2      47.9
--------------------------------------------------------------------------------
Income (loss) from operations                     (5.4)     (3.7)      1.8
Interest expense                                  (4.0)     (1.4)     (1.3)
Interest income                                     .1        .1        .6
Equity in loss of investments                     (1.2)     (8.6)      (.5)
--------------------------------------------------------------------------------
Income (loss) before income taxes and
    extraordinary gain                           (10.5)    (13.6)       .6
--------------------------------------------------------------------------------
Income tax provision                                          .2
Extraordinary gain on extinguishment of debt       2.2
--------------------------------------------------------------------------------
Net income (loss)                                 (8.3)%   (13.7)%      .4%
--------------------------------------------------------------------------------
</TABLE>

Fiscal Year Ended June 30, 1997 Compared to June 30, 1996

Net sales for the twelve months ended June 30, 1997 decreased 17% to
$26,235,355 from $31,528,266 for the twelve months ended June 30, 1996. 
Domestic hospital sales decreased 40%, due to lower unit sales in all products
and continued competitive pricing conditions. In addition, marketing and sales
efforts in this division were concentrated on the market introduction of the
MPT(TM)/VitalView(TM) telemetry product. Alternate care sales decreased 12% and
international sales decreased 8%, due primarily to lower oximeter and gas
monitor sales due to a combination of competitive pricing and market demand
conditions in these two market areas.
        
The gross profit percentage decreased to 46.4% in fiscal 1997 from 47.5% in
fiscal 1996. This decrease was due primarily to increased manufacturing
expenses related to new product introductions, the effect of lower sales 
volume on fixed  manufacturing  expenses and continued  price  competition in
the oximetry product line affecting both the alternate care and international 
sales markets. Although  the  Company has  developed  and  released  lower cost
vital signs and telemetry  monitors  and  continues  to  develop  lower  cost 
oximeter  and gas products,  the effect of pricing  competition may continue to
negatively  affect gross profit margins.
        
Operating expenses of $13,591,892 for fiscal 1997 decreased 16% from
$16,155,513 for fiscal 1996. As a percentage of net sales,  operating  expenses
increased to 51.8% in fiscal 1997 from 51.2% in fiscal  1996.  Marketing 
expenses for fiscal 1997 decreased 25% to $8,761,731 from  $11,686,368 for
fiscal 1996 due primarily to  decreased  sales  commissions  related to the
lower  sales  volume and lower advertising and sales promotion expenses.
Research,  development and engineering expenses  for fiscal 1997  decreased 
10%, or $248,057  from fiscal 1996 expense levels due to  slightly  lower 
staffing  and project  expenses.  Administrative expenses  increased  32% or 
$609,073  when  compared  to fiscal  1996 due to an increased  provision  for 
doubtful  accounts  receivable  of $236,382 and costs associated with a
judgment against and the liquidation of Criticare   International GmbH
Marketing Services ("Criticare International") of $417,553  offset in part by
lower insurance costs.
        
Interest expense  increased during fiscal 1997 due to increased  short-term
line of credit borrowings and the interest and purchase discount  associated
with the $2,500,000  convertible  debentures issued during February 1997.
Interest income declined slightly due to lower cash balances invested during
fiscal 1997. Equity in loss of  investments  for fiscal 1997  included  cash 
advances of $24,000 to Immtech International, Inc. and a $300,000 charge
related to the write-off of an investment  in a sleep  apnea  company  compared 
to the fiscal  1996  charge of $2,716,163  related to cash advances to and the
purchase of 2,200,000  shares of Immtech International, Inc. preferred stock.
        
Extraordinary  gain on extinguishment of debt in the amount of $569,946
resulted from the exchange of 200,000 shares of newly issued restricted 
Criticare common stock in full payment of the $1,240,000 promissory note plus
accrued interest of approximately  $110,000  associated  with the fiscal  1996 
purchase  of Immtech International, Inc. preferred stock.
        
                                      7
<PAGE>   8
MANAGEMENT'S DISCUSSION AND ANALYSIS

Fiscal Year Ended June 30, 1996 Compared to June 30, 1995

Net sales for the twelve months ended June 30, 1996 increased 10% to $31,528,266
from  $28,660,275 for the twelve months ended June 30, 1995.  Domestic  hospital
sales increased 25% due primarily to the  introduction of new Scholar(TM)  Vital
Signs  monitors  and ECG  telemetry.  Alternate  care  and  foreign  sales  both
increased modestly,  1% and 3%,  respectively,  related to increased vital signs
monitor sales.

The gross  profit  percentage  decreased  to 47.5% in fiscal  1996 from 49.7% in
fiscal 1995. This decrease was due primarily to continued  price  competition in
the oximetry and gas product lines affecting both the alternate care and foreign
sales markets.

Operating  expenses of  $16,155,513  for fiscal 1996  represented an increase of
17.7% from $13,723,594 for fiscal 1995. As a percentage of net sales,  operating
expenses increased to 51.2% in fiscal 1996 from 47.9% in fiscal 1995.  Marketing
expenses for fiscal 1996  increased  17% to  $11,686,368  from  $10,014,656  for
fiscal  1995 due  primarily  to  increased  domestic  hospital  sales  staffing,
advertising and promotion.  Research,  development and engineering  expenses for
fiscal 1996  increased  35%, or $670,308 from fiscal 1995 expense  levels due to
increased  staffing and project costs related to vital signs,  digital oximetry,
and MPT(TM) (Multiple Parameter Telemetry) product  development.  Administrative
expenses  increased 5% or $89,899 when  compared to fiscal 1995 due to increased
legal and professional consulting expenses.

Interest expense  increased during fiscal 1996 due to increased  short-term line
of  credit   borrowing   and  the   $1,240,000   note  related  to  the  Immtech
International,  Inc. stock purchase.  Interest income declined due to lower cash
balances invested during fiscal 1996. Equity in loss of investments increased to
$2,716,163 during fiscal 1996 due to the purchase of 2,200,000 shares of Immtech
International,  Inc.  preferred stock and a note receivable of $50,000 at a cost
of $2,136,000 and cash advances to the company of $580,163.



Quarterly Results

The following table contains unaudited quarterly information, which includes
all adjustments, consisting only of normal recurring adjustments, that the
Company considers necessary for a fair presentation.  The Company recorded a
charge of $2,136,000 for the investment loss related to the additional
investment in Immtech International, Inc. in the quarter ended December 31,
1995 and charges of $418,000 for a judgement against and the  liquidation of
Criticare International and a $300,000 write-off of the Intercare
Technologies, Inc. investment in the quarter ended June 30, 1997. These items   
were unusual, nonrecurring adjustments. 
        
<TABLE>
<CAPTION>
                                                                Quarters Ended
-------------------------------------------------------------------------------------------------------------------------
                    Sept. 30,    Dec. 31,     March 31,    June 30,     Sept. 30,      Dec. 31,     March 31,    June 30,
                      1995         1995         1996         1996          1996         1996          1997        1997
-------------------------------------------------------------------------------------------------------------------------
                                                    (in thousands, except per share data)
<S>                 <C>          <C>          <C>         <C>            <C>           <C>          <C>          <C>
Net sales            $6,958       $8,736       $7,711       $8,123        $6,478       $6,581       $5,481       $7,695
Gross profit          3,312        4,360        3,715        3,609         3,124        3,061        2,444        3,547
Income (loss) from
  operations            182          287         (239)      (1,389)          230         (151)        (618)        (877)
Extraordinary gain
  on extinguishment 
  of debt                                                                                              570
Net income (loss)        64       (2,375)        (218)      (1,802)           51         (297)        (284)      (1,649)
Net income (loss)
   per common
   share                .01         (.35)        (.03)        (.26)          .01        (.04)         (.04)        (.23)
</TABLE>

                                      8
<PAGE>   9

The Company  typically  receives a  substantial  volume of its  quarterly  sales
orders at or near the end of each  quarter.  In  anticipation  of  meeting  this
expected demand, the Company usually builds a significant  inventory of finished
products  throughout each quarter. If the expected volume of sales orders is not
received  during the  quarter,  or is received  too late to allow the Company to
ship the products ordered during the quarter,  the Company's  quarterly  results
and stock of  finished  inventory  can be  significantly  affected.

Liquidity and Capital Resources

In fiscal 1997, the Company  generated  $1,491,171  from  operating  activities,
$2,500,000  from the  issuance  of  convertible  debentures,  $400,919  from the
exercise of stock options and $180,000 from the exercise of warrants. The 
Company used  $2,300,000 for the retirement of borrowings  under the bank line
of credit facility,  $220,657 for costs  associated  with the issuance of the 
convertible debentures,  $217,619 for  retirement  of long-term  debt, 
$175,600 for capital expenditures  and $24,000  for  advances to Immtech 
International,  Inc.  These sources and uses of cash resulted in a net positive
cash flow of $1,634,214  for the 1997 fiscal year.
        
The Company used  $1,767,603  of cash for  operating  activities in fiscal 1996,
$1,576,304 for capital expenditures and sales demonstration equipment,  $199,013
for   retirement  of  long-term  debt  and  $580,163  for  advances  to  Immtech
International, Inc.

The mortgage note requires annual debt service payments of  approximately
$420,000 with a final payment of approximately  $2,688,000 due in December
2003. The bank note requires debt service  payments of approximately  $56,000
through November 1997. The promissory note issued in connection with the
Immtech acquisition and accrued interest was satisfied in March 1997 in
exchange for 200,000 shares of newly issued restricted   Criticare common
stock.  The convertible debentures issued in February  1997  and  accrued 
interest  are convertible into Criticare common stock at a 25% discount from
the average closing bid price of the common stock for the previous  five (5)
trading days before the conversion date. 
        
The Company expects its continued programs to increase accounts  receivable
collections, decrease inventory levels, reduce product  development tooling
requirements, stabilize sales demonstration equipment  levels and  eliminate
advances to Immtech International, Inc. will have a positive affect on cash
flow activities in the next fiscal year.  Consequently, the Company believes
its research and development activities and other capital and liquidity
requirements for the next one to two years will be satisfied by cash generated
from operations and other borrowings. During 1997, the Company also had
access to a commercial bank line of credit of up to $2,000,000.  At June 30,
1997, there were no borrowings outstanding on the line of credit.  This line of 
credit  was terminated on September 16, 1997. The Company is investigating
various financing alternatives, including additional convertible debenture
financing alternatives, with other financial institutions in the event
additional funds are required to finance liquidity requirements.  There can be
no assurance, however, that other financing will be available on terms
acceptable to the Company.   
        
Forward-Looking Statements

A number of the matters and subject  areas  discussed in this Annual Report that
are not historical or current facts deal with potential future circumstances and
developments.  These include expected future financial results, liquidity needs,
financing  ability,  management's or the Company's  expectations and beliefs and
similar matters  discussed in Management's  Discussion and Analysis or elsewhere
in this Annual  Report.  The  discussions  of such matters and subject areas are
qualified by the inherent risk and uncertainties surrounding future expectations
generally,  and also may  materially  differ from the  Company's  actual  future
experience.

The Company's  business,  operations  and financial  performance  are subject to
certain risks and  uncertainties  which could result in material  differences in
actual results from  management's or the Company's current  expectations.  These
risks and  uncertainties  include,  but are not  limited  to,  general  economic
conditions, demand for the Company's products and costs of operations.


                                      9

<PAGE>   10


BALANCE SHEETS

CRITICARE SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1997 AND 1996
<TABLE>
<CAPTION>

ASSETS                                                                                         1997               1996
--------------------------------------------------------------------------------------------------------------------------
CURRENT ASSETS:
<S>                                                                                          <C>           <C>
Cash and cash equivalents (Notes 1 and 5)                                                    $ 2,440,859   $   806,645
 Accounts receivable, less allowance for doubtful accounts
    of $467,000 and $295,000, respectively                                                     7,182,237     9,870,158
 Other receivables                                                                               236,855       354,638
 Inventories (Notes 1 and 2)                                                                   7,730,591     7,550,858
 Prepaid expenses                                                                                269,620       188,132
--------------------------------------------------------------------------------------------------------------------------
 Total  current  assets                                                                       17,860,162    18,770,431
--------------------------------------------------------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT (Notes 1 and 5):
 Land                                                                                            925,000       925,000
 Building                                                                                      3,600,000     3,600,000
 Machinery and equipment                                                                       1,674,488     1,671,309
 Furniture and fixtures                                                                          617,451       882,682
 Demonstration and loaner monitors                                                             1,781,698     2,054,783
 Production tooling                                                                            2,137,986     2,049,632
-------------------------------------------------------------------------------------------------------------------------- 
 Property, plant and equipment - cost                                                         10,736,623    11,183,406
 Less accumulated depreciation                                                                 3,691,894     3,290,760
--------------------------------------------------------------------------------------------------------------------------
 Property,  plant  and  equipment - net                                                        7,044,729     7,892,646
--------------------------------------------------------------------------------------------------------------------------

INVESTMENTS (Notes 1, 3 and 5)                                                                                 300,000
--------------------------------------------------------------------------------------------------------------------------

OTHER ASSETS (Notes 1 and 5):
License rights and patents - net                                                                 124,882        92,467
Convertible debenture issuance costs - net                                                       115,293
Goodwill - net                                                                                                  20,378 
--------------------------------------------------------------------------------------------------------------------------
Total  other  assets                                                                             240,175       112,845
--------------------------------------------------------------------------------------------------------------------------
TOTAL                                                                                        $25,145,066   $27,075,922
==========================================================================================================================    
</TABLE>

See notes to consolidated financial statements.

                                      10

<PAGE>   11




<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY                                               1997               1996
-------------------------------------------------------------------------------------------------------------
<S>                                                                          <C>                <C>
CURRENT LIABILITIES:
Accounts payable                                                              $  3,112,112       $  3,609,188
 Accrued liabilities:
    Compensation and commissions                                                 1,000,552          1,040,441
    Product warranties (Note 1)                                                    370,000            300,000
    Other (Note 7)                                                               1,176,891          1,029,072
Current maturities of long-term debt (Note 5)                                      147,442            209,697
Borrowings under line of credit facility (Note 5)                                                   2,300,000
-------------------------------------------------------------------------------------------------------------
Total  current  liabilities                                                      5,806,997          8,488,398
-------------------------------------------------------------------------------------------------------------
LONG-TERM DEBT, less current maturities (Note 5)                                 3,274,611          4,669,975
-------------------------------------------------------------------------------------------------------------
CONVERTIBLE DEBENTURES (Note 6)                                                  1,836,323
-------------------------------------------------------------------------------------------------------------

CONTINGENCIES (Note 7)

STOCKHOLDERS' EQUITY (Notes 5, 6 and 8):
Preferred stock - $.04 par value, 500,000 shares authorized,
    no shares issued or outstanding
Common stock - $.04 par value, 10,000,000 shares authorized,
    7,796,465 and 7,128,272 shares issued and outstanding, respectively            311,859            285,131
Additional paid-in capital                                                      14,469,406         11,995,118
Retained earnings (accumulated deficit)                                           (516,023)         1,663,466
Cumulative translation adjustments                                                 (38,107)           (26,166)
-------------------------------------------------------------------------------------------------------------
Total  stockholders'  equity                                                    14,227,135         13,917,549
-------------------------------------------------------------------------------------------------------------
TOTAL                                                                         $ 25,145,066       $ 27,075,922
=============================================================================================================

</TABLE>
                                      11

<PAGE>   12

OPERATIONS

CRITICARE SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JUNE 30, 1997, 1996 AND 1995

<TABLE>
<CAPTION>

                                                                     1997            1996             1995
<S>                                                              <C>              <C>              <C>  
NET SALES (Note 10)                                               $26,235,355     $31,528,266      $28,660,275
COST OF GOODS SOLD                                                 14,059,508      16,531,970       14,419,179
---------------------------------------------------------------------------------------------------------------
GROSS PROFIT                                                       12,175,847      14,996,296       14,241,096
---------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES:
Marketing                                                           8,761,731      11,686,368       10,014,656            
Research, development and engineering                               2,320,655       2,568,712        1,898,404
Administrative                                                      2,509,506       1,900,433        1,810,534             
---------------------------------------------------------------------------------------------------------------
Total                                                              13,591,892      16,155,513       13,723,594
---------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS                                      (1,416,045)     (1,159,217)         517,502
---------------------------------------------------------------------------------------------------------------
OTHER INCOME (EXPENSE):
Interest expense                                                   (1,048,391)       (447,348)        (374,264)            
Interest income                                                        39,001          41,739          167,092             
Equity in loss of investments (Notes 1 and 3)                        (324,000)     (2,716,163)        (134,687)          
---------------------------------------------------------------------------------------------------------------
  Total                                                            (1,333,390)     (3,121,772)        (341,859)
---------------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE INCOME TAXES
    AND EXTRAORDINARY GAIN                                         (2,749,435)     (4,280,989)         175,643

INCOME TAX PROVISION (Notes 1 and 4)                                                   50,000           70,000
---------------------------------------------------------------------------------------------------------------

INCOME (LOSS) BEFORE EXTRAORDINARY GAIN                            (2,749,435)     (4,330,989)         105,643

EXTRAORDINARY GAIN ON EXTINGUISHMENT
    OF DEBT (Note 5)                                                  569,946

---------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS)                                                 $(2,179,489)    $(4,330,989)        $105,643
===============================================================================================================

NET INCOME (LOSS) PER COMMON
    SHARE (Note 1)
Before extraordinary gain                                              $(.38)           $(.63)          $.02
Extraordinary gain                                                       .08
---------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) PER COMMON SHARE                                     $(.30)           $(.63)          $.02
---------------------------------------------------------------------------------------------------------------


WEIGHTED AVERAGE NUMBER OF COMMON
    SHARES OUTSTANDING                                              7,267,184       6,913,557        6,709,485
===============================================================================================================
</TABLE>

See notes to consolidated financial statements.

                                      12

<PAGE>   13
                                                            STOCKHOLDERS' EQUITY

CRITICARE SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 30, 1997, 1996 AND 1995


<TABLE>
<CAPTION>
                                                                 Additional  Retained Earnings   Cumulative        Total
                                        Common Stock             Paid-In        (Accumulated    Translation     Stockholders'
                                    Shares          Amount        Capital          Deficit)      Adjustments       Equity
------------------------------------------------------------------------------------------------------------------------------
<S>                              <C>               <C>          <C>               <C>            <C>            <C>
Balance, July 1, 1994             6,697,218        $267,889     $10,884,910       $5,888,812     $(18,858)      $17,022,753

Foreign currency translation
   adjustments                                                                                      2,053             2,053
Net income                                                                           105,643                        105,643

------------------------------------------------------------------------------------------------------------------------------
Balance, June 30, 1995            6,697,218         267,889      10,884,910        5,994,455      (16,805)       17,130,449

Common stock issued in connection
   with an acquisition              333,154          13,326         882,674                                         896,000
Exercise of options and warrants     97,900           3,916         227,534                                         231,450
Foreign currency translation
   adjustments                                                                                     (9,361)           (9,361)
Net loss                                                                          (4,330,989)                    (4,330,989)
------------------------------------------------------------------------------------------------------------------------------

Balance, June 30, 1996            7,128,272         285,131      11,995,118        1,663,466      (26,166)       13,917,549

Common stock issued in connection
   with extinguishment of debt      200,000           8,000         772,000                                         780,000
Exercise of options and warrants    252,020          10,081         570,838                                         580,919
Convertible debentures converted
   to common stock, net of $61,872
   of unamortized issuance costs    216,173           8,647       1,047,075                                       1,055,722
Issuance of warrants for services                                    84,375                                          84,375

Foreign currency translation
   adjustments                                                                                    (11,941)          (11,941)


Net loss                                                                          (2,179,489)                    (2,179,489)
------------------------------------------------------------------------------------------------------------------------------

Balance, June 30, 1997            7,796,465        $311,859     $14,469,406      $  (516,023)   $ (38,107)      $14,227,135
==============================================================================================================================

</TABLE>
See notes to consolidated financial statements.

                                      13

<PAGE>   14

CASH FLOWS

CRITICARE SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1997, 1996 AND 1995

<TABLE>
<CAPTION>


                                                                       1997            1996              1995
OPERATING ACTIVITIES:
<S>                                                               <C>                <C>                <C>
Net income (loss)                                                 $(2,179,489)       $ (4,330,989)      $   105,643
Adjustments to reconcile net income (loss) to net cash
  provided by (used in) operating activities:
       Depreciation                                                   709,618             601,682           528,260
       Amortization                                                    74,749              44,706           101,321
       Interest and discount accrued on convertible debentures        451,438
       Provision for doubtful accounts                                366,505             130,123            36,878
       Expense related to equity in loss of investments               324,000           2,716,163           134,687
       Expense related to issuance of warrants for services            84,375
       Extraordinary gain on extinguishment of debt                  (569,946)
       Changes in assets and liabilities:
            Accounts receivable                                     2,321,416          (1,391,941)          699,075
            Other receivables                                         117,783             (75,180)          (41,982)
            Inventories                                                93,351            (911,053)       (2,268,256)
            Prepaid expenses                                          (81,488)            (21,160)           (3,996)
            Accounts payable                                         (509,017)            938,269           794,920
            Accrued liabilities                                       287,876             531,777          (420,825)
---------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities                 1,491,171          (1,767,603)         (334,275)
---------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Purchases of property, plant and equipment, net                      (134,785)         (1,576,304)         (537,275)
Purchase of license rights                                            (40,815)
Advances to Immtech International, Inc.                               (24,000)           (580,163)
---------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities                                (199,600)         (2,156,467)         (537,275)
---------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Borrowings (payments) under line of credit facility                (2,300,000)          2,300,000
Proceeds from the issuance of convertible debentures                2,500,000
Principal payments on long-term debt                                 (217,619)           (199,013)         (182,541)
Convertible debenture issuance costs                                 (220,657)
Proceeds from issuance of common stock                                580,919             231,450
---------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities                   342,643           2,332,437          (182,541)
---------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                1,634,214          (1,591,633)       (1,054,091)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                          806,645           2,398,278         3,452,369
---------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF YEAR                            $ 2,440,859        $    806,645       $ 2,398,278
=====================================================================================================================
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for:
   Income taxes (refunded) paid--net                              $   (87,626)       $    133,783       $   103,920
   Interest                                                           456,880             414,784           375,343
Noncash investing and financing activities:
   Common stock issued in connection with  extinguishment of 
   debt                                                               780,000 
   Common stock issued upon conversion of 
   convertible debentures, net of $61,872 of unamortized 
   issuance costs                                                   1,055,722
   Issuance of warrants for services                                   84,375
   The Company purchased Series A and B preferred stock of 
       Immtech International, Inc. and a note receivable in 
       exchange for 
       common stock and a note payable.  The amounts were 
       as follows:
        Common stock                                                                      896,000
        Note payable                                                                    1,240,000
=====================================================================================================================
</TABLE>

See notes to consolidated financial statements.

                                      14

<PAGE>   15
                                                   NOTES TO FINANCIAL STATEMENTS

CRITICARE SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1997, 1996  AND 1995

1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     Principles of Consolidation -- The consolidated financial statements
     include the accounts of Criticare Systems, Inc. (the "Company") and its
     wholly owned subsidiaries:  Criticare International GmbH Marketing
     Services ("Criticare International"), CSI Trading, Inc. ("CSI Trading"),
     Criticare Biomedical, Inc. ("Criticare Biomedical"), Sleep Care, Inc.
     ("Sleep Care"), Criticare (FSC), Inc. and CSI International Corp. (DISC). 
     Criticare International is in the process of being liquidated.  CSI
     Trading was incorporated in November 1996 to assist with European marketing
     activities.  All significant intercompany accounts and transactions have
     been eliminated.

     Cash  Equivalents -- The Company  considers all investments  with purchased
     maturities of less than three months to be cash equivalents.

     Inventories -- Inventories are stated at the lower of cost or market,  with
     cost determined on the first-in, first-out method.

     Investments -- The Company accounts for its investment in Intercare
     Technologies, Inc. ("Intercare") on the cost method and accounts for its
     investment in Immtech International, Inc. ("Immtech") and Blatz House
     Offices Limited Partnership (the "Blatz Partnership") on the equity method
     (see Note 3).

     Property,  Plant and Equipment -- Property, plant and equipment is recorded
     at  cost.  Each  member  of the  Company's  sales  force is  provided  with
     demonstration  monitors to assist them in their sales  efforts.  Also,  the
     Company  has  loaner  monitors  which  are used to  temporarily  replace  a
     customer's  unit when it is being  repaired or  upgraded.  Depreciation  is
     provided  over the  estimated  useful lives of the assets.  The building is
     being  depreciated  over 40  years,  and the  remaining  assets  are  being
     depreciated  over three to seven years,  using primarily the  straight-line
     method.

     License Rights and Patents -- License rights and patents are amortized
     over the estimated  useful lives of the related  agreements  using
     primarily the straight-line  method.  Approximately  $9,000, $42,000 
     and $73,000  of amortization was  charged  to  operations in 1997,  
     1996  and  1995, respectively.  Accumulated amortization approximated
     $71,000 and $62,000 at June 30, 1997 and 1996, respectively.

     Convertible  Debenture  Issuance  Costs -- Convertible  debenture  issuance
     costs are amortized over the two-year term of the debentures. Approximately
     $46,000 of  amortization  was charged to  operations  in 1997.  The prorata
     amount of  unamortized  debenture  issuance costs are charged to additional
     paid-in-capital   upon  conversion  of  the  debentures  to  common  stock.
     Unamortized  debenture issuance costs charged to additional paid-in capital
     amounted to $61,872 during 1997.

     Goodwill  --  Goodwill is the excess of the cost over the fair value of the
     net  assets  of an  acquired  subsidiary  and  is  being  amortized  on the
     straight-line method over approximately five years.  Approximately $20,000,
     $29,000 and $29,000 of amortization was charged to operations in 1997, 1996
     and 1995, respectively.  Accumulated amortization approximated $263,000 and
     $243,000 at June 30, 1997 and 1996, respectively.

     Revenue  Recognition  --  Revenues  and the  costs  of  products  sold  are
     recognized as the related products are shipped.

     Product  Warranties -- Estimated  costs for product  warranties are accrued
     for and charged to operations as the related products are shipped.

     Research and  Development  Expenses -- Research and  development  costs are
     charged to operations as incurred.  Such expenses approximated  $2,175,000,
     $2,400,000 and $1,800,000 in 1997, 1996 and 1995, respectively.

     Income  Taxes -- The Company  accounts  for income taxes using an asset and
     liability approach. Deferred income tax assets and liabilities are computed
     annually for differences  between the financial  statement and tax bases of
     assets and liabilities that will result in taxable or deductible amounts in
     the future based on enacted tax laws and rates applicable to the periods in
     which the differences are expected to affect taxable income.
        
     Foreign Currency Translation -- The effects of unrealized exchange rate
     fluctuations  from  translating  foreign  currency assets and  liabilities 
     into United States dollars are accumulated as cumulative  translation 
     adjustments in stockholders' equity.   Realized  gains  and  losses  
     from foreign   currency transactions are included in operating results 
     for the period.
                                      15


<PAGE>   16
     NOTES TO FINANCIAL STATEMENTS

     Net  Income  (Loss) per  Common  Share -- Net  income  (loss)  per
     common  share amounts  are  computed  using the  weighted  average  number
     of common  and dilutive common equivalent shares outstanding during the
     period.

     Fair Value of Financial  Statements -- The Company's financial  instruments
     under Statement of Financial Account Standards ("SFAS") No. 107 "Disclosure
     About  Fair  Value  of  Financial  Instruments,"  includes  cash,  accounts
     receivable,  accounts  payable,  borrowings  under line of credit facility,
     long-term debt and convertible  debentures.  The Company  believes that the
     carrying amounts of these accounts are a reasonable  estimate of their fair
     value because of the short-term  nature of such instruments or, in the case
     of long-term  debt and  convertible  debentures,  because of interest rates
     available to the Company for similar obligations.

     Approved Accounting Standards -- In 1997, the Financial Accounting
     Standards Board ("FASB") issued SFAS No. 128, "Earnings per Share" and SFAS
     No. 129, "Disclosure of Information about Capital Structure."  These
     statements are required to be adopted in the second quarter of fiscal 1998.
     In 1997, the FASB also issued SFAS No. 130, "Reporting Comprehensive 
     Income" and SFAS No. 131, "Disclosures About Segments of an Enterprise and
     Related Information" which will be effective for the Company in fiscal 
     1999.  The Company is currently evaluating the impact of adopting these new
     statements.

     Use of Estimates -- The  preparation of financial  statements in conformity
     with generally accepted  accounting  principles requires management to make
     estimates and  assumptions  that affect the reported  amounts of assets and
     liabilities and disclosure of contingent assets and liabilities at the date
     of the  financial  statements  and the  reported  amounts of  revenues  and
     expenses  during the  reporting  period.  Actual  results could differ from
     those estimates.

     Reclassifications   --  Certain  amounts  previously   reported  have  been
     reclassified to conform to the current presentation.


2.   INVENTORIES

     Inventories consist of the following:

<TABLE>
<CAPTION>
                                                                                 1997                   1996                    
              <S>                                                             <C>                     <C>
              Component parts                                                 $2,867,884              $2,879,286
              Work in process                                                  1,843,018               1,561,481
              Finished units                                                   3,019,689               3,110,091
              --------------------------------------------------------------------------------------------------
              Total inventories                                               $7,730,591              $7,550,858
              --------------------------------------------------------------------------------------------------
</TABLE>

3.   INVESTMENTS

     Intercare  Technologies,  Inc. -- During 1992,  the  Company's  subsidiary,
     Sleep Care,  transferred  certain  assets to Intercare  Technologies,  Inc.
     ("Intercare") in exchange for 75,000 shares of convertible  preferred stock
     of Intercare  with an estimated  fair value of $300,000,  at that time.  In
     connection  with the transfer,  Sleep Care licensed to Intercare the rights
     to certain intellectual  property and technology,  primarily license rights
     and  patents,  related to products  previously  marketed by Sleep Care.  In
     exchange for the license rights,  the Company is to receive royalties of 5%
     of the gross revenues from sales of products  licensed under the agreement.
     Royalty  income  approximated   $33,000  and  $68,000  in  1996  and  1995,
     respectively.  No income was recognized during 1997. The assets retained by
     Sleep Care were fully  amortized as of June 30, 1996.  Amortization  of the
     intellectual  property  approximated  $8,000 and  $68,000 in 1996 and 1995,
     respectively.  During  the year  ended  June 30,  1997,  management  of the
     Company concluded the investment in Intercare was impaired and the carrying
     value of the investment was reduced from $300,000 to zero.

     Immtech International, Inc. -- During 1989, the Company acquired an initial
     investment  interest  in the common  stock of Immtech  International,  Inc.
     ("Immtech") for $500,000. Immtech is a biopharmaceutical company focused on
     the development of therapeutic products based on a modified form of protein
     occurring  naturally in the body known as C-Reactive  Protein ("CRP") and a
     form of that protein,  identified  as modified CRP ("mCRP") and  diagnostic
     products  which  monitor  long-term  diabetes  control  and detect  chronic
     alcoholism.  Certain officers and directors of the Company serve in similar
     capacities at Immtech.

     On December 21,  1995,  the  Company's  subsidiary,  Criticare  Biomedical,
     purchased from Marquette Venture Partners II, L.P. and MVP Affiliates Fund,
     L.P.  (collectively,  the "Sellers") 1,000,000 shares of the $.01 par value
     Series A Preferred  Stock  ("Series A"),  1,200,000  shares of the $.01 par
     value  Series B Preferred  Stock  ("Series  B") of Immtech and a promissory
     note payable by Immtech to the Sellers in the  principal  amount of $50,000
     for approximately  $2,136,000  payable in the form of 333,154 shares of the
     Company's common stock and a note payable for $1,240,000.  The Series A and
     Series B preferred  stock are  convertible  by the holders to an equivalent
     number of shares of Immtech  common stock and are  redeemable at the option
     of the holders in December 1997.


                                      16
<PAGE>   17


     The  Series  A and  Series  B  preferred  stock  have  cumulative  dividend
     preferences at a rate of 8% per annum.  The Series A and Series B preferred
     stock contain  voting  rights  equivalent to the number of shares of common
     stock issuable upon conversion.

     The acquisition price has been assigned a value of approximately $2,136,000
     based  upon an  estimate  by  Company  management  of the fair value of the
     consideration given by the Company.  The investment in Immtech is accounted
     for using the equity method. The purchase price was allocated to in-process
     research and  development and charged to expense as an investment loss upon
     the  consummation  of the agreement.  There was no significant  tax benefit
     available on this charge.

     The following is a summary of the  Company's  investment in and advances to
     Immtech as of June 30, 1997 and 1996:

     Investment in Immtech:
<TABLE>
<CAPTION>
                                                                                  1997                    1996
             <S>                                                             <C>                     <C>
              Common Stock                                                   $   500,000             $   500,000
              Series A and B preferred stock                                   2,086,000               2,086,000
              --------------------------------------------------------------------------------------------------
              Total                                                            2,586,000               2,586,000
              Advances to Immtech                                                743,940                 719,940
              --------------------------------------------------------------------------------------------------
              Total                                                            3,329,940               3,305,940
              Less investment losses recognized                               (3,329,940)             (3,305,940)
              --------------------------------------------------------------------------------------------------
              Net investment                                                 $         0             $         0
              --------------------------------------------------------------------------------------------------
</TABLE>

     The Series A and Series B preferred stock owned by the Company had a stated
     redemption value of approximately  $3,398,000 and $3,150,000 as of June 30,
     1997 and 1996,  respectively.  The Company has recognized investment losses
     related to the investment in Immtech of $24,000,  $2,716,163,  and $134,687
     in 1997,  1996 and 1995,  respectively.  As of June 30,  1997,  the Company
     owned approximately 5.3% and 65% of Immtech's issued and outstanding common
     and preferred stock respectively,  or approximately 30% of the common stock
     on a fully diluted and as converted basis.

     Immtech  was  incorporated  in 1984.  Thus far,  Immtech has  directed  its
     efforts toward research and development,  hiring  scientific and management
     personnel, arranging for facilities and conducting clinical trials. Immtech
     has no products  currently  available for sale, and none are expected to be
     commercially  available  for several  years.  Immtech has a March 31 fiscal
     year end.

     Since inception,  Immtech has incurred  accumulated losses of approximately
     $11,627,000  through  March 31,  1997.  Immtech is  expected to continue to
     incur significant losses during the next several years. In addition,  as of
     March 31, 1997,  Immtech's current liabilities  exceeded its current assets
     by  approximately   $2,540,000  and  Immtech  had  a  common  stockholders'
     deficiency of  approximately  $8,089,000.  In addition,  Immtech was not in
     compliance  with  certain  of its note  agreements.  Immtech  is  currently
     negotiating with the note holders to restructure the note agreements. These
     factors, among others, indicate that Immtech may be unable to continue as a
     going concern.

     Immtech's  ability to continue  as a going  concern is  dependent  upon its
     ability to generate sufficient funds to meet its obligations as they become
     due and ultimately,  to obtain profitable  operations.  Immtech's financial
     plans for the forthcoming year include the refinancing of existing debt and
     continuing efforts to obtain additional debt and/or equity financing.

     The following is summarized financial  information for Immtech at March 31,
     1997 and 1996 and for the years then ended.

<TABLE>
<CAPTION>
                                
                                                                                  
                                                                                  1997                    1996
<S>                                                                          <C>                     <C>
              Current assets                                                 $    93,000             $    14,000
              Noncurrent assets                                                   76,000                 104,000
              Current liabilities                                              2,633,000               1,778,000
              Noncurrent liabilities                                             332,000                 384,000
              Redeemable preferred stock                                       5,293,000               4,590,000
              Common stockholders' equity (deficit)                           (8,089,000)             (6,634,000)
              Revenues                                                            15,000                 335,000
              Net loss                                                        (1,193,000)               (760,000)
              Net loss attributable to common stockholders                    (1,461,000)             (1,006,000)
</TABLE>

     Blatz  Partnership  -- The  Company is the sole  limited  partner in a real
     estate limited  partnership which owns the Blatz Phase II Commercial Office
     Buildings located in Milwaukee,  Wisconsin.  Under terms of the Partnership
     Agreement (the "Agreement"), profits and losses (other than those resulting
     from a sale or  refinancing  of the Project) are to be allocated 40% to the
     general partners and 60% to the Company.

                                      17

<PAGE>   18
     The carrying value of the investment is zero. Recognition of any income
     by  the Company for its interest in the Blatz Partnership will occur only
     after the Blatz Partnership has earnings in excess of previously
     unrecorded losses.

     The following is summarized financial information for the Blatz
     Partnership at June 30, 1997 and 1996 and for the years then ended:

<TABLE>
<CAPTION>

                                                1997            1996
          <S>                               <C>               <C>      
          Current assets                    $   360,000       $   140,000
          Noncurrent assets                   3,975,000         4,332,000
          Current liabilities                 1,689,000         1,477,000
          Noncurrent liabilities              4,679,000         4,679,000
          Net deficit                        (2,033,000)       (1,684,000)
          Revenues                              799,000           717,000
          Net loss                             (349,000)         (462,000)
</TABLE>                                                                 
          
4.   INCOME TAXES

     The Company accounts for income taxes using an asset and liability approach
     which generally  requires the recognition of deferred income tax assets and
     liabilities  based on the expected future income tax consequences of events
     that have previously been recognized in the Company's financial  statements
     or tax returns.  In addition,  a valuation allowance is recognized if it is
     more likely than not that some or all of the deferred income tax asset will
     not be  realized.  A valuation  allowance is used to offset the related net
     deferred income tax assets due to  uncertainties  of realizing the benefits
     of certain net operating loss and tax credit carryforwards.

     Significant  components  of the  Company's  deferred  income tax assets and
     deferred income tax liabilities are as follows:

<TABLE>
<CAPTION>
                                                                  June 30,            June 30,           July 1,
                                                                   1997                 1996              1995
<S>                                                           <C>                  <C>              <C>
     Deferred income tax assets:
         Accounts receivable and sales allowances              $    237,000         $   312,000     $    249,000
         Inventory allowances                                       207,000              43,000           32,000
         Product warranties                                         144,000             117,000          127,000
         Other accrued liabilities                                   98,000              80,000           97,000
         Federal net operating loss carryforwards                 1,183,000             736,000           35,000
         State net operating loss carryforwards                     231,000             188,000          132,000
         Federal tax credit carryforwards                           198,000             198,000          152,000
         Investment losses not deducted                           1,434,000           1,307,000          233,000
-------------------------------------------------------------------------------------------------------------------
         Total deferred income tax assets                         3,732,000           2,981,000        1,057,000
-------------------------------------------------------------------------------------------------------------------

     Deferred income tax liabilities:
         Excess of tax over book depreciation and amortization   (1,007,000)           (928,000)        (765,000)
         Prepaid expenses                                            (6,000)             (5,000)          (7,000)
-------------------------------------------------------------------------------------------------------------------
         Total deferred income tax liabilities:                  (1,013,000)           (933,000)        (772,000)
-------------------------------------------------------------------------------------------------------------------

     Valuation allowance                                         (2,719,000)         (2,048,000)        (285,000)
-------------------------------------------------------------------------------------------------------------------


     Net deferred income taxes recognized in the
         consolidated balance sheets                           $          0         $         0     $          0

-------------------------------------------------------------------------------------------------------------------
</TABLE>

     At June 30,  1997,  the Company had net  operating  loss  carryforwards  of
     approximately  $3,800,000  which expire in 2008 through  2012.  At June 30,
     1997,   the  Company  had  available   for  federal   income  tax  purposes
     approximately $87,000 of alternative minimum tax credit carryforwards which
     carry  forward   indefinitely   and   approximately   $111,000  tax  credit
     carryforwards which expire in the years 2007 through 2009. The Company also
     has  approximately  $4,400,000 of state net operating  loss  carryforwards,
     which expire in 2003 through 2012, available to offset certain future state
     taxable income.

     The income tax provision consists of the following:

<TABLE>
<CAPTION>
                                                                     1997                1996             1995
    <S>                                                            <C>                 <C>               <C>
     Current
         Federal                                                    $     0             $35,000          $57,000
         State                                                            0              15,000           13,000
     -----------------------------------------------------------------------------------------------------------
         Total income tax provision                                 $     0             $50,000          $70,000
     -----------------------------------------------------------------------------------------------------------
</TABLE>

                                      18


<PAGE>   19


A reconciliation of the provision for income taxes (benefit) at the federal 
statutory income tax rate to the effective income tax rate follows:

<TABLE>
<CAPTION>
                                                               1997                 1996              1995
<S>                                                            <C>               <C>                 <C>
Federal statutory income tax rate                              (34.0)%             (34.0)%           34.0%
State income taxes, net of federal benefit                                                            4.9
Non-deductible life insurance premiums                                                                1.4
Non-deductible losses of subsidiaries                            4.0                21.6              8.7
Non-deductible meals and entertainment expenses                                                       9.1
Non-deductible interest expense                                  6.3
Goodwill amortization                                                                                 5.6
Benefit of foreign sales corporation                                                                (14.4)
Benefit of federal and state net operating loss carryforward
   recognized                                                                                       (11.4)
Losses for which no benefit was provided                        22.8                13.4
Other--net                                                        .9                  .1              2.0
------------------------------------------------------------------------------------------------------------ 
Effective income tax rate                                         0%                 1.1%            39.9%
------------------------------------------------------------------------------------------------------------
</TABLE>

5.   LINE OF CREDIT FACILITY AND LONG-TERM DEBT

     Long-term debt consists of the following:                   

<TABLE>
<CAPTION>

                                                                                       1997            1996

         <S>                                                                         <C>              <C>
         Mortgage note,  9.625%,  due in monthly installments of $34,983 with a
            final payment of $2,688,336 due in December 2003, collateralized by
            real estate with a carrying value of approximately $4,114,000 at 
            June 30, 1997                                                            $3,366,046       $3,457,048
         Bank note 8.5%, due in monthly installments of $11,440 through
            November 1997, collateralized by certain machinery and
            equipment with a carrying value of approximately $52,000
            at June 30, 1997                                                             56,007          182,624
         Promissory note, 7%, interest payable quarterly, principal due in
            December 2002, exchanged for common stock in March 1997                                    1,240,000
         ------------------------------------------------------------------------------------------------------- 
         Total                                                                        3,422,053        4,879,672
         Less current maturities                                                        147,442          209,697
         -------------------------------------------------------------------------------------------------------
         Long-term debt                                                              $3,274,611       $4,669,975
         -------------------------------------------------------------------------------------------------------
</TABLE>

Aggregate annual principal  payments  required under terms of the long-term debt
agreements are as follows:

<TABLE>
<CAPTION>
                               Fiscal Year Ending June 30,           Principal Payments
                                <S>                                   <C>
                                        1998                           $   147,442
                                        1999                               109,354
                                        2000                               120,356
                                        2001                               132,465
                                        2002                               145,793
                                     Thereafter                          2,766,643
                              ------------------------------------------------------------
                                        Total                           $3,422,053
                              ------------------------------------------------------------
</TABLE>

At June 30,  1997,  the  Company  had a  $2,000,000  demand  line of credit
facility with a commercial  bank to meet its  short-term  borrowing  needs.
Borrowings  against the line were payable on demand with  interest  payable
monthly at the bank's  reference  rate (8.75% as of June 30,  1997).  As of June
30, 1997, there were no borrowings  against the line. The line expires on
October  31,  1997.  Borrowings  under the line of credit  facility  are
collateralized by substantially all assets of the Company.

In March 1997, the Company  satisfied the $1,240,000  promissory  note plus
interest  accrued on the note of  approximately  $110,000 in  exchange  for
200,000  shares of newly issued common stock.  Under the  provisions of the
agreement,  the shares  must be held for one full year prior to resale.  In
conjunction  with this  transaction,  the Company recorded an extraordinary gain
on the extinguishment  of  debt  of  $569,946  for  the outstanding indebtedness
under the promissory note in  excess  of the  estimated  fair  market  value  of
the restricted stock.



                                      19
<PAGE>   20


6.   CONVERTIBLE DEBENTURES

     In February 1997, the Company issued $2,500,000 of convertible debentures.
     The debentures  have a two year  term to  maturity  with a  stated  annual
     interest rate of 8%,  payable in shares of common stock at the 
     conversion date or  maturity  date.  The holders of the  debentures  had
     the option to convert up to $1,250,000 of the debentures  and accrued 
     interest to common stock of the Company  sixty-one  (61) days after the
     February 1997 closing date at a conversion price equal to a 20% discount
     from the average closing bid price of the  Company's  common stock for the
     five days preceding  the conversion date.  Debentures  aggregating
     $550,000 were converted under the 20% discount  conversion  feature.  The 
     remaining debentures  and accrued interest  can be  converted  to common
     stock of the Company at a conversion price equal to a 25%  discount  from
     the  average  closing bid price of the Company's common stock for the five
     days preceding the conversion date. Any unconverted debentures and accrued
     interest will be automatically converted to common stock in February 1999
     at a 25% discount. Through June 30, 1997,  $850,000 of debentures have
     been converted to 216,173 shares of common stock with a fair market value
     of $1,117,594 as of the conversion  dates. As of June 30, 1997,  $1,650,000
     of original debentures were outstanding with a carrying value, including
     accrued interest and amortized discount, of $1,836,323.
        

     Proceeds from the issuance of the  debentures  were recorded as a liability
     at the issuance date. The conversion  discount is amortized and reported as
     additional  interest expense over the life of the debentures.  In the event
     the debentures are converted  prior to February 1999,  additional  interest
     expense is recognized  for any  unamortized  discount as of the  conversion
     date. The debentures are included in the accompanying  consolidated balance
     sheet at the  issuance  price,  plus any  accrued  interest  and  amortized
     discount.


7.   CONTINGENCIES

     The  Company is  involved  in various  lawsuits  that have  arisen from the
     normal  conduct of business and in connection  with  liquidating  Criticare
     International.  These  proceedings are handled by outside  counsel.  In the
     opinion of  management,  the ultimate  resolution of these matters will not
     have a material effect on the consolidated financial statements.

     The  Company  has  received  two  grants  from the State of  Wisconsin  for
     research and development of certain  products.  The grants are to be repaid
     only upon  successful  completion  and  marketing  of the related  product.
     Repayment of these grants is to be made on a sales by unit basis,  up to an
     aggregate of $600,000. Repayments approximated $14,000, $30,000 and $32,000
     in 1997, 1996 and 1995,  respectively,  and in the aggregate,  approximated
     $246,000 as of June 30, 1997.  The repayments are charged to expense as the
     related  products are sold. The Company has been awarded a third grant from
     the  State  of  Wisconsin  for an  amount  up to  $100,000  which  requires
     repayment  of the grant  amount  plus  interest  at 8%,  plus  payment of a
     royalty  in the  amount of 1% of net  sales of the  related  product  for a
     five-year period, as defined.  No funds have been received under this grant
     at June 30, 1997.

8.   STOCKHOLDERS' EQUITY

     Stock Options -- In December  1992,  the Board of Directors  approved a new
     Employee Stock Option Plan and Non-Employee Stock Option Plan. No new stock
     options  can  be  granted   under  the  Employee   Stock  Option  Plan  and
     Non-Employee  Stock Option Plan which  existed prior to the approval of the
     new plans.  The Board of Directors has authorized in connection  with these
     new plans the  issuance of  1,220,000  reserved  shares of common  stock of
     which 79,650  reserved  shares of common stock remain  available for future
     issuance under the stock option plans at June 30, 1997. The activity during
     1995, 1996 and 1997 for the above plans are summarized as follows:

<TABLE>
<CAPTION>   
                                                                                                       Weighted
                                                                                                        Average                 
                                                       Number of                 Stock Options          Exercise                   
                                                        Shares                    Price Range           Price                 
           --------------------------------------------------------------------------------------------------------------
           <S>                                       <C>                         <C>                   <C>     
           Outstanding at July 1, 1994                 872,750                   $1.88-8.50             $2.37                 
                Granted                                421,500                    2.00-2.19              2.07                
                Cancelled                             (253,350)                   1.88-2.75              2.16              
           --------------------------------------------------------------------------------------------------------------
                                                   
           Outstanding at June 30, 1995              1,040,900                    1.88-8.50              2.30                
                Granted                                246,000                    2.13-3.75              2.82                
                Cancelled                             (123,580)                   2.00-5.75              2.25                
                Exercised                              (93,900)                   2.00-2.63              2.38                    
           --------------------------------------------------------------------------------------------------------------

           Outstanding at June 30, 1996              1,069,420                    1.88-8.50              2.45                
                Granted                                250,500                    2.50-5.25              2.64                
                Cancelled                             (113,500)                   2.00-8.50              3.38   
                Exercised                             (162,020)                   2.00-2.63              2.47    
           --------------------------------------------------------------------------------------------------------------
           Outstanding at June 30, 1997              1,044,400                    1.88-5.25              2.40    
           --------------------------------------------------------------------------------------------------------------
           Exercisable at June 30, 1997                591,900                    1.88-3.75              2.38                
</TABLE> 
                                      20
<PAGE>   21
     The following table summarizes information about stock options outstanding
     as of June 30, 1997:

<TABLE>
<CAPTION>

                                        Options Outstanding                   Options Exercisable           
                           -------------------------------------------     --------------------------       
                                              Weighted                                                      
                               Shares          Average        Weighted         Shares         Weighted       
                             Outstanding      Remaining       Average        Exercisable      Average        
     Range of               at June 30,      Contractual      Exercise       at June 30,      Exercise
     Exercise Prices           1997          Life-Years        Price            1997            Price
     <S>                    <C>               <C>             <C>             <C>              <C>
     $1.88 - $2.50           691,200            2.85            $2.16           398,900         $2.12
     $2.54 - $3.63           347,200            2.82             2.85           192,000          2.92
     $3.64 - $5.25             6,000            3.80             4.00             1,000          3.75
                           ---------                                            -------
                     
     $1.88 - $5.25         1,044,400            2.84             2.40           591,900          2.38
                           =========                                            =======
                
</TABLE>

     Outstanding  options  have fixed  terms and are  exercisable  over a period
     determined  by  the  Compensation  Committee  of  the  Company's  Board  of
     Directors  but no  longer  than  five  years  after  the date of  grant.  A
     substantial portion of the options issued are contingent on future services
     or future events.

     At June 30, 1997,  1,260,400 shares of common stock were reserved under the
     above plans.

     The Company has adopted  the  disclosure-only  provisions  of SFAS No. 123,
     "Accounting  for   Stock-Based   Compensation,"   but  applies   Accounting
     Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
     and related interpretations in accounting for its plans. If the Company had
     elected to recognize  compensation  cost for the options granted during the
     years ended June 30, 1997 and 1996,  consistent with the method  prescribed
     by SFAS No. 123, net loss and net loss per share would have been changed to
     the pro forma amounts indicated below:


<TABLE>
<CAPTION>

                                                                     Year Ended June 30,
                                                                  1997                 1996
            <S>                                                <C>                 <C>
            Net loss--as reported                             $(2,179,489)         $(4,330,989)
            Net loss--pro forma                               $(2,325,795)         $(4,390,340)
            Net loss per common share--as reported                  $(.30)               $(.63)
            Net loss per common share--pro forma                    $(.32)               $(.64)
</TABLE>

     The fair value of stock  options used to compute pro forma net loss and net
     loss per  common  share is the  estimated  present  value at the grant date
     using the Black-Scholes  option-pricing  model.  The  assumptions  used to
     estimate compensation  cost were:  expected  volatility of 58%,  risk-free
     interest rate of 6% and expected option lives of three years.  The pro 
     forma effect on net loss for 1997 and 1996 is not representative of the 
     pro forma effect in future  years because  it does not take into  
     consideration pro forma compensation cost related to grants made prior to 
     1996.

     Stock  Warrants  -- In  September  1995,  the  Company  executed  a warrant
     agreement  with a  consultant.  The  warrant  agreement  provided  for  the
     issuance of warrants to purchase up to 150,000  shares of the common  stock
     of the Company,  exercisable at a price of $2.00 per share. The warrant was
     exercisable  as to 37,500  shares upon  execution of the  agreement and the
     warrants  to  purchase  the  remaining   112,500   shares  were  to  become
     exercisable if certain  performance  parameters  were achieved by September
     1996.  Such  parameters  were not met as of such date. In January 1997, the
     agreement was extended and the  parameters  were  changed.  During the year
     ended June 30, 1997, the Company  recognized  $84,375 of expense related to
     the value of the services  performed by the  consultant  under the extended
     agreement.  By June 30, 1997,  warrants to purchase the  remaining  112,500
     shares of common  stock at a price of $2.00 per share  became  exercisable.
     The warrant holder  exercised  rights and purchased 90,000 and 4,000 shares
     of common stock at $2.00 per share during the years ended June 30, 1997 and
     1996, respectively.  Warrants to purchase 56,000 shares of common stock at
     $2.00 per share were  exercisable as of June 30, 1997. Such warrants expire
     in September 2000.

     Preferred Stock - - 

     The Company's Board of Directors has the authority to determine the
     relative rights and preferences of any series it may establish with respect
     to the 500,000 shares of $.04 par value authorized preferred shares.  No
     preferred stock is issued or outstanding.      

     On March 27, 1997, the Board of Directors of the Company declared a
     dividend of one preferred share purchase right (a "Right") for each
     outstanding share of common stock, of the Company.  The dividend was made
     on April 24, 1997 to the stockholders of record on that date to purchase
     Preferred Stock ("Preferred") upon the occurrence of certain events.  The
     Rights will be exercisable the tenth business day after a person or group
     acquires 20% of the Company's common stock, or makes an offer to acquire
     30% or more of the Company's common stock.  When exercisable, each right 
     entitles the holder to purchase for $25, subject to adjustment, one-
     hundredth of a share of Preferred for each share of common stock owned. 
     Each share of Preferred will be entitled to a minimum preferential
     quarterly dividend of $25 per share, but not less than an aggregate
     dividend of 100 times the common stock dividend.  Each share will have 100
     votes, voting together with the common stock.  In the event of any merger,
     each share of Preferred will be entitled to receive 100 times the amount
     received per share of common stock.  The Rights expire on April 1, 2007.



9.   EMPLOYEE BENEFIT PLAN

     The Company has a 401(k) plan which  covers  substantially  all  employees.
     Company contributions to the plan are discretionary and determined annually
     by the Company's  Board of  Directors.  The  Company's  contributions  were
     approximately  $81,000,  $61,000  and  $40,000  in  1997,  1996  and  1995,
     respectively.


                                       21






<PAGE>   22
10.  BUSINESS AND CREDIT CONCENTRATIONS

     The Company's  customers include domestic hospitals,  domestic  alternative
     health care sites and foreign health care markets.  Although the Company's
     products are sold  primarily to health care  providers,  concentrations  of
     credit risk with respect to trade  accounts  receivable  are limited due to
     the Company's large number of customers and their geographic dispersion.

     The Company currently   coordinates   substantially   all international
     sales and distribution  activities.  Such activities were previously
     provided by the Company with the assistance of Criticare  International.
     Identifiable assets located outside of the United States are  insignificant
     in relation to the Company's total assets.  Net export sales by geographic
     area are as follows:


<TABLE>
<CAPTION>

                                                              1997                1996               1995
            <S>                                           <C>                <C>                <C>
            Europe                                        $ 5,606,000         $ 6,417,000       $  5,910,000
            Pacific Rim                                     3,784,000           4,147,000          4,013,000
            Canada and South America                        3,867,000           4,012,000          4,146,000
            -------------------------------------------------------------------------------------------------
            Net export sales                              $13,257,000         $14,576,000        $14,069,000
            -------------------------------------------------------------------------------------------------
</TABLE>

INDEPENDENT AUDITOR'S REPORT


To the Stockholders and Directors of Criticare Systems, Inc.:

We have  audited  the  accompanying  consolidated  balance  sheets of  Criticare
Systems,  Inc. and  subsidiaries  as of June 30, 1997 and 1996,  and the related
consolidated  statements of operations,  stockholders' equity and cash flows for
each of the three  years in the period  ended  June 30,  1997.  These  financial
statements   are  the   responsibility   of  the   Company's   management.   Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion,  such consolidated  financial  statements present fairly, in all
material  respects,  the  financial  position of  Criticare  Systems,  Inc.  and
subsidiaries  at June 30, 1997 and 1996 and the results of their  operations and
their cash flows for each of the three years in the period  ended June 30, 1997,
in conformity with generally accepted accounting principles.

                                            Deloitte & Touche LLP
                                            Milwaukee, Wisconsin
                                            August 15, 1997



                                       22
                                        

<PAGE>   23
DIRECTORS AND OFFICERS

Directors 

Milton Datsopoulos
Attorney and Partner
Datsopoulos, MacDonald & Lind


Karsten Houm
Management Consultant



N.C. Joseph Lai, Ph.D.
Vice Chairman of the Board, Secretary,
Senior Vice President
Criticare Systems, Inc.


Gerhard J. Von der Ruhr
Chairman of the Board, Treasurer,
President
Criticare Systems, Inc.

Officers and Senior Staff

Andrew Diaz
Vice President
International Sales Division


N.C. Joseph Lai, Ph.D.
Vice Chairman of the Board
Senior Vice President


Michael T. Larsen
Vice President
Quality Control/Quality Assurance


Gloria Najera
Vice President
Operations

Stephen D. Okland
Vice President
Monitoring Sales Division


Richard J. Osowski
Senior Vice President--Finance
Assistant Secretary


Herschel Q. Peddicord
Senior Vice President
Systems Sales Division


Gerhard J. Von der Ruhr
Chairman of the Board
President

Kenneth F. Wineman
Vice President
Latin American Sales

FACT SHEET


Fact Sheet as of July 1, 1997
Common Stock Market Price Range and Dividend Policy

Criticare  Systems,  Inc.  common stock is traded on the Nasdaq  National Market
(Symbol  CXIM).  As of June 30, 1997,  there were  approximately  326 holders of
record of Criticare's  common stock. The Company has never paid dividends on its
common stock and has no plans to pay cash dividends in the foreseeable future.

<TABLE>
<CAPTION>

                                                        Year Ended June 30,
                                            1997                                1996
                                    --------------------------------------------------------------      
<S>                                <C>              <C>               <C>               <C> 
Quarter Ended:                      High             Low               High             Low
September 30                        $3-1/4           $2-3/8            $3-1/2           $1-3/4
December 31                         $3-1/16          $2-3/8            $4-3/8           $2-3/16
March 31                            $7-7/16          $2-1/2            $4-1/8           $3-1/8
June 30                             $6-1/16          $4-3/4            $4-1/8           $3-1/16
</TABLE>

Corporate General Counsel
Reinhart, Boerner, Van Deuren,
Norris & Rieselbach, s.c.
Milwaukee, Wisconsin

Patent, Trademark and
Copyright Counsel
Reinhart, Boerner, Van Deuren,
Norris & Rieselbach, s.c.
Milwaukee, Wisconsin

Transfer Agent and Registrar
Firstar Trust Company
Milwaukee, Wisconsin

Auditors
Deloitte & Touche LLP
Milwaukee, Wisconsin

Corporate Headquarters
20925 Crossroads Circle
Waukesha, WI  53186
U.S.A.

Nasdaq Symbol:  CXIM

Annual Meeting of Stockholders
The annual meeting of stockholders
will be held on Friday, November 7, 1997 at 3:30 p.m. 
at the Milwaukee Athletic Club, 
758 North Broadway, Milwaukee, Wisconsin.

Forms 10-K and 10-Q

The Company has filed an annual report with the Securities and Exchange
Commission on Form 10-K.  The Company also files quarterly reports on 
Form 10-Q.  Stockholders may obtain copies of these reports, without charge, 
by writing:
     Secretary
     Criticare Systems, Inc.
     20925 Crossroads Circle
     Waukesha, Wisconsin 53186
         U.S.A.



                                      23