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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                            ------------------------

                                    FORM 10-K

                        FOR ANNUAL AND TRANSITION REPORTS
                     PURSUANT TO SECTIONS 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
(Mark One)

[x]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934.

For the fiscal year ended June 30, 1998

[    ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934.

For the transition period from        to 
                               ------   ------   
                        Commission file number 000-16061

                             Criticare Systems, Inc.
              ----------------------------------------------------
             (Exact Name of Registrant as Specified in Its Charter)


        Delaware                                       39-1501563               
-------------------------------             ----------------------------------- 
(State or Other Jurisdiction of             (I.R.S. Employer Identification No.)
Incorporation or Organization)

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


        Registrant's telephone number, including area code: 414-798-8282

           Securities registered pursuant to Section 12(b) of the Act:

                                                        Name of Each Exchange on
         Title of Each Class                                Which Registered    
         -------------------                                ----------------    
                NA                                               NA           
         -------------------                                ----------------    

                           [COVER PAGE 1 OF 2 PAGES.]


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           Securities registered pursuant to Section 12(g) of the Act:

                       Voting Common Stock, $.04 Par Value
                                (Title of class)

         Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
                                            ----  ----

         Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to the Form 10-K. [ X ]

         The aggregate market value of the voting common stock held by
nonaffiliates of the registrant as of August 31, 1998 was $9,220,204.

         On August 31, 1998, there were outstanding 8,351,151 shares of the
registrant's $.04 par value voting common stock.

DOCUMENTS INCORPORATED BY REFERENCE

         Portions of the Registrant's Annual Report to Stockholders for the
fiscal year ended June 30, 1998 are incorporated by reference into Part II of
this report.

         Portions of the Proxy Statement for the Annual Meeting of the
Stockholders of the Registrant to be held November 12, 1998 are incorporated by
reference into Part III of this report.

                           [COVER PAGE 2 OF 2 PAGES.]


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                                     PART I

Item 1.    BUSINESS.

         Criticare Systems, Inc. (the "Company" or "Criticare") designs,
manufactures and markets vital signs and gas monitoring instruments and related
noninvasive sensors used to monitor patients in many healthcare settings. Since
a patient's oxygen, anesthetic gas and carbon dioxide levels can change
dramatically within minutes, causing severe side effects or death, continuous
monitoring of these parameters is increasing. The Company's monitoring equipment
improves patient safety by delivering accurate, comprehensive and instantaneous
patient information to the clinician. The Company's products also allow
hospitals to contain costs primarily by substituting cost-effective reusable
pulse oximetry sensors for disposable sensors, controlling the use of costly
anesthetics and increasing personnel productivity.

         To meet the needs of end-users in a wide variety of patient settings,
the Company has developed a broad line of patient monitors which combine one or
more of its patented or other proprietary technologies, for monitoring oxygen
saturation, carbon dioxide and anesthetic agents, with standard monitoring
technologies that provide electrocardiogram ("ECG"), invasive and noninvasive
blood pressures, temperature, heart rate and respiration rate. In addition, the
Company's VitalView telemetry system allows one nurse to monitor up to eight
patients simultaneously from a convenient central location. This allows
hospitals to move out of the intensive care unit ("ICU") those patients that
require continuous monitoring, but do not need all of an ICU's extensive and
costly personnel and equipment resources.

         The Company was incorporated under the laws of the State of Delaware in
October 1984.

Products

         Criticare markets a broad range of vital signs and gas monitoring
products designed to address the needs of a variety of end-users in different
patient settings. Criticare's monitors display information graphically and
numerically. All Criticare monitors incorporate adjustable visual and audible
alarms to provide reliable patient-specific warnings of critical conditions, and
most of the Company's monitors record up to 60 hours of trend data. Criticare
monitors are available with printer capability to provide permanent records of
patient data.

         Model 503, 503S, 504, 504P, 504US, 504USP and 504O (PONI) Pulse
Oximeters. Criticare's complete line of pulse oximeters meets the needs of
virtually all clinical environments: adult, pediatric and neonatal intensive
care

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units, operating rooms, emergency rooms, nursing homes, physicians' offices
and ambulances. The line is designed to provide accuracy and convenience at a
competitive cost to the end-user.

         Model 507S, 507SD, 507N, 507O and 507E Patient Monitors. The 507 series
is comprised of small, compact, portable, full-featured vital signs monitors
configured to meet specific clinical needs. The 507S and 507SD are well-suited
to dental and physician offices. The 507N and 507O are ideal for patient floor
monitoring of noninvasive blood pressure and pulse oximetry. The 507E combines
ECG, oxygen saturation and noninvasive blood pressure for a complete vital signs
monitor for physician office and hospital applications. Combined with the
VitalView central station, the 507E is an effective low-cost monitoring system
for the emergency room or the recovery room.

         Scholar(R). The Scholar monitor series specifically addresses the needs
of small hospitals with broad clinical needs (the monitoring of ECG, blood
oxygen saturation, noninvasive blood pressure, temperature and invasive blood
pressure) but whose budgets are small. Scholar offers all the primary features a
hospital needs with the capability of adding more features if desired. Scholar
monitors are available with printer and recorder capability and can transmit
data to Criticare's Maestro and VitalView Central Stations.

         Model 1100 Anesthesia Monitor. The Model 1100 monitor provides patient
monitoring for a wide variety of cardio-pulmonary parameters in an integrated
system. The Model 1100 is able to monitor two ECG waveforms, noninvasive blood
pressure, three types of invasive blood pressure, respiration rate, heart rate,
temperature, oxygen saturation, inspired/expired oxygen, carbon dioxide and the
range of anesthetic gases, including recently developed anesthetic agents such
as desflurane and sevoflurane. The Model 1100 uses the Company's proprietary
disposable respiratory secretion filter system and is designed to accommodate
low-flow anesthesia situations.

         Model 602-3B, 602-6B, 602-11 and 602-13 Gas Monitors. The 602 series
provides monitoring of carbon dioxide, pulse oximetry and anesthetic agents
using Criticare's proprietary infrared technology. The 602 IQ series of
operating room monitors provides automatic identification and quantification of
all five approved anesthetic agents simultaneously.

         Model 506DX Combination Monitor. The 506DX combination monitor was
developed in conjunction with Alaris Medical ("Alaris") and incorporates
Criticare's oximetry and noninvasive blood pressure technology with Alaris's
temperature technology. Alaris has rights to market the 506DX combination
monitor to hospitals in the United States and Canada. Criticare has rights to
market the product to the alternate care market and to international markets.


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         Model 820 Maestro(TM) I Telemetry Monitors. The Maestro I Telemetry
system addresses the rapidly expanding telemetry market with a reliable,
inexpensive ECG telemetry system. The Maestro I system provides a waterproof ECG
transmitter capable of five ECG lead configurations. The ability to link
Criticare's 507E and Scholar monitors to this versatile central station is
expected to expand the market into numerous hospital departments.

         VitalView(TM). The VitalView central station makes it possible for one
nurse or technician to monitor numerous patients simultaneously. The VitalView
can receive, display and store data from a wide variety of Criticare monitors
including the Scholar, 507E and MPT.

         MPT(TM). The MPT (Multiple Parameter Telemetry) monitor allows the
transmission of vital signs (ECG, blood oxygen saturation and noninvasive blood
pressure) on a real time basis to a VitalView central station while the patient
is ambulatory. The Company believes the MPT is the first device of its kind. In
today's healthcare environment, hospitals benefit by moving patients from
expensive critical care departments as quickly as possible to less expensive
general nursing floors. MPT, because of its complete monitoring capability and
its lower cost, allows the patient to be ambulatory while still being monitored
for all vital signs. MPT was approved by the FDA on December 10, 1996.

         Pulse Oximetry Sensors. Criticare has designed proprietary, noninvasive
sensors that can be used on any patient, from a premature infant to a full-grown
adult. Criticare's line of reusable pulse oximetry sensors offers users
significant cost savings compared to disposables. Criticare's reusable sensors
generally last longer than the one-year warranty period and are easily and
inexpensively cleaned between uses. Criticare's reusable sensors include a
finger sensor for routine applications and a multisite sensor for increased
placement flexibility. The multisite sensor is fully immersible, allowing for
sterilization between patients. Last year the Company introduced the "Shell"
sensor, the first reusable sensor with a removable hard cover. The cover can be
inexpensively replaced if it becomes damaged, saving hundreds of dollars over
buying a new sensor. The Shell sensor is also the first reusable sensor on the
market that can be fully dismantled and immersed for improved cleaning and
sterilization between patients if required. The Company also sells a range of
disposable sensors designed for single use in cases where the facility would
prefer to use a patient charge disposable product.

         Water Chek/Chek-Mate Filter System. The Company's patented, disposable
Water Chek system separates a patient's respiratory secretions from a breath
sample before it enters the gas monitor(s) for analysis. The Company's
proprietary, disposable Chek-Mate filter enhances the removal of moisture from
the sample, while preventing cross-contamination. This system allows the monitor

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to operate effectively regardless of humidity or patient condition. The
self-sealing feature also protects the healthcare provider from potential
contamination.

Products Under Development

         Digital Oximetry DOT(TM). The Company is in the later stages of
developing two improved oxygen saturation monitors that incorporate a digital
electronic signal which allows more accurate saturation readings in conditions
influenced by light, motion or temperature artifact than the analog electronic
signal used in current oxygen saturation monitors.

         Vital Signs(TM). The Company is also in the later stages of developing
the hand-held Vital Signs monitor, which measures heart rate, oxygen saturation,
noninvasive blood pressure and temperature using a hand-held monitor weighing
less than two pounds. These features make the Vital Signs monitor well-suited
for use on nursing floors and in physicians' offices, ambulances and by home
healthcare organizations.

         Home View. The Company is in the active stage of developing a home care
application of the MPT (Multiple Parameter Telemetry) monitor and the VitalView
central station. When completed, the Home View system will allow patients to be
monitored, on a real time basis, using telephone modems to transmit data to the
care giver at a remote (hospital or home care) facility thereby further reducing
the cost of monitoring certain patients in the high cost hospital environment.

Marketing and Sales

         Domestic Sales. The Company's Systems Division focuses its efforts on
the MPT/VitalView Systems and related monitors such as Scholar I and Scholar II
that can interface with the VitalView Central Station. The flexibility of the
MPT Systems affords hospitals the opportunity to place monitoring where it is
used rather than being tied to fixed monitoring units. At August 31, 1998, the
Systems Division consisted of four sales specialists, five independent dealers,
three clinical specialists and one manager.

         The Company's Monitoring Division focuses its efforts on stand-alone
monitoring needs of hospitals, surgery centers, nursing homes and physician
offices. Monitoring Division products include pulse oximeters, CO2 monitors,
anesthetic agent monitors and vital signs monitors. At August 31, 1998, the
Monitoring Division consisted of four regional managers, approximately 60
independent dealers with approximately 600 sales people and one sales manager.

         International Sales. One of the Company's principal marketing
strategies has been to target international markets, particularly Europe, Latin
America and

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the Pacific Rim countries. During fiscal 1998, Criticare sold its
products, principally to hospitals, in over 75 countries through over 140
independent dealers. During fiscal 1997, the Company's international sales
efforts were coordinated by the Company's wholly-owned subsidiary, Criticare
International GmbH Marketing Services, a corporation organized under the laws of
Germany ("Criticare International"). During fiscal 1998, Criticare International
was liquidated following bankruptcy proceedings under German law. Most of the
Company's international order processing, invoicing, collection and customer
service functions are handled directly from the Company's headquarters in
Waukesha, Wisconsin. However, the Company formed CSI Trading, Inc. during fiscal
1997 and Criticare Service GmbH during fiscal 1998 to perform certain marketing
and service functions in Europe. Criticare believes demand for the Company's
products in international markets is primarily driven by cost containment
concerns, and increased interest in using quality patient monitoring products
for improved patient management.

         In fiscal 1998, 46% of Criticare's net sales, or $12.8 million, was
attributable to international sales, of which approximately 43% was from sales
in Europe and the Middle East, 30% was from sales to Pacific Rim countries and
27% was from sales to Canada and Central and South America. In fiscal 1997, 51%
of Criticare's net sales was attributable to international sales. In fiscal
1996, 46% of Criticare's net sales was attributable to exports. There are no
material identifiable assets of the Company located in foreign markets. The
Company sells its products in United States dollars and is not subject to
significant currency risks; however, an increase in the value of the United
States dollar relative to foreign currencies could make the Company's products
less price competitive in those markets.

         Clinical Support. At August 31, 1998, Criticare employed three clinical
support specialists to provide customer training and education, primarily to
domestic hospitals. The clinical support staff also assists in the periodic
training and education of the direct sales force. In addition, the direct sales
force maintains contact with end-users and provides additional training and
updates. Clinical support in foreign markets is provided by the Company's
clinical support staff and direct sales force.

         Warranty and Service. Criticare believes that customer service is a key
element of its marketing program. Criticare's monitors are warranted against
defects for one year and its reusable sensors for six months. If a problem
develops with a Criticare product while under warranty, the Company typically
provides a replacement unit until the product can be repaired at the Company's
facility. At August 31, 1998, the Company had a customer service staff of 15
people at its Waukesha, Wisconsin facility. The Company also maintains a product
repair


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facility in Bad Homburg, Germany for its international customers. The
Company offers extended warranties and service contracts on all of its monitors.

Manufacturing

         The Company continually strives to implement manufacturing efficiencies
while maintaining product quality and reliability. The Company's oximeters and
sensors are assembled from off-the-shelf components and other parts produced to
the Company's specifications, such as printed circuit board assemblies, custom
transformers and sensor cable/connector subassemblies. However, Criticare
produces certain important components in-house. All electronic components are
subjected to a 24-hour high-temperature burn-in to eliminate early component
failure. Some subassembly is performed by subcontractors, but final assembly and
quality control are performed at Criticare's facility. Criticare maintains test
and inspection procedures to minimize errors and enhance the operating
reliability of its products. Final test procedures on fully assembled units
include an operational test and a continuous 72-hour burn-in procedure.

         Certain of Criticare's products incorporate components currently
purchased from single sources. While the Company believes these components are
available from alternate sources on reasonable terms, an interruption in the
delivery of these or other components could have an adverse effect on the
Company. In order to reduce the risk of supply interruption, the Company
maintains inventories of certain components.

         The ISO 9000 series of quality management and assurance standards was
developed by the International Organization for Standardization (ISO) and
published in 1987. In 1993 the EC (European Community) was formed with the
signing of the Maastricht Treaty by 12 European countries. One of the many
standards adopted by this group is the ISO 9000 international quality assurance
and quality management series under the designation EN2 9000. Based on this
action by the EC and specific requirements from European customers, the Company
believes ISO 9000 registration will be required to compete in EC and other
international markets as an indication of compliance with international quality
management and assurance standards. In July 1994 the Food and Drug
Administration (FDA) announced its intention of harmonizing the ISO 9000
standards with its Medical Device Good Manufacturing Practices (GMP). The
Company has achieved certification under ISO's standards 9001 and 9002. See
"Regulation."


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Research, Development and Engineering

         Criticare has focused its research, development and engineering
expenditures on products designed to meet identified market demands. The Company
seeks to apply its expertise in gas monitoring and related sensor technology to
develop new products and adapt existing products for new markets. At August 31,
1998, the Company had an in-house research, development and engineering staff of
25 people. The Company's research, development and engineering expenditures were
$3.3 million in fiscal 1998, $2.3 million in fiscal 1997 and $2.6 million in
fiscal 1996. Expenditures for fiscal 1998 include $900,000 which relates to the
commitment to issue shares of the Company's common stock for certain patented
technology.

Competition

         The markets for the Company's products are highly competitive. Many of
Criticare's competitors, including its principal competitors described below,
have greater financial resources, more established brand identities and
reputations, longer histories in the medical equipment industry and larger and
more experienced sales forces than Criticare. In these respects, such
competitors have a competitive advantage over the Company. The Company competes
primarily on the basis of product features, the quality and value of its
products (i.e., their relative price compared to performance features provided)
and the effectiveness of its sales and marketing efforts. The Company believes
that its principal competitive advantages are provided by its focus on cost
containment and its patented and other proprietary technology and software for
noninvasive, continuous monitoring of oxygen, specific anesthetic gases, carbon
dioxide and blood pressure, its cost-efficient manufacturing, the efficiency and
speed of its research and development efforts and its established international
presence.

         The principal competing manufacturers of pulse oximeters are Nellcor
Puritan Bennett, a unit of Mallinckrodt Inc., and Ohmeda, a division of The BOC
Group, Inc. The Company estimates that Nellcor has captured a majority, and that
Ohmeda and the Company have each captured significant portions of the worldwide
pulse oximeter market. In addition, there are approximately 30 other companies
which compete in the market for pulse oximeters. The Company also indirectly
competes with manufacturers of numerous other medical equipment products for
limited customer funds.

         The Company believes that the worldwide anesthetic agent and carbon
dioxide monitor markets are comparatively fragmented, with no dominant
competitor. The Company's principal competitors in the domestic gas monitor
market include Datex Medical Instrumentation, Inc., a United States subsidiary
of Instrumentarium OY, a Finnish company, Ohmeda and Datascope Corp. The


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market for vital signs monitors includes competitors such as Hewlett-Packard
Company, Siemens A.G., Datex and SpaceLabs, Inc., a subsidiary of Westmark
International Incorporated.

         The Company believes that its principal competitors in Western Europe
include Datex and Ohmeda and that the Company has a significant share of this
market. In the Pacific Rim countries, the Company believes that Ohmeda is the
leading competitor and that Datex and the Company also have significant market
shares.

Regulation

         As a manufacturer of medical diagnostic equipment, the Company is
regulated by the FDA and similar foreign governmental agencies. In producing its
products, the Company must comply with a variety of regulations, including the
good manufacturing practices regulations of the FDA. In addition, it is subject
to periodic inspections by this agency. If the FDA believes that its legal
requirements have not been fulfilled, it has extensive enforcement powers,
including the ability to ban or recall products from the market and to prohibit
the operation of manufacturing facilities. The Company believes its products
comply with applicable FDA regulations in all material respects. In addition,
the Company received ISO 9002 certification on April 29, 1993 and ISO 9001
certification on July 8, 1994.

         Under the Federal Food, Drug and Cosmetic Act, as amended, all medical
devices are classified as Class I, Class II or Class III, depending upon the
level of regulatory control to which they will be subject. Class III devices,
which are the most highly controlled devices, are subject to premarket approval
by the FDA prior to commercial distribution in the United States.

         The Company's current products have not been subject to the FDA's
comprehensive premarket approval requirements, but are generally subject to
premarket notification requirements. If a new device is substantially equivalent
to a device that did not require premarket approval, premarket review is
satisfied through a procedure known as a "510(k) submission," under which the
applicant provides product information supporting its claim of substantial
equivalence. The FDA may also require that it be provided with clinical trial
results showing the device's safety and efficacy.

         The Company believes that the products it is currently developing
generally will be eligible for the 510(k) submission procedure and, therefore,
will not be subject to lengthy premarket approval procedures. However, these
products are still being developed and there can be no assurance that the FDA
will determine that the products may be marketed without premarket approval.



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         Criticare seeks, where appropriate, to comply with the safety standards
of Underwriters' Laboratories and the Canadian Standards Association and the
standards of the European Community. To date, the Company has not experienced
significant regulatory expense or delay in the foreign markets in which it sells
its products. Industry and professional groups such as the American Society of
Anesthesiologists, to the extent they have the power to mandate certain
practices or procedures as part of their profession's standard of care, are also
a source of indirect regulation of the Company's business.

Patents and Trademarks

         The Company believes one of its principal competitive advantages is
provided by its patented and other proprietary technology including its sensor
technology, infrared specific anesthetic gas monitoring technology, UltraSync
signal processing software and disposable respiratory secretion filter system.
None of the Company's U.S. patents expire before 2004. Criticare also has three
foreign patent applications pending. There is no assurance that any patents held
or secured by the Company will provide any protection or commercial or
competitive benefit to the Company. There is also no assurance that the
Company's products will not infringe upon patents held by others. The Company is
the owner of United States trademark registrations for "POET" and "Scholar."

         The Company also relies upon trade secret protection for certain of its
proprietary technology. Although the Company requires its employees having
access to its proprietary information to sign confidentiality agreements, no
assurance can be given that such agreements can be effectively enforced or that
others will not independently develop substantially equivalent proprietary
information and techniques or otherwise gain access to or disclose the Company's
trade secrets.

Employees

         At August 31, 1998, Criticare had 117 employees; including 33 in
manufacturing and operations, five in quality control, 40 in sales and
marketing, 14 in administration and 25 in research, development and engineering.

         Many of the Company's technical employees are highly skilled. The
Company believes that its continued success depends in part on its ability to
continue to attract qualified management, marketing and technical personnel.
None of the Company's employees are subject to a collective bargaining
agreement. The Company believes that its relations with its employees are good.


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Backlog

         Criticare's backlog on June 30, 1998 and 1997 was approximately
$1,542,000 and $1,184,000, respectively. The backlog at these dates consisted
primarily of products for which the sales order specified a delayed delivery
date. Criticare generally delivers its products out of inventory when specified
by the customer. The Company does not believe that its backlog at any date is
indicative of its future sales.

Item 2.    PROPERTIES.

         In November 1992, the Company purchased a new 60,000 square foot
facility for approximately $4.5 million. The Company's mortgage calls for
monthly installments of principal and interest of approximately $35,000 and a
final "balloon" payment of approximately $2.7 million in December 2002. The
Company believes this facility will be adequate for the foreseeable future.

Item 3.    LEGAL PROCEEDINGS.

         During fiscal 1998, the Company amicably settled separate pending legal
proceedings involving (i) Alan Brack, (ii) Messrs. Buckley and Joubert and Maria
Letica, and (iii) John Bombulie and Michael Cox. None of these settlements were
material to the Company's financial condition or results of operations.

         Prior to August, 1997, Criticare and a distributor of its products,
Dynamic Options Corporation ("D.O.C."), had a dispute over whether Criticare
could terminate the exclusive marketing agreement between the parties. On August
8, 1997, Criticare filed a Complaint against D.O.C. in the Waukesha County
Circuit Court. Criticare did not seek specific damages from D.O.C., but rather a
declaratory judgment that Criticare could terminate the exclusive marketing
agreement. On August 14, 1997, D.O.C. filed a Complaint in the Circuit Court for
Madison County, Alabama against Criticare and one of its employees, Fred Arbona.
The Complaint alleged that Criticare breached the terms of the exclusive
marketing agreement between the parties and that Criticare had committed fraud
and intentional interference with the business relationships between D.O.C. and
its customers. D.O.C. also alleged in its Complaint that Criticare violated the
Alabama Sales Representative Commission Contract Act by failing to pay
commissions due under the exclusive marketing agreement between the parties.
D.O.C. is seeking $5 million for each of the counts in its Complaint. On
September 12, 1997, Criticare filed a Notice of Removal of that case to the
Federal District Court in Alabama. However, the District Court remanded the case
to the Madison County Court. Criticare then filed a motion with the Madison
County Court to stay or dismiss the action in Alabama because of the prior
existing case in Waukesha County. The Madison County Court granted Criticare's
motion to


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dismiss, but D.O.C. won a reversal on appeal. Criticare has appealed
the reversal to the Alabama Supreme Court and that appeal is pending. Likewise,
D.O.C. filed a motion with the Waukesha County Circuit Court to stay or dismiss
the action in Waukesha County due to the pending litigation in Alabama. D.O.C.
has also filed a counterclaim in the Waukesha County case alleging virtually the
same causes of action that it did in its Complaint against Criticare in Alabama.
Criticare believes that D.O.C.'s claims lack merit and remains committed to
litigate vigorously the disputed claims with D.O.C. At this time, it is not
possible to assess with any degree of accuracy Criticare's likelihood of
prevailing on its claims against D.O.C., nor the likelihood of prevailing with
regard to D.O.C.'s claims against Criticare.

         The Company does not currently believe that any of such claims which it
has received, either individually or in the aggregate, will have a material
adverse effect on the Company's results of operations or financial condition.

         From time to time the Company receives notices from competitors of
potential patent infringement. The Company does not currently believe that any
of such claims which it has received, either individually or in the aggregate,
will have a material adverse effect on the Company's results of operations or
financial condition. However, there can be no assurance that the Company will
not be sued for patent infringement or that if sued, the outcome of such suits
will not have an adverse effect on the Company.

Item 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

         No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year ended June 30, 1998.

                                     PART II

Item 5.    MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
           MATTERS.

         Incorporated herein by reference to the Company's 1998 Annual Report to
Stockholders, page 23.

Item 6.    SELECTED FINANCIAL DATA.

         Incorporated herein by reference to the Company's 1998 Annual Report to
Stockholders, page 2.

Item 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
           RESULTS OF OPERATION.



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         Incorporated herein by reference to the Company's 1998 Annual Report to
Stockholders, pages 7 through 9.

Item 7A.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

         The Company did not hold any market risk sensitive instruments during
the period covered by this report.

Item 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

         The financial statements, together with the report thereon of Deloitte
& Touche LLP dated August 20, 1998, are incorporated herein by reference to the
Company's 1998 Annual Report to Stockholders, pages 10 through 22.

Item 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
           FINANCIAL DISCLOSURE.

         The Company has not changed accountants during the 24 months prior to
June 30, 1998. During that period, there were no disagreements with the
accountants regarding accounting and financial disclosure.

                                    PART III

Item 10.   DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

         Information regarding the executive officers and directors of the
Company is incorporated herein by reference to the discussions under "Nominee
for Election as Director," "Other Directors," " Section 16(a) Beneficial
Ownership Reporting Compliance" and "Executive Officers" in the Company's Proxy
Statement for the 1998 Annual Meeting of Stockholders (the "Criticare Proxy
Statement").

Item 11.   EXECUTIVE COMPENSATION.

         Incorporated herein by reference to the discussion under "Executive
Compensation" in the Criticare Proxy Statement.


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Item 12.      SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

         Incorporated herein by reference to the discussion under "Security
Ownership" in the Criticare Proxy Statement.

Item 13.      CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

         Incorporated herein by reference to the discussion under "Certain
Transactions" in the Criticare Proxy Statement.

                                     PART IV

Item 14.      EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

(a) The following documents are filed as part of this report:

         1. Financial Statements. The following consolidated financial
statements of the Company, included in the annual report of the Company to its
Stockholders for the fiscal year ended June 30, 1998, are incorporated by
reference in Item 8.

                  Consolidated Balance Sheets - as of June 30, 1998 and 1997.

                  Consolidated Statements of Operations - for the years ended
June 30, 1998, 1997 and 1996.

                  Consolidated Statements of Stockholders' Equity - for the
years ended June 30, 1998, 1997 and 1996.

                  Consolidated Statements of Cash Flows - for the years ended
June 30, 1998, 1997 and 1996.

                  Notes to consolidated financial statements.

         2.       Financial Statement Schedules:

                  Independent Auditors' Report.

                  Financial Statement Schedule for the years ending June 30,
1998, 1997 and 1996:



                                       15
<PAGE>   16
         Schedule 
         Number            Description                                     Page 
        ----------         -----------                                     ----
         VIII              Valuation and Qualifying Accounts                22
                           and Reserves

         All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions, are inapplicable or the required
information is shown in the financial statements or notes thereto, and therefore
have been omitted.

         3.       Exhibits:

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

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

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

                  4.2 Specimen Convertible Debenture (incorporated by reference
to the Registration Statement filed on Form S-3, Registration No. 333-25153).

                  10.1 Employment Agreement of Gerhard J. Von der Ruhr
(incorporated by reference to the Registration Statement filed on Form S-1,
Registration No. 33-13050).

                  10.2 Employment Agreement of N.C. Joseph Lai (incorporated by
reference to the Registration Statement filed on Form S-1, Registration No.
33-13050).

                  10.3 Blatz House Offices Limited Partnership Agreement
(incorporated by reference to the Company's Quarterly Report on Form 10-Q for
the quarter ended December 31, 1987).

                  10.4 Option Agreement dated March 12, 1991 between the Company
and American Healthcare Systems (incorporated by reference to the Company's
Annual Report on Form 10-K for the year ended June 30, 1991).


                                       16
<PAGE>   17


                  10.5 1992 Employee Stock Option Plan (incorporated by
reference to the Company's Registration Statement on Form S-8, Registration No.
33-60644).

                  10.6 1992 Nonemployee Stock Option Plan (incorporated by
reference to the Company's Registration Statement on Form S-8, Registration No.
33-60214).

                  10.7 1987 Employee Stock Option Plan (incorporated by
reference to the Company's Registration Statement on Form S-8, Registration No.
33-33497).

                  10.8 1987 Nonemployee Stock Option Plan (incorporated by
reference to the Company's Registration Statement on Form S-8, Registration No.
33-40038).

                  10.9 Form of Executive Officer and Director Indemnity
Agreement (incorporated by reference to the Company's Registration Statement on
Form S-1, Registration No. 33-13050).

                  10.10 Revised Option Agreement between the Company and AmHS
Purchasing Partners, L.P. dated as of July 1, 1993 (incorporated by reference to
the Company's Annual Report on Form 10-K for the year ended June 30, 1994).

                  10.11 Amendment to Employment Agreement of Gerhard J. Von der
Ruhr (incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended June 30, 1997).

                  10.12 Amendment to Employment Agreement of N.C. Joseph Lai
(incorporated by reference to the Company's Annual Report on Form 10-K for the
year ended June 30, 1997).

                  10.13 Amended Consultant Warrant Agreement (incorporated by
reference to the Company's Post-effective Amendment number 1 to its Registration
Statement on Form S-3, Registration No. 333-00861).

                  10.14 Amendment to Amended Consultant Warrant Agreement
(incorporated by reference to the Company's Annual Report on Form 10-K for the
year ended June 30, 1997).

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


                                       17
<PAGE>   18


                  10.16    Convertible Debenture Purchase Agreement
(incorporated by reference to the Company's Registration Statement on Form S-3,
Registration No. 333-25153).

                  10.17    Agreement, effective as of May 8, 1997, between the
Company and Telemed Technologies Inc.

                  10.18    Consulting Agreement dated as of February 13, 1998
between the Company and C.C.R.I. Corporation.

                  13       Annual Report to Stockholders for the Year Ended
June 30, 1998.

                  21       Subsidiaries.

                  23       Independent Auditors' Consent.

                  24 Power of Attorney (incorporated by reference to the
signature page hereof).

                  27       Financial Data Schedule.

(b)      Reports on Form 8-K.

         The Company filed no reports on Form 8-K during the quarter ended June
30, 1998.

(c)      Exhibits.

         The response to this portion of Item 14 is submitted as a separate
section of this report.

(d)      Financial Statement Schedules.

         The response to this portion of Item 14 is submitted as a separate
section of this report.

                                       18
<PAGE>   19


                                   SIGNATURES


                  Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.

                                                  CRITICARE SYSTEMS, INC.

                                                  By /s/ Gerhard J. Von der Ruhr
                                                  ------------------------------
                                                    Gerhard J. Von der Ruhr,
                                                            President

                                                  Date:  October  13, 1998

















                                       19

<PAGE>   20



                                POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Gerhard J. Von der Ruhr and Joseph M. Siekierski, and
each of them, as his true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments to this Report
on Form 10-K and to file the same, with all exhibits thereto and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, and each of them full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in connection therewith, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.

                  Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>


Signature                                   Title                                       Date
----------                                 ------                                       ----
<S>                                 <C>                                             <C> 
/s/ Gerhard J. Von der Ruhr         Chairman of the Board, President and            October 13, 1998
---------------------------         Director
Gerhard J. Von der Ruhr             

/s/ N.C. Joseph Lai                 Vice Chairman of the Board,                     October 13, 1998
---------------------------         Senior Vice President and Director
N.C. Joseph Lai                     

/s/ Joseph M. Siekierski            Vice President-Finance                          October 13, 1998
---------------------------         (Principal Financial and Accounting
Joseph M. Siekierski                Officer)
                                    
/s/ Karsten Houm                    Director                                        October 13, 1998
----------------                                                           
Karsten Houm

/s/ Milton Datsopoulos              Director                                        October 13, 1998
----------------------                                                      
Milton Datsopoulos

</TABLE>

                                       20
<PAGE>   21





INDEPENDENT AUDITORS' REPORT

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

We have audited the consolidated financial statements of Criticare Systems, Inc.
and subsidiaries as of June 30, 1998 and 1997, and for each of the three years
in the period ended June 30, 1998, and have issued our report thereon dated
August 20, 1998; such financial statements and report are included in your 1998
Annual Report to Stockholders and are incorporated herein by reference. Our
audits also included the consolidated financial statement schedule of Criticare
Systems, Inc. listed in Item 14(a). This consolidated financial statement
schedule is the responsibility of the Company's management. Our responsibility
is to express an opinion based on our audits. In our opinion, such consolidated
financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.



/s/ Deloitte & Touche LLP
Milwaukee, Wisconsin
August 20, 1998

                                       21
<PAGE>   22
<TABLE>
<CAPTION>

                                  SCHEDULE VIII

                             CRITICARE SYSTEMS, INC.

                        VALUATION AND QUALIFYING ACCOUNTS
                FOR THE YEARS ENDED JUNE 30, 1998, 1997 AND 1996


             Column A             Column B         Column C      Column D       Column E
             --------             --------         --------      --------       --------

                                 Balance at        Charged to                   Balance at
                                 Beginning         Costs and                     End of
           Description           of Period         Expenses      Deductions      Period
           -----------           ---------         --------      ----------      ------
<S>                                <C>           <C>           <C>           <C>       
YEAR ENDED JUNE 30, 1996:

Allowance for doubtful accounts    $  270,000    $  130,123    $  105,123    $  295,000

Reserve for sales returns and      $  369,000    $1,062,793    $  927,793    $  504,000
  allowances

YEAR ENDED JUNE 30, 1997

Allowance for doubtful accounts    $  295,000    $  366,505    $  194,505    $  467,000

Reserve for sales returns and      $  504,000    $1,283,931    $1,647,931    $  140,000
  allowances

YEAR ENDED JUNE 30, 1998:

Allowance for doubtful accounts    $  467,000    $   99,000    $  266,000    $  300,000

Reserve for sales returns and      $  140,000    $1,357,917    $1,397,917    $  100,000
  allowances

</TABLE>


                                       22