<PAGE>   1


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

                                    FORM 10-Q


                                   (Mark One)

(x)  Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
     Act of 1934
                  For the quarterly period ended MAY 31, 2000

                                       OR

( ) Transition report pursuant to Section 13 or 15(d) of the Securities Exchange
    Act of 1934

            For the transition period from                    to
                                          --------------------   --------------

                         Commission file number 0-19095

                             SOMANETICS CORPORATION

             (Exact name of registrant as specified in its charter)

<TABLE>

<S>                                                                        <C>
                       MICHIGAN                                             38-2394784
(State or other jurisdiction of incorporation or organization)             (I.R.S. Employer Identification No.)
</TABLE>


                              1653 EAST MAPLE ROAD,
                                 TROY, MICHIGAN
                                   48083-4208
                    (Address of principal executive offices)
                                   (Zip Code)

                                 (248) 689-3050
              (Registrant's telephone number, including area code)

     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
                        -------------------        ---------------------

         Number of common shares outstanding at June 15, 2000: 6,350,876


<PAGE>   2





                          PART I FINANCIAL INFORMATION

                             SOMANETICS CORPORATION



                                 BALANCE SHEETS

<TABLE>
<CAPTION>



ASSETS                                                                               May 31,                  November 30,
CURRENT ASSETS:                                                                       2000                       1999
                                                                                  --------------            --------------
                                                                                   (Unaudited)                 (Audited)
<S>                                                                              <C>                       <C>
    Cash and cash equivalents..........................................           $     206,077             $   1,423,423
    Marketable securities..............................................                 552,388                   833,736
    Accounts receivable, net of allowance for doubtful accounts of
       approximately $0 and $0 at May 31, 2000 and
       November 30, 1999, respectively.................................               1,048,379                   764,153
    Inventory, net.....................................................                 896,375                   611,332
    Prepaid expenses...................................................                  56,603                    89,702
                                                                                  -------------             -------------
       Total current assets............................................               2,759,822                 3,722,346
                                                                                  -------------             -------------
PROPERTY AND EQUIPMENT (at cost):
    Machinery and equipment............................................               1,462,215                 1,397,214
    Furniture and fixtures.............................................                 183,497                   183,497
    Leasehold improvements.............................................                 165,642                   165,642
                                                                                  -------------             -------------
       Total...........................................................               1,811,354                 1,746,353
    Less accumulated depreciation and amortization.....................              (1,244,735)               (1,097,695)
                                                                                  -------------             -------------
       Net property and equipment......................................                 566,619                   648,658
                                                                                  -------------             -------------
OTHER ASSETS:
    Patents and trademarks, net........................................                  54,937                    58,393
    Other..............................................................                  15,000                    15,000
                                                                                  -------------             -------------
       Total other assets..............................................                  69,937                    73,393
                                                                                  -------------             -------------
TOTAL ASSETS...........................................................           $   3,396,378             $   4,444,397
                                                                                  =============             =============

LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
    Accounts payable...................................................           $     445,071             $     498,008
    Accrued liabilities................................................                 194,355                   263,895
                                                                                  -------------             -------------
       Total current liabilities.......................................                 639,426                   761,903
                                                                                  -------------             -------------
COMMITMENTS AND CONTINGENCIES..........................................                       -                         -
SHAREHOLDERS' EQUITY:
    Preferred shares; authorized, 1,000,000 shares of $.01 par value;
       no shares issued or outstanding.................................                       -                         -
    Common shares; authorized, 20,000,000 shares of $.01 par value;
       issued and outstanding, 6,350,876 shares at May 31, 2000
       and 6,035,597 shares at November 30, 1999.......................                  63,509                    60,356
    Additional paid-in capital.........................................              51,147,968                50,290,067
    Accumulated unrealized losses on investments.......................                (144,053)                 (166,270)
    Accumulated deficit................................................             (48,310,472)              (46,501,659)
                                                                                  -------------             -------------
       Total shareholders' equity......................................               2,756,952                 3,682,494
                                                                                  -------------             -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.............................           $   3,396,378             $   4,444,397
                                                                                  =============             =============
</TABLE>



                        See notes to financial statements






                                       2

<PAGE>   3


                             SOMANETICS CORPORATION

                            STATEMENTS OF OPERATIONS
                                   (Unaudited)

<TABLE>
<CAPTION>


                                                               Three Months                     Six Months
                                                               Ended May 31,                   Ended May 31,
                                                     -------------------------------    -------------------------------
                                                          2000             1999             2000              1999
                                                     -------------     -------------    -------------     -------------

<S>                                                 <C>               <C>              <C>               <C>
   NET REVENUES................................      $   1,430,066     $   1,041,479    $   2,467,680     $   1,952,217
   COST OF SALES...............................            718,469           518,859        1,211,827           965,947
                                                     -------------     -------------    -------------     -------------
   GROSS MARGIN................................            711,597           522,620        1,255,853           986,270
                                                     -------------     -------------    -------------     -------------

   OPERATING EXPENSES:
      Research, development and engineering....            112,501           144,033          215,526           286,482
      Selling, general and administrative......          1,547,006         1,724,375        2,907,927         3,323,231
                                                     -------------     -------------    -------------     -------------
          Total operating expenses.............          1,659,507         1,868,408        3,123,453         3,609,713
                                                     -------------     -------------    -------------     -------------

   OPERATING LOSS..............................           (947,910)       (1,345,788)      (1,867,600)       (2,623,443)
                                                     -------------     -------------    -------------     -------------


   OTHER INCOME:
      Interest income..........................             25,025            80,201           58,786           173,528
                                                     -------------     -------------    -------------     -------------
          Total other income...................             25,025            80,201           58,786           173,528
                                                     -------------     -------------    -------------     -------------
   NET LOSS....................................      $    (922,885)    $  (1,265,587)   $  (1,808,814)    $  (2,449,915)
                                                     -------------     -------------    -------------     -------------


   NET LOSS PER COMMON SHARE -
       BASIC AND DILUTED.......................      $       (0.15)    $       (0.21)   $       (0.30)    $       (0.41)
                                                     -------------     -------------    -------------     -------------


   WEIGHTED AVERAGE SHARES
       OUTSTANDING.............................          6,158,429         6,035,597        6,097,349         6,035,597
                                                     =============     =============    =============     =============
</TABLE>







                        See notes to financial statements











                                       3


<PAGE>   4


                             SOMANETICS CORPORATION

                            STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)

<TABLE>
<CAPTION>

                                                                                    For the Six Month
                                                                                  Periods Ended May 31,
                                                                           ---------------------------------
                                                                                2000               1999
                                                                           --------------      -------------

<S>                                                                       <C>                <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net loss....................................................             $  (1,808,814)      $ (2,449,915)
  Adjustments to reconcile net loss to net cash used in
    operations:
      Depreciation and amortization...........................                   164,684            141,971
      Changes in assets and liabilities:
          Accounts receivable (increase)......................                  (284,226)          (204,148)
          Inventory (increase) decrease.......................                  (285,043)            56,790
          Prepaid expenses (increase) decrease................                    33,099            (17,290)
          Accounts payable increase (decrease)................                   (52,937)             6,607
          Accrued liabilities (decrease)......................                   (69,540)           (70,006)
                                                                            ------------       ------------
            Net cash (used in) operations.....................                (2,302,777)        (2,535,991)
                                                                            ------------       ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Proceeds from sale of marketable securities.................                   303,565          1,608,595
  Acquisition of property and equipment (net).................                   (79,188)          (120,264)
                                                                            ------------       ------------
            Net cash provided by investing activities.........                   224,377          1,488,331
                                                                            ------------       ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from issuance of common shares.....................                   861,054                  -
                                                                            ------------       ------------
            Net cash provided by financing activities.........                   861,054                  -
                                                                            ------------       ------------

NET (DECREASE) IN CASH AND CASH
  EQUIVALENTS.................................................                (1,217,346)        (1,047,660)

CASH AND CASH EQUIVALENTS, BEGINNING
  OF PERIOD  .................................................                 1,423,423          1,976,829
                                                                            ------------       ------------

CASH AND CASH EQUIVALENTS, END
  OF PERIOD...................................................              $    206,077       $    929,169
                                                                            ============       ============
</TABLE>




                        See notes to financial statements







                                       4

<PAGE>   5


                             SOMANETICS CORPORATION

                          NOTES TO FINANCIAL STATEMENTS
                                   (UNAUDITED)

                                  MAY 31, 2000



1.       ORGANIZATION AND OPERATIONS

         We are a Michigan corporation that was formed in January 1982. We
develop, manufacture and market the INVOS(R) Cerebral Oximeter, the only
non-invasive patient monitoring system commercially available in the United
States that continuously measures changes in the blood oxygen level in the adult
brain. The Cerebral Oximeter is based on our proprietary In Vivo Optical
Spectroscopy, or INVOS, technology. INVOS analyzes various characteristics of
human blood and tissue by measuring and analyzing low-intensity visible and near
infrared light transmitted into portions of the body. We are also developing the
CORrestore(TM) patch, which is intended for use in heart surgeries called
surgical anterior ventricular restoration, or SAVR. See Note 7. We have incurred
research, product development and other expenses involved in designing,
developing, marketing and selling our products, as well as devoting efforts to
raising capital.


2.       FINANCIAL STATEMENT PRESENTATION

         We prepared our unaudited interim financial statements pursuant to the
Securities and Exchange Commission's rules. Accordingly, they do not include all
of the information and footnotes normally included in our annual financial
statements prepared in accordance with generally accepted accounting principles.
We believe, however, that the disclosures are adequate to make the information
presented not misleading.

         The unaudited interim financial statements in this report reflect all
adjustments which are, in our opinion, necessary to a fair statement of the
results for the interim periods presented. All of these adjustments are of a
normal recurring nature, except those not material to our financial condition or
results of operations. Our operating results for the six-month period ended May
31, 2000, do not necessarily indicate the results that you should expect for the
year ending November 30, 2000, although we expect to continue to incur operating
losses for the foreseeable future. You should read the unaudited interim
financial statements together with the financial statements and related
footnotes for the year ended November 30, 1999 included in our Annual Report on
Form 10-K for the fiscal year ended November 30, 1999.

         On April 13, 2000, we completed the sale of 167,131 common shares to
Kingsbridge Capital Limited, pursuant to the Private Equity Line Agreement, at a
price of $3.59 per share, for gross proceeds of $600,000, and on May 11, 2000,
we completed the sale of 148,148 common shares to Kingsbridge Capital Limited,
at a price of $2.70, for gross proceeds of $400,000. Our net proceeds, after
deducting the commissions and estimated expenses of the offerings, were
approximately $861,000.

         We have incurred an accumulated deficit of $48,310,472 through May 31,
2000. We had working capital of $2,120,396, cash, cash equivalents, and
marketable securities of $758,465, total current liabilities of $639,426 and
shareholders' equity of $2,756,952 as of May 31, 2000.

         We believe that markets exist for the products we have developed and
are developing; however, whether our products will be successful is inherently
uncertain. You should consider the following factors in evaluating the
likelihood of our success: our limited resources and current financial
condition, the problems and expenses frequently encountered by companies forming
a new business, our ability to raise new funds, our abiliy to develop, apply and
market new technology, and our industry and competitive environment.









                                       5

<PAGE>   6


                             SOMANETICS CORPORATION

                          NOTES TO FINANCIAL STATEMENTS
                                   (UNAUDITED)

                                  MAY 31, 2000


         The net proceeds from our public offering of common shares in April
1998 and our sales of common shares to Kingsbridge Capital Limited in April 2000
and May 2000 were more than sufficient to fund our working capital requirements
for the six months ended May 31, 2000.


         We believe that the cash, cash equivalents, and marketable securities
on hand at May 31, 2000, together with the estimated net proceeds from sales of
the remaining 684,721 common shares over time to Kingsbridge Capital Limited
pursuant to the Private Equity Line Agreement described below based on current
market prices, will be adequate to satisfy our operating and capital
requirements through December 2000. By that time we will be required to raise
additional cash either through additional sales of our products, through sales
of securities, by incurring indebtedness or by some combination of these
alternatives. If we are unable to raise additional cash by that time, we will be
required to reduce or discontinue our operations.

         The estimated length of time current cash, cash equivalents, and
marketable securities will sustain our operations is based on estimates and
assumptions we have made. These estimates and assumptions are subject to change
as a result of actual experience. Changes in the market price or trading volume
of our common shares could reduce the proceeds we receive for selling those
common shares under the Private Equity Line Agreement, decrease the number of
shares we can sell in a particular period or both. Actual capital requirements
necessary to market the Cerebral Oximeter and SomaSensor, to develop and test
the CORrestore patch, to develop product-line extensions of the Cerebral
Oximeter for use on newborns, other non-brain tissue applications, and
enhancements to the Cerebral Oximeter and SomaSensor, and for working capital
might be substantially greater than current estimates.

         We do not believe that product sales will be sufficient to fund our
operations in fiscal 2000.

         As of May 31, 2000, we had 60,400 redeemable warrants outstanding,
exercisable at $20.00 per share until July 13, 2000, and 55,120 redeemable
warrants outstanding exercisable at $17.50 per share until April 1, 2001. These
warrants were issued in our 1995 and 1996 Regulation S securities offerings. The
conditions permitting us to redeem these warrants have not been met as of June
9, 2000. In addition, the placement agents and their transferees hold warrants
to purchase 11,424 common shares exercisable at $12.50 per share until April 1,
2001, and 15,000 warrants exercisable at $14.40 per share until July 13, 2000.
Also, the underwriter of the June 1997 public offering received warrants to
purchase 200,000 common shares exercisable at $4.80 per share until May 29,
2002. In addition, Kingsbridge Capital Limited received warrants to purchase
200,000 common shares exercisable at $4.36 per share until September 3, 2005
pursuant to the Private Equity Line Agreement. It is unlikely that these
warrants will be exercised if the exercise price exceeds the market price of the
common shares. Also, CORrestore, LLC and its agent, Wolfe & Company, received
warrants to purchase 400,000 common shares exercisable at $3.00 per share until
June 2, 2005 pursuant to the CORrestore license agreement, and, subject to
shareholder approval, when specified events occur we agreed to issue them
five-year warrants to purchase an additional 2,100,000 common shares exercisable
at $3.00 per share pursuant to the CORrestore license agreement.

         We entered into a Private Equity Line Agreement with Kingsbridge
Capital Limited on March 6, 2000. The equity line requires Kingsbridge to
purchase up to $15 million of newly-issued common shares from us at times and in
amounts we select over a period of up to two years, subject to specific
restrictions and conditions set forth in the Private Equity Line Agreement. One
of the conditions to our ability to begin drawing on the facility was to file
and have declared effective a registration statement under the Securities Act of
1933 to permit Kingsbridge to resell to the public any shares that we sell to it
under this agreement. The registration statement became effective on March 31,
2000. The decision to draw on any funds and the timing and amount of any such
draw are at our sole discretion, subject to specified conditions. Individual
purchases must be at least 15 trading




                                       6

<PAGE>   7



                             SOMANETICS CORPORATION

                          NOTES TO FINANCIAL STATEMENTS
                                   (UNAUDITED)

                                  MAY 31, 2000

days apart and are limited to $10,000 to $1,000,000 depending on the then
current average market price and daily trading volume for our common shares.

         The purchase price for the common shares is 86% to 90% of an average
market price for the common shares. The actual percentage will depend on an
average market price of the common shares. In addition, we must pay Brean Murray
& Co., Inc. a 3.5% commission in connection with these sales. We are not
permitted to sell more than 19.9% of our outstanding common shares pursuant to
this arrangement unless we first obtain shareholder approval under The Nasdaq
SmallCap Market rules. In addition, the number of shares we sell to Kingsbridge,
together with any shares then held by Kingsbridge, must not exceed 9.9% of the
common shares that would be outstanding upon completion of the sale. No shares
may be sold unless the average trading volume of our common shares on The Nasdaq
SmallCap Market is at least 30,000 shares a day. This description does not
constitute an offer of any securities for sale, and any such public offering
will be made only by means of a prospectus. During the two-year term of the
agreement, we are obligated to sell a minimum of $7,500,000 of our common shares
to Kingsbridge or pay Kingsbridge the discount on the unsold shares.

         We have no loan commitments.

         Even if we receive additional capital, we might not be able to achieve
the level of sales necessary to sustain our operations, and, currently, the
costs of developing and testing the CORrestore patch are expected to increase
our expenses without increasing our revenues. We might not be able to obtain any
funds on terms acceptable to us and at times required by us through sales of our
products, sales of securities or loans in sufficient quantities. Our Independent
Auditors' report in our Annual Report on Form 10-K for the fiscal year ended
November 30, 1999 contains an explanatory paragraph relating to the uncertainty
concerning our ability to continue as a going concern.

         These factors, among others, raise substantial doubt about our ability
to continue as a going concern. The financial statements do not include any
adjustments relating to the recoverability and classification of asset carrying
amounts or the amount and classification of liabilities that might be necessary
if we are unable to continue as a going concern.

3.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         Marketable Securities consist of lower rated, fixed income securities,
classified as available for sale, maturing approximately six months to one year
from the date of acquisition and are stated at the fair market value.










                                       7

<PAGE>   8


                             SOMANETICS CORPORATION

                          NOTES TO FINANCIAL STATEMENTS
                                   (UNAUDITED)

                                  MAY 31, 2000

         Inventory is stated at the lower of cost or market on a first-in,
first-out (FIFO) basis. Inventory consists of:

<TABLE>
<CAPTION>


                                                 May 31, 2000               November 30, 1999
                                                 ------------               -----------------
      <S>                                       <C>                         <C>
           Finished goods...................        $  190,852                  $  107,820
           Work in process..................            72,629                      38,682
           Purchased components.............           632,894                     464,830
                                                    ----------                  ----------
                Sub-total...................           896,375                     611,332
           Less reserve for obsolete
              and excess inventory..........        (    -    )                (     -    )
                                                    ----------                  ----------
                Total.......................        $  896,375                  $  611,332
                                                    ==========                  ==========
</TABLE>


         Patents and Trademarks are recorded at cost and are being amortized on
the straight-line method over 17 years. Accumulated amortization was $56,796 and
$53,340 at May 31, 2000 and November 30, 1999, respectively.

         Loss Per Common Share - basic and diluted, is computed using the
weighted average number of common shares outstanding during each period. Common
shares issuable under stock options and warrants have been considered in the
computation of the net loss per Common Share - diluted, but have not been
included because such inclusion would be antidilutive. As of May 31, 2000 and
May 31, 1999, we had outstanding 1,944,981 and 1,612,851, respectively, of
warrants and options to purchase common shares.

         Reclassifications - Certain reclassifications have been made to the
financial statements for 1999 to conform to the 2000 presentation.


4.       ACCRUED LIABILITIES

         Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
                                                        May 31, 2000             November 30, 1999
                                                        ------------             -----------------

      <S>                                              <C>                      <C>
         Professional Fees.......................         $  35,025                    $  88,250
         Accrued Incentive.......................            95,525                       -
         Accrued Sales Commissions...............            45,121                      133,863
         Accrued Insurance.......................            12,234                       20,082
         Accrued Warranty........................             6,450                       11,700
         Other...................................                 -                       10,000
                                                          ---------                    ---------
             Total...............................          $194,355                     $263,895
                                                          =========                    =========
</TABLE>



5.       COMMITMENTS AND CONTINGENCIES

         We may become subject to products liability claims by patients or
physicians, and may become a defendant in products liability or malpractice
litigation. We have obtained products liability insurance and an umbrella
policy. We might not be able to maintain such insurance or such insurance might
not be sufficient to protect us against products liability.







                                       8

<PAGE>   9



                             SOMANETICS CORPORATION

                          NOTES TO FINANCIAL STATEMENTS
                                   (UNAUDITED)

                                  MAY 31, 2000

6.       STOCK OPTIONS

         On February 16, 2000, our Board of Directors approved an amendment to
the Somanetics Corporation 1997 Stock Option Plan to increase the number of
common shares reserved for issuance pursuant to the exercise of options granted
under the 1997 Plan by 295,000 shares, from 1,040,000 to 1,335,000 shares,
subject to shareholder approval at the 2000 Annual Meeting of Shareholders. Our
shareholders approved the amendment at the 2000 Annual Meeting of Shareholders
on April 18, 2000.

         Effective February 16, 2000, we granted 10-year options under the 1997
Stock Option Plan to purchase 126,000 common shares to nine of our key employees
(including officers) and one of our consultants at an exercise price of $2.88
per share (the closing sale price of the common shares as of the date of grant).
Effective April 18, 2000, we granted to five of our directors, who are not
officers or employees, 10-year options under the 1997 Stock Option Plan to
purchase an aggregate of 10,000 common shares at an exercise price of $3.375 per
share (the closing sale price of the common shares as of the date of grant).
Effective May 31, 2000, we granted to one of our directors 10-year options under
the 1997 Stock Option Plan to purchase an aggregate of 100,000 common shares,
50,000 at an exercise price of $4.36 per share and 50,000 at an exercise price
of $3.00 per share (more than the closing sale price of the common shares on the
date of grant).

7.       SUBSEQUENT EVENTS

         We are developing the CORrestore patch, which is intended for use in
heart surgeries called surgical anterior ventricular restoration, or SAVR. We
entered into a license agreement as of June 2, 2000 with Drs. Buckberg and
Athanasuleas and their company, CORrestore LLC. The license agreement grants us
exclusive, worldwide, royalty-bearing licenses to specified rights relating to
the CORrestore patch and related products and accessories for SAVR, subject to
the terms and conditions of the license agreement. Pursuant to the license
agreement, Drs. Buckberg and Athanasuleas and CORrestore LLC have agreed to
provide various consulting services to us. We have agreed to pay all of the
expenses of such consultation, of clinical testing of the CORrestore patch and
of the existing patent and future patent applications or registrations after the
date of the license.

         In exchange for the license and consulting services, we agreed to the
following compensation for CORrestore LLC and its agent, Wolfe & Company: (1) a
royalty of 10% of our "net sales" of products subject to the license, (2)
five-year warrants to purchase up to 400,000 common shares at $3.00 a share,
exercisable to purchase 300,000 shares immediately and to purchase an additional
50,000 shares upon our receipt of clearance or approval from the FDA to market
the CORrestore patch in the United States and another 50,000 shares upon our
receipt of CE certification for the CORrestore patch, (3) additional five-year
warrants to purchase up to 2,100,000 Common Shares at $3.00 a share, to be
granted, subject to shareholder approval, when we receive clearance or approval
from the FDA to market the CORrestore patch in the United States, exercisable
based on our cumulative net sales of the CORrestore patch products, and (4) a
consulting fee of $25,000 a year to each of Drs. Buckberg and Athanasuleas until
we sell 1,000 CORrestore patches.

         Drs. Buckberg and Athanasuleas and CORrestore LLC also agreed to
specified confidentiality, non-competition and non-solicitation provisions in
the license agreement and we have agreed to specified confidentiality provisions
in the license agreement. CORrestore and the Company may terminate the licenses
upon the occurrence of various events described in the license agreement.





                                       9

<PAGE>   10


                             SOMANETICS CORPORATION

                          NOTES TO FINANCIAL STATEMENTS
                                   (UNAUDITED)

                                  MAY 31, 2000

We are currently working with Drs. Buckberg and Athanasuleas to design and
execute the preliminary and definitive clinical tests necessary to obtain
regulatory approvals for the CORrestore patch, including FDA clearance and CE
certification. We currently believe that the CORrestore patch is eligible to
seek 510(k) clearance to market the product in the United States. However, the
FDA could require a PMA application, which would require significantly more time
and expense. Assuming the FDA requires 510(k) clearance, we expect the process
of development, testing, application, clearance and preparing to manufacture the
product to take approximately two years and to cost us approximately $3,800,000.
If PMA approval is required, the time and cost of testing, application and
approval could be significantly greater. These expenditures will require us to
raise additional capital.





























                                       10

<PAGE>   11


                             SOMANETICS CORPORATION

                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                       CONDITION AND RESULTS OF OPERATIONS

                                  MAY 31, 2000

         Some of the statements in this report are forward-looking statements.
These forward-looking statements include statements relating to our performance
in this Management's Discussion and Analysis of Financial Condition and Results
of Operations. In addition, we may make forward-looking statements in future
filings with the Securities and Exchange Commission and in written material,
press releases and oral statements issued by us or on our behalf.
Forward-looking statements include statements regarding the intent, belief or
current expectations of us or our officers, including statements preceded by,
followed by or including forward-looking terminology such as "may," "will,"
"should," "believe," "expect," "anticipate," "estimate," "continue," "predict"
or similar expressions, with respect to various matters.

         It is important to note that our actual results could differ materially
from those anticipated from the forward-looking statements depending on various
important factors. These important factors include our history of losses and
ability to continue as a going concern, our current dependence on the Cerebral
Oximeter and SomaSensor, the challenges associated with developing new products,
the uncertainty of acceptance of our products by the medical community, the
lengthy sales cycle for our products, competition in our markets, our need for
additional financing, our dependence on our distributors, and the other factors
discussed under the caption "Risk Factors" and elsewhere in our Registration
Statement on Form S-1 (file no. 333-33262) effective March 31, 2000 and
elsewhere in this report, including Part II, Item 5 of this report.

         All forward-looking statements in this report are based on information
available to us on the date of this report. We do not undertake to update any
forward-looking statements that may be made by us or on our behalf in this
report or otherwise. In addition, please note that matters set forth under the
caption "Risk Factors" in our registration statement and in Part II, Item 5 of
this report constitute cautionary statements identifying important factors with
respect to the forward-looking statements, including certain risks and
uncertainties, that could cause actual results to differ materially from those
in such forward-looking statements.

RESULTS OF OPERATIONS

OVERVIEW

         We develop, manufacture and market the INVOS Cerebral Oximeter, the
only non-invasive patient monitoring system commercially available in the United
States that continuously measures changes in the blood oxygen level in the adult
brain. We are also developing the CORrestore(TM) patch, which is intended for
use in heart surgeries called surgical anterior ventricular restoration, or
SAVR. In June 1996, we received clearance from the FDA to market the Cerebral
Oximeter and the related disposable SomaSensor in the United States. In October
1997, we obtained FDA clearance for new advances in our INVOS technology that
are incorporated in our model 4100 Cerebral Oximeter. The model 4100 Cerebral
Oximeter was introduced in October 1997 and we began shipping the model 4100 in
the first quarter of fiscal 1998. During the third quarter of fiscal 1999, we
introduced our new model 5100 pediatric Cerebral Oximeter at an international
trade show, and began international shipments of the model 5100 in August 1999.
During the third quarter of fiscal 1999, we also submitted our 510(k)
application to the FDA for the model 5100 Cerebral Oximeter. The FDA responded
to our submission with questions which required more clinical study data. We
have completed the clinical studies and are in the process of providing the data
to the FDA. We will then await FDA clearance to market the model 5100 in the
United States. In June 2000, we entered into a license agreement for the
CORrestore patch, which requires testing and FDA clearance or approval before we
can sell it in the United States.





                                       11

<PAGE>   12



                             SOMANETICS CORPORATION

                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                       CONDITION AND RESULTS OF OPERATIONS

                                  MAY 31, 2000

         During fiscal 1999 and the first two quarters of fiscal 2000, our
primary activities consisted of sales and marketing of the model 4100 Cerebral
Oximeter and the related disposable SomaSensor. We had an accumulated deficit of
$48,310,472 through May 31, 2000. We believe that our accumulated deficit will
continue to increase for the foreseeable future.

         We derive our revenues from sales of Cerebral Oximeters and SomaSensors
to our distributors and to hospitals in the United States through our direct
sales employees. We recognize revenues when we ship our products to our
distributors or to hospitals. Payment terms are generally net 30 days for United
States sales and net 60 days or longer for international sales. Our primary
expenses, excluding the cost of our products, are selling, general and
administrative and research, development and engineering, which we generally
expense as incurred. Beginning in the third quarter of fiscal 1999, we offered
to Baxter Limited in Japan to exchange model 4100 Cerebral Oximeters for model
3100A Cerebral Oximeters (which we scrap) and cash equal to the difference in
sales prices of the two models, as a result of the Japanese Ministry of Health
and Welfare approval in the first quarter of fiscal 1999 to market the model
4100 in Japan. Such sales reduce our average unit sales price and overall gross
margin. Also, during fiscal 1998, we began a no-cap sales program whereby we
ship the model 4100 Cerebral Oximeter to the customer at no charge, in exchange
for the customer agreeing to purchase a minimum quantity of SomaSensors, on a
monthly basis, at a premium for a stated period of time.

THREE MONTHS ENDED MAY 31, 2000 COMPARED TO THREE MONTHS ENDED MAY 31, 1999

         Our net revenues increased approximately $389,000, or 37%, from
$1,041,479 in the three-month period ended May 31, 1999 to $1,430,066 in the
three-month period ended May 31, 2000. The increase in net revenues is primarily
attributable to

         -  an increase in international sales of approximately $334,000, from
            approximately $435,000 in the second quarter of fiscal 1999 to
            approximately $769,000 in the second quarter of fiscal 2000,
            primarily due to the initial stocking order for model 4100 and model
            5100 Cerebral Oximeters and SomaSensors, by Nellcor Puritan Bennett
            Export, Inc., and
         -  an increase in United States sales of approximately $55,000, from
            approximately $606,000 in the second quarter of fiscal 1999 to
            approximately $661,000 in the second quarter of fiscal 2000,
            primarily due to increased purchases of the disposable SomaSensor.

The increase in net revenues was partially offset by

         -  a 23% decrease in the average selling price of Cerebral Oximeters
            primarily as a result of the initial stocking purchase by Nellcor
            Puritan Bennett Export, Inc., at lower per unit prices, for use as
            demonstration equipment by its sales personnel, and a change in the
            sales mix in the United States between direct purchases of the model
            4100 and no-cap placements of the model 4100, and
         -  a 19% decrease in the average selling price of SomaSensors primarily
            as a result of the initial stocking purchase by Nellcor Puritan
            Bennett Export, Inc., at lower per unit prices, for use as
            demonstration equipment by its sales personnel.

         Effective January 1, 2000, we increased the retail price of both the
Cerebral Oximeter and SomaSensor by 7%. This price increase does not apply to
any existing sales quotations issued before January 1, 2000.

         Approximately 54% of our net revenues in the second quarter of fiscal
2000 were export sales, compared to approximately 42% of our net revenues in the
second quarter of fiscal 1999. Sales of SomaSensors, model 4100 Cerebral
Oximeters, and model 5100 Cerebral Oximeters as a percentage of net revenues
were as follows:


                                       12

<PAGE>   13


                             SOMANETICS CORPORATION

                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                       CONDITION AND RESULTS OF OPERATIONS

                                  MAY 31, 2000

<TABLE>
<CAPTION>
                                                                     PERCENT OF NET REVENUE
                                                                    SECOND QUARTER OF FISCAL
              PRODUCT                                          2000                      1999
              -------                                     --------------            --------------
           <S>                                          <C>                         <C>


              SomaSensors........................                46%                      42%
              Model 4100 Cerebral Oximeters......                30%                      58%
              Model 5100 Cerebral Oximeters......                24%                       0%
                                                          --------------            --------------
                  Total..........................               100%                     100%
                                                          ==============            ==============
</TABLE>



Two international distributors accounted for approximately 33% and 13%,
respectively, of net revenues for the three months ended May 31, 2000, and two
international distributors accounted for approximately 19% and 14% of net
revenues for the three months ended May 31, 1999.

         Gross margin as a percentage of net revenues was approximately 50% for
the quarter ended May 31, 2000 and approximately 50% for the quarter ended May
31, 1999. Although we realized a lower average selling price for Cerebral
Oximeters and SomaSensors in the second quarter of fiscal 2000, gross margin as
a percentage of net revenues remained relatively constant primarily due to
shipments of our new model SomaSensor in fiscal 2000, which is less costly to
manufacture than the old model SomaSensors sold in the second quarter of fiscal
1999.

         Our research, development and engineering expenses decreased
approximately $32,000, or 22%, from $144,033 for the three months ended May 31,
1999 to $112,501 for the three months ended May 31, 2000. The decrease is
primarily attributable to an approximately $42,000 decrease in consulting fees
associated with the termination of our consulting order with NeuroPhysics
Corporation. We expect our research, development and engineering expenses to
increase significantly in connection with development and clinical testing of
the CORrestore patch in fiscal 2000.

     Selling, general and administrative expenses decreased approximately
$177,000, or 10%, from $1,724,375 for the three months ended May 31, 1999 to
$1,547,006 for the three months ended May 31, 2000. The decrease in selling,
general and administrative expense is primarily attributable to

         -  a $197,000 decrease in salaries, wages, commissions and related
            expenses, primarily as a result of a reduction in the number of
            employees, principally sales and marketing, since June 1, 1999 (from
            an average of 47 employees for the quarter ended May 31, 1999 to an
            average of 42 employees for the quarter ended May 31, 2000) and
            reduced sales commissions, and
         -  a $77,000 decrease in professional service fees primarily as a
            result of decreased business consulting fees during the second
            quarter of fiscal 2000.

These decreases were partially offset by

         -  a $55,000 realized loss on the sale of marketable securities in the
            second quarter of fiscal 2000, and
         -  a $44,000 increase in travel and selling-related expenses, primarily
            related to trade shows and conferences for the Cerebral Oximeter.




                                       13

<PAGE>   14



                             SOMANETICS CORPORATION

                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                       CONDITION AND RESULTS OF OPERATIONS

                                  MAY 31, 2000

         For the three-month period ended May 31, 2000, we realized a 27%
decrease in our net loss over the same period in fiscal 1999. The decrease is
primarily attributable to

         -  a 37% increase in net revenues, and
         -  a 11% decrease in operating expenses.

These changes were partially offset by decreased interest income.


SIX MONTHS ENDED MAY 31, 2000 COMPARED TO SIX MONTHS ENDED MAY 31, 1999

         Our net revenues increased approximately $515,000, or 26%, from
$1,952,217 in the six-month period ended May 31, 1999 to $2,467,680 in the
six-month period ended May 31, 2000. The increase in net revenues is primarily
attributable to

         -  an increase in international sales of approximately $305,000, from
            approximately $915,000 in the first two quarters of fiscal 1999 to
            approximately $1,220,000 in the first two quarters of fiscal 2000,
            primarily due to the initial stocking order for model 4100 and model
            5100 Cerebral Oximeters and SomaSensors, by Nellcor Puritan Bennett
            Export, Inc., and
         -  an increase in United States sales of approximately $210,000, from
            approximately $1,037,000 in the first two quarters of fiscal 1999 to
            approximately $1,247,000 in the first two quarters of fiscal 2000,
            primarily due to increased purchases of the disposable SomaSensor.

The increase in net revenues was partially offset by

         -  a 18% decrease in the average selling price of Cerebral Oximeters
            primarily as a result of the initial stocking purchase by Nellcor
            Puritan Bennett Export, Inc., at lower per unit prices, for use as
            demonstration equipment by its sales personnel, and a change in the
            sales mix in the United States between direct purchases of the model
            4100 and no-cap placements of the model 4100, and
         -  a 13% decrease in the average selling price of SomaSensors primarily
            as a result of the initial stocking purchase by Nellcor Puritan
            Bennett Export, Inc., at lower per unit prices, for use as
            demonstration equipment by its sales personnel.

         Effective January 1, 2000, we increased the retail price of both the
Cerebral Oximeter and SomaSensor by 7%. This price increase does not apply to
any existing sales quotations issued before January 1, 2000.

         Approximately 49% of our net revenues in the first two quarters of
fiscal 2000 were export sales, compared to approximately 47% of our net revenues
in the first two quarters of fiscal 1999. Sales of SomaSensors, model 4100
Cerebral Oximeters, model 4100 exchanges, and model 5100 Cerebral Oximeters as a
percentage of net revenues were as follows:







                                       14

<PAGE>   15



                             SOMANETICS CORPORATION

                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                       CONDITION AND RESULTS OF OPERATIONS

                                  MAY 31, 2000

<TABLE>
<CAPTION>

                                                                     PERCENT OF NET REVENUE
                                                                  FIRST TWO QUARTERS OF FISCAL
              PRODUCT                                           2000                       1999
              -------                                     -----------------         -----------------

            <S>                                          <C>                        <C>
              SomaSensors........................                47%                        39%
              Model 4100 Cerebral Oximeters......                33%                        61%
              Model 5100 Cerebral Oximeters......                17%                         0%
              Model 4100 Exchanges...............                 3%                         0%
                                                          -----------------         -----------------
                  Total..........................               100%                       100%
                                                          =================         =================
</TABLE>



Two international distributors accounted for approximately 19% and 17%,
respectively, of net revenues for the six months ended May 31, 2000, and one
international distributor accounted for approximately 26% of net revenues for
the six months ended May 31, 1999.

         Gross margin as a percentage of net revenues was approximately 51% for
the six months ended May 31, 2000 and approximately 51% for the six months ended
May 31, 1999. Although we realized a lower average selling price for Cerebral
Oximeters and SomaSensors in the first six months of fiscal 2000, gross margin
as a percentage of net revenues remained relatively constant primarily due to
shipments of our new model SomaSensor in fiscal 2000, which is less costly to
manufacture than the old model SomaSensors sold in the first six months of
fiscal 1999.

         Our research, development and engineering expenses decreased
approximately $71,000, or 25%, from $286,482 for the six months ended May 31,
1999 to $215,526 for the six months ended May 31, 2000. The decrease is
primarily attributable to an approximately $75,000 decrease in consulting fees
associated with the termination of our consulting order with NeuroPhysics
Corporation.

     Selling, general and administrative expenses decreased approximately
$415,000, or 12%, from $3,323,231 for the six months ended May 31, 1999 to
$2,907,927 for the six months ended May 31, 2000. The decrease in selling,
general and administrative expense is primarily attributable to

         -  a $474,000 decrease in salaries, wages, commissions and related
            expenses, primarily as a result of a reduction in the number of
            employees, principally sales and marketing, since June 1, 1999 (from
            an average of 48 employees for the six months ended May 31, 1999 to
            an average of 42 employees for the six months ended May 31, 2000)
            and reduced sales commissions, and
         -  a $37,000 decrease in professional service fees primarily as a
            result of decreased business consulting fees during the first six
            months of fiscal 2000.

These decreases were partially offset by

         -  a $55,000 realized loss on the sale of marketable securities in the
            second quarter of fiscal 2000, and
         -  a $43,000 increase in clinical research expenses, primarily related
            to the pediatric Cerebral Oximeter.





                                       15

<PAGE>   16




                             SOMANETICS CORPORATION

                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                       CONDITION AND RESULTS OF OPERATIONS

                                  MAY 31, 2000

         For the six-month period ended May 31, 2000, we realized a 26% decrease
in our net loss over the same period in fiscal 1999. The decrease is primarily
attributable to

         -  a 26% increase in net revenues, and
         -  a 13% decrease in operating expenses.

These changes were partially offset by decreased interest income.


LIQUIDITY AND CAPITAL RESOURCES

         Net cash used in operations during the six-month period ended May 31,
2000 was approximately $2,303,000. Cash was used primarily to

         -  fund our net loss, primarily selling, general and administrative
            expenses and research, development and engineering expenses,
            totaling approximately $1,644,000, net of depreciation and
            amortization expense,
         -  increase inventories by approximately $285,000, primarily due to our
            signed distribution agreement with Nellcor Puritan Bennett Export,
            Inc., a wholly-owned subsidiary of Mallinckrodt, Inc.,
         -  increase accounts receivable by approximately $284,000, primarily
            due to the initial stocking purchase by Nellcor Puritan Bennett
            Export, Inc. during the second quarter of fiscal 2000,
         -  decrease accrued liabilities by approximately $70,000 as a result of
            payments made in fiscal 2000, and
         -  decrease accounts payable by approximately $53,000 as a result of
            payments made in fiscal 2000.

These uses of cash were partially offset by a decrease in prepaid expenses of
approximately $33,000.

We expect our working capital requirements to increase if sales increase.
Capital expenditures in the first six months of fiscal 2000 were approximately
$79,000. These expenditures were primarily approximately $72,000 for model 4100
demonstration units and no-cap units. We disposed of approximately $30,000 in
obsolete inventory during the first six months of fiscal 2000; these assets were
fully reserved and had no book value.

         On March 6, 2000, we entered into the Private Equity Line Agreement
with Kingsbridge Capital Limited, a private institutional investor. Pursuant to
the Private Equity Line Agreement we may issue and sell, from time to time,
common shares for cash consideration up to an aggregate of $15 million. As
required by the Private Equity Line Agreement, we have filed a registration
statement to permit Kingsbridge to resell to the public any shares that we sell
to it pursuant to the Private Equity Line Agreement. Until March 31, 2002, we
may sell, or "put," common shares to Kingsbridge from time to time in amounts
and at times we select at our sole discretion, subject to specific restrictions
set forth in the Private Equity Line Agreement. The price for these sales is
between 86% and 90% of the then current average market price of our common
shares. The actual percentage will depend on an average market price of our
common shares. In addition, we must pay Brean Murray & Co., Inc. a 3.5%
commission in connection with these sales. We must also pay additional expenses
in connection with these sales. We are not permitted to sell more than 19.9% of
our outstanding common shares pursuant to this arrangement unless we first
obtain shareholder approval under The Nasdaq SmallCap Market rules.

         Puts can be made every 15 trading days in amounts ranging from a
minimum of $10,000 to a maximum of $1,000,000. The amounts depend on the then
current trading volume and average market price of our common shares at the time
of each put. We are required to put at least $7,500,000 of our common shares to
Kingsbridge over the life of the Private Equity Line Agreement or pay
Kingsbridge the discount on the unsold shares. As of


                                       16

<PAGE>   17



                             SOMANETICS CORPORATION

                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                       CONDITION AND RESULTS OF OPERATIONS

                                  MAY 31, 2000

June 9, 2000, we have issued 315,279 common shares under the Private Equity Line
Agreement. Under the Private Equity Line Agreement, the average market price of
our common shares for purposes of calculating the purchase price to be paid by
Kingsbridge is the average of the lowest trade prices of the common shares as
reported by Bloomberg L.P. on each of five days on which The Nasdaq SmallCap
Market is open for trading. The five days are the two trading days before the
day on which we deliver notice to Kingsbridge that we are exercising a put, the
trading day on which we deliver the put notice, and the two trading days after
the trading day on which we deliver the put notice.

         The Private Equity Line Agreement provides that we may not put our
common shares to Kingsbridge unless the following conditions are satisfied or
waived (none of which is within Kingsbridge's control):

         -  the registration statement must have been declared effective by the
            SEC and must remain effective;
         -  the representations and warranties made by us in the Private Equity
            Line Agreement must be accurate in all material respects as of the
            date of each put and as of the date of the closing of the sale. One
            of our representations is that since November 30, 1999 there has
            been no material adverse change in our business, operations,
            properties, prospects or financial condition, except as disclosed in
            the registration statement or specified periodic reports filed with
            the SEC pursuant to the Securities Exchange Act of 1934;
         -  we must have performed and complied with in all material respects
            all obligations under the Private Equity Line Agreement, the warrant
            and the Registration Rights Agreement entered into between us and
            Kingsbridge in connection with the Private Equity Line Agreement
            that are required to be performed as of the date of each put and as
            of the date of the closing of the sale;
         -  no statute, rule, regulation, executive order, decree, ruling or
            injunction may be in effect that prohibits or directly and adversely
            affects any of the transactions contemplated by the Private Equity
            Line Agreement;
         -  our common shares must not have been delisted from The Nasdaq
            SmallCap Market nor suspended from trading;
         -  the issuance of the common shares must not violate the shareholder
            approval requirements of The Nasdaq SmallCap Market;
         -  the number of shares to be put to Kingsbridge, together with any
            shares then held by Kingsbridge, must not exceed 9.9% of our common
            shares that would be outstanding upon completion of the put; and
         -  the average trading volume of our common shares for 26 of the 30
            consecutive trading days immediately preceding a put must be at
            least 30,000 shares a day. The two highest and the two lowest
            trading volume days are excluded.











                                       17

<PAGE>   18



                             SOMANETICS CORPORATION

                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                       CONDITION AND RESULTS OF OPERATIONS

                                  MAY 31, 2000

         In consideration for Kingsbridge's commitment under the Private Equity
Line Agreement, we issued a warrant to Kingsbridge on March 6, 2000. The warrant
entitles the holder to purchase 200,000 common shares at a purchase price of
$4.36 per share. The warrant is exercisable at any time until September 3, 2005.
The warrant contains standard provisions that protect the holder against
dilution by adjustment of the exercise price and the number of shares issuable
pursuant to the warrant if any of the following occurs:

         -  stock split
         -  reverse stock split,
         -  stock dividend,
         -  reclassification,
         -  merger,
         -  statutory share exchange,
         -  similar transactions affecting our common shares, or
         -  specified issuances of common shares, convertible or exchangeable
            securities, options and warrants at less than the market price of
            the common shares, as defined in the Private Equity Line Agreement.

The warrant also provides for adjustments if we pay liquidating dividends. No
adjustments are required for instruments or benefits issued under any of our
stock option plans or in consideration or our acquisition of all or any part of
the assets of another person. The exercise price of the warrant is payable
either in cash or by a cashless exercise in which that number of common shares
underlying the warrant having an aggregate fair market value at the time of
exercise equal to the aggregate exercise price are cancelled as payment of the
exercise price.

         On April 13, 2000, we completed the sale of 167,131 common shares to
Kingsbridge Capital Limited, pursuant to the Private Equity Line Agreement, at a
price of $3.59 per share, for gross proceeds of $600,000, and on May 11, 2000,
we completed the sale of 148,148 common shares to Kingsbridge Capital Limited,
at a price of $2.70, for gross proceeds of $400,000. Our net proceeds, after
deducting the commissions and the estimated expenses of the offerings, were
approximately $861,000.

         As of May 31, 2000, we had working capital of $2,120,396, cash, cash
equivalents and marketable securities of $758,465, total current liabilities of
$639,426 and shareholder's equity of $2,756,952.

         We believe that the cash, cash equivalents and marketable securities on
hand at May 31, 2000, together with the estimated net proceeds from the sales of
the remaining 684,721 common shares over time to Kingsbridge Capital Limited
pursuant to the Private Equity Line Agreement described above based on current
market prices, will be adequate to satisfy our operating and capital
requirements through December 2000. By that time we will be required to raise
additional cash either through additional sales of our products, through sales
of securities, by incurring indebtedness or by some combination of these
alternatives. If we are unable to raise additional cash by that time, we will be
required to reduce or discontinue our operations.

         The estimated length of time current cash, cash equivalents and
marketable securities will sustain our operations is based on estimates and
assumptions we have made. These estimates and assumptions are subject to change
as a result of actual experience. Changes in the market price or trading volume
of our common shares could reduce the proceeds we receive for selling those
common shares under the Private Equity Line Agreement, decrease the number of
shares we can sell in a particular period or both. Actual capital requirements
necessary to market the Cerebral Oximeter and SomaSensor, to develop and test
the CORrestore patch, to develop product-line extensions of the Cerebral
Oximeter for use on newborns, other non-brain tissue applications, and
enhancements to




                                       18

<PAGE>   19


                             SOMANETICS CORPORATION

                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                       CONDITION AND RESULTS OF OPERATIONS

                                  MAY 31, 2000

the Cerebral Oximeter and SomaSensor, and for working capital might be
substantially greater than current estimates.

         We do not believe that product sales will be sufficient to fund our
operations in fiscal 2000.

         As of May 31, 2000, we had 60,400 redeemable warrants outstanding,
exercisable at $20.00 per share until July 13, 2000, and 55,120 redeemable
warrants outstanding exercisable at $17.50 per share until April 1, 2001. These
warrants were issued in our 1995 and 1996 Regulation S securities offerings. The
conditions permitting us to redeem these warrants have not been met as of June
9, 2000. In addition, the placement agents and their transferees hold warrants
to purchase 11,424 common shares exercisable at $12.50 per share until April 1,
2001, and 15,000 warrants exercisable at $14.40 per share until July 13, 2000.
Also, the underwriter of the June 1997 public offering received warrants to
purchase 200,000 common shares exercisable at $4.80 per share until May 29,
2002. In addition, Kingsbridge Capital Limited received warrants to purchase
200,000 common shares exercisable at $4.36 per share until September 3, 2005
pursuant to the Private Equity Line Agreement. It is unlikely that these
warrants will be exercised if the exercise price exceeds the market price of the
common shares. Also, CORrestore, LLC and its agent, Wolfe & Company, received
warrants to purchase 400,000 common shares exercisable at $3.00 per share until
June 2, 2005 pursuant to the CORrestore license agreement, and, subject to
shareholder approval, when specified events occur we agreed to issue them
five-year warrants to purchase an additional 2,100,000 common shares exercisable
at $3.00 per share pursuant to the CORrestore license agreement.

         We are also a party to the Private Equity Line Agreement described
above. We may sell up to an aggregate of $14,000,000 more of our common shares
under the Private Equity Line Agreement. However, we must obtain shareholder
approval and register under the Securities Act of 1933 any common shares we sell
pursuant to the Private Equity Line Agreement beyond the remaining 684,721
already registered common shares.

         We have no loan commitments.

         Even if we receive additional capital, we might not be able able to
achieve the level of sales necessary to sustain our operations, and, currently,
the costs of developing and testing the CORrestore patch are expected to
increase our expenses without increasing our revenues. We might not be able to
obtain any funds on terms acceptable to us and at times required by us through
sales of our products, sales of securities or loans in sufficient quantities.
Our Independent Auditors' report in our Annual Report on Form 10-K for the
fiscal year ended November 30, 1999 contains an explanatory paragraph relating
to an uncertainty concerning our ability to continue as a going concern.





                                       19

<PAGE>   20



ITEM 3.      QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

      The table below provides information about our financial instruments that
are sensitive to changes in interest rates, consisting of investments in
corporate bonds and other fixed income securities. For these financial
instruments, the table presents principal cash flows and related weighted
average interest rates by expected maturity dates. Weighted average variable
rates are based on current rates. The actual cash flows of all instruments are
denominated in U.S. dollars. We invest our cash on hand not needed in current
operations in fixed income securities generally maturing within one year from
the date of acquisition.




                                  MAY 31, 2000

                             EXPECTED MATURITY DATES

<TABLE>
<CAPTION>


                                        2000       2001      2002      2003      2004     THEREAFTER        TOTAL      FAIR VALUE
                                        ----       ----      ----      ----      ----     ----------        -----      ----------
<S>                                 <C>            <C>       <C>       <C>       <C>      <C>            <C>           <C>
MARKETABLE SECURITIES:
----------------------
 Short-term Debt:
    Variable Rate ($)..........     $696,441          -         -         -         -              -     $ 696,441      $  552,388
       Average interest rate...        10.31%       N/A       N/A       N/A       N/A            N/A         10.31%
</TABLE>



     During the second quarter of fiscal 2000, we liquidated some of our
investments in corporate bonds and other fixed income securities to provide cash
to finance our operations. The average interest rate increased primarily because
of a general increase in interest rates.


















                                       20




<PAGE>   21



PART II OTHER INFORMATION

Item 2.           Changes in Securities and Use of Proceeds

       The following securities of ours were sold by us during the second
quarter of fiscal 2000 without being registered under the Securities Act:

1.     Pursuant to the Private Equity Line Agreement, on April 13, 2000, we
issued and sold 167,131 common shares, par value $0.01 a share, to Kingsbridge
Capital Limited for $3.59 a share. The purchase price paid by Kingsbridge was
88% of an average market price of the common shares. We paid $21,000 in
commissions to Brean Murray & Co., Inc. in connection with this sale. The common
shares were sold to Kingsbridge in reliance on the exemptions from registration
contained in Sections 4(2) and 4(6) of the Securities Act. We have filed a
registration statement under the Securities Act of 1933 to permit Kingsbridge to
resell these shares to the public.

2.     Pursuant to the Private Equity Line Agreement, on May 11, 2000, we issued
and sold 148,148 common shares to Kingsbridge Capital Limited for $2.70 a share.
The purchase price paid by Kingsbridge was 86% of an average market price of the
common shares. We paid $14,000 in commissions to Brean Murray & Co., Inc. in
connection with this sale. The common shares were sold to Kingsbridge in
reliance on the exemptions from registration contained in Sections 4(2) and 4(6)
of the Securities Act. We have filed a registration statement under the
Securities Act of 1933 to permit Kingsbridge to resell these shares to the
public.

3.     In connection with our CORrestore license, on June 2, 2000, we issued to
CORrestore, LLC and Wolfe & Company five-year warrants to purchase an aggregate
of 400,000 of our common shares at a price of $3.00 a share. The warrants became
exercisable to purchase 300,000 shares immediately and become exercisable to
purchase an additional 50,000 shares when we receive clearance or approval from
the FDA to market the CORrestore patch in the United States and another 50,000
shares when we receive CE certification for the CORrestore patch. The warrants
expire when the license terminates, except that the vested portion of the
warrants remain exercisable for an additional 90 days or, if termination is a
result of specified breaches by us, for the remaining term of the warrants. The
warrants contain provisions that protect against dilution by adjustment of the
exercise price and the number of shares issuable under the warrants upon the
occurrence of specified events, such as a merger, stock split, reverse stock
split, stock dividend, or recapitalization. The warrants were not registered,
but were issued in reliance upon the exemptions from registration contained in
Sections 4(2) and 4(6) of the Securities Act.

4.     Pursuant to the CORrestore license agreement, we have also agreed,
subject to shareholder approval, to grant CORrestore, LLC and Wolfe & Company
additional five-year warrants to purchase an aggregate of 2,100,000 common
shares at $3.00 a share, to be granted when we receive clearance or approval
from the FDA to market the CORrestore patch in the United States. The warrants
will become exercisable based on our cumulative net sales of the CORrestore
patch products. All of the warrants become exercisable if our cumulative net
sales of the CORrestore patch products are at least $80 million. The warrants
expire when the license terminates, except that the vested portion of the
warrant remains exercisable for an additional 90 days or, if termination is a
result of specified breaches by us, for the remaining term of the warrants. The
warrants are not registered, but are expected to be issued in reliance upon the
exemptions from registration contained in Sections 4(2) and 4(6) of the
Securities Act.

Item 4. Submission of Matters to a Vote of Security Holders

       Our Annual Meeting of Shareholders was held on April 18, 2000. At the
Annual Meeting, H. Raymond Wallace and Robert R. Henry were elected as
Directors, and the terms of office of Bruce J. Barrett, Daniel S. Follis, Dr.
James I. Ausman and A. Brean Murray as Directors continued after the meeting.
5,313,602 votes were cast for Mr. Wallace's election and 210,068 votes were
withheld from Mr. Wallace's election, and 5,392,002 votes were cast for Mr.
Henry's election and 131,668 votes were withheld from Mr. Henry's election.
There were no abstentions or broker non-votes in connection with the election of
the Directors at the Annual Meeting.






                                       21

<PAGE>   22


         In addition, at the Annual Meeting of Shareholders, the shareholders
approved an amendment to the Somanetics Corporation 1997 Stock Option Plan to
increase the number of common shares reserved for issuance pursuant to the
exercise of options granted under the 1997 Plan by 295,000 shares, from
1,040,000 to 1,335,000 shares. 5,102,923 votes were cast in favor of this
proposal, 360,912 votes were cast against this proposal, and 59,835 votes
abstained on this proposal. There were no broker non-votes in connection with
the amendment to the 1997 Stock Option plan at the Annual Meeting.

Item 5.  Other Information

THE CORRESTORE PATCH

         We are developing the CORrestore(TM) patch, which is intended for use
in heart surgeries called surgical anterior ventricular restoration, or SAVR.
During SAVR, the surgeon restores, or remodels, an enlarged, poor functioning
left ventricle to more normal size and function by inserting an implant, in most
instances, or closing the defect directly. We entered into a license agreement
as of June 2, 2000 giving us exclusive, worldwide, royalty-bearing licenses to
specified rights relating to the CORrestore patch, subject to the terms and
conditions of the license agreement. Our objective is to obtain regulatory
clearance or approval to sell the CORrestore patch and other regulatory
approvals necessary to market outside the United States and to have the patch
used in SAVR surgeries. Our initial target market is SAVR surgeries on patients
with dilated ischemic cardiomyopathy due to a previous myocardial infarction
involving the anterior wall of the ventricle. Ischemic cardiomyopathy is a
damaged heart muscle caused by the obstruction of the inflow of blood from the
arteries, resulting in an enlarged ventricle. Myocardial infarction is the death
of an area of the middle muscle layer in the heart wall.

MARKET OVERVIEW

         Congestive heart failure is when the heart is unable to pump enough
blood the meet the circulation needs of the body. It is the number one cause of
death for persons over age 65. Approximately 5,000,000 persons in the United
States have been diagnosed with congestive heart failure, and each year an
estimated 550,000 additional persons in the United States are diagnosed with
this condition. An estimated 30% of those with congestive heart failure are in
Class III or IV, based on the New York Heart Association classifications. These
classifications divide patients into four classes based on how debilitating
their condition is. Of these patients in Classes III and IV, only approximately
61% survive a year after they are diagnosed with congestive heart failure, and,
for all classes, there is a 40% annualized rate of admission to the hospital for
congestive heart failure.

         One of the many causes of congestive heart failure is dilated
cardiomyopathy, which is generally a disease that damages the heart muscle,
resulting in an enlarged ventricle. The left ventricle is the chamber of the
heart that pumps the blood through the body. Most cases of congestive heart
failure result from the failure of the left ventricle and the resulting backup
of fluid in the lungs. As a result of dilated cardiomyopathy, the muscles in the
ventricle become thinner and weaker, the ventricle becomes enlarged, and it is
not able to pump blood through the body with enough force. Often the body reacts
with short-term solutions that further damage the muscle. Drug therapies can be
used to treat congestive heart failure, but they often only relieve symptoms or
reduce the body's reactions to the problem with the pump.

         Ventricular remodeling is a surgical technique that can be used to
treat some patients suffering from congestive heart failure. During SAVR, the
surgeon restores, or remodels, an enlarged, poor functioning left ventricle to
more normal size and function by inserting an implant, in most instances, or
closing the defect directly. Dr. Gerald Buckberg and Dr. Constantine
Athanasuleas and their company, CORrestore LLC, have developed and patented a
patch for use in SAVR that they believe is easier to implant and provides a
better seal against leaks at the perimeter than existing patches, which are
formed by the surgeon during the surgery out of dacron or bovine pericardium
tissue. These existing patches take time for the surgeon to form, can be
difficult to insert, and frequently leak around the edges. One study of SAVR
surgeries using existing dacron patches indicates a higher 12-month and 18-month
survival rate and a lower hospital re-admission rate for patients undergoing
SAVR.





                                       22

<PAGE>   23


         We believe that the trends in aging of the population and the demand to
reduce health care costs, and the increased survival rate after initial heart
problems, will increase the number of persons diagnosed with congestive heart
failure and will increase the demand for procedures that can increase the
survival rate and decrease the hospital re-admission rate for these patients.
See "Market Overview."

BUSINESS STRATEGY

         Our objective is to obtain regulatory clearance or approval to sell the
CORrestore patch and to have the patch used in SAVR surgeries. Key elements of
our strategy are as follows:

         Obtain Regulatory Clearance or Approval for the CORrestore Patch. We
are currently working with Drs. Buckberg and Athanasuleas to design and execute
the preliminary and definitive clinical tests necessary to obtain regulatory
approvals for the CORrestore patch, including FDA clearance and CE
certification. We currently believe that the CORrestore patch is eligible to
seek 510(k) clearance to market the product in the United States. We believe
that we will have to file IDE applications with the FDA before beginning human
clinical trials. However, the FDA could require a PMA application, which would
require significantly more time and expense. We expect to discuss the regulatory
requirements for the CORrestore patch with the FDA before filing an IDE
application. Assuming the FDA requires 510(k) clearance and not PMA approval, we
expect the process of development, testing, application, clearance and preparing
to manufacture the product to take approximately two years and to cost us
approximately $3,800,000. If PMA approval is required, the time and cost of
development, testing, application, clearance and preparing to manufacture the
product could be significantly greater. These expenditures will require us to
raise additional capital.

         Target Surgical Procedures Where Benefits Have Been Demonstrated. Our
initial target market is SAVR surgeries on Class III and IV congestive heart
failure patients with dilated ischemic cardiomyopathy due to a previous
myocardial infarction in the anterior wall of the left ventricle. Dilated
ischemic cardiomyopathy is a damaged heart muscle caused by the obstruction of
the inflow of blood from the arteries and resulting in an enlarged ventricle.
Myocardial infarction is death of an area of the middle muscle layer in the
heart wall. One study of SAVR surgeries on these patients, using patches that
were formed by the surgeon during the surgery out of dacron, indicates a higher
12-month and 18-month survival rate and a lower hospital re-admission rate for
patients undergoing SAVR. These existing patches take time for the surgeon to
form, can be difficult to insert, and frequently leak around the edges. We
believe it will be easier to demonstrate the clinical benefits of the CORrestore
patch and potentially gain market acceptance for this product in connection with
these surgeries.

         Demonstrate the Clinical Benefits and Promote Acceptance of the
CORrestore Patch. We intend to sponsor clinical studies using the CORrestore
patch to provide additional evidence of its benefits. The resulting publication
of any favorable papers can be used to help convince the medical community of
the clinical benefits of the CORrestore patch. We also expect to promote the
acceptance of the CORrestore patch in the medical community by encouraging
cardiac surgeons in leading hospitals, whose opinions and practices we believe
are valued by other hospitals and physicians, to use the CORrestore patch. We
believe that the successful evaluations of the CORrestore patch by these medical
professionals will accelerate the acceptance of the CORrestore patch by other
medical professionals. In addition, Drs. Buckberg and Athanasuleas have formed a
group of cardiac surgeons and cardiologists to perform SAVR and cooperate in
publishing the results. Each member of the group has also indicated that they
will be a center for training surgeons in the SAVR procedure.

         Invest in Marketing and Sales Activities. Once the CORrestore patch may
be marketed and sold in the United States, we expect to use our existing
distribution network of direct sales employees to distribute the product in the
United States. We expect to be dependent on international distributors for
international sales of the CORrestore patch products. We also expect to invest
in marketing and sales efforts to increase the medical community's exposure to
the CORrestore patch, including participation in trade shows, conducting
seminars and direct advertising. We expect to realize some synergies with our
Cerebral Oximeter selling efforts because our sales personnel will be calling on
some of the same persons to sell both products.

         Establish an Insurance Reimbursement Code for SAVR. We desire to obtain
a reimbursement code for SAVR from private and government insurers. These codes
permit medical insurance reimbursement for this




                                       23

<PAGE>   24


procedure. We believe reimbursement would increase use of the procedure and the
CORrestore patch. We might not be able to get a reimbursement code for SAVR, and
sales of CORrestore patches could be harmed if we fail to obtain these codes.

PRODUCT

         We are developing the CORrestore patch for use in SAVR surgeries.
During SAVR, the surgeon restores, or remodels, an enlarged, poor functioning
left ventricle to more normal size and function by inserting an implant, in most
instances, or closing the defect directly. SAVR is currently generally performed
using a patch that is formed by the surgeon during the surgery out of dacron or
bovine pericardium tissue. These existing patches take time for the surgeon to
form, can be difficult to insert, and frequently leak around the edges.

         As a result of these problems, Drs. Buckberg and Athanasuleas developed
a non-circular bovine pericardium, or cow heart-sac, tissue patch with an
integrated soft dacron suture ring. It is intended to make SAVR easier for the
surgeon and to provide a better seal on the edges of the patch to minimize
leaking. Drs. Buckberg and Athanasuleas and their company, CORrestore LLC, filed
for a patent with respect to their patch, which was issued in part in February
2000 and expires in May 2018. Other claims under the patent application are
still pending. The claims allowed relate primarily to the product design of a
soft suture ring integrated with a patch.

         We plan to offer kits containing the patches, needles, strips of
pericardium, sizers, holders and sutures to hospitals performing SAVR. We
currently expect the retail price of these kits to be $3,500 to $5,000, although
we have done only preliminary market research regarding our proposed pricing.
See "Competition." Prices to distributors will be significantly discounted from
the retail price. Because of the requirements for sterility and pursuant to our
license agreement, the patches and kits will be manufactured for us by one of
six medical product manufacturers. We will be dependent on one of these entities
to develop and conduct the in vitro and animal testing required for FDA
clearance or approval of the CORrestore patch and to manufacture our entire
requirements for the patches. We have already begun discussions with one of the
potential manufacturers.

LICENSE AGREEMENT

         We entered into a license agreement as of June 2, 2000 with Drs.
Buckberg and Athanasuleas and their company, CORrestore LLC. The license grants
us exclusive, worldwide, royalty-bearing licenses to specified rights relating
to the CORrestore patch and related products and accessories for SAVR, subject
to the terms and conditions of the license agreement. The license also grants us
the right to use the names of Drs. Buckberg and Athanasuleas and CORrestore on
patch products, as trademarks and in advertising, as long as they do not object
to such use within 20 days after the proposed use is submitted to them. We also
have specified rights to future developments relating to the patch products if
we incorporate the developments in the patch products, begin testing them,
receive clearances to market them and actually begin marketing them within
specified time periods. Transfer and sublicensing of our licenses are restricted
by the license agreement.

         Pursuant to the license agreement, CORrestore LLC has agreed to provide
us with various consulting services for up to 10 days during each of our fiscal
years during the term of the licenses. These services include the following
relating to the CORrestore patch:

-  assisting us in designing and executing the clinical tests necessary to
   demonstrate the safety and efficacy of the CORrestore patch or to obtain
   regulatory approvals;
-  assisting us in preparing and defending applications for regulatory approvals
   and patent and other intellectual property applications;
-  training our personnel and customers in the use of the CORrestore patch;
-  providing ongoing technical and general consulting and advice;
-  assisting with product designs; and
-  consulting with us in connection with regulatory applications, marketing
   efforts and efforts to obtain insurance reimbursement codes.




                                       24

<PAGE>   25





We have agreed to pay all of the expenses of such consultation, of clinical
testing of the CORrestore patch and of the existing patent and future patent
applications or registrations after the date of the license. We are dependent on
Drs. Buckberg and Athanasuleas for further development of the CORrestore patch,
training doctors in SAVR and training our personnel and customers in the use of
the CORrestore patch.

         In exchange for the license and consulting services, we agreed to the
following compensation for CORrestore, LLC and its agent, Wolfe & Company:

-    A royalty of 10% of our net sales of products subject to the licenses, for
     the term of the patent relating to the CORrestore patch, or for 10 years
     from the date of the first commercial sale if the patent is determined to
     be invalid.
-    Five-year warrants to purchase up to 400,000 common shares at $3.00 a
     share. The warrants became exercisable to purchase 300,000 shares
     immediately and become exercisable to purchase an additional 50,000 shares
     when we receive clearance or approval from the FDA to market the CORrestore
     patch in the United States and another 50,000 shares when we receive CE
     certification for the CORrestore patch. The warrant expires when the
     license terminates, except that the vested portion of the warrant remains
     exercisable for an additional 90 days or, if the licenses terminate because
     of specified breaches by us, for the remaining term of the licenses.
-    Subject to shareholder approval, five-year warrants to purchase 2,100,000
     common shares at $3.00 a share, to be granted when we receive clearance or
     approval from the FDA to market the CORrestore patch in the United States.
     The warrants will become exercisable based on our cumulative net sales of
     the CORrestore patch products as follows:

<TABLE>
<CAPTION>

                                                    Additional Portion
                        Net Sales                        of Shares
                        ---------                        ---------
                    <S>                             <C>
                       $5,000,000                        233,330
                      $10,000,000                        233,330
                      $20,000,000                        233,340
                      $35,000,000                        350,000
                      $55,000,000                        466,000
                      $80,000,000                        584,000
</TABLE>


     The warrant expires when the license terminates, except that the vested
     portion of the warrant remains exercisable for an additional 90 days or, if
     the licenses terminate because of specified breaches by us, for the
     remaining term of the licenses. CORrestore, LLC may terminate our licenses
     if we do not obtain shareholder approval for the issuance of this warrant.
-    A consulting fee of $25,000 a year to each of Drs. Buckberg and
     Athanasuleas until we sell 1,000 CORrestore patches.

         We have also agreed to increase the size of our Board of Directors and
add CORrestore's designee as a director, if CORrestore designates a person by
June 2, 2001. We have also agreed to cooperate with CORrestore to establish a
mutually acceptable medical advisory board to provide us with information and
advice regarding the CORrestore patch. Drs. Buckberg and Athanasuleas and
CORrestore LLC also agreed to specified confidentiality, non-competition and
non-solicitation provisions in the license agreement and we agreed to specified
confidentiality provisions in the license agreement.

         CORrestore, LLC and Drs. Buckberg and Athanasuleas may terminate the
licenses as follows:

-    In their sole discretion, within 120 days after we consummate specified
     types of business combination transactions with another entity and the
     holders of our common shares immediately before the transaction hold less
     than 50% of the surviving entity's or its ultimate parent's outstanding
     voting securities immediately after the transaction, but only if (1) the
     transaction is consummated before June 2, 2002, and (2) the consideration
     received by our shareholders in the transaction has a fair market value of
     less than $10.00 a share.
-    In their sole discretion, if Bruce J. Barrett ceases to be our chief
     executive officer or ceases to be responsible for our activities relating
     to the licenses, but only if (1) one of these events happens before June 2,
     2005, and



                                       25

<PAGE>   26


     (2) CORrestore, LLC, Dr. Buckberg or Dr. Athanasuleas exercises the right
     to terminate within 120 days after the event occurs.
-    In their sole discretion, if we materially breach specified covenants in
     the license agreement and fail to cure the breach within 90 days (30 days
     for payment obligations) after CORrestore, LLC notifies us of the breach,
     but only if CORrestore, LLC exercises its right to terminate within 120
     days after the 90-day cure period expires.
-    In their sole discretion, if we do not obtain shareholder approval of the
     issuance of the warrants to purchase 2,100,000 common shares on or before
     the date we must issue the warrants.
-    In their sole discretion, if our common shares are delisted from The Nasdaq
     Stock Market and are not re-listed within 90 days, but only if CORrestore,
     LLC exercises its right to terminate within 120 days after the 90-day
     period expires.
-    In their sole discretion, if we make an assignment for the benefit of our
     creditors or voluntarily commence any bankruptcy, receivership, insolvency
     or liquidation proceedings and the action is not reversed or terminated
     within 90 days, but only if CORrestore, LLC exercises its right to
     terminate within 120 days after the 90-day period expires.
-    CORrestore, LLC may exclude specified countries from the geographic scope
     of the license if we have not begun marketing the CORrestore patch products
     or begun the process of obtaining necessary regulatory approval to sell
     CORrestore patch products in that country within one year after the date we
     file a 510(k) clearance application or PMA approval application with the
     FDA with respect to the CORrestore patch products. The countries may be
     excluded from the license only if we fail to cure the breach of this
     provision within 90 days after CORrestore, LLC notifies us of the breach.
-    CORrestore, LLC may change our licenses to be non-exclusive for
     developments that we do not incorporate in the patch products, begin
     marketing or testing, receive clearances to market or IDE approvals and
     actually begin marketing within specified time periods.
-    Our licenses become non-exclusive for products that we do not begin
     marketing and selling in the United States within 30 days after we receive
     510(k) clearance or approval of a PMA application from the FDA to market
     the applicable product in the United States.

         We may terminate the licenses as follows:

-    In our sole discretion, within 120 days after we sign a definitive
     agreement for specified types of business combination transactions with
     another entity and the holders of our common shares immediately before the
     transaction hold less than 50% of the surviving entity's or its ultimate
     parent's outstanding voting securities immediately after the transaction.
     If we use this provision to terminate the licenses, we must pay $1,000,000
     to CORrestore, LLC and Drs. Buckberg and Athanasuleas.
-    In our sole discretion, if CORrestore, LLC or either of Drs. Buckberg or
     Athanasuleas materially breaches specified covenants in the license
     agreement and fails to cure such breach within 90 days after we notify the
     applicable party of the breach, but only if we exercise our right to
     terminate within 120 days after the 90-day cure period expires.

COMPETITION

         The CORrestore patch will compete against existing patches, which are
formed by the surgeon during SAVR surgeries out of dacron or bovine pericardium
tissue. These existing patches take time for the surgeon to form, can be
difficult to insert, and frequently leak around the edges. Although we believe
the CORrestore patch has important advantages over patches that are currently
used, including its ease of use and better seal against leaks at the edge,
existing patches are significantly less expensive. In addition to promoting SAVR
in general as a treatment for congestive heart failure, we will have to convince
users that the advantages of the CORrestore patch outweigh its additional cost.
At least one study using dacron patches indicates that they are effective. SAVR
is in the early stages of its development and, if it develops, the market for
patches used in SAVR might become highly competitive. There are many larger
companies in this industry that have significantly larger research and
development budgets than ours. Competitors may be able to develop additional or
better treatments for congestive heart failure.




                                       26

<PAGE>   27


         We believe that a manufacturer's reputation for producing effective,
sterile, reliable and technically advanced and patented products, clinical
literature, association with leaders in the field, references from users,
surgeon convenience and price are the principal competitive factors in the
medical supply industry.

INSURANCE

         Because the Cerebral Oximeter and the CORrestore patch are intended to
be used in hospital critical care units with patients who may be seriously ill
or may be undergoing dangerous procedures, we might be exposed to serious
potential products liability claims. We have obtained products liability
insurance with a liability limit of $2,000,000. We expect to increase this
coverage when we begin human clinical trials for the CORrestore patches because
of the higher risk associated with this product. We also maintain coverage for
property damage or loss, general liability, business interruption,
travel-accident, directors' and officers' liability and workers' compensation.
We do not maintain key-man life insurance.

PROPERTIES

         We believe that, depending on sales of the Cerebral Oximeter, our
current facility is more than suitable and adequate for our current needs,
including our assembly of the Cerebral Oximeter, storing inventories of
CORrestore patch products and conducting our operations in compliance with
prescribed FDA QSR guidelines, and will allow for substantial expansion of our
business and number of employees.

RISK FACTORS

         The following are risk factors relating to our CORrestore patch:

WE HAVE INCURRED LOSSES IN EVERY YEAR OF OUR EXISTENCE AND EXPECT OUR LOSSES TO
CONTINUE IN FISCAL 2000; OUR ABILITY TO CONTINUE AS A GOING CONCERN IS
UNCERTAIN.

         We have incurred net losses in every year of our existence. From our
inception on January 15, 1982 through May 31, 2000, we incurred an accumulated
deficit of $48,310,472, including a net loss of $4,665,291 for the year ended
November 30, 1999 and $1,867,600 for the six months ended May 31, 2000.
Companies such as ours frequently encounter delays, expenses, problems and
uncertainties in developing products and markets for new products. We do not
believe that our product sales will be sufficient to support our operations in
fiscal 2000, for many reasons, including:

         -   the need for customer education about the clinical benefits of the
             Cerebral Oximeter,
         -   the lengthy sales cycle for the Cerebral Oximeter,
         -   the expected costs of developing the CORrestore patch, product-line
             extensions of the Cerebral Oximeter for use on newborns, other
             non-brain tissue applications of our INVOS technology and
             enhancements to the Cerebral Oximeter and SomaSensor,
         -   our need to attract and service a customer base, and
         -   our ability to manufacture our products on a commercial scale in a
             cost-effective manner.

For the foreseeable future, we believe that we will continue to incur net
losses. It is possible that we will never become profitable. Due to our history
of losses and our current financial condition, our independent auditors' report
includes an explanatory paragraph referring to an uncertainty concerning our
ability to continue as a going concern. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and Note 2 of Notes
to Financial Statements.

WE MIGHT NOT BE ABLE TO SUCCESSFULLY DEVELOP AND MARKET THE CORRESTORE PATCH.

         We are developing the CORrestore patch for use in SAVR surgeries. We
must further develop the patch, perform clinical testing, obtain FDA clearance
or approval to sell the CORrestore patch in the United States and obtain
approvals to sell the CORrestore patch outside of the United States. The time
and expense necessary to







                                       27

<PAGE>   28



develop the CORrestore patch are not certain. In addition, we have no previous
experience in developing, manufacturing or marketing surgical patches, and the
following are some of the risks we face:

         -   we might not be able to develop an effective patch;
         -   clinical tests required to obtain regulatory approval might be
             significantly more expensive or time consuming than we expect;
         -   we might not be able to obtain FDA clearance or approval to market
             the patch in the United States, for various reasons, including if
             clinical tests do not show the patch to be safe and effective, if
             the FDA deems the data unsuitable, or if the FDA requires
             additional or follow-up testing;
         -   the final product might not be economical to manufacture or market;
         -   we will be dependent on third parties to perform the clinical tests
             and to manufacture the patch; and
         -   third parties might introduce equivalent, superior or less
             expensive products.

Therefore, we might not be successful in marketing this product even if we
receive clearance or approval to sell it.

DEVELOPMENT OF THE CORRESTORE PATCH COULD ADVERSELY AFFECT OPERATING RESULTS,
DISTRACT MANAGEMENT AND DILUTE SHAREHOLDERS.

         We currently expect the development, clinical testing and regulatory
approval process for the CORrestore patch to take at least two years, and we
will not be able to sell the patch in the United States until FDA clearance or
approval is obtained. We have currently budgeted approximately $3,800,000 over
the next two years to develop, test and prepare for manufacturing of the
CORrestore patch. Our efforts to develop and market this patch could disrupt our
ongoing Cerebral Oximeter business and distract our management and employees,
and they are expected to increase our expenses significantly. In addition,
pursuant to our CORrestore licenses, we have granted warrants to purchase
400,000 common shares at an exercise price of $3.00 a share, and have agreed to
issue warrants to purchase an additional 2,100,000 common shares, subject to
obtaining shareholder approval, at an exercise price of $3.00 a share. These
warrants will increase our expenses and could dilute the interests of our
existing shareholders. We might be required to issue additional common shares to
finance the development of the CORrestore patch, which could further dilute the
interests of our existing shareholders.

OUR PRODUCTS ARE NEW AND MIGHT NOT BE ACCEPTED BY THE MEDICAL COMMUNITY.

         To date, the medical community has had little exposure to us or our
technology. Because the medical community is often skeptical of new companies
and new technologies, members of the medical community might not perceive a need
for the Cerebral Oximeter or the CORrestore patch or be convinced of their
clinical benefits. In addition, hospital purchasing decisions for equipment like
the Cerebral Oximeter are often made by hospital purchasing committees that
might not include the user of the equipment. In such a case, the committees must
be convinced to purchase our product. Even if we are successful in convincing
physicians, other medical professionals and their hospital purchasing committees
of the need for the Cerebral Oximeter, they might be unwilling or unable to
commit funds to the purchase of the Cerebral Oximeter due to limited budgets or
decreases in capital expenditures. In many cases, these limits are due to
hospital cost controls, increased managed care and fixed reimbursements for the
medical procedures in which the Cerebral Oximeter is used. If our products fail
to achieve market acceptance, our business, financial condition and results of
operations could be adversely affected.

WE ARE LARGELY DEPENDENT ON OTHERS TO DEMONSTRATE THE CLINICAL BENEFITS OF SAVR
SURGERY, TO TRAIN SURGEONS AND TO OBTAIN REIMBURSEMENT CODES FOR THE PROCEDURE.

         We are dependent on positive results of clinical research to convince
heart surgeons of the clinical benefits of SAVR, and we are dependent on others
to help train surgeons in the procedure. Even if surgeons are convinced of the
benefits of SAVR and are trained to perform it, we must convince them to use the
CORrestore patch in the procedure, rather than a less expensive substitute. In
addition, patients might be unwilling to undergo the procedure unless insurers
are willing to reimburse them for the cost of the procedure.



                                       28

<PAGE>   29



THE MEDICAL PRODUCTS INDUSTRY IS INTENSELY COMPETITIVE.

         We believe that the markets for cerebral oximetry products and the
CORrestore patch, if they develop, may become highly competitive. We know of
foreign companies that have sold products relating to cerebral metabolism
monitoring for research or evaluation. In addition, if and when the CORrestore
patch is developed, it will compete against existing patches, which are formed
by the surgeon during SAVR surgeries out of dacron or bovine pericardium tissue.
These existing patches take time for the surgeon to form, can be difficult to
insert, and frequently leak around the edges. Although we believe the CORrestore
patch has important advantages over patches that are currently used, existing
patches are significantly less expensive and at least one study using dacron
patches indicates that they are effective.

         The medical products industry is characterized by intense competition
and extensive research and development. Other companies and individuals are
engaged in research and development of non-invasive cerebral oximeters, and
extensive research and development is ongoing regarding congestive heart
failure. We believe there are many other potential entrants into our markets.
Some of these potential competitors have well-established reputations, customer
relationships and marketing, distribution and service networks. Some of them
have substantially longer histories in the medical products industry, larger
product lines, and greater financial, technical, manufacturing, research and
development and management resources than we do. Many of these potential
competitors have long-term product supply relationships with our potential
customers. These potential competitors might succeed in developing products that
are at least as reliable and effective as our products, that make additional
measurements, that are less costly than our products, or that provide
alternatives to our products, such as additional or better treatments for
congestive heart failure.

         These potential competitors may be more successful than we are in
manufacturing and marketing their products, and may be able to take advantage of
the significant time and effort we have invested to gain medical acceptance of
cerebral oximetry and the time and effort we expect to invest to gain medical
acceptance of SAVR and the CORrestore patch. In addition, one patent issued to
an unaffiliated third party and relating to cerebral oximetry expired in 1999,
two patents issued to an unaffiliated third party and relating to cerebral
oximetry expired in 1998, and two patents issued to an unaffiliated third party
and relating to cerebral oximetry will expire in 2000. These expiring patents
will make that technology generally available and potentially help the
development of competing products. Successful commercial development of
competing products could lead to loss of market share and lower margins and have
an adverse effect on our business, financial condition and results of
operations.

         We also compete indirectly with numerous companies that sell medical
equipment to hospitals for the limited amount of funding allocated to capital
equipment in hospital budgets. The market for medical equipment is subject to
rapid change due to an increasingly competitive, cost-conscious environment and
to government programs intended to reduce the cost of medical care. Many of
these manufacturers of medical equipment are large, well-established companies
whose resources, reputations and ability to leverage existing customer
relationships may give them a competitive advantage over us. Our products and
technology also compete indirectly with many other methods currently used to
measure blood oxygen levels or the effects of low blood oxygen levels.

WE EXPECT TO NEED SUBSTANTIAL ADDITIONAL FINANCING TO FUND OUR OPERATIONS.

         We will require substantial additional capital to further develop our
products, to commercialize our products and to sustain our operations. If we
sell the remaining 684,721 common shares to Kingsbridge pursuant to the Private
Equity Line Agreement, based on current market prices, we expect that the net
proceeds of those sales will be adequate to satisfy our operating and capital
requirements through December 2000. By that time, we will be required to raise
additional cash either though additional sales of our products, through sales of
securities, by incurring indebtedness or by some combination of these
alternatives. We do not believe that our product sales will be sufficient to
sustain our operations at that time and we have no current commitments for any
debt financing. We also have no current commitments for any additional sales of
securities, other than pursuant to the Private Equity Line Agreement if we
obtain shareholder approval to issue additional shares. In the past, we have




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raised required capital through sales of additional equity securities. If we are
unable to raise additional cash by that time, we will be required to reduce or
discontinue our operations.

         Changes in the market price or trading volume of our common shares
could reduce the proceeds we receive for selling those common shares, decrease
the number of shares we can sell in a particular period or both. In addition,
changes in our business or business plans or unexpected expenses could change
our cash needs. Our future cash needs will depend on many factors, including:

         -   the cost of developing and testing the CORrestore patch,
         -   the time and cost involved in obtaining regulatory approvals;
         -   the cost of marketing and assembly activities,
         -   whether we can successfully market our products,
         -   the rate of market acceptance of our products,
         -   the scope of our research and development programs,
         -   the length of time required to collect accounts receivable, and
         -   competing technological and market developments.

Each of these factors could shorten the length of time the cash we receive from
sales of our common shares under the Private Equity Line Agreement will sustain
our operations. When we need additional financing, it might not be available on
terms acceptable to us or at the times we require it, if at all, and such
financing will likely dilute the interests of existing shareholders. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

OUR PERFORMANCE DEPENDS ON OUR ABILITY TO ATTRACT AND RETAIN KEY PERSONNEL.

         Our future performance depends in significant part on the continued
service of our senior management, including Bruce J. Barrett, President and
Chief Executive Officer, and various scientific, technical and manufacturing
personnel. Our loss of any of these key personnel could have an adverse effect
on us. In addition, CORrestore, LLC may terminate its licenses with us if Bruce
J. Barrett ceases to be our Chief Executive Officer or ceases to be responsible
for our activities relating to the license at any time before June 2, 2005. We
do not maintain key-man life insurance on any of our key personnel. In addition,
competition for qualified employees is intense, and if we are unable to attract,
retain and motivate additional, highly-skilled employees required for the
expansion of our operations, our business, financial condition and results of
operations could be adversely affected. Our ability to retain existing employees
and attract new employees might be adversely affected by our current financial
situation. We cannot assure you that we will be able to retain our existing
personnel or attract additional, qualified persons when required and on
acceptable terms.

WE ARE DEPENDENT ON OUR DISTRIBUTORS FOR OUR INTERNATIONAL SALES.

         We are dependent on our distributors to generate international sales of
Cerebral Oximeters and we expect to depend on distributors for international
sales of the CORrestore patch if and when it is developed. We believe that our
current distributors are knowledgeable, and we have a training program for new
distributors concerning our technology and our Cerebral Oximeter and SomaSensor.
However, independent distributors might not have sufficient knowledge about, or
familiarity with, our technology or products to demonstrate adequately their
operation and clinical benefits. If our distributors fail to market, promote and
sell our products adequately, our business, financial condition and results of
operations would be adversely affected.

         We might not be able to engage additional distributors on a timely
basis, enter into other third-party marketing arrangements, or retain or replace
our existing distributors, when required. If we are unable to engage, replace or
retain distributors, our ability to market and sell our products internationally
could be adversely affected. In addition, any required distributor terminations
could increase our costs. Even if we are able to engage and retain distributors,
they might incur conflicting obligations to sell other companies' products or
they might distribute other products that provide greater revenues than are
provided by our products.




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<PAGE>   31


         One international distributor accounted for approximately 23% of our
net revenues for fiscal 1999. In addition, in fiscal 2000 we entered into an
exclusive distributor agreement with Nellcor Puritan Bennett Export, Inc.
initially covering 33 countries for our Cerebral Oximeter. The loss of either of
these distributors could have an adverse effect on our business, financial
condition and results of operations.

NEW PRODUCT DEVELOPMENT IS EXPENSIVE AND MIGHT NOT RESULT IN COMMERCIALLY VIABLE
PRODUCTS.

         We have invested substantial resources to develop the Cerebral Oximeter
and the related disposable SomaSensor. We expect to continue to invest
substantial resources to develop:

         -   the CORrestore patch,
         -   product-line extensions of the Cerebral Oximeter for use on
             newborns,
         -   other non-brain tissue applications of INVOS technology, and
         -   enhancements to the Cerebral Oximeter and SomaSensor.

New products require extensive testing and regulatory clearance before they can
be marketed, and substantial customer education concerning the product's use,
advantages and effectiveness. In addition, sales of our cerebral oximetry
products might be limited because of resistance to major capital equipment
expenditures by hospital purchasing committees. Sales of all of our products
might be limited because hospitals might fear that the cost of a new device or
product will lower its profits because medical insurers generally fix
reimbursement amounts for the procedures in which our products might be used. We
might not be able to develop commercially viable products. In addition, we are
dependent on third parties to develop and test the CORrestore patch.

PATIENTS MIGHT ASSERT PRODUCTS LIABILITY CLAIMS AGAINST US.

         Because we test, market and sell a patient monitoring device and a
heart patch, patients might assert products liability claims against us. The
Cerebral Oximeter is used in operating rooms and other critical care hospital
units with patients who might be seriously ill or might be undergoing dangerous
procedures. The CORrestore patch is expected to be used on seriously ill
patients undergoing a dangerous procedure. On occasion, patients on whom the
Cerebral Oximeter is being used, or in whom a CORrestore patch is implanted, may
be injured or die as a result of their medical treatment or condition. We might
be sued because of such injury or death, and regardless of whether we are
ultimately determined to be liable, we might incur significant legal expenses
not covered by insurance. In addition, products liability litigation could
damage our reputation and impair our ability to market our products. Litigation
could also impair our ability to retain products liability insurance or make our
insurance more expensive. We have products liability insurance with a liability
limit of $2,000,000. This insurance is costly and even though it has been
obtained, we might not be able to retain it. Even if we are able to retain this
insurance, it might not be sufficient to protect us in the event of a major
defect in the Cerebral Oximeter or the CORrestore patch. If we are subject to an
uninsured or inadequately insured products liability claim based on the
performance of the Cerebral Oximeter or the CORrestore patch, our business,
financial condition and results of operations could be adversely affected.

WE ARE DEPENDENT ON THIRD PARTIES FOR MANUFACTURING OUR PRODUCTS AND TESTING THE
CORRESTORE PATCH.

         We are dependent on various suppliers for manufacturing the components
for our Cerebral Oximeter and the related disposable SomaSensor. We believe that
each component is generally available from several potential suppliers. However,
engaging additional or replacing existing suppliers of custom-designed
components is costly and time consuming. We do not intend to maintain
significant inventories of components, Cerebral Oximeters or SomaSensors.
Therefore, we might incur delays in meeting delivery deadlines if a particular
supplier is unable or unwilling to meet our requirements. We estimate that it
would require approximately three to four months to change SomaSensor suppliers.
In addition, we do not have direct control over the activities of our suppliers
and are dependent on them for quality control, capacity, processing technologies
and, in required cases, compliance with FDA Quality System Regulation
requirements. If we cannot replace suppliers on a timely basis when necessary,
our business, financial condition and results of operations may be adversely
affected. In addition, because we do not have long-term agreements with our
suppliers, we might be subject to unexpected price increases which might
adversely affect our profit margins.


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<PAGE>   32



         We will be dependent on a third party to test and manufacture the
CORrestore patch. We have not yet engaged a manufacturer for the CORrestore
patch, and our license agreement limits the parties that we may engage. The
ultimate success of our CORrestore business is dependent on our ability to
engage and manage the manufacturer of the CORrestore patch. We might not be able
to engage a manufacturer for the CORrestore patch on terms acceptable to us. If
we are unsuccessful in engaging or managing the manufacturer of the CORrestore
patch, our business could be adversely affected. Any delay in our engaging a
manufacturer may delay the development, testing and marketing of the CORrestore
patch.


Item 6.  Exhibits and Reports on Form 8-K

         (a)     Exhibits

                 10.1    Fourth Amendment, between Somanetics Corporation and
                         First Industrial Mortgage Partnership, L.P., dated
                         April 13, 2000.

                 10.2    License Agreement, dated as of June 2, 2000, among
                         Somanetics Corporation, CORrestore, LLC, Constantine L.
                         Athanasuleas, M.D. and Gerald D. Buckberg, M.D.,
                         including forms of warrants from Somanetics Corporation
                         to CORrestore, LLC and Wolfe & Company.

                 10.3    Amendment to Employment Agreement, dated as of April
                         18, 2000, between Somanetics Corporation and Bruce J.
                         Barrett.

                 27.1    Financial Data Schedule.

         (b)     Reports on Form 8-K

                 No reports on Form 8-K were filed by us during the quarter for
                 which this report is filed.










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                                   SIGNATURES

Pursuant to the requirements 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.

                               Somanetics Corporation
                               -----------------------------------
                               (Registrant)



Date:    June 15, 2000         By:/s/ Bruce J. Barrett
         ---------------          --------------------------------
                               Bruce J. Barrett
                               President and Chief Executive Officer
                               (Duly Authorized and Principal Financial Officer)








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                                  EXHIBIT INDEX



EXHIBIT                            DESCRIPTION
-------                            -----------
10.1           Fourth Amendment, between Somanetics Corporation and First
               Industrial Mortgage Partnership, L.P., dated April 13,
               2000.
10.2           License Agreement, dated as of June 2, 2000, among Somanetics
               Corporation, CORrestore, LLC, Constantine L. Athanasuleas, M.D.
               and Gerald Buckberg, M.D., including forms of warrants from
               Somanetics Corporation to CORrestore, LLC and Wolfe & Company.
10.3           Amendment to Employment Agreement, dated as of April 18, 2000,
               between Somanetics Corporation and Bruce J. Barrett.
27.1           Financial Data Schedule.





















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