##### Table of Contents



As filed with the Securities and Exchange Commission on
January 31, 2006.


Registration
No. 333-








UNITED STATES SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549


FORM S-3


REGISTRATION STATEMENT


UNDER


THE SECURITIES ACT OF 1933





SOMANETICS CORPORATION


(Exact name of registrant as specified in its charter)


|                                                                   |  |                                         
|------------------------------------------------------------------ |  | ----------------------------------------
|MICHIGAN                                                           |  | 38-2394784                              
|(State or other jurisdiction of
    incorporation or organization) |  | (I.R.S. Employer
    Identification No.)




1653 East Maple Road


Troy, Michigan 48083-4208


(248) 689-3050


(Address, including zip code, and telephone number, including
area code, of


registrants principal executive offices)


Bruce J. Barrett


President and Chief Executive Officer


Somanetics Corporation


1653 East Maple Road


Troy, Michigan 48084-4208


(248) 689-3050


(Name, address, including zip code, and telephone number,
including area code, of agent for service)





Copies to:


|                                                                                                                                                                                                  |  |                                                                                                                                                                       
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Robert J. Krueger
    Honigman Miller Schwartz and Cohn LLP
    2290 First National Building
    660 Woodward Ave
    Detroit, Michigan 48226-3506
    (313) 465-7452
    Fax No.: (313) 465-7453 |  | Marjorie Sybul Adams
    DLA Piper Rudnick Gray Cary US LLP
    1251 Avenue of the America
    New York, New York 10020
    (212) 835-6017
    Fax No.: (212) 884-8517




Approximate date of commencement of proposed sale to the
public:





o


o


o


o


o


o





CALCULATION OF REGISTRATION FEE


|                                        |  |  |               |  |  |                    |  |  |                    |  |  |             
|--------------------------------------- |  |  | ------------- |  |  | ------------------ |  |  | ------------------ |  |  | ------------
|                                        |  |  |               |  |  |                    |  |  |                    |  |  |             
|                                        |  |  |               |  |  |                    |  |  |                    |  |  |             
|                                        |  |  |               |  |  | Proposed Maximum   |  |  | Proposed Maximum   |  |  | Amount of   
|Title of Each Class of                  |  |  | Amount to be  |  |  | Offering Price Per |  |  | Aggregate Offering |  |  | Registration
|Securities to be Registered             |  |  | Registered(1) |  |  | Share(2)           |  |  | Price(2)           |  |  | Fee         
|                                        |  |  |               |  |  |                    |  |  |                    |  |  |             
|Common Shares, par value $.01 per share |  |  | 2,415,000     |  |  | $27.10             |  |  | $65,446,500.00     |  |  | $7,002.78   
|                                        |  |  |               |  |  |                    |  |  |                    |  |  |             
|                                        |  |  |               |  |  |                    |  |  |                    |  |  |             



|    |                                                                                                                                                                                                                                                                           
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes 315,000 shares which the underwriters have the
    option to purchase to cover over-allotments, if any.                                                                                                                                                          
|   
|(2) | Estimated solely for the purpose of computing the registration
    fee, based on the average of the high and low reported sale
    prices of the Registrants common shares on
    January 26, 2006 as reported on The Nasdaq Capital Market,
    pursuant to Rule 457(c).




The Registrant hereby amends this registration statement on
such date or dates as may be necessary to delay its effective
date until the Registrant shall file a further amendment which
specifically states that this registration statement shall
thereafter become effective in accordance with Section 8(a)
of the Securities Act of 1933 or until the registration
statement shall become effective on such date as the Commission,
acting pursuant to said Section 8(a), may determine.










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##### Table of Contents



|The information in
this prospectus is not complete and may be changed. We may not
sell these securities until the registration statement filed
with the Securities and Exchange Commission is effective. This
prospectus is not an offer to sell these securities and it is
not soliciting an offer to buy these securities in any state
where the offer or sale is not permitted.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

SUBJECT TO COMPLETION, DATED
JANUARY 31, 2006


PROSPECTUS





2,100,000 Shares


Somanetics Corporation


Common Shares


$                           per
share












Investing in our common shares involves risks. See Risk
Factors beginning on page 7.







|                                                      |  |           |  |  |       |   |  | 
|----------------------------------------------------- |  | --------- |  |  | ----- | - |  | 
|                                                      |  | Per Share |  |  | Total |  
|                                                      |  |           |  |  |       |  
|Public Offering Price                                 |  | $         |  |  |       | $ |  | 
|Underwriting Discount                                 |  | $         |  |  |       | $ |  | 
|Proceeds to Somanetics Corporation (before expenses)  |  | $         |  |  |       | $ |  | 
|Proceeds to the selling shareholder (before expenses) |  | $         |  |  |       | $ |  | 









Citigroup





SG Cowen & Co.




|                           |                 
|-------------------------- | ----------------
|SunTrust Robinson Humphrey | Rodman & Renshaw





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|                                                                                                                                                                                                                                                                                                                                                                                                                                                     |  |  |  |                                                                                                                                                                                                                                                                                                                                  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  |  |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|INVOS System[Picture of operating room with INVOS System being used]
     The INVOS System is a non-invasive patient
    monitoring system that continuously measures changes in the
    blood oxygen levels in the brain and somatic, or skeletal
    muscle, tissue.
     The INVOS System is used with multiple single-use
    disposable SomaSensors, the sales of which represented
    approximately 75 percent of fiscal 2005 net revenues. |  |  |  | Disposable SomaSensors[Picture of SomaSensors placed on mans head]
     For multi-channel cerebral   monitoring,
    SomaSensors are placed on both sides of a patients
    forehead and are connected to the monitor.                                                                                                        
|                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|Financial Overview[Graph of net revenues (five years) and gross margin as a
    percentage of net revenues (five years)]                                                                                                                                                                                                                                                                                                                             |  |  |  | [Illustration of how SomaSensor works]
     Each SomaSensor   contains a light source
    and two light detectors.
     Light signals are received and   analyzed
    to determine oxygen saturation of the blood in the area of the
    brain beneath the sensors, delivering a reading of changes in
    blood oxygen levels.
|Market Evolution[Graphic of Companys entrance into various markets]                                                                                                                                                                                                                                                                                                                                                                                 |  |  |  | Next Generation Monitor[Picture of next generation INVOS System]
     Our next generation INVOS   System monitor
    displays up to four data channels for continuous monitoring of
    changes in brain and somatic, or skeletal muscle, tissue oxygen
    saturation.                                                         



---



##### 










You should rely only on the information contained in or
incorporated by reference in this prospectus. We have not
authorized anyone to provide you with different information. We
are not making an offer of these securities in any state where
the offer is not permitted. You should not assume that the
information contained in this prospectus is accurate as of any
date other than the date on the front of this prospectus.


TABLE OF CONTENTS


|                                                                                          |  |      |     | 
|----------------------------------------------------------------------------------------- |  | ---- | --- | 
|                                                                                          |  | Page |    
|                                                                                          |  |      |    
|Summary                                                                                   |  |      | 1   | 
|Risk Factors                                                                              |  |      | 7   | 
|Forward-Looking Statements                                                                |  |      | 20  | 
|Use of Proceeds                                                                           |  |      | 21  | 
|Price Range of Common Shares and Dividend
    Policy                                      |  |      | 22  | 
|Capitalization                                                                            |  |      | 23  | 
|Selected Financial Data                                                                   |  |      | 24  | 
|Managements Discussion and Analysis
    of Financial Condition and Results of Operations |  |      | 25  | 
|Business                                                                                  |  |      | 36  | 
|Management                                                                                |  |      | 54  | 
|Certain Relationships and Related Party
    Transactions                                  |  |      | 63  | 
|Principal and Selling Shareholders                                                        |  |      | 64  | 
|Description of Capital Stock                                                              |  |      | 66  | 
|Material U.S. Federal Income and
    Estate Tax Consequences to Non-U.S. Holders          |  |      | 69  | 
|Underwriting                                                                              |  |      | 72  | 
|Legal Matters                                                                             |  |      | 74  | 
|Experts                                                                                   |  |      | 74  | 
|Where You Can Get More Information                                                        |  |      | 74  | 
|Documents Incorporated By Reference                                                       |  |      | 75  | 
|Index to Financial Statements                                                             |  |      | F-1 | 
|Consent of Deloitte & Touche LLP                                                         



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SUMMARY
 This summary highlights information contained elsewhere in
this prospectus. This summary may not contain all of the
information that is important to you. Before investing in our
common shares, you should read this prospectus carefully in its
entirety, especially the description of risks of investing in
our common shares set forth under Risk Factors, and
our financial statements and related notes beginning on
page F-1.
 Somanetics Corporation Overview
 non-invasive


1



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Market Opportunity


2



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Our Solution
    Our Strategy
   
    Target Surgical Procedures and Other Critical Care Situations
    with a High Risk of Oxygen Imbalances. We target surgical
    procedures and other critical care situations with a high risk
    of oxygen imbalances. Some of our current and potential future
    markets include cardiac surgeries, carotid artery surgeries,
    pediatric and neonatal ICU applications and other major
    surgeries involving diabetic or elderly patients.
    Sponsor Clinical Studies to Promote Expanded Acceptance
    of the INVOS System. We plan to sponsor clinical studies
    using the INVOS System to demonstrate its benefits. We use the
    results of clinical studies to help convince the medical
    community of the clinical importance of the information provided
    by the INVOS System. We also sponsor
    peer-to-peer
    educational opportunities and promote use of the INVOS System in
    regional centers of influence that we believe will influence its
    adoption by others.
    Invest in Sales and Marketing Activities. We continue to
    increase our investment in our distribution network consisting
    of our direct sales employees, independent sales representative
    firms and distributors. We expect to increase significantly the
    size of our U.S. direct sales team in fiscal 2006 and are
    evaluating placing direct salespersons and clinical specialists
    in Europe to support Tyco Healthcare.


3



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
    Interface and Integrate Our Technology into Other
    Manufacturers Multi-Modality Systems. There are many
    existing monitoring systems in the operating room and the ICU.
    We would like to interface with these monitors. We have
    interfaced the INVOS System with the Philips Medical
    Systems VueLink System to provide data, alarm events and
    status messages from the INVOS System on any monitor that
    accepts the VueLink module, a multi-parameter monitor. We plan
    to support the interface and integration of our INVOS System
    technology with other medical device manufacturers to expand the
    installed base of INVOS System monitors and increase the demand
    for SomaSensors. We expect that such arrangements will provide
    another distribution channel for our INVOS System.
    Develop Additional Applications and Markets for the INVOS
    System. We are developing a smaller SomaSensor for use with
    newborns, developing a product-line extension of the INVOS
    System for monitoring non-brain tissues and making other
    advances to the design and performance features of the INVOS
    System, including the SomaSensor. We are also evaluating
    additional potential market segments for our INVOS System, such
    as use in other major surgeries, in the adult ICU, in the
    emergency room, in ambulances, in the catheterization
    laboratory, for blood transfusions, for muscle ischemia, for
    cosmetic surgery, for non-surgical neurology or cardiology
    applications, for psychiatric applications and for sleep
    disorders. Pursuit of some of these potential market segments
    may require additional FDA clearance. The CorRestore System
  Risk Factors
  Our Corporate Information
 ® ® ® ® ®


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The Offering
  Common shares offered by us
    
    2,000,000 sharesCommon shares offered by the selling shareholder
    
    100,000 sharesCommon shares to be outstanding immediately after the offering
    
    12,715,885 sharesUse of Proceeds
    
    We expect to use the net proceeds of this offering to expand our
    direct sales team and other sales and marketing activities, to
    sponsor additional clinical trials, to expand our research and
    development efforts, and for working capital and general
    corporate purposes, including potential acquisitions of
    complementary products, technologies or businesses. See
    Use of Proceeds.Nasdaq Capital Market Symbol
    
    SMTS   
    1,914,232 common shares issuable upon exercise of outstanding
    options granted under our stock option plans and independent of
    our stock option plans at an average exercise price of $4.59 per
    share;
    505,785 common shares reserved for future grants and awards
    under our 1997 Stock Option Plan and 2005 Stock Incentive
    Plan; and
    2,100,000 common shares issuable upon exercise of the warrants
    issued to CorRestore LLC and its agent Wolfe & Company
    in connection with our license agreement. The exercise of these
    warrants is dependent upon our cumulative net sales of
    CorRestore products. The sales requirements for exercise of
    these warrants have not been met to date, and we do not expect
    that they will be met before these warrants expire in November
    2006.


5



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Summary Financial Data
  Year Ended November 30,2003
    
    2004
    
    2005(in thousands, except per share data)Statement of Operations Data:Net revenues
    
    $
    9,361
    
    
    $
    12,609
    
    
    $
    20,509Cost of sales
    
    
    2,140
    
    
    
    2,050
    
    
    
    2,601Gross margin
    
    
    7,221
    
    
    
    10,558
    
    
    
    17,908Operating expenses:Research, development and engineering
    
    
    413
    
    
    
    369
    
    
    
    526Selling, general and administrative
    
    
    6,759
    
    
    
    8,237
    
    
    
    13,241Total operating expenses(1)
    
    
    7,172
    
    
    
    8,606
    
    
    
    13,767Operating income
    
    
    49
    
    
    
    1,952
    
    
    
    4,141Other income:Interest income
    
    
    23
    
    
    
    55
    
    
    
    310Total other income
    
    
    23
    
    
    
    55
    
    
    
    310Income before income taxes
    
    
    72
    
    
    
    2,007
    
    
    
    4,451Income tax benefit(2)
    
    
    
    
    
    
    6,700
    
    
    
    3,300Net income
    
    $
    72
    
    
    $
    8,707
    
    
    $
    7,751Net income per common share  basic
    
    $
    0.01
    
    
    $
    0.89
    
    
    $
    0.75Net income per common share  diluted
    
    $
    0.01
    
    
    $
    0.77
    
    
    $
    0.66Weighted average number of common shares outstanding 
    basic
    
    
    9,114
    
    
    
    9,780
    
    
    
    10,322Weighted average number of common shares outstanding 
    diluted
    
    
    9,467
    
    
    
    11,323
    
    
    
    11,798 As of November 30, 2005Actual
    
    As Adjusted(3)(in thousands)Balance Sheet Data:Cash and cash equivalents
    
    $
    13,148
    
    
    $
    64,499Working capital
    
    
    18,044
    
    
    
    69,395Total assets
    
    
    29,719
    
    
    
    81,069Total liabilities
    
    
    1,878
    
    
    
    1,878Accumulated deficit
    
    
    (37,131
    )
    
    
    (37,131
    )Total shareholders equity
    
    
    27,841
    
    
    
    79,191 
  (1)
    Includes an impairment expense of $929,093 in fiscal 2005 in
    connection with the write-off of our intangible asset associated
    with the acquisition of the license for the CorRestore System.(2)
    Represents income recognized in fiscal 2004 and fiscal 2005 as a
    result of a reversal of a portion of our income tax valuation
    allowance.(3)
    As adjusted to give effect to the sale of the 2,000,000 common
    shares offered by us in this offering at an assumed public
    offering price of $27.58 per share, after deducting
    underwriting discounts and commissions and estimated offering
    expenses payable by us.


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RISK FACTORS


An investment in our common shares involves a high degree of
risk. You should carefully consider the specific factors
described below, together with the cautionary statement under
the caption Forward-Looking Statements and the other
information included in this prospectus, before purchasing our
common shares. The risks described below are not the only ones
that we face. Additional risks that are not yet known to us or
that we currently think are immaterial could also impair our
business, financial condition or results of operations. If any
of the following risks actually occurs, our business, financial
condition or results of operations could be adversely affected.
In such case, the trading price of our common shares could
decline, and you may lose all or part of your investment.


Risks Relating to Our Business




| |                                                                                                                                                               
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our future growth depends on increased market acceptance
    of our INVOS System in existing market segments and market
    acceptance in new market segments.











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| |                                                                                                                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We are dependent on our distributors and our independent
    sales representative firms for a substantial portion of our
    sales, and their failure to sell our products adequately would
    adversely affect our business.









| |                                                                                                                                                                                                                                                                             
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We currently depend on single-source suppliers for key
    components of the INVOS System, and the loss of any of these
    suppliers could harm our ability to manufacture and sell our
    products, increase the cost of our components or delay our
    clinical trials.



8



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| |                                                                        
| | -----------------------------------------------------------------------
| | We may become subject to competition which may adversely
    affect us.





| |                                                                                                                                                                                                                                                               
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We also compete with companies that have longer operating
    histories, more established products and greater resources than
    we do for, among other things, forehead monitoring space,
    limited hospital capital budgets and alternative
    products.





| |                                                                                                     
| | ----------------------------------------------------------------------------------------------------
| | If we fail to manage our growth effectively, our business
    and operating results could be harmed.





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| |                                                               
| | --------------------------------------------------------------
| | Patients might assert product liability claims against
    us.





| |                                                                                                                                                                                                                                                    
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If we fail to obtain and maintain necessary U.S. Food
    and Drug Administration clearances for our products and
    indications or if clearances for future products and indications
    are delayed or not issued, our business would be harmed.







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| |                                                                                                                                                                                                                                                   
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The FDA might require us to obtain a new clearance to
    label or promote the INVOS System for specific patient
    subgroups, such as diabetics; if we fail to obtain such
    clearances, our sales and revenues may be adversely
    affected.





| |                                                                                                                                                                                       
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | After clearance or approval of our products, we are
    subject to continuing regulation by the FDA, and if we fail to
    comply with FDA regulations, our business could
    suffer.







| |   |                                                                                                                       
| | - | ----------------------------------------------------------------------------------------------------------------------
| |  | untitled letters, warning letters, fines, injunctions, consent
    decrees and civil penalties;                       
|
| |  | repair, replacement, refunds, recall or seizure of our products;                                                      
|
| |  | operating restrictions or partial suspension or total shutdown
    of production;                                     
|
| |  | refusing or delaying our requests for 510(k) clearance or
    premarket approval of new products or new intended uses;
|
| |  | withdrawing 510(k) clearance or premarket approvals that
    have already been granted; and                           
|
| |  | criminal prosecution.                                                                                                 





| |                                                                                                                                                                                                                       
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We have modified some of our products without
    FDA clearance. The FDA could retroactively determine that
    the modifications were improper and require us to stop marketing
    and recall the modified products.



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| |                                                                                                                                                    
| | ---------------------------------------------------------------------------------------------------------------------------------------------------
| | If we fail to comply with the FDAs Quality System
    Regulation, our manufacturing operations could be halted, and
    our business would suffer.





| |                                                                                                                                        
| | ---------------------------------------------------------------------------------------------------------------------------------------
| | Failure to obtain or maintain regulatory approval in
    foreign jurisdictions would prevent us from marketing our
    products abroad.





| |                                                                                                 
| | ------------------------------------------------------------------------------------------------
| | Federal regulatory reforms may adversely affect our
    ability to sell our products profitably.





| |                                                                                                                                                                                                                                       
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Changes in our actual or estimated future taxable income
    could change the value of our deferred tax asset, potentially
    resulting in a decrease in net income, which could adversely
    affect the price of our common shares.



12



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| |                                                                                                                                            
| | -------------------------------------------------------------------------------------------------------------------------------------------
| | New stock option accounting rules will increase our
    reported expenses, which could adversely affect the price of our
    common shares.





| |                                                                                                   
| | --------------------------------------------------------------------------------------------------
| | The lengthy sales cycle for the INVOS System could cause
    variability in our operating results.





| |                                                                                                                                                                                                                                                          
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If we are unable to obtain or maintain intellectual
    property rights relating to our technology and products, the
    commercial value of our technology and products will be
    adversely affected and our competitive position could be
    harmed.





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| |                                                                                                                                                          
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------
| | If we are found to infringe or are alleged to infringe any
    third party intellectual property rights, then our business may
    be adversely affected.













| |   |                                                                                                                                                                                                                    
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | pay damages, including up to treble damages and the other
    partys attorneys fees, which may be substantial;                                                                                                   
|
| |  | cease the development, manufacture, importation, use and sale of
    products that infringe the patent rights of others, including
    our INVOS System, through a court-imposed sanction called an
    injunction;
|
| |  | expend significant resources to redesign our technology so that
    it does not infringe others patent rights, or to develop
    or acquire non-infringing intellectual property, which may not
    be possible;  
|
| |  | discontinue manufacturing or other processes incorporating
    infringing technology; and/or                                                                                                                       
|
| |  | obtain licenses to the infringed intellectual property, which
    may not be available to us on acceptable terms, or at all.                                                                                       

15



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| |                                                                            
| | ---------------------------------------------------------------------------
| | Our success depends on our ability to attract and retain
    key personnel.





| |                                                                                               
| | ----------------------------------------------------------------------------------------------
| | Any acquisitions that we make could disrupt our business
    and harm our financial condition.





| |                                                                                                             
| | ------------------------------------------------------------------------------------------------------------
| | We have had limited success in marketing the CorRestore
    System, which could result in claims against us.



16



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Risks Relating to This Offering




| |                                                                                                                                  
| | ---------------------------------------------------------------------------------------------------------------------------------
| | We have broad discretion to determine how to allocate the
    net proceeds of this offering and may not use them
    effectively.





| |                                                                                                                                                                                                                  
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Provisions of our corporate charter documents and Michigan
    law may delay or prevent attempts by our shareholders to change
    our management and hinder efforts to acquire a controlling
    interest in us.



17



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| |                                                                                           
| | ------------------------------------------------------------------------------------------
| | The market price of our common shares has been volatile
    and may continue to remain so.





| |   |                                                                                                                         
| | - | ------------------------------------------------------------------------------------------------------------------------
| |  | changes in our quarterly financial condition or operating
    results;                                                  
|
| |  | changes in general conditions in the economy;                                                                           
|
| |  | changes in the financial markets;                                                                                       
|
| |  | changes in the medical equipment industry;                                                                              
|
| |  | changes in financial estimates by securities analysts or
    differences between those estimates and our actual results;
|
| |  | the liquidity of the market for the common shares;                                                                      
|
| |  | developments with respect to patents and proprietary rights;                                                            
|
| |  | publication of clinical research results regarding our products;                                                        
|
| |  | changes in health care policies in the United States or foreign
    countries;                                          
|
| |  | grants or exercises of stock options or warrants;                                                                       
|
| |  | news announcements;                                                                                                     
|
| |  | litigation involving us;                                                                                                
|
| |  | actions by governmental agencies, including the FDA, or changes
    in regulations; and                                 
|
| |  | other developments affecting us or our competitors.                                                                     





| |                                                                                                                                              
| | ---------------------------------------------------------------------------------------------------------------------------------------------
| | We have never paid cash dividends on our capital stock,
    and we do not anticipate paying any cash dividends in the
    foreseeable future.



18



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| |                                                                                                                                                                                                               
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The market price of the common shares might be lower
    because of shares eligible for future sale and shares reserved
    for future issuance upon the exercise of options and warrants we
    have granted.

lock-up


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FORWARD-LOOKING STATEMENTS








20



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USE OF PROCEEDS








| |   |                                                                                                                                                    
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------
| |  | approximately $5 million of our net proceeds to accelerate
    the expansion of our direct sales team and other sales and
    marketing activities;
|
| |  | approximately $2 million of our net proceeds to sponsor
    additional clinical trials; and                                                        
|
| |  | approximately $1 million of our net proceeds to expand our
    research and development efforts.                                                   









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PRICE RANGE OF COMMON SHARES AND DIVIDEND POLICY




|                                     |                                          |      |   |       |     |  |   |       | 
|------------------------------------ | ---------------------------------------- | ---- | - | ----- | --- |  | - | ----- | 
|                                     |                                          | High |   |       | Low | 
|                                     |                                          |      |   |       |     | 
|Fiscal Year Ended November 30, 2004  |                                          |      |   |       |     |  |   |      
|                                     | First Quarter                            |      | $ | 10.00 |     |  | $ | 6.00  | 
|                                     | Second Quarter                           |      |   | 15.86 |     |  |   | 8.77  | 
|                                     | Third Quarter                            |      |   | 16.70 |     |  |   | 9.23  | 
|                                     | Fourth Quarter                           |      |   | 14.98 |     |  |   | 10.65 | 
|Fiscal Year Ended November 30, 2005  |                                          |      |   |       |     |  |   |      
|                                     | First Quarter                            |      | $ | 16.00 |     |  | $ | 13.00 | 
|                                     | Second Quarter                           |      |   | 18.85 |     |  |   | 12.50 | 
|                                     | Third Quarter                            |      |   | 25.74 |     |  |   | 17.66 | 
|                                     | Fourth Quarter                           |      |   | 36.95 |     |  |   | 21.51 | 
|Fiscal Year Ending November 30, 2006 |                                          |      |   |       |     |  |   |      
|                                     | First Quarter (through January 26, 2006) |      | $ | 36.64 |     |  | $ | 25.36 | 





22



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##### Table of Contents






CAPITALIZATION




|                                                                                                                                                                      |                            |                         |         |        |             |   |         |        |        | 
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------- | ----------------------- | ------- | ------ | ----------- | - | ------- | ------ | ------ | 
|                                                                                                                                                                      |                            | As of November 30, 2005 |        
|                                                                                                                                                                      |                            |                         |        
|                                                                                                                                                                      |                            | Actual                  |         |        | As Adjusted |  
|                                                                                                                                                                      |                            |                         |         |        |             |  
|                                                                                                                                                                      |                            | (in thousands, except   |        
|                                                                                                                                                                      |                            | share data)             |        
|Long-Term Debt                                                                                                                                                        |                            |                         |        |        |             |   |        |       
|Shareholders Equity:                                                                                                                                                 |                            |                         |         |        |             |   |         |       
|Preferred shares; authorized 1,000,000 shares of
    $0.01 par value; no shares issued or outstanding                                                                 |                            |                         |        |        |             |   |        |       
|Common shares, authorized 20,000,000 shares of
    $0.01 par value; issued and outstanding, 10,715,885 as of
    November 30, 2005 and 12,715,885 shares, as adjusted |                            | $                       | 107     |        |             | $ | 127     |       
|Additional paid-in capital                                                                                                                                            |                            |                         | 64,865  |        |             |   | 116,195 |       
|Accumulated deficit                                                                                                                                                   |                            |                         | (37,131 | )      |             |   | (37,131 | )     
|                                                                                                                                                                      |                            |                         |         |        |             |  
|                                                                                                                                                                      | Total shareholders equity |                         |         | 27,841 |             |   |         | 79,191 |       
|                                                                                                                                                                      |                            |                         |         |        |             |  
|                                                                                                                                                                      |                            | Total capitalization    |         | $      | 27,841      |   |         | $      | 79,191 | 
|                                                                                                                                                                      |                            |                         |         |        |             |  





| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 1,914,232 common shares issuable upon exercise of
    outstanding options granted under our stock option plans and
    independent of our stock option plans at an average exercise
    price of $4.59 per share;                                                                                                                                                                                                                                                       
|
| |  | 505,785 common shares reserved for future grants and awards
    under our 1997 Stock Option Plan and 2005 Stock Incentive
    Plan; and                                                                                                                                                                                                                                                                                                                                 
|
| |  | 2,100,000 common shares issuable upon exercise of the
    warrants issued to CorRestore LLC and its agent Wolfe &
    Company in connection with our license agreement. The exercise
    of these warrants is dependent upon our cumulative net sales of
    CorRestore products. The sales requirements for exercise of
    these warrants have not been met to date, and we do not expect
    that they will be met before these warrants expire in November
    2006.

23



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##### Table of Contents






SELECTED FINANCIAL DATA




|                                                                   |                                        |                                       |        |       |       |   |        |       |       |   |       |       |       |      |        |        |       |   |        |        |        | 
|------------------------------------------------------------------ | -------------------------------------- | ------------------------------------- | ------ | ----- | ----- | - | ------ | ----- | ----- | - | ----- | ----- | ----- | ---- | ------ | ------ | ----- | - | ------ | ------ | ------ | 
|                                                                   |                                        | Year Ended November 30,               |       
|                                                                   |                                        |                                       |       
|                                                                   |                                        | 2001                                  |        |       | 2002  |   |        | 2003  |       |   | 2004  |       |       | 2005 |       
|                                                                   |                                        |                                       |        |       |       |   |        |       |       |   |       |       |       |      |       
|                                                                   |                                        | (in thousands, except per share data) |       
|Statement of Operations Data:                                      |                                        |                                       |        |       |       |   |        |       |       |   |       |       |       |      |        |        |       |   |        |       
|Net revenues                                                       |                                        | $                                     | 5,656  |       |       | $ | 6,706  |       |       | $ | 9,361 |       |       | $    | 12,609 |        |       | $ | 20,509 |       
|Cost of sales                                                      |                                        |                                       | 2,094  |       |       |   | 2,049  |       |       |   | 2,140 |       |       |      | 2,050  |        |       |   | 2,601  |       
|                                                                   |                                        |                                       |        |       |       |   |        |       |       |   |       |       |       |      |       
|                                                                   | Gross margin                           |                                       |        | 3,561 |       |   |        | 4,657 |       |   |       | 7,221 |       |      |        | 10,558 |       |   |        | 17,908 |       
|                                                                   |                                        |                                       |        |       |       |   |        |       |       |   |       |       |       |      |       
|Operating expenses:                                                |                                        |                                       |        |       |       |   |        |       |       |   |       |       |       |      |        |        |       |   |        |       
|                                                                   | Research, development and engineering  |                                       |        | 778   |       |   |        | 571   |       |   |       | 413   |       |      |        | 369    |       |   |        | 526    |       
|                                                                   | Selling, general and administrative(1) |                                       |        | 5,133 |       |   |        | 5,344 |       |   |       | 6,759 |       |      |        | 8,237  |       |   |        | 13,241 |       
|                                                                   |                                        |                                       |        |       |       |   |        |       |       |   |       |       |       |      |       
|                                                                   |                                        | Total operating expenses              |        |       | 5,911 |   |        |       | 5,915 |   |       |       | 7,172 |      |        |        | 8,606 |   |        |        | 13,767 | 
|                                                                   |                                        |                                       |        |       |       |   |        |       |       |   |       |       |       |      |       
|Operating income (loss)                                            |                                        |                                       | (2,350 | )     |       |   | (1,258 | )     |       |   | 49    |       |       |      | 1,952  |        |       |   | 4,141  |       
|                                                                   |                                        |                                       |        |       |       |   |        |       |       |   |       |       |       |      |       
|Other income:                                                      |                                        |                                       |        |       |       |   |        |       |       |   |       |       |       |      |        |        |       |   |        |       
|                                                                   | Interest income                        |                                       |        | 22    |       |   |        | 52    |       |   |       | 23    |       |      |        | 55     |       |   |        | 310    |       
|                                                                   | Interest expense and other             |                                       |        | (3    | )     |   |        | (1    | )     |   |       |      |       |      |        |       |       |   |        |       |       
|                                                                   |                                        |                                       |        |       |       |   |        |       |       |   |       |       |       |      |       
|                                                                   |                                        | Total other income                    |        |       | 19    |   |        |       | 51    |   |       |       | 23    |      |        |        | 55    |   |        |        | 310    | 
|                                                                   |                                        |                                       |        |       |       |   |        |       |       |   |       |       |       |      |       
|Income (loss) before income taxes                                  |                                        |                                       | (2,331 | )     |       |   | (1,207 | )     |       |   | 72    |       |       |      | 2,007  |        |       |   | 4,451  |       
|Income tax benefit(2)                                              |                                        |                                       |       |       |       |   |       |       |       |   |      |       |       |      | 6,700  |        |       |   | 3,300  |       
|                                                                   |                                        |                                       |        |       |       |   |        |       |       |   |       |       |       |      |       
|Net income (loss)                                                  |                                        | $                                     | (2,331 | )     |       | $ | (1,207 | )     |       | $ | 72    |       |       | $    | 8,707  |        |       | $ | 7,751  |       
|                                                                   |                                        |                                       |        |       |       |   |        |       |       |   |       |       |       |      |       
|Net income (loss) per common share  basic                         |                                        | $                                     | (0.31  | )     |       | $ | (0.13  | )     |       | $ | 0.01  |       |       | $    | 0.89   |        |       | $ | 0.75   |       
|                                                                   |                                        |                                       |        |       |       |   |        |       |       |   |       |       |       |      |       
|Net income (loss) per common share  diluted                       |                                        | $                                     | (0.31  | )     |       | $ | (0.13  | )     |       | $ | 0.01  |       |       | $    | 0.77   |        |       | $ | 0.66   |       
|                                                                   |                                        |                                       |        |       |       |   |        |       |       |   |       |       |       |      |       
|Weighted average number of common shares outstanding 
    basic   |                                        |                                       | 7,606  |       |       |   | 8,951  |       |       |   | 9,114 |       |       |      | 9,780  |        |       |   | 10,322 |       
|                                                                   |                                        |                                       |        |       |       |   |        |       |       |   |       |       |       |      |       
|Weighted average number of common shares outstanding 
    diluted |                                        |                                       | 7,606  |       |       |   | 8,951  |       |       |   | 9,467 |       |       |      | 11,323 |        |       |   | 11,798 |       
|                                                                   |                                        |                                       |        |       |       |   |        |       |       |   |       |       |       |      |       

|                           |  |                    |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|-------------------------- |  | ------------------ | ------- | - | ---- | - | ------- | ---- |  | - | ------- | - |  | ---- | ------- | - |  | - | ------- | -
|                           |  | As of November 30, |        
|                           |  |                    |        
|                           |  | 2001               |         |   | 2002 |   |         | 2003 |  |   | 2004    |   |  | 2005 |        
|                           |  |                    |         |   |      |   |         |      |  |   |         |   |  |      |        
|                           |  | (in thousands)     |        
|Balance Sheet Data:        |  |                    |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Cash and cash equivalents  |  | $                  | 168     |   |      | $ | 2,382   |      |  | $ | 2,239   |   |  | $    | 7,070   |   |  | $ | 13,148  |  
|Working capital            |  |                    | 1,724   |   |      |   | 4,047   |      |  |   | 4,480   |   |  |      | 9,311   |   |  |   | 18,044  |  
|Total assets               |  |                    | 3,587   |   |      |   | 6,164   |      |  |   | 7,156   |   |  |      | 18,785  |   |  |   | 29,719  |  
|Total liabilities          |  |                    | 575     |   |      |   | 664     |      |  |   | 991     |   |  |      | 1,232   |   |  |   | 1,878   |  
|Accumulated deficit        |  |                    | (52,445 | ) |      |   | (53,661 | )    |  |   | (53,589 | ) |  |      | (44,882 | ) |  |   | (37,131 | )
|Total shareholders equity |  |                    | 3,013   |   |      |   | 5,501   |      |  |   | 6,165   |   |  |      | 17,553  |   |  |   | 27,841  |  






|    |                                                                                                                                                                                                     
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes an impairment expense of $929,093 in fiscal 2005 in
    connection with the write-off of our intangible asset associated
    with the acquisition of the license for the CorRestore System.
|   
|(2) | Represents income recognized in fiscal 2004 and fiscal 2005 as a
    result of a reversal of a portion of our income tax valuation
    allowance.                                                   

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##### Table of Contents






MANAGEMENTS DISCUSSION AND ANALYSIS OF


FINANCIAL CONDITION AND RESULTS OF OPERATIONS


You should read the following discussion and analysis of our
financial condition and results of operations together with our
financial statements and the related notes and other financial
data included elsewhere in this prospectus. Some of the
information contained in this discussion and analysis or set
forth elsewhere in this prospectus, including information with
respect to our plans and strategy for our business, includes
forward-looking statements that involve risks and uncertainties.
You should review the Risk Factors section of this
prospectus for a discussion of important factors that could
cause actual results to differ materially from the results
described in or implied by the forward-looking statements
contained in the following discussion and analysis. See also
Forward-Looking Statements.


Overview












| |                               
| | ------------------------------
| | Net Revenues and Cost of Sales



25



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##### Table of Contents













| |                   
| | ------------------
| | Operating Expenses





| |   |                                                                                                                                                                                                                                                                                                
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | salaries, wages and related expenses of our employees and
    consultants;                                                                                                                                                                                                                     
|
| |  | sales and marketing expenses, such as employee sales
    commissions, commissions to independent sales representatives,
    travel, entertainment, advertising, education and training
    expenses, depreciation of demonstration monitors and attendance
    at selected medical conferences;
|
| |  | clinical research expenses, such as costs of supporting clinical
    trials; and                                                                                                                                                                                                               
|
| |  | general and administrative expenses, such as the cost of
    corporate operations, professional services, insurance, warranty
    and royalty expenses, investor relations, depreciation and
    amortization, facilities expenses and other general operating
    expenses.                   







| |   |                                                                                                    
| | - | ---------------------------------------------------------------------------------------------------
| |  | salaries, wages and related expenses of our research and
    development personnel and consultants;
|
| |  | costs of various development projects; and                                                         
|
| |  | costs of preparing and processing applications for FDA clearance
    of new products.              



| |                                           
| | ------------------------------------------
| | Deferred Tax Assets and Impairment Charges



26



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##### Table of Contents







| |   |                                                                                                                                                                                                                                                                                                                                                                                          
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | We recorded an impairment expense of $929,093 associated with
    the write-down of our intangible asset associated with the
    acquisition of the license for the CorRestore System.                                                                                                                                                                                                   
|
| |  | We further adjusted our deferred tax asset valuation allowance
    resulting in the recognition of additional deferred tax assets
    due to expected future tax benefits related to our net operating
    loss carryforwards. Recognition of this additional deferred tax
    asset resulted in a non-cash tax benefit on our statement of
    operations for fiscal 2005 of $3,300,000.

Results of Operations




| |                                                                                        
| | ---------------------------------------------------------------------------------------
| | Fiscal Year Ended November 30, 2005 Compared to
    Fiscal Year Ended November 30, 2004

Net Revenues.




| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | an increase in U.S. sales of $6,688,546, or
    64 percent, from $10,517,014 in fiscal 2004 to
    approximately $17,205,560 in fiscal 2005. The increase in
    U.S. sales was primarily due to an increase in sales of the
    disposable SomaSensor of $4,900,660, or 54 percent, as a
    result of a 38 percent increase in SomaSensor unit sales
    and a 12 percent increase in SomaSensor average selling
    prices. This increase in our average selling prices is
    attributable to the addition of new customers at our higher
    suggested retail prices and increased sales of our pediatric
    SomaSensor which sells for a higher price than the adult
    SomaSensor. In addition, sales of the INVOS System monitor in
    the United States increased $1,817,406, or 180 percent,
    primarily as a result of increased purchases by pediatric
    hospitals after the launch of our products into the pediatric
    ICU in the first quarter of fiscal 2005; and
|
| |  | an increase in international sales of $1,212,090, or
    58 percent, from $2,091,602 in fiscal 2004 to $3,303,692 in
    fiscal 2005. The increase in international sales was primarily
    due to increased purchases of the INVOS System monitor and
    disposable SomaSensor by Tyco Healthcare in Europe, which was
    partially offset by decreased purchases by Edwards Lifesciences
    in Japan. In fiscal 2005, international sales represented
    16 percent of our net revenues, compared to 17 percent
    of our net revenues in fiscal 2004. Purchases by Tyco Healthcare
    accounted for 11 percent of net revenues in fiscal 2005.                                                                                                                                                                                                                                                                                                                                   





|                      |                    |              |    |     |      |  |    |     |  
|--------------------- | ------------------ | ------------ | -- | --- | ---- |  | -- | --- | -
|                      |                    | Fiscal Year  |   
|                      |                    | Ended        |   
|                      |                    | November 30, |   
|                      |                    |              |   
|Product               |                    | 2005         |    |     | 2004 | 
|                      |                    |              |    |     |      | 
|SomaSensors           |                    |              | 75 | %   |      |  | 78 | %  
|INVOS System Monitors |                    |              | 23 | %   |      |  | 18 | %  
|                      |                    |              |    |     |      | 
|                      | Total INVOS System |              |    | 98  | %    |  |    | 96  | %
|CorRestore Systems    |                    |              | 2  | %   |      |  | 4  | %  
|                      |                    |              |    |     |      | 
|                      | Total              |              |    | 100 | %    |  |    | 100 | %
|                      |                    |              |    |     |      | 



27



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##### Table of Contents





Gross Margin.


Research, Development and Engineering Expenses.


Selling, General and Administrative Expenses.




| |   |                                                                                                                                                                                                                                                                                                                                                
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | a $1,031,964 increase in salaries, wages and related expenses,
    primarily as a result of an increase in the number of employees,
    principally in sales and marketing (from an average of
    32 employees for the fiscal year ended November 30,
    2004 to an average of 42 employees for the fiscal year
    ended November 30, 2005);
|
| |  | an impairment expense of $929,093 as a result of the write-down
    of our intangible asset associated with the acquisition of the
    license for the CorRestore System;                                                                                                                                                                      
|
| |  | an $832,012 increase in employee sales commissions as a result
    of increased sales and increased sales personnel during fiscal
    2005;                                                                                                                                                                                                    
|
| |  | an $811,524 increase in commissions paid to our independent
    sales representative firms as a result of increased sales;                                                                                                                                                                                                                     
|
| |  | a $661,785 increase in travel and selling-related expenses as a
    result of our increased sales personnel and increased sales and
    marketing activities;                                                                                                                                                                                  
|
| |  | a $377,153 increase in audit-related expenses, primarily as a
    result of costs associated with our first internal control
    assessment under Section 404 of the Sarbanes-Oxley Act and
    related regulations;                                                                                                                           
|
| |  | a $365,770 increase in accrued incentive compensation expense
    due to our fiscal 2005 financial performance, primarily
    increased sales and net income, in accordance with the 2005
    Incentive Compensation Plan; and                                                                                                                 
|
| |  | a $105,120 increase in employer 401(k) matching contributions as
    a result of increased personnel and increased salaries and wages
    as described above.                                                                                                                                                                                  





Income Tax Benefit.


28



---



##### Table of Contents







| |                                                                                        
| | ---------------------------------------------------------------------------------------
| | Fiscal Year Ended November 30, 2004 Compared to
    Fiscal Year Ended November 30, 2003

Net Revenues.




| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | an increase in U.S. sales of $3,100,634, or
    42 percent, from $7,416,380 in fiscal 2003 to $10,517,014
    in fiscal 2004. The increase in U.S. sales was primarily
    due to an increase in sales of the disposable SomaSensor of
    $2,967,150, or 49 percent, as a result of a 22 percent
    increase in SomaSensor unit sales and a 22 percent increase
    in SomaSensor average selling prices. This increase in our
    average selling prices is attributable to the addition of new
    customers at our higher suggested retail prices, which were
    effective September 1, 2003, increased sales of our small
    adult SomaSensor that was launched in the third quarter of
    fiscal 2003 and sells for a premium price compared to the adult
    SomaSensor, increased sales of our pediatric SomaSensor which
    also sells for a higher price than the adult SomaSensor, and the
    upgrade of certain customers to our most recent model INVOS
    System monitor in exchange for the customer agreeing to pay a
    higher price for the disposable SomaSensor. In addition, sales
    of the INVOS System monitor in the United States increased
    $332,779, or 49 percent, as a result of increased purchases
    by pediatric hospitals. These increases were partially offset by
    a decrease in CorRestore System revenues of $199,295, or
    29 percent; and
|
| |  | an increase in international sales of $147,089, or
    8 percent, from $1,944,513 in fiscal 2003 to $2,091,602 in
    fiscal 2004. The increase in international sales was primarily
    due to increased purchases of the INVOS System monitor and
    disposable SomaSensor by Edwards Lifesciences in Japan, which
    was partially offset by decreased purchases by Tyco Healthcare
    in Europe. In fiscal 2004, international sales represented
    17 percent of our net revenues, compared to 21 percent
    of our net revenues in fiscal 2003. Purchases by Tyco Healthcare
    accounted for 12 percent of net revenues in fiscal 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                





|                      |                    |              |    |     |      |  |    |     |  
|--------------------- | ------------------ | ------------ | -- | --- | ---- |  | -- | --- | -
|                      |                    | Fiscal Year  |   
|                      |                    | Ended        |   
|                      |                    | November 30, |   
|                      |                    |              |   
|Product               |                    | 2004         |    |     | 2003 | 
|                      |                    |              |    |     |      | 
|SomaSensors           |                    |              | 78 | %   |      |  | 71 | %  
|INVOS System Monitors |                    |              | 18 | %   |      |  | 21 | %  
|                      |                    |              |    |     |      | 
|                      | Total INVOS System |              |    | 96  | %    |  |    | 92  | %
|CorRestore Systems    |                    |              | 4  | %   |      |  | 8  | %  
|                      |                    |              |    |     |      | 
|                      | Total              |              |    | 100 | %    |  |    | 100 | %
|                      |                    |              |    |     |      | 

Gross Margin.




| |   |                                                                                                                                                                                    
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | a change in the sales mix with increased sales of the disposable
    SomaSensor, which has a higher gross margin percentage than the
    INVOS System monitor or CorRestore System;

29



---



##### Table of Contents





| |   |                                                                                                                                                         
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the increase in the average selling price of SomaSensors;                                                                                               
|
| |  | a significant reduction in the cost of our SomaSensor in May
    2004 as a result of changes in our manufacturing
    process; and                      
|
| |  | the change in sales mix with increased sales in the United
    States, which have higher gross margins than our international
    sales to distributors.

Research, Development and Engineering Expenses.


Selling, General and Administrative Expenses.




| |   |                                                                                                                                                                                                                                                                                                                                              
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | a $398,329 increase in salaries, wages and related expenses,
    primarily as a result of an increase in the number of employees,
    principally in sales and marketing (from an average of
    28 employees for the fiscal year ended November 30,
    2003 to an average of 32 employees for the fiscal year
    ended November 30, 2004);
|
| |  | a $393,196 increase in employee sales commissions as a result of
    increased sales and increased sales headcount during fiscal 2004;                                                                                                                                                                                                       
|
| |  | a $352,948 increase in commissions paid to our independent sales
    representative firms as a result of increased sales;                                                                                                                                                                                                                    
|
| |  | a $226,588 increase in accrued incentive compensation expense
    due to our fiscal 2004 financial performance, primarily
    increased sales and net income, in accordance with the 2004
    Incentive Compensation Plan;                                                                                                                   
|
| |  | a $117,416 increase in travel and selling-related expenses as a
    result of our increased sales headcount and increased sales and
    marketing activities;                                                                                                                                                                                
|
| |  | $96,254 in costs associated with a 401(k) matching contribution
    program that we implemented in fiscal 2004; and                                                                                                                                                                                                                          
|
| |  | $95,998 in costs associated with the termination of some of our
    independent sales representative firms in the second quarter of
    fiscal 2004.                                                                                                                                                                                         



Income Tax Benefit.




| |                     
| | --------------------
| | Effects of Inflation



30



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##### Table of Contents



Liquidity and Capital Resources




| |        
| | -------
| | General









| |                                     
| | ------------------------------------
| | Cash Flows From Operating Activities





| |   |                                                                                                                                                                                                                                                                                                                                                                          
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | $5,764,166 of net income before income taxes, non-cash
    intangible impairment expense, and non-cash depreciation and
    amortization expense;                                                                                                                                                                                                                        
|
| |  | a $462,485 increase in accrued liabilities, primarily as a
    result of the increased accrued incentive compensation and
    accrued sales commissions as a result of our fiscal 2005
    financial performance, partially offset by reduced accrued
    401(k) matching contributions as of the end of the fiscal year
    and decreased accrued professional fees; and
|
| |  | a $183,699 increase in accounts payable, primarily as a result
    of increased inventory and operating expenses, partially offset
    by more timely payments made to vendors.                                                                                                                                                                                          





| |   |                                                                                                                                                                                                                                                                                                                                                                                                                             
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | a $1,509,196 increase in accounts receivable primarily as a
    result of higher fourth quarter sales in fiscal 2005 than in the
    fourth quarter of fiscal 2004, and the timing of more of the
    sales in fiscal 2005 towards the end of the fourth quarter;                                                                                                                                                           
|
| |  | a $859,312 increase in inventories, primarily due to the
    acquisition of SomaSensors and components associated with our
    INVOS System monitor due to anticipated sales; inventories on
    our balance sheet increased less because we capitalized INVOS
    System monitors to property and equipment that are being used as
    demonstration units and no capital cost sales equipment, as
    described below; and
|
| |  | a $365,410 increase in prepaid expenses, primarily due to the
    timing of the renewal of our product liability and general
    liability insurance policies, and increased prepaid expenses for
    trade shows and marketing programs.                                                                                                                                                                                   





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| |                                     
| | ------------------------------------
| | Cash Flows From Investing Activities





| |                                     
| | ------------------------------------
| | Cash Flows From Financing Activities



Contractual Obligations




|                            |  |                        |           |           |        |   |           |           |           |   |           |  |  |         |         |  |  |  |   | 
|--------------------------- |  | ---------------------- | --------- | --------- | ------ | - | --------- | --------- | --------- | - | --------- |  |  | ------- | ------- |  |  |  | - | 
|                            |  | Payments Due by Period |          
|                            |  |                        |          
|                            |  |                        |           | Less Than |        |   |           |           | More Than |  
|Contractual Obligations     |  | Total                  |           |           | 1 Year |   |           | 1-3 Years |           |   | 3-5 Years |  |  | 5 Years |        
|                            |  |                        |           |           |        |   |           |           |           |   |           |  |  |         |        
|Long-term debt obligations  |  |                        |          |           |        |   |          |           |           |   |          |  |  |         |        |  |  |  |  | 
|Capital lease obligations   |  |                        |          |           |        |   |          |           |           |   |          |  |  |         |        |  |  |  |  | 
|Operating lease obligations |  | $                      | 590,200   |           |        | $ | 140,400   |           |           | $ | 288,700   |  |  | $       | 161,100 |  |  |  |  | 
|Purchase obligations        |  |                        | 2,010,000 |           |        |   | 2,010,000 |           |           |   |          |  |  |         |        |  |  |  |  | 
|Other long-term liabilities |  |                        |          |           |        |   |          |           |           |   |          |  |  |         |        |  |  |  |  | 



Off-Balance Sheet Arrangements




New Accounting Pronouncements




Critical Accounting Policies




32



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| |                            
| | ---------------------------
| | CorRestore Intangible Asset











| |                       
| | ----------------------
| | Employee Stock Options



33



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##### Table of Contents













Income Taxes






34



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##### Table of Contents









| |                                          
| | -----------------------------------------
| | No Capital Cost Sales Revenue Recognition

00-21,


35



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##### Table of Contents






BUSINESS


Overview










36



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##### Table of Contents







Industry




| |                   
| | ------------------
| | Market Opportunity







| |                                        
| | ---------------------------------------
| | Brain Oxygen Imbalances and Its Effects







37



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##### Table of Contents







| |                                                   
| | --------------------------------------------------
| | Limitations of Traditional Monitoring Technologies



Our Solution








38



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|                                     |  |                                                                                                                                                                                                                                  
|------------------------------------ |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Features                             |  | Benefits                                                                                                                                                                                                                         
|                                     |  |                                                                                                                                                                                                                                  
|Non-invasive                         |  |  Reduced risk to patients and medical
    professionals                                                                                                                                                                         
|                                     |  |  Consistent with market trend toward less
    invasive medical procedures                                                                                                                                                       
|                                    
|Continuous Information               |  |  Immediate information regarding brain oxygen
    imbalances to help guide therapeutic interventions                                                                                                                            
|                                     |  |  Trend information, rather than at a single
    point in time                                                                                                                                                                   
|                                    
|Cost-Effective                       |  |  Low cost relative to traditional brain
    monitoring methods                                                                                                                                                                  
|                                     |  |  Small portion of the total cost of the
    procedures in which it is used                                                                                                                                                      
|                                     |  |  Information can potentially improve patient
    outcomes and reduce the overall cost of care                                                                                                                                   
|                                    
|Easy to Use                          |  |  Does not require a dedicated technician to
    operate or interpret                                                                                                                                                            
|                                     |  |  Automatic SomaSensor calibration                                                                                                                                                                                               
|                                     |  |  Simple user interface and controls                                                                                                                                                                                             
|                                    
|Effective in Difficult Circumstances |  |  Provides information when the patient is
    unconscious, lacks a strong peripheral pulse or has suppressed
    neural activity, specifically during cardiac arrest,
    hypothermia, hypertension, hypotension and hypovolemia
|                                    
|Portable/Compatible                  |  |  Placed at patients bedside                                                                                                                                                                                                    
|                                     |  |  Lightweight                                                                                                                                                                                                                    
|                                     |  |  Can be integrated or interfaced with existing
    multi-modality systems                                                                                                                                                       

The CorRestore System




Business Strategy






| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Target Surgical Procedures and Other Critical Care
    Situations with a High Risk of Oxygen Imbalances. We
    target surgical procedures and other critical care situations
    with a high risk of oxygen imbalances. Some of our current and
    potential future markets include cardiac surgeries, carotid
    artery surgeries, pediatric and neonatal ICU applications and
    other major surgeries involving diabetic or elderly patients. We
    believe that the medical professionals involved in these
    surgeries and ICU treatments are most aware of the risks of
    brain and other damage resulting from oxygen

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | imbalances. Therefore, we believe that it will be easier to
    demonstrate the clinical importance of the information provided
    by the INVOS System to these professionals and potentially gain
    market acceptance for our products in connection with these
    surgeries and ICU treatments.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| |  | Sponsor Clinical Studies to Promote Expanded
    Acceptance of the INVOS System. We believe that our
    INVOS System has been evaluated in over 400 presentations, study
    abstracts and published papers. During the second quarter of
    fiscal 2004, results of both the first prospective, randomized
    clinical trial and a larger retrospective review evaluating the
    INVOS System were presented, which we believe have contributed
    to the INVOS System gaining further market penetration. We plan
    to sponsor clinical studies using the INVOS System to
    demonstrate its benefits. We are currently sponsoring a
    prospective, randomized, blinded clinical trial involving
    diabetic patients over age 50 who are undergoing major
    general surgery. The study group will consist of patients whose
    surgeries are managed based on information provided by the INVOS
    System, and the control group will consist of similarly situated
    patients whose surgeries are not managed based on information
    provided by the INVOS System. The two groups will be compared
    across measures of patient outcomes and hospital costs,
    including length of hospital stay. Diabetics are at particular
    risk of oxygen imbalances because of a higher incidence of
    vascular disease. If results of this trial are positive, we
    intend to target more actively the sale of the INVOS System for
    use in diabetic patients undergoing major general surgeries,
    consistent with FDA requirements . We expect to begin this
    marketing in 2008. We are also evaluating sponsorship of other
    clinical trials which may allow us to more actively target the
    sale of the INVOS System for use in other patient populations.
    We use the results of clinical studies to help convince the
    medical community of the clinical importance of the information
    provided by the INVOS System. We also sponsor
    peer-to-peer
    educational opportunities and promote use of the INVOS System in
    regional centers of influence that we believe will influence its
    adoption by others.
|
| |  | Invest in Sales and Marketing Activities. We
    continue to increase our investment in our distribution network
    consisting of our direct sales employees, independent sales
    representative firms and distributors. We sell the INVOS System
    through a direct sales team in the United States, the size of
    which has increased from 17 persons at the end of fiscal
    2004 to 26 persons at the end of fiscal 2005, and
    10 independent sales representative firms. We expect to
    increase significantly the size of our U.S. direct sales
    team in fiscal 2006 and are evaluating placing direct
    salespersons and clinical specialists in Europe to support Tyco
    Healthcare. We also have a co-promotion relationship with
    Fresenius Medical Care Cardiovascular Resources, Inc.s
    North American Extracorporeal Alliance. We participate in trade
    shows and medical conferences, ongoing
    peer-to-peer
    educational programs and targeted public relations opportunities.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| |  | Interface and Integrate Our Technology into Other
    Manufacturers Multi-Modality Systems. There are
    many existing monitoring systems in the operating room and the
    ICU. We would like to interface with these monitors. We have
    interfaced the INVOS System with the Philips Medical
    Systems VueLink System to provide data, alarm events and
    status messages from the INVOS System on any monitor that
    accepts the VueLink module, a multi-parameter monitor. This
    enables oximetry data from our INVOS System to be displayed on
    the VueLink screen and integrated with other vital patient
    information. We plan to support the interface and integration of
    our INVOS System technology with other medical device
    manufacturers to expand the installed base of INVOS System
    monitors and increase the demand for SomaSensors. We expect that
    such arrangements will provide another distribution channel for
    our INVOS System.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| |  | Develop Additional Applications and Markets for the INVOS
    System. We are developing a smaller SomaSensor
    for use with newborns, developing a product-line extension of
    the INVOS System for monitoring non-brain tissues and making
    other advances to the design and performance features of the
    INVOS System, including the SomaSensor. We are also evaluating
    additional potential market segments for our INVOS System, such
    as use in other major surgeries, in the adult ICU, in the
    emergency room, in ambulances, in the catheterization
    laboratory, for blood transfusions, for muscle ischemia, for
    cosmetic surgery, for non-surgical neurology or cardiology                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

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| |  |                                                                                                                                                                                                                                                                                                                                                                              
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | applications, for psychiatric applications and for sleep
    disorders. Pursuit of some of these potential market segments
    may require additional FDA clearance. We believe that these
    natural extensions of our technology will increase our market
    potential without the more significant risks and costs
    associated with developing entirely new products.

The INVOS System


Components of the INVOS
System






| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Monitor and Software. Our oximeter is a portable
    monitor that uses our proprietary software to analyze
    information received from the SomaSensors. It provides a
    continuous digital and trend display of an index of the oxygen
    saturation in the region of the body under the SomaSensors. The
    monitor includes menus for users to set high and low audible
    alarms, customize the display and retrieve data. Single-function
    keys allow users to silence alarms, mark important events, store
    data for up to 28 surgical procedures, and retrieve data by
    disk or through a USB link to a computer. The monitor measures
    approximately 9 inches wide, 8 inches high, and
    8 inches deep and weighs approximately 14 pounds. Our
    next generation INVOS System monitor, which we expect to launch
    in the first half of 2006, measures approximately 11 inches
    wide, 9 inches high, and 6 inches deep and weighs
    approximately 11 pounds. We provide a one-year warranty on
    the monitor, and we offer service for the monitor for a fee
    after the warranty expires. As of November 30, 2005, we had
    an installed base of approximately 1,100 INVOS System
    monitors in the United States in approximately
    500 hospitals.                                                     
|
| |  | SomaSensors. Each single-use SomaSensor contains a
    light source and two light detectors. For multi-channel cerebral
    monitoring, SomaSensors are placed on both sides of a
    patients forehead and are connected to the monitor, which
    allows for monitoring both sides of the brain. Our next
    generation INVOS System monitor, which we expect to launch in
    the first half of 2006, can display information from four
    SomaSensors, which will allow for the simultaneous monitoring of
    changes in blood oxygen saturation in the brain and, in patients
    with or at risk for restricted blood flow, in somatic tissue.
    The number of sensors used will depend on the application. We
    expect that the INVOS System will be used to monitor
    simultaneously the brain and somatic tissue initially for
    patients in the pediatric and neonatal ICU, and will later also
    be used on adults and for monitoring somatic tissue alone. The
    SomaSensors contain information that is processed by the INVOS
    System allowing it to automatically calibrate each sensor.
    During our fiscal year ended November 30, 2005, net
    revenues from SomaSensors comprised approximately
    75 percent of our net revenues. During fiscal 2005 we sold
    approximately 213,000 SomaSensors worldwide.



| |                             
| | ----------------------------
| | Overview of INVOS Technology





41



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| |                                 
| | --------------------------------
| | Applications and Market Segments





| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Cardiac and Carotid Artery Surgery. Until the
    first quarter of fiscal 2005, we focused our marketing efforts
    primarily on cardiac and carotid artery surgeries. We believed
    it would be easier to demonstrate clinical importance of the
    information provided by the INVOS System and potentially gain
    market acceptance for our products in connection with these
    surgeries. Moreover, much of the earliest clinical data
    regarding the use of the INVOS System involved these surgeries.
    In September 2000, we received 510(k) clearance from the FDA to
    market the model 5100 INVOS System in the United States. Unlike
    earlier models, the model 5100 INVOS System has the added
    capability of being able to monitor pediatric patients. After
    receiving this clearance, we expanded our marketing efforts to
    include pediatric cardiac surgeries.                                                                                      
|
| |  | Pediatric and Neonatal ICU. We are not aware of
    any other FDA-cleared cerebral oximeter commercially available
    in the United States that is cleared for monitoring non-adult
    patients. In the first quarter of fiscal 2005, we initiated
    selling and marketing efforts for the INVOS System in the
    pediatric ICU. We plan to launch the product into the neonatal
    ICU in late 2006, after completing development of a smaller
    SomaSensor. Our next generation INVOS System monitor, which we
    expect to launch in the first half of 2006, can display
    information from four SomaSensors, which will allow for the
    simultaneous monitoring of changes in blood oxygen saturation in
    the brain and, in patients with or at risk for restricted blood
    flow, in somatic tissue. We expect that the INVOS System will be
    used to monitor simultaneously the brain and somatic tissue
    initially for patients in the pediatric and neonatal ICU.
|
| |  | Diabetic Patient Major Surgeries. We are currently
    sponsoring a prospective, randomized, blinded clinical trial
    involving diabetic patients over age 50 who are undergoing
    major general surgery. The study group will consist of patients
    whose surgeries are managed based on information provided by the
    INVOS System, and the control group will consist of similarly
    situated patients whose surgeries are not managed based on
    information provided by the INVOS System. The two groups will be
    compared across measures of patient outcomes and hospital costs,
    including length of hospital stay. Diabetics are at particular
    risk of oxygen imbalances because of a higher incidence of
    vascular disease. If results of this trial are positive, we
    intend to target more actively the sale of the INVOS                                                                                                                               

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | System for use in diabetic patients undergoing major general
    surgeries, consistent with FDA requirements. We expect to begin
    this marketing in 2008.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| |  | Other Applications. We are also evaluating
    sponsorship of other clinical trials which may allow us to more
    actively target the sale of the INVOS System for use in other
    patient populations. If the results of these trials are
    positive, following completion of these trials and publication
    of the results, we intend to target the sale of the INVOS System
    for use on elderly patients undergoing major surgeries. We are
    also evaluating additional potential market segments for our
    INVOS System, such as use in other major surgeries, in the adult
    ICU, in the emergency room, in ambulances, in the
    catheterization laboratory, for blood transfusions, for muscle
    ischemia, for cosmetic surgery, for non-surgical neurology or
    cardiology applications, for psychiatric applications and for
    sleep disorders. Pursuit of some of these potential market
    segments may require additional FDA clearance.

Clinical Development






| |             
| | ------------
| | Murkin Study

200-patient








43



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| |              
| | -------------
| | Goldman Study

2,279-patient Optimizing Intraoperative Cerebral Oxygen Delivery Using
Noninvasive Cerebral Oximetry Decreases the Incidence of Stroke
for Cardiac Surgical Patients, #2004-1062








44



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| |                          
| | -------------------------
| | Diabetic Patients Studies

56-patient








| |                     
| | --------------------
| | Other Future Studies



The CorRestore System






45



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##### Table of Contents







1,198-patient Surgical Ventricular
Restoration in the Treatment of Congestive Heart Failure Due to
Post-Infarction Ventricular Dilation






| |                  
| | -----------------
| | License Agreement







46



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##### Table of Contents







Marketing, Sales and Distribution




| |          
| | ---------
| | Marketing





peer-to




| |                       
| | ----------------------
| | Sales and Distribution







47



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##### Table of Contents













Research and Development




Manufacturing




48



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##### Table of Contents





Competition










49



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##### Table of Contents





Proprietary Rights Information
















50



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##### Table of Contents



Government Regulation






| |   |                                 
| | - | --------------------------------
| |  | product development;            
|
| |  | product testing;                
|
| |  | product labeling;               
|
| |  | product storage;                
|
| |  | premarket clearance or approval;
|
| |  | advertising and promotion; and  
|
| |  | product sales and distribution. 



510(k) Clearance Pathway.




PMA Approval Pathway.


51



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Clinical Trials.




Postmarket.






| |   |                                                                                
| | - | -------------------------------------------------------------------------------
| |  | fines, injunctions, and civil penalties;                                       
|
| |  | recall or seizure of products;                                                 
|
| |  | operating restrictions, partial suspension or total shutdown of
    production;
|
| |  | refusing requests for 510(k) clearance or PMA approval of new
    products;    
|
| |  | withdrawing 510(k) clearance or PMA approvals already
    granted; and         
|
| |  | criminal prosecution.                                                          





52



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Seasonality




Facilities




Employees




Insurance




Litigation




53



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##### Table of Contents






MANAGEMENT


Directors and Executive Officers




|                             |  |     |    |          |  |                                                                         
|---------------------------- |  | --- | -- | -------- |  | ------------------------------------------------------------------------
|Name                         |  | Age |    | Position
|                             |  |     |    |         
|Bruce J. Barrett             |  |     | 46 |          |  | President, Chief Executive Officer and a Director                       
|William M. Iacona            |  |     | 35 |          |  | Vice President and Chief Financial Officer, Controller and
    Treasurer
|Richard S. Scheuing          |  |     | 50 |          |  | Vice President, Research and Development                                
|Dominic J. Spadafore         |  |     | 46 |          |  | Vice President, Sales and Marketing                                     
|Mary Ann Victor              |  |     | 48 |          |  | Vice President and Chief Administrative Officer and Secretary           
|Ronald A. Widman             |  |     | 55 |          |  | Vice President, Medical Affairs                                         
|Pamela A. Winters            |  |     | 47 |          |  | Vice President, Operations                                              
|Dr. James I. Ausman(1)(2)(3) |  |     | 68 |          |  | Director                                                                
|Daniel S. Follis(1)(2)(3)    |  |     | 68 |          |  | Director                                                                
|Robert R. Henry(1)(2)(3)     |  |     | 65 |          |  | Director                                                                






|    |                                      
|--- | -------------------------------------
|(1) | Member of the Compensation Committee.
|   
|(2) | Member of the Audit Committee.       
|   
|(3) | Member of the Nominating Committee.  

Bruce J. Barrett.


William M. Iacona.


Richard S. Scheuing.


Dominic J. Spadafore.


54



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##### Table of Contents





Mary Ann Victor.


Ronald A. Widman.


Pamela A. Winters.


James I. Ausman, M.D., Ph.D.


Daniel S. Follis.


Robert R. Henry.


55



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##### Table of Contents







Board of Directors and Committees of the Board of
Directors




| |                   
| | ------------------
| | Board of Directors





| |                
| | ---------------
| | Audit Committee





| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | is directly responsible for the appointment, compensation,
    retention and oversight of the work of any registered public
    accounting firm engaged for the purpose of preparing or issuing
    an audit report or performing other audit, review or attest
    services for us, including responsibility for the resolution of
    disagreements between management and the auditor regarding
    financial reporting; each such registered public accounting firm
    must report directly to the Audit Committee;
|
| |  | ensures that before the independent accountant is engaged by us
    to render audit or non-audit services, the engagement is
    approved by the Audit Committee or the engagement to render the
    service is entered into pursuant to pre-approval policies and
    procedures established by the Audit Committee; this pre-approval
    authority may be delegated to one or more members of the Audit
    Committee;                                                                                               
|
| |  | takes, or recommends that the full board takes, appropriate
    action to oversee the independence of our independent
    accountants;                                                                                                                                                                                                                                                                                                                                                                                  
|
| |  | oversees our independent accountants relationship by
    discussing with our independent accountants the nature, scope
    and rigor of the audit process, receiving and reviewing audit
    and other reports from the independent accountants and providing
    our independent accountants with full access to the committee
    and the board to report on any and all appropriate matters;                                                                                                                        
|
| |  | reviews and discusses the audited financial statements and the
    matters required to be discussed by SAS 61 with management
    and the independent accountants, including discussions
    concerning the independent accountants judgments about the
    quality of our accounting principles, applications and practices
    as applied in our financial reporting;                                                                                                                                                
|
| |  | recommends to the board whether the audited financial statements
    should be included in our Annual Report on
    Form 10-K;                                                                                                                                                                                                                                                                                                                                                                                          

56



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| |   |                                                                                                                                                                                                                                                                                                                          
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | reviews with management and the independent accountants the
    quarterly financial information before we file our
    Form 10-Qs; this
    review is performed by the committee or its chairperson;                                                                                                                     
|
| |  | discusses with management and the independent accountants the
    quality and adequacy of our internal controls;                                                                                                                                                                                                         
|
| |  | establishes procedures for (1) the receipt, retention, and
    treatment of complaints received by us regarding accounting,
    internal accounting controls, or auditing matters, and
    (2) confidential, anonymous submission by our employees of
    concerns regarding questionable accounting or auditing matters;
|
| |  | reviews related party transactions required to be disclosed in
    our proxy statement for potential conflict of interest
    situations and approves all such transactions;                                                                                                                                             
|
| |  | discusses with management the status of pending litigation as it
    pertains to the financial statements and disclosure and other
    areas of oversight as the committee deems appropriate; and                                                                                                                        
|
| |  | reports committee activities to the full board.                                                                                                                                                                                                                                                                          





| |                       
| | ----------------------
| | Compensation Committee





| |                     
| | --------------------
| | Nominating Committee



Compensation Committee Interlocks and Insider
Participation




Compensation of Directors




57



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##### Table of Contents



10-year 10-year


Executive Compensation




| |                           
| | --------------------------
| | Summary Compensation Table



Summary Compensation Table


|                            |                                       |      |      |                     |           |  |            |              |  |              |            |         |  |        |        |         |  |  |        |        | 
|--------------------------- | ------------------------------------- | ---- | ---- | ------------------- | --------- |  | ---------- | ------------ |  | ------------ | ---------- | ------- |  | ------ | ------ | ------- |  |  | ------ | ------ | 
|                            |                                       |      |      |                     |           |  |            | Long-Term    |  |              |           
|                            |                                       |      |      |                     |           |  |            | Compensation |  |              |           
|                            |                                       |      |      |                     |           |  |            |              |  |              |           
|                            |                                       |      |      |                     |           |  |            | Awards       |  |              |           
|                            |                                       |      |      |                     |           |  |            |              | 
|                            |                                       |      |      | Annual Compensation |           |  | Securities |              |  | All Other    |           
|                            |                                       |      |      |                     |           |  | Underlying |              |  | Compensation |           
|Name and Principal Position |                                       | Year |      |                     | Salary($) |  |            | Bonus($)     |  |              | Options(#) |         |  | ($)(1) |       
|                            |                                       |      |      |                     |           |  |            |              |  |              |            |         |  |        |       
|Bruce J. Barrett            |                                       |      | 2005 |                     |           |  | 250,377    |              |  |              | 302,999    |         |  |        | 31,919 |         |  |  | 11,574 |       
|                            | President and Chief Executive Officer |      |      | 2004                |           |  |            | 238,415      |  |              |            | 184,653 |  |        |        |        |  |  |        | 11,374 | 
|                            |                                       |      |      | 2003                |           |  |            | 225,500      |  |              |            | 103,253 |  |        |        | 132,000 |  |  |        | 3,174  | 
|                           
|Richard S. Scheuing         |                                       |      | 2005 |                     |           |  | 119,853    |              |  |              | 76,030     |         |  |        | 12,220 |         |  |  | 7,855  |       
|                            | Vice President, Research and          |      |      | 2004                |           |  |            | 114,811      |  |              |            | 49,162  |  |        |        |        |  |  |        | 6,574  | 
|                            | Development                           |      |      | 2003                |           |  |            | 111,100      |  |              |            | 19,002  |  |        |        | 56,000  |  |  |        |       | 
|                           
|Dominic J. Spadafore        |                                       |      | 2005 |                     |           |  | 136,097    |              |  |              | 190,376    |         |  |        | 11,680 |         |  |  | 11,015 |       
|                            | Vice President, Sales and Marketing   |      |      | 2004                |           |  |            | 133,486      |  |              |            | 100,570 |  |        |        |        |  |  |        | 9,778  | 
|                            |                                       |      |      | 2003                |           |  |            | 130,866      |  |              |            | 64,553  |  |        |        | 36,000  |  |  |        | 1,578  | 
|                           
|Mary Ann Victor             |                                       |      | 2005 |                     |           |  | 117,699    |              |  |              | 93,360     |         |  |        | 12,861 |         |  |  | 9,297  |       
|                            | Vice President and Chief              |      |      | 2004                |           |  |            | 111,384      |  |              |            | 57,861  |  |        |        |        |  |  |        | 7,689  | 
|                            | Administrative Officer and Secretary  |      |      | 2003                |           |  |            | 106,400      |  |              |            | 29,005  |  |        |        | 56,000  |  |  |        | 897    | 
|                           
|Pamela A. Winters           |                                       |      | 2005 |                     |           |  | 119,853    |              |  |              | 76,030     |         |  |        | 12,220 |         |  |  | 8,890  |       
|                            | Vice President, Operations            |      |      | 2004                |           |  |            | 114,811      |  |              |            | 49,461  |  |        |        |        |  |  |        | 7,621  | 
|                            |                                       |      | 2003 |                     |           |  | 111,100    |              |  |              | 26,562     |         |  |        | 50,000 |         |  |  | 948    |       






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Amounts for 2005 include (a) the following matching
    contributions paid by us into our 401(k) plan on behalf of the
    following persons: $8,400 for Mr. Barrett, $7,855 for
    Mr. Scheuing, $8,400 for Mr. Spadafore, $8,400 for
    Ms. Victor and $7,855 for Ms. Winters, and
    (b) the following premiums paid for additional disability
    insurance for the following persons: $3,174 for
    Mr. Barrett, $2,615 for Mr. Spadafore, $897 for
    Ms. Victor and $1,035 for Ms. Winters.

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| |                    
| | -------------------
| | Stock Option Grants



Option Grants In Last Fiscal Year


|                     |  |                   |        |  |                      |  |      |          |  |                          |            |  |                 |       |         |  |        |  |         |  |  |  |         | 
|-------------------- |  | ----------------- | ------ |  | -------------------- |  | ---- | -------- |  | ------------------------ | ---------- |  | --------------- | ----- | ------- |  | ------ |  | ------- |  |  |  | ------- | 
|                     |  | Individual Grants |        |  | Potential Realizable | 
|                     |  |                   |        |  | Value at Assumed     | 
|                     |  | Number of         |        |  | % of Total           |  |      |          |  | Annual Rates of          |           
|                     |  | Securities        |        |  | Options              |  |      |          |  | Stock Price Appreciation |           
|                     |  | Underlying        |        |  | Granted to           |  |      | Exercise |  |                          |            |  | for Option Term |      
|                     |  | Options           |        |  | Employees in         |  |      | Price    |  |                          | Expiration |  |                 |       |        
|Name                 |  | Granted (#)(1)    |        |  | Fiscal Year          |  |      | ($/Sh)   |  |                          | Date       |  |                 | 5%($) |         |  | 10%($) | 
|                     |  |                   |        |  |                      |  |      |          |  |                          |            |  |                 |       |         |  |        | 
|Bruce J. Barrett     |  |                   | 31,919 |  |                      |  | 24.2 |          |  |                          | 13.55      |  |                 |       | 4/21/15 |  |        |  | 271,998 |  |  |  | 689,298 | 
|Richard S. Scheuing  |  |                   | 12,220 |  |                      |  | 9.2  |          |  |                          | 13.55      |  |                 |       | 4/21/15 |  |        |  | 104,133 |  |  |  | 263,893 | 
|Dominic J. Spadafore |  |                   | 11,680 |  |                      |  | 8.8  |          |  |                          | 13.55      |  |                 |       | 4/21/15 |  |        |  | 99,531  |  |  |  | 252,232 | 
|Mary Ann Victor      |  |                   | 12,861 |  |                      |  | 9.7  |          |  |                          | 13.55      |  |                 |       | 4/21/15 |  |        |  | 109,595 |  |  |  | 277,736 | 
|Pamela A. Winters    |  |                   | 12,220 |  |                      |  | 9.2  |          |  |                          | 13.55      |  |                 |       | 4/21/15 |  |        |  | 104,133 |  |  |  | 263,893 | 






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The options listed in the table were non-qualified stock options
    granted to Messrs. Barrett, Scheuing and Spadafore,
    Ms. Victor and Ms. Winters in fiscal 2005 under our
    2005 Stock Incentive Plan or 1997 Stock Option Plan, exercisable
    at the then current fair market value of the underlying common
    shares. Each of these options is exercisable in full beginning
    November 30, 2005. Each option also becomes
    100 percent exercisable 10 days before or immediately
    upon specified changes in control. The portion of these options
    that is exercisable at the date of termination of employment
    remains exercisable until the expiration date of the option,
    unless termination is for cause.



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| |                                                                       
| | ----------------------------------------------------------------------
| | Aggregated Option Exercises and Fiscal Year-End Option
    Value Table



Aggregated Option Exercises in Last Fiscal Year and FY-End
Option Values


|                     |  |              |         |  |                 |                        |                       |             |                      |               |               |  |  |             |   |  |               |  |            |  |  |  |   | 
|-------------------- |  | ------------ | ------- |  | --------------- | ---------------------- | --------------------- | ----------- | -------------------- | ------------- | ------------- |  |  | ----------- | - |  | ------------- |  | ---------- |  |  |  | - | 
|                     |  |              |         |  |                 | Number of Securities   |                       |             | Value of Unexercised |              
|                     |  |              |         |  |                 | Underlying Unexercised |                       |             | In-the-Money Options |              
|                     |  | Shares       |         |  |                 |                        | Options at FY-End (#) |             |                      | at FY-End ($) |              
|                     |  | Acquired on  |         |  | Value           |                        |                       |             |                      |               |               | 
|Name                 |  | Exercise (#) |         |  | Realized ($)(1) |                        |                       | Exercisable |                      |               | Unexercisable |  |  | Exercisable |   |  | Unexercisable | 
|                     |  |              |         |  |                 |                        |                       |             |                      |               |               |  |  |             |   |  |               | 
|Bruce J. Barrett     |  |              | 178,200 |  |                 |                        | 3,198,532             |             |                      |               | 761,919       |  |  |             |  |  |               |  | 20,488,234 |  |  |  |  | 
|Richard S. Scheuing  |  |              | 50,000  |  |                 |                        | 875,000               |             |                      |               | 138,220       |  |  |             |  |  |               |  | 3,709,399  |  |  |  |  | 
|Dominic J. Spadafore |  |              | 30,000  |  |                 |                        | 723,100               |             |                      |               | 117,680       |  |  |             |  |  |               |  | 3,178,185  |  |  |  |  | 
|Mary Ann Victor      |  |              | 51,000  |  |                 |                        | 977,300               |             |                      |               | 153,261       |  |  |             |  |  |               |  | 4,083,211  |  |  |  |  | 
|Pamela A. Winters    |  |              | 75,750  |  |                 |                        | 1,620,713             |             |                      |               | 163,220       |  |  |             |  |  |               |  | 4,257,089  |  |  |  |  | 






|    |                                                                                                                                                                                                                                            
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Value Realized represents the fair value of the
    underlying securities on the exercise date, based on the average
    of the high and low sales prices on the date of exercise, minus
    the aggregate exercise price of the options.



| |                                                                                              
| | ---------------------------------------------------------------------------------------------
| | Employment Contracts and Termination of Employment and
    Change-in-Control
    Arrangements

Bruce J. Barrett.


Dominic J. Spadafore.




Change in Control, Invention, Confidentiality, Non-Compete
and Non-Solicitation Agreements.


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Stock Option Terms.


Stock Option Plans








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401(k) Plan




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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS








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PRINCIPAL AND SELLING SHAREHOLDERS






| |   |                                                                                  
| | - | ---------------------------------------------------------------------------------
| |  | each of our directors;                                                           
|
| |  | each of our executive officers named in the Summary Compensation
    Table above;
|
| |  | all of our directors and executive officers as a group; and                      
|
| |  | each person known by us to own more than 5 percent of our
    common shares.     



|                                                                 |  |                    |           |            |           |  |                    |         |  |  |         |            |  |           |           |  |  |  |      | 
|---------------------------------------------------------------- |  | ------------------ | --------- | ---------- | --------- |  | ------------------ | ------- |  |  | ------- | ---------- |  | --------- | --------- |  |  |  | ---- | 
|                                                                 |  | Common Shares      |           |            |           |  | Common Shares      |        
|                                                                 |  | Beneficially Owned |           |            |           |  | Beneficially Owned |        
|                                                                 |  | Before Offering    |           |            |           |  | After Offering     |        
|                                                                 |  |                    |           |            | Shares    |  |                    |         | 
|                                                                 |  |                    |           | Percent of |           |  | Being              |         |  |  |         | Percent of | 
|                                                                 |  | Number             |           |            | Class (1) |  |                    | Offered |  |  | Number  |            |  | Class (2) |          
|                                                                 |  |                    |           |            |           |  |                    |         |  |  |         |            |  |           |          
|Dr. James I. Ausman(3)                                           |  |                    | 46,785    |            |           |  | *                  |         |  |  |        |            |  |           | 46,785    |  |  |  | *    | 
|Daniel S. Follis(4)                                              |  |                    | 25,620    |            |           |  | *                  |         |  |  |        |            |  |           | 25,620    |  |  |  | *    | 
|Robert R. Henry(5)                                               |  |                    | 283,200   |            |           |  | 2.6                |         |  |  | 100,000 |            |  |           | 183,200   |  |  |  | 1.4  | 
|Bruce J. Barrett(6)                                              |  |                    | 778,919   |            |           |  | 6.8                |         |  |  |        |            |  |           | 778,919   |  |  |  | 5.8  | 
|Richard S. Scheuing(7)                                           |  |                    | 138,220   |            |           |  | 1.3                |         |  |  |        |            |  |           | 138,220   |  |  |  | 1.1  | 
|Dominic J. Spadafore(8)                                          |  |                    | 121,180   |            |           |  | 1.1                |         |  |  |        |            |  |           | 121,180   |  |  |  | *    | 
|Mary Ann Victor(9)                                               |  |                    | 158,361   |            |           |  | 1.5                |         |  |  |        |            |  |           | 158,361   |  |  |  | 1.2  | 
|Pamela A. Winters(10)                                            |  |                    | 163,220   |            |           |  | 1.5                |         |  |  |        |            |  |           | 163,220   |  |  |  | 1.3  | 
|All directors and executive officers as a group (10 persons)(11) |  |                    | 1,962,137 |            |           |  | 15.9               |         |  |  | 100,000 |            |  |           | 1,862,137 |  |  |  | 13.0 | 






| |   |                                                                     
| | - | --------------------------------------------------------------------
| | * | Represents less than 1 percent of the outstanding common
    shares.



| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) | Based on 10,715,885 common shares outstanding.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| | (2) | Based on 12,715,885 common shares outstanding, assuming all
    2,100,000 common shares offered by this prospectus are sold to
    third parties.                                                                                                                                                                                                                                                                                                                                                                                                      
|
| | (3) | Includes 34,011 common shares that Dr. Ausman has the right
    to acquire within 60 days of the date of this prospectus,
    9,744 common shares owned jointly with his wife, and
    3,030 shares held in an individual retirement account over
    which Dr. Ausman exercises sole voting and investment
    control.                                                                                                                                                                                                                               
|
| | (4) | Includes 13,500 common shares that Mr. Follis has the right
    to acquire within 60 days of the date of this prospectus.
    The 25,620 common shares shown above as beneficially owned by
    Mr. Follis include 2,820 common shares owned by The
    Infinity Fund, a limited partnership in which Mr. Follis is
    a six percent limited partner and a 50 percent general
    partner and which is administered by Verschuren &
    Follis, Inc., a corporation in which Mr. Follis is a
    50 percent shareholder, a director and the President.
|
| | (5) | Includes 26,500 common shares that Mr. Henry has the right
    to acquire within 60 days of the date of this prospectus.                                                                                                                                                                                                                                                                                                                                                                                                                               

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| |     |                                                                                                                                                                                                                                                                      
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (6) | Includes 761,919 common shares that Mr. Barrett has the
    right to acquire within 60 days of the date of this
    prospectus and 17,000 common shares owned jointly with his wife.                                                                                 
|
| | (7) | Includes 138,220 common shares that Mr. Scheuing has the
    right to acquire within 60 days of the date of this
    prospectus.                                                                                                                                     
|
| | (8) | Includes 117,680 common shares that Mr. Spadafore has the
    right to acquire within 60 days of the date of this
    prospectus and 3,500 common shares that Mr. Spadafore owns
    jointly with his spouse.                                                        
|
| | (9) | Includes 153,261 common shares that Ms. Victor has the
    right to acquire within 60 days of the date of this
    prospectus, 2,000 common shares held by Ms. Victors
    husband and 3,100 common shares held by Ms. Victors
    husband jointly with his mother.



|     |                                                                                                                                                                       
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(10) | Includes 163,220 common shares that Ms. Winters has the
    right to acquire within 60 days of the date of this
    prospectus.                                       
|    
|(11) | Includes 1,654,943 common shares that all executive officers and
    directors as a group have the right to acquire within
    60 days of the date of this prospectus.



Lock-up


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DESCRIPTION OF CAPITAL STOCK






Common Shares








Business Combination Provisions




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Indemnification of Directors and Officers












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##### Table of Contents



Preferred Shares




Transfer Agent




Listing




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MATERIAL U.S. FEDERAL INCOME AND ESTATE TAX CONSEQUENCES
TO
NON-U.S.HOLDERS


non-U.S. non-U.S. non-U.S.




| |   |                                                                                                                                                                                                                                                                                                                                                                
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | an individual who is a citizen or resident of the United States;                                                                                                                                                                                                                                                                                               
|
| |  | a corporation or partnership, including any entity treated as a
    corporation or partnership for U.S. federal income tax
    purposes, created or organized in or under the laws of the
    United States or any state of the United States or the District
    of Columbia, other than a partnership treated as foreign under
    U.S. Treasury regulations;
|
| |  | an estate the income of which is includible in gross income for
    U.S. federal income tax purposes regardless of its source;
    or                                                                                                                                                                                                                          
|
| |  | a trust (1) if a U.S. court is able to exercise
    primary supervision over the administration of the trust and one
    or more U.S. persons have authority to control all
    substantial decisions of the trust, or (2) that has a valid
    election in effect under applicable U.S. Treasury
    regulations to be treated as a U.S. person.              





| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | U.S. federal gift tax consequences, or U.S. state or
    local or non-U.S.
    tax consequences;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| |  | the tax consequences for partnerships or persons who hold their
    interests through a partnership or other entity classified as a
    partnership for U.S. federal income tax purposes;                                                                                                                                                                                                                                                                                                                                                                                                           
|
| |  | the tax consequences for the shareholders or beneficiaries of a
    non-U.S. holder;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| |  | all of the U.S. federal tax considerations that may be
    relevant to a
    non-U.S.holder in
    light of its particular circumstances or to
    non-U.S.holders
    that may be subject to special treatment under U.S. federal
    tax laws, such as financial institutions, insurance companies,
    tax-exempt organizations, certain trusts, hybrid entities,
    certain former citizens or residents of the United States,
    holders subject to U.S. federal alternative minimum tax,
    broker-dealers, traders in securities, pension plans and
    regulated investment companies; or
|
| |  | special tax rules that may apply to a
    non-U.S.holder
    that holds our common shares as part of a straddle,
    hedge, conversion transaction,
    synthetic security, or other integrated investment.                                                                                                                                                                                                                                                                                                                                                                                 

Prospective investors are urged to consult their own tax
advisors regarding the U.S. federal, state, local, and
non-U.S.income
and other tax considerations with respect to owning and
disposing of our common shares.


Dividends




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non-U.S.


non-U.S. non-U.S. non-U.S. non-U.S. non-U.S. non-U.S. non-U.S.


non-U.S. W-8BEN, W-8ECI,


Non-U.S.


non-U.S.


Gain on Disposition of Common Shares


non-U.S.




| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the gain is effectively connected with the
    non-U.S.holders
    conduct of a trade or business in the United States and, if an
    income tax treaty applies, is attributable to a permanent
    establishment or fixed base maintained by the
    non-U.S.holder in
    the United States; in these cases, the
    non-U.S.holder
    will generally be taxed on its net gain derived from the
    disposition in the manner and at the regular graduated
    U.S. federal income tax rates applicable to United States
    persons, as defined in the Code, and, if the
    non-U.S.holder is
    a foreign corporation, the branch profits tax
    described above may also apply; or
|
| |  | the
    non-U.S.holder is
    a nonresident alien individual who is present in the United
    States for 183 days or more in the taxable year of the
    disposition and meets certain other requirements; in this case,
    the
    non-U.S.holder
    will be subject to a 30% tax on the gain derived from the
    disposition which may be offset by U.S. source capital
    losses of the
    non-U.S.holder,
    if any.                                                                                                                                                                                                                                                                

Federal Estate Tax




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Information Reporting and Backup Withholding Tax


non-U.S. non-U.S.


non-U.S. non-U.S. non-U.S.


non-U.S. non-U.S., non-U.S. non-U.S. non-U.S. non-U.S. non-U.S. non-U.S. non-U.S. non-U.S. non-U.S. non-U.S.


non-U.S. non-U.S. non-U.S.


The foregoing discussion of U.S. federal income and
estate tax considerations is not tax advice and is not based on
an opinion of counsel. Accordingly, each prospective
non-U.S.holder of
our common shares should consult that holders own tax
advisor with respect to the federal, state, local and
non-U.S.tax
consequences of the ownership and disposition of our common
shares.


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UNDERWRITING




|                               |       |               |  |           | 
|------------------------------ | ----- | ------------- |  | --------- | 
|                               |       | Number of     | 
|Underwriter                    |       | Common Shares | 
|                               |       |               | 
|Citigroup Global Markets Inc.  |       |               |  |          
|SG Cowen & Co., LLC            |       |               |  |          
|SunTrust Capital Markets, Inc. |       |               |  |          
|Rodman & Renshaw, LLC          |       |               |  |          
|                               |       |               | 
|                               | Total |               |  | 2,100,000 | 
|                               |       |               | 







lock-up






|          |  |                        |  |  |                 |   |  |             |  |   |  | 
|--------- |  | ---------------------- |  |  | --------------- | - |  | ----------- |  | - |  | 
|          |  | Paid by                |  |  |                
|          |  | Somanetics Corporation |  |  |                
|          |  |                        |  |  | Paid by Selling |  
|          |  | No Exercise            |  |  | Full Exercise   |   |  | Shareholder | 
|          |  |                        |  |  |                 |   |  |             | 
|Per share |  | $                      |  |  |                 | $ |  |             |  | $ |  | 
|Total     |  | $                      |  |  |                 | $ |  |             |  | $ |  | 

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over-the












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LEGAL MATTERS







EXPERTS







WHERE YOU CAN GET MORE INFORMATION


S-3


1-800-SEC-0330.


1-800-SEC-0330


10-K, 10-Q, 8-K




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DOCUMENTS INCORPORATED BY REFERENCE






| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Our Annual Report on
    Form 10-K for the
    fiscal year ended November 30, 2005; and                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| |  | The description of our common shares included in our prospectus,
    dated March 20, 1991, included in our registration
    statement on
    Form S-1 (file no.
    33-38438) effective
    March 20, 1991, under the caption Description of
    Securities on pages 41 through 46 of the prospectus
    and incorporated by reference into our registration statement on
    Form 8-A effective
    March 27, 1991, including any amendment or report filed for
    the purpose of updating such description.



689-3050.


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SOMANETICS CORPORATION





INDEX TO FINANCIAL STATEMENTS


|                                                                                                         |  |      |      | 
|-------------------------------------------------------------------------------------------------------- |  | ---- | ---- | 
|                                                                                                         |  | Page
|                                                                                                         |  |     
|Managements Report on Internal
    Control Over Financial Reporting                                     |  |      | F-2  | 
|Report of Independent Registered Public
    Accounting Firm (Internal Control Over Financial Reporting)  |  |      | F-3  | 
|Report of Independent Registered Public
    Accounting Firm (Financial Statements)                       |  |      | F-5  | 
|Balance Sheets  As of
    November 30, 2005 and 2004                                                    |  |      | F-6  | 
|Statements of Operations  For
    the Fiscal Years Ended November 30, 2005, 2004 and 2003               |  |      | F-7  | 
|Statements of Shareholders
    Equity  For the Fiscal Years Ended November 30,
    2005, 2004 and 2003 |  |      | F-8  | 
|Statements of Cash Flows  For
    the Fiscal Years Ended November 30, 2005, 2004 and 2003               |  |      | F-9  | 
|Notes to Financial Statements                                                                            |  |      | F-10 | 

F-1



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MANAGEMENTS REPORT ON INTERNAL CONTROL OVER FINANCIAL
REPORTING










F-2



---



##### Table of Contents






REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM








Managements Report on Internal Control
Over Financial Reporting, Internal Control-Integrated Framework








Internal
Control-Integrated Framework Internal Control-Integrated Framework


F-3



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F-4



---



##### Table of Contents






REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM














Internal Control 
Integrated Framework








F-5



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##### Table of Contents



SOMANETICS CORPORATION





BALANCE SHEETS


|                                           |                                                                                                                                                                                        |                            |            |             |            |   |            |             |            | 
|------------------------------------------ | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------- | ---------- | ----------- | ---------- | - | ---------- | ----------- | ---------- | 
|                                           |                                                                                                                                                                                        | November 30,               |           
|                                           |                                                                                                                                                                                        |                            |           
|                                           |                                                                                                                                                                                        | 2005                       |            |             | 2004       |  
|                                           |                                                                                                                                                                                        |                            |            |             |            |  
|ASSETS                                    
|CURRENT ASSETS:                            |                                                                                                                                                                                        |                            |            |             |            |   |            |            
|                                           | Cash and cash equivalents (Note 2)                                                                                                                                                     |                            | $          | 13,148,237  |            |   | $          | 7,069,542   |           
|                                           | Accounts receivable                                                                                                                                                                    |                            |            | 3,531,740   |            |   |            | 2,022,544   |           
|                                           | Inventory (Note 2)                                                                                                                                                                     |                            |            | 1,058,101   |            |   |            | 682,910     |           
|                                           | Prepaid expenses                                                                                                                                                                       |                            |            | 623,303     |            |   |            | 257,893     |           
|                                           | Deferred tax asset  current (Note 5)                                                                                                                                                  |                            |            | 1,561,322   |            |   |            | 510,000     |           
|                                           |                                                                                                                                                                                        |                            |            |             |            |  
|                                           |                                                                                                                                                                                        | Total current assets       |            |             | 19,922,703 |   |            |             | 10,542,889 | 
|                                           |                                                                                                                                                                                        |                            |            |             |            |  
|PROPERTY AND EQUIPMENT: (Note 2)           |                                                                                                                                                                                        |                            |            |             |            |   |            |            
|                                           | Demonstration and no capital cost sales equipment at customers                                                                                                                         |                            |            | 1,916,655   |            |   |            | 1,628,431   |           
|                                           | Machinery and equipment                                                                                                                                                                |                            |            | 768,992     |            |   |            | 704,581     |           
|                                           | Furniture and fixtures                                                                                                                                                                 |                            |            | 289,397     |            |   |            | 255,044     |           
|                                           | Leasehold improvements                                                                                                                                                                 |                            |            | 187,135     |            |   |            | 171,882     |           
|                                           |                                                                                                                                                                                        |                            |            |             |            |  
|                                           |                                                                                                                                                                                        | Total                      |            |             | 3,162,179  |   |            |             | 2,759,938  | 
|                                           | Less accumulated depreciation and amortization                                                                                                                                         |                            |            | (1,836,438  | )          |   |            | (1,675,881  | )         
|                                           |                                                                                                                                                                                        |                            |            |             |            |  
|                                           |                                                                                                                                                                                        | Net property and equipment |            |             | 1,325,741  |   |            |             | 1,084,057  | 
|                                           |                                                                                                                                                                                        |                            |            |             |            |  
|OTHER ASSETS:                              |                                                                                                                                                                                        |                            |            |             |            |   |            |            
|                                           | Deferred tax asset  non-current (Note 5)                                                                                                                                              |                            |            | 8,438,678   |            |   |            | 6,190,000   |           
|                                           | Intangible assets, net (Note 2)                                                                                                                                                        |                            |            | 16,921      |            |   |            | 952,926     |           
|                                           | Other                                                                                                                                                                                  |                            |            | 15,000      |            |   |            | 15,000      |           
|                                           |                                                                                                                                                                                        |                            |            |             |            |  
|                                           |                                                                                                                                                                                        | Total other assets         |            |             | 8,470,599  |   |            |             | 7,157,926  | 
|                                           |                                                                                                                                                                                        |                            |            |             |            |  
|TOTAL ASSETS                               |                                                                                                                                                                                        | $                          | 29,719,043 |             |            | $ | 18,784,872 |            
|                                           |                                                                                                                                                                                        |                            |            |             |            |  
|LIABILITIES AND SHAREHOLDERS EQUITY      
|CURRENT LIABILITIES:                       |                                                                                                                                                                                        |                            |            |             |            |   |            |            
|                                           | Accounts payable                                                                                                                                                                       |                            | $          | 712,796     |            |   | $          | 529,097     |           
|                                           | Accrued liabilities (Notes 4 and 6)                                                                                                                                                    |                            |            | 1,165,594   |            |   |            | 703,109     |           
|                                           |                                                                                                                                                                                        |                            |            |             |            |  
|                                           |                                                                                                                                                                                        | Total current liabilities  |            |             | 1,878,390  |   |            |             | 1,232,206  | 
|                                           |                                                                                                                                                                                        |                            |            |             |            |  
|COMMITMENTS AND CONTINGENCIES (Note 6)     |                                                                                                                                                                                        |                            |            |             |            |   |            |            
|SHAREHOLDERS EQUITY: (Note 3)             |                                                                                                                                                                                        |                            |            |             |            |   |            |            
|                                           | 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,
    10,715,885 shares at November 30, 2005, and
    10,137,782 shares at November 30, 2004 |                            |            | 107,159     |            |   |            | 101,378     |           
|                                           | Additional paid-in capital                                                                                                                                                             |                            |            | 64,864,554  |            |   |            | 62,333,435  |           
|                                           | Accumulated deficit                                                                                                                                                                    |                            |            | (37,131,060 | )          |   |            | (44,882,147 | )         
|                                           |                                                                                                                                                                                        |                            |            |             |            |  
|                                           |                                                                                                                                                                                        | Total shareholders equity |            |             | 27,840,653 |   |            |             | 17,552,666 | 
|                                           |                                                                                                                                                                                        |                            |            |             |            |  
|TOTAL LIABILITIES AND SHAREHOLDERS EQUITY |                                                                                                                                                                                        | $                          | 29,719,043 |             |            | $ | 18,784,872 |            
|                                           |                                                                                                                                                                                        |                            |            |             |            |  



F-6



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##### Table of Contents



SOMANETICS CORPORATION





STATEMENTS OF OPERATIONS


|                                                                            |                                                |                                  |            |            |            |   |            |            |           |   |           |           |           | 
|--------------------------------------------------------------------------- | ---------------------------------------------- | -------------------------------- | ---------- | ---------- | ---------- | - | ---------- | ---------- | --------- | - | --------- | --------- | --------- | 
|                                                                            |                                                | For the Years Ended November 30, |           
|                                                                            |                                                |                                  |           
|                                                                            |                                                | 2005                             |            |            | 2004       |   |            | 2003       |          
|                                                                            |                                                |                                  |            |            |            |   |            |            |          
|NET REVENUES (Notes 2 and 9)                                                |                                                | $                                | 20,509,252 |            |            | $ | 12,608,615 |            |           | $ | 9,360,893 |          
|COST OF SALES                                                               |                                                |                                  | 2,601,488  |            |            |   | 2,050,253  |            |           |   | 2,139,827 |          
|                                                                            |                                                |                                  |            |            |            |   |            |            |          
|                                                                            | Gross margin                                   |                                  |            | 17,907,764 |            |   |            | 10,558,362 |           |   |           | 7,221,066 |          
|                                                                            |                                                |                                  |            |            |            |   |            |            |          
|OPERATING EXPENSES:                                                         |                                                |                                  |            |            |            |   |            |            |           |   |           |          
|                                                                            | Research, development and engineering (Note 2) |                                  |            | 525,679    |            |   |            | 369,106    |           |   |           | 412,953   |          
|                                                                            | Selling, general and administrative (Note 2)   |                                  |            | 13,241,053 |            |   |            | 8,237,401  |           |   |           | 6,758,637 |          
|                                                                            |                                                |                                  |            |            |            |   |            |            |          
|                                                                            |                                                | Total operating expenses         |            |            | 13,766,732 |   |            |            | 8,606,507 |   |           |           | 7,171,590 | 
|                                                                            |                                                |                                  |            |            |            |   |            |            |          
|OPERATING INCOME                                                            |                                                |                                  | 4,141,032  |            |            |   | 1,951,855  |            |           |   | 49,476    |          
|                                                                            |                                                |                                  |            |            |            |   |            |            |          
|OTHER INCOME:                                                               |                                                |                                  |            |            |            |   |            |            |           |   |           |          
|                                                                            | Interest income                                |                                  |            | 310,055    |            |   |            | 54,721     |           |   |           | 23,110    |          
|                                                                            |                                                |                                  |            |            |            |   |            |            |          
|                                                                            |                                                | Total other income               |            | $          | 310,055    |   |            | $          | 54,721    |   |           | $         | 23,110    | 
|                                                                            |                                                |                                  |            |            |            |   |            |            |          
|INCOME BEFORE INCOME TAXES                                                  |                                                | $                                | 4,451,087  |            |            | $ | 2,006,576  |            |           | $ | 72,586    |          
|INCOME TAX BENEFIT                                                          |                                                |                                  | 3,300,000  |            |            |   | 6,700,000  |            |           |   |          |          
|                                                                            |                                                |                                  |            |            |            |   |            |            |          
|NET INCOME                                                                  |                                                | $                                | 7,751,087  |            |            | $ | 8,706,576  |            |           | $ | 72,586    |          
|                                                                            |                                                |                                  |            |            |            |   |            |            |          
|NET INCOME PER COMMON SHARE  BASIC (Note 2)                                |                                                | $                                | .75        |            |            | $ | .89        |            |           | $ | .01       |          
|                                                                            |                                                |                                  |            |            |            |   |            |            |          
|NET INCOME PER COMMON SHARE  DILUTED (Note 2)                              |                                                | $                                | .66        |            |            | $ | .77        |            |           | $ | .01       |          
|                                                                            |                                                |                                  |            |            |            |   |            |            |          
|WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 
    BASIC (Note 2)   |                                                |                                  | 10,322,226 |            |            |   | 9,780,104  |            |           |   | 9,113,854 |          
|                                                                            |                                                |                                  |            |            |            |   |            |            |          
|WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 
    DILUTED (Note 2) |                                                |                                  | 11,797,799 |            |            |   | 11,323,272 |            |           |   | 9,466,838 |          
|                                                                            |                                                |                                  |            |            |            |   |            |            |          



F-7



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##### Table of Contents



SOMANETICS CORPORATION





STATEMENTS OF SHAREHOLDERS EQUITY


|                                      |  |       |         |            |         |   |            |             |       |   |               |               |  |        |            |  |  |   |           | 
|------------------------------------- |  | ----- | ------- | ---------- | ------- | - | ---------- | ----------- | ----- | - | ------------- | ------------- |  | ------ | ---------- |  |  | - | --------- | 
|                                      |  |       |         | Additional |         |   |            |             | Total |   |               | Comprehensive | 
|                                      |  | Share |         |            | Paid-In |   |            | Accumulated |       |   | Shareholders |               |  | Income |           
|                                      |  | Value |         |            | Capital |   |            | Deficit     |       |   | Equity        |               |  | (Loss) |           
|                                      |  |       |         |            |         |   |            |             |       |   |               |               |  |        |           
|Balance at December 1, 2002           |  | $     | 90,779  |            |         | $ | 59,071,122 |             |       | $ | (53,661,309   | )             |  | $      | 5,500,592  |  |  |   |           | 
|For cash, exercise of stock options   |  |       | 1,484   |            |         |   | 537,142    |             |       |   |               |               |  |        | 538,626    |  |  |   |           | 
|Warrants issued to acquire license    |  |       |         |            |         |   | 44,793     |             |       |   |               |               |  |        | 44,793     |  |  |   |           | 
|Stock options issued to non-employees |  |       |         |            |         |   | 8,471      |             |       |   |               |               |  |        | 8,471      |  |  |   |           | 
|Cashless exercise of warrants         |  |       | 724     |            |         |   | (724       | )           |       |   |               |               |  |        |           |  |  |   |           | 
|Net income and comprehensive income   |  |       |         |            |         |   |            |             |       |   | 72,586        |               |  |        | 72,586     |  |  | $ | 72,586    | 
|                                      |  |       |         |            |         |   |            |             |       |   |               |               |  |        |           
|Balance at November 30, 2003          |  | $     | 92,987  |            |         | $ | 59,660,804 |             |       | $ | (53,588,723   | )             |  | $      | 6,165,068  |  |  |   |           | 
|For cash, exercise of stock options   |  |       | 3,213   |            |         |   | 1,537,809  |             |       |   |               |               |  |        | 1,541,022  |  |  |   |           | 
|For cash, exercise of warrants        |  |       | 3,800   |            |         |   | 1,136,200  |             |       |   |               |               |  |        | 1,140,000  |  |  |   |           | 
|Cashless exercise of warrants         |  |       | 1,378   |            |         |   | (1,378     | )           |       |   |               |               |  |        |           |  |  |   |           | 
|Net income and comprehensive income   |  |       |         |            |         |   |            |             |       |   | 8,706,576     |               |  |        | 8,706,576  |  |  | $ | 8,706,576 | 
|                                      |  |       |         |            |         |   |            |             |       |   |               |               |  |        |           
|Balance at November 30, 2004          |  | $     | 101,378 |            |         | $ | 62,333,435 |             |       | $ | (44,882,147   | )             |  | $      | 17,552,666 |  |  |   |           | 
|For cash, exercise of stock options   |  |       | 5,618   |            |         |   | 2,520,061  |             |       |   |               |               |  |        | 2,525,679  |  |  |   |           | 
|Cashless exercise of warrants         |  |       | 163     |            |         |   | (163       | )           |       |   |               |               |  |        |           |  |  |   |           | 
|Consultant stock option expense       |  |       |         |            |         |   | 11,221     |             |       |   |               |               |  |        | 11,221     |  |  |   |           | 
|Net income and comprehensive income   |  |       |         |            |         |   |            |             |       |   | 7,751,087     |               |  |        | 7,751,087  |  |  | $ | 7,751,087 | 
|                                      |  |       |         |            |         |   |            |             |       |   |               |               |  |        |           
|Balance at November 30, 2005          |  | $     | 107,159 |            |         | $ | 64,864,554 |             |       | $ | (37,131,060   | )             |  | $      | 27,840,653 |  |  |   |           | 
|                                      |  |       |         |            |         |   |            |             |       |   |               |               |  |        |           



F-8



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##### Table of Contents



SOMANETICS CORPORATION





STATEMENTS OF CASH FLOWS


|                                                          |                                                                                            |                                                     |                                      |           |            |            |           |           |            |          |           |         |          |          |  
|--------------------------------------------------------- | ------------------------------------------------------------------------------------------ | --------------------------------------------------- | ------------------------------------ | --------- | ---------- | ---------- | --------- | --------- | ---------- | -------- | --------- | ------- | -------- | -------- | -
|                                                          |                                                                                            | For the Years Ended November 30,                    |                                     
|                                                          |                                                                                            |                                                     |                                     
|                                                          |                                                                                            | 2005                                                |                                      |           | 2004       |            |           | 2003      |           
|                                                          |                                                                                            |                                                     |                                      |           |            |            |           |           |           
|CASH FLOWS FROM OPERATING ACTIVITIES:                     |                                                                                            |                                                     |                                      |           |            |            |           |           |            |          |           |        
|                                                          | Net income                                                                                 |                                                     | $                                    | 7,751,087 |            |            | $         | 8,706,576 |            |          | $         | 72,586  |         
|                                                          | Adjustments to reconcile net income to net cash provided by
    (used in) operations:      |                                                     |                                      |           |            |            |           |           |            |          |           |         |         
|                                                          |                                                                                            | Income tax benefit                                  |                                      |           | (3,300,000 | )          |           |           | (6,700,000 | )        |           |         |         |         
|                                                          |                                                                                            | Intangible asset impairment                         |                                      |           | 929,093    |            |           |           |           |          |           |         |         |         
|                                                          |                                                                                            | Depreciation and amortization                       |                                      |           | 383,986    |            |           |           | 282,558    |          |           |         | 235,537  |         
|                                                          |                                                                                            | Compensation expense for consultant stock options   |                                      |           | 11,221     |            |           |           |           |          |           |         | 8,471    |         
|                                                          |                                                                                            | Changes in assets and liabilities:                  |                                      |           |            |            |           |           |            |          |           |         |          |         
|                                                          |                                                                                            |                                                     | Accounts receivable (increase)       |           |            | (1,509,196 | )         |           |            | (3,929   | )         |         |          | (790,830 | )
|                                                          |                                                                                            |                                                     | Inventory (increase)                 |           |            | (859,312   | )         |           |            | (158,611 | )         |         |          | (456,579 | )
|                                                          |                                                                                            |                                                     | Prepaid expenses (increase)          |           |            | (365,410   | )         |           |            | (134,690 | )         |         |          | (26,895  | )
|                                                          |                                                                                            |                                                     | Accounts payable increase (decrease) |           |            | 183,699    |           |           |            | (112,135 | )         |         |          | 170,352  |  
|                                                          |                                                                                            |                                                     | Accrued liabilities increase         |           |            | 462,485    |           |           |            | 353,562  |           |         |          | 156,781  |  
|                                                          |                                                                                            |                                                     |                                      |           |            |            |           |           |           
|                                                          |                                                                                            | Net cash provided by (used in) operating activities |                                      |           | 3,687,653  |            |           |           | 2,233,331  |          |           |         | (630,577 | )       
|                                                          |                                                                                            |                                                     |                                      |           |            |            |           |           |           
|CASH FLOWS FROM INVESTING ACTIVITIES:                     |                                                                                            |                                                     |                                      |           |            |            |           |           |            |          |           |        
|                                                          | Acquisition of property and equipment (net)                                                |                                                     |                                      | (134,637  | )          |            |           | (84,003   | )          |          |           | (50,665 | )       
|                                                          |                                                                                            |                                                     |                                      |           |            |            |           |           |           
|                                                          |                                                                                            | Net cash (used in) investing activities             |                                      |           | (134,637   | )          |           |           | (84,003    | )        |           |         | (50,665  | )       
|                                                          |                                                                                            |                                                     |                                      |           |            |            |           |           |           
|CASH FLOWS FROM FINANCING ACTIVITIES:                     |                                                                                            |                                                     |                                      |           |            |            |           |           |            |          |           |        
|                                                          | Proceeds from issuance of Common Shares                                                    |                                                     |                                      | 2,525,679 |            |            |           | 2,681,022 |            |          |           | 538,626 |         
|                                                          |                                                                                            |                                                     |                                      |           |            |            |           |           |           
|                                                          |                                                                                            | Net cash provided by financing activities           |                                      |           | 2,525,679  |            |           |           | 2,681,022  |          |           |         | 538,626  |         
|                                                          |                                                                                            |                                                     |                                      |           |            |            |           |           |           
|NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS      |                                                                                            |                                                     | 6,078,695                            |           |            |            | 4,830,350 |           |            |          | (142,616  | )      
|CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD            |                                                                                            |                                                     | 7,069,542                            |           |            |            | 2,239,192 |           |            |          | 2,381,808 |        
|                                                          |                                                                                            |                                                     |                                      |           |            |            |           |           |           
|CASH AND CASH EQUIVALENTS, END OF PERIOD                  |                                                                                            | $                                                   | 13,148,237                           |           |            | $          | 7,069,542 |           |            | $        | 2,239,192 |        
|                                                          |                                                                                            |                                                     |                                      |           |            |            |           |           |           
|Supplemental Disclosure of Non cash investing activities: |                                                                                            |                                                     |                                      |           |            |            |           |           |            |          |           |        
|                                                          | Demonstration and no capital cost sales equipment capitalized
    from inventory (Note 2)  |                                                     | $                                    | 484,121   |            |            | $         | 565,962   |            |          | $         | 370,623 |         
|                                                          | Issuance of warrants and stock options in connection with
    license acquisition (Note 2) |                                                     | $                                    |          |            |            | $         |          |            |          | $         | 44,793  |         



F-9



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##### Table of Contents



SOMANETICS CORPORATION





NOTES TO FINANCIAL STATEMENTS




|   |                            
|-- | ---------------------------
|1. | Organization and Operations

®




®






|   |                                           
|-- | ------------------------------------------
|2. | Summary of Significant Accounting Policies

Cash Equivalents


Inventory first-in,


|                     |       |              |         |           |      |   |         |         | 
|-------------------- | ----- | ------------ | ------- | --------- | ---- | - | ------- | ------- | 
|                     |       | November 30, |        
|                     |       |              |        
|                     |       | 2005         |         |           | 2004 |  
|                     |       |              |         |           |      |  
|Purchased components |       | $            | 652,876 |           |      | $ | 323,053 |        
|Finished goods       |       |              | 352,560 |           |      |   | 358,815 |        
|Work in process      |       |              | 52,665  |           |      |   | 1,042   |        
|                     |       |              |         |           |      |  
|                     | Total |              | $       | 1,058,101 |      |   | $       | 682,910 | 
|                     |       |              |         |           |      |  

Property and Equipment


F-10



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##### Table of Contents



SOMANETICS CORPORATION


NOTES TO FINANCIAL STATEMENTS  (Continued)




Intangible Assets


|                               |       |              |         |        |      |   |         |        | 
|------------------------------ | ----- | ------------ | ------- | ------ | ---- | - | ------- | ------ | 
|                               |       | November 30, |        
|                               |       |              |        
|                               |       | 2005         |         |        | 2004 |  
|                               |       |              |         |        |      |  
|Patents and trademarks         |       | $            | 111,733 |        |      | $ | 111,733 |       
|Less: accumulated amortization |       |              | (94,812 | )      |      |   | (87,900 | )     
|                               |       |              |         |        |      |  
|                               | Total |              | $       | 16,921 |      |   | $       | 23,833 | 
|                               |       |              |         |        |      |  









F-11



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##### Table of Contents



SOMANETICS CORPORATION


NOTES TO FINANCIAL STATEMENTS  (Continued)








|                               |       |              |   |      |  |   |           |         | 
|------------------------------ | ----- | ------------ | - | ---- |  | - | --------- | ------- | 
|                               |       | November 30, |  
|                               |       |              |  
|                               |       | 2005         |   | 2004 | 
|                               |       |              |   |      | 
|License acquisition costs      |       | $            |  |      |  | $ | 1,258,163 |        
|Less: accumulated amortization |       |              |  |      |  |   | (329,070  | )      
|                               |       |              |   |      |  |  
|                               | Total |              | $ |     |  |   | $         | 929,093 | 
|                               |       |              |   |      |  |  



Revenue Recognition


F-12



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##### Table of Contents



SOMANETICS CORPORATION


NOTES TO FINANCIAL STATEMENTS  (Continued)




Research, Development and Engineering


Net Income (Loss) Per Common Share  basic and
diluted


|                                                   |  |      |            |  |      |  |            |      |  |  |           | 
|-------------------------------------------------- |  | ---- | ---------- |  | ---- |  | ---------- | ---- |  |  | --------- | 
|                                                   |  | 2005 |            |  | 2004 |  |            | 2003 | 
|                                                   |  |      |            |  |      |  |            |      | 
|Weighted average shares  basic                    |  |      | 10,322,226 |  |      |  | 9,780,104  |      |  |  | 9,113,854 | 
|Add: effect of dilutive common shares and warrants |  |      | 1,475,573  |  |      |  | 1,543,168  |      |  |  | 352,984   | 
|                                                   |  |      |            |  |      |  |            |      | 
|Weighted average shares  diluted                  |  |      | 11,797,799 |  |      |  | 11,323,272 |      |  |  | 9,466,838 | 



Accounting Pronouncements






F-13



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##### Table of Contents



SOMANETICS CORPORATION


NOTES TO FINANCIAL STATEMENTS  (Continued)




Use Of Estimates


Reclassifications




|   |                                  
|-- | ---------------------------------
|3. | Stock Offerings and Common Shares











F-14



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##### Table of Contents



SOMANETICS CORPORATION


NOTES TO FINANCIAL STATEMENTS  (Continued)








|                                            |                                           |  |           |           | 
|------------------------------------------- | ----------------------------------------- |  | --------- | --------- | 
|1991 Incentive Stock Option Plan            |                                           |  | 14,663    |          
|1993 Director Stock Option Plan             |                                           |  | 500       |          
|1997 Stock Option Plan                      |                                           |  | 1,731,754 |          
|2005 Stock Incentive Plan                   |                                           |  | 600,000   |          
|Options Granted Independent of Option Plans |                                           |  | 73,100    |          
|License Acquisition Warrants                |                                           |  | 2,100,000 |          
|                                            |                                           |  |          
|                                            | Total shares reserved for future issuance |  |           | 4,520,017 | 
|                                            |                                           |  |          



|   |                    
|-- | -------------------
|4. | Accrued Liabilities



|                       |       |              |         |           |      |   |         |         | 
|---------------------- | ----- | ------------ | ------- | --------- | ---- | - | ------- | ------- | 
|                       |       | November 30, |        
|                       |       |              |        
|                       |       | 2005         |         |           | 2004 |  
|                       |       |              |         |           |      |  
|Incentive Compensation |       | $            | 701,658 |           |      | $ | 390,978 |        
|Sales Commissions      |       |              | 352,459 |           |      |   | 153,180 |        
|401(k) Match           |       |              | 42,164  |           |      |   | 97,071  |        
|Clinical Research      |       |              | 21,675  |           |      |   |        |        
|Warranty               |       |              | 16,850  |           |      |   | 10,750  |        
|Royalty                |       |              | 13,788  |           |      |   | 9,130   |        
|Taxes                  |       |              | 11,375  |           |      |   |        |        
|Professional Fees      |       |              | 5,625   |           |      |   | 42,000  |        
|                       |       |              |         |           |      |  
|                       | Total |              | $       | 1,165,594 |      |   | $       | 703,109 | 
|                       |       |              |         |           |      |  



|   |           
|-- | ----------
|5. | Income Tax



F-15



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##### Table of Contents



SOMANETICS CORPORATION


NOTES TO FINANCIAL STATEMENTS  (Continued)






|                                                       |                    |                |        |        |      |   |        |        | 
|------------------------------------------------------ | ------------------ | -------------- | ------ | ------ | ---- | - | ------ | ------ | 
|                                                       |                    | November 30,   |       
|                                                       |                    |                |       
|                                                       |                    | 2005           |        |        | 2004 |  
|                                                       |                    |                |        |        |      |  
|                                                       |                    | (In thousands) |       
|Net operating loss carryforwards                       |                    | $              | 17,620 |        |      | $ | 16,216 |       
|Other                                                  |                    |                | 91     |        |      |   | 90     |       
|Basis difference of fixed assets and intangibles       |                    |                | 167    |        |      |   | (92    | )     
|Research and general business tax credit carryforwards |                    |                | 43     |        |      |   | 443    |       
|                                                       |                    |                |        |        |      |  
|                                                       | Subtotal           |                |        | 18,321 |      |   |        | 16,657 | 
|Valuation allowance                                    |                    |                | (8,321 | )      |      |   | (9,957 | )     
|                                                       |                    |                |        |        |      |  
|                                                       | Deferred tax asset |                | $      | 10,000 |      |   | $      | 6,700  | 
|                                                       |                    |                |        |        |      |  



|                                                        |  |                                        |            |    |      |   |            |      |  |   |         |  
|------------------------------------------------------- |  | -------------------------------------- | ---------- | -- | ---- | - | ---------- | ---- |  | - | ------- | -
|                                                        |  | For the Fiscal Year Ended November 30, |           
|                                                        |  |                                        |           
|                                                        |  | 2005                                   |            |    | 2004 |   |            | 2003 | 
|                                                        |  |                                        |            |    |      |   |            |      | 
|Taxes at U.S. statutory rate  34 percent               |  | $                                      | 1,513,370  |    |      | $ | 682,236    |      |  | $ | 24,679  |  
|Nondeductible meals and entertainment                   |  |                                        | 24,050     |    |      |   | 15,109     |      |  |   | 9,531   |  
|Change in valuation allowance                           |  |                                        | (4,837,420 | )  |      |   | (7,397,345 | )    |  |   | (34,210 | )
|                                                        |  |                                        |            |    |      |   |            |      | 
|Income tax expense (benefit) from continuing operations |  | $                                      | (3,300,000 | )  |      | $ | (6,700,000 | )    |  | $ |        |  
|                                                        |  |                                        |            |    |      |   |            |      | 
|Effective tax rate                                      |  |                                        | (74.1      | )% |      |   | (333.9     | )%   |  |   | 0       | %
|                                                        |  |                                        |            |    |      |   |            |      | 





F-16



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##### Table of Contents



SOMANETICS CORPORATION


NOTES TO FINANCIAL STATEMENTS  (Continued)










|   |                              
|-- | -----------------------------
|6. | Commitments and Contingencies





|                         |       |   |         |         | 
|------------------------ | ----- | - | ------- | ------- | 
|Year Ending November 30, |       |  
|                         |       |  
|2006                     |       | $ | 140,400 |        
|2007                     |       |   | 142,900 |        
|2008                     |       |   | 145,800 |        
|2009                     |       |   | 148,700 |        
|2010                     |       |   | 12,400  |        
|                         |       |   |        
|                         | Total |   | $       | 590,200 | 
|                         |       |   |        





F-17



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##### Table of Contents



SOMANETICS CORPORATION


NOTES TO FINANCIAL STATEMENTS  (Continued)








|   |                   
|-- | ------------------
|7. | Stock Option Plans

10-year










F-18



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##### Table of Contents



SOMANETICS CORPORATION


NOTES TO FINANCIAL STATEMENTS  (Continued)








|                                                                                               |  |                                        |            |   |      |   |           |      |  |   |          |  
|---------------------------------------------------------------------------------------------- |  | -------------------------------------- | ---------- | - | ---- | - | --------- | ---- |  | - | -------- | -
|                                                                                               |  | For the Fiscal Year Ended November 30, |           
|                                                                                               |  |                                        |           
|                                                                                               |  | 2005                                   |            |   | 2004 |   |           | 2003 | 
|                                                                                               |  |                                        |            |   |      |   |           |      | 
|Net income                                                                                     |  | $                                      | 7,751,087  |   |      | $ | 8,706,576 |      |  | $ | 72,586   |  
|Add: Stock-based employee compensation included in actual net
    income                       |  |                                        | 11,221     |   |      |   | 0         |      |  |   | 8,471    |  
|Deduct: Total stock-based employee compensation, had fair value
    method been applied        |  |                                        | (1,804,000 | ) |      |   | (796,000  | )    |  |   | (962,000 | )
|                                                                                               |  |                                        |            |   |      |   |           |      | 
|Pro-forma net income (loss)                                                                    |  | $                                      | 5,958,308  |   |      | $ | 7,911,576 |      |  | $ | (880,943 | )
|                                                                                               |  |                                        |            |   |      |   |           |      | 
|Net income per common share  diluted                                                          |  |                                        | $.66       |   |      |   | $.77      |      |  |   | $.01     |  
|Pro-forma net income (loss) per common share 
    diluted, had fair value method been applied |  |                                        | $.51       |   |      |   | $.70      |      |  |   | $(.09    | )



F-19



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##### Table of Contents



SOMANETICS CORPORATION


NOTES TO FINANCIAL STATEMENTS  (Continued)




|                                 |                   |        |           |           |          |   |      |        |          |  |           |           |   |          |      |       |          |  |           |           |   |   |      |       | 
|-------------------------------- | ----------------- | ------ | --------- | --------- | -------- | - | ---- | ------ | -------- |  | --------- | --------- | - | -------- | ---- | ----- | -------- |  | --------- | --------- | - | - | ---- | ----- | 
|                                 |                   | 2005   |           |           | 2004     |   |      | 2003   |         
|                                 |                   |        |           |           |          |   |      |        |         
|                                 |                   |        |           | Weighted  |          |   |      |        | Weighted |  |           |           |   | Weighted |     
|                                 |                   |        |           | Average   |          |   |      |        | Average  |  |           |           |   | Average  |     
|                                 |                   | Common |           |           | Exercise |   |      | Common |          |  | Exercise  |           |   | Common   |      |       | Exercise | 
|                                 |                   | Shares |           |           | Price    |   |      | Shares |          |  | Price     |           |   | Shares   |      |       | Price    | 
|                                 |                   |        |           |           |          |   |      |        |          |  |           |           |   |          |      |       |          | 
|Options outstanding              |                   |        |           |           |          |   |      |        |          |  |           |           |   |          |      |       |          |  |           |           |   |   |      |      
|                                 | December 1,       |        |           | 2,316,315 |          |   | $    | 3.83   |          |  |           | 2,603,722 |   |          | $    | 3.89  |          |  |           | 2,332,753 |   |   | $    | 4.04  | 
|                                 | Options granted   |        |           | 168,257   |          |   |      | 13.79  |          |  |           | 53,500    |   |          |      | 10.23 |          |  |           | 471,000   |   |   |      | 3.75  | 
|                                 | Options exercised |        |           | (561,839  | )        |   |      | 4.50   |          |  |           | (321,276  | ) |          |      | 4.79  |          |  |           | (148,371  | ) |   |      | 3.63  | 
|                                 | Options canceled  |        |           | (8,501    | )        |   |      | 8.29   |          |  |           | (19,631   | ) |          |      | 13.94 |          |  |           | (51,660   | ) |   |      | 10.08 | 
|                                 |                   |        |           |           |          |   |      |        |          |  |           |           |   |          |      |       |          | 
|Options outstanding November 30, |                   |        | 1,914,232 |           |          |   | 4.59 |        |          |  | 2,316,315 |           |   |          | 3.83 |       |          |  | 2,603,722 |           |   |   | 3.89 |      
|                                 |                   |        |           |           |          |   |      |        |          |  |           |           |   |          |      |       |          | 
|Options exercisable November 30, |                   |        | 1,914,232 |           |          | $ | 4.59 |        |          |  | 1,827,008 |           |   | $        | 3.91 |       |          |  | 1,784,482 |           |   | $ | 4.27 |      
|                                 |                   |        |           |           |          |   |      |        |          |  |           |           |   |          |      |       |          | 



|                         |  |                     |           |          |                     |   |          |              |  |  |             |          |  |          |           |  |  |   |       | 
|------------------------ |  | ------------------- | --------- | -------- | ------------------- | - | -------- | ------------ |  |  | ----------- | -------- |  | -------- | --------- |  |  | - | ----- | 
|                         |  | Options outstanding |           |          | Options exercisable |  
|                         |  |                     |           |          |                     |  
|                         |  |                     |           | Weighted |                     |   | Weighted |              |  |  |             | Weighted | 
|                         |  |                     |           | Average  |                     |   | Average  |              |  |  |             | Average  | 
|                         |  | Options             |           |          | Exercise            |   |          | Remaining    |  |  | Options     |          |  | Exercise |          
|Range of Exercise Prices |  | Outstanding         |           |          | Price               |   |          | Life (years) |  |  | Exercisable |          |  | Price    |          
|                         |  |                     |           |          |                     |   |          |              |  |  |             |          |  |          |          
|$1.70  $5.00            |  |                     | 1,391,001 |          |                     | $ | 3.03     |              |  |  | 6.11        |          |  |          | 1,391,001 |  |  | $ | 3.03  | 
|$5.01  $10.00           |  |                     | 332,478   |          |                     |   | 5.95     |              |  |  | 2.56        |          |  |          | 332,478   |  |  |   | 5.95  | 
|$10.01  $26.30          |  |                     | 190,753   |          |                     |   | 13.56    |              |  |  | 9.43        |          |  |          | 190,753   |  |  |   | 13.56 | 
|                         |  |                     |           |          |                     |   |          |              |  |  |             |          |  |          |          
|Total                    |  |                     | 1,914,232 |          |                     | $ | 4.59     |              |  |  | 5.83        |          |  |          | 1,914,232 |  |  | $ | 4.59  | 
|                         |  |                     |           |          |                     |   |          |              |  |  |             |          |  |          |          



|   |                           
|-- | --------------------------
|8. | Related Party Transactions





F-20



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##### Table of Contents



SOMANETICS CORPORATION


NOTES TO FINANCIAL STATEMENTS  (Continued)






|   |                                  
|-- | ---------------------------------
|9. | Major Customers and Foreign Sales







|    |                    
|--- | -------------------
|10. | Segment Information



F-21



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##### Table of Contents



QUARTERLY INFORMATION (unaudited)




|                                      |  |                                       |           |  |        |   |           |       |  |   |           |  |  |   |           |  
|------------------------------------- |  | ------------------------------------- | --------- |  | ------ | - | --------- | ----- |  | - | --------- |  |  | - | --------- | -
|                                      |  | Quarter                               |          
|                                      |  |                                       |          
|Year Ended November 30, 2005          |  | First                                 |           |  | Second |   |           | Third |  |   | Fourth    | 
|                                      |  |                                       |           |  |        |   |           |       |  |   |           | 
|                                      |  | (In thousands, except per share data) |          
|Net revenues                          |  | $                                     | 4,032,617 |  |        | $ | 5,082,746 |       |  | $ | 5,242,848 |  |  | $ | 6,151,041 |  
|Gross margin                          |  |                                       | 3,482,468 |  |        |   | 4,437,906 |       |  |   | 4,581,652 |  |  |   | 5,405,738 |  
|Net income                            |  |                                       | 563,926   |  |        |   | 890,183   |       |  |   | 994,147   |  |  |   | 5,302,831 | *
|Net income per common share  basic   |  |                                       | $0.06     |  |        |   | $0.09     |       |  |   | $0.10     |  |  |   | $0.50     |  
|Net income per common share  diluted |  |                                       | $0.05     |  |        |   | $0.08     |       |  |   | $0.08     |  |  |   | $0.43     |  






|  |                                                                                                                                                                                                                                                                                                                                                                                                          
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* | Includes the effects of a reversal of $4,561,223 of our
    valuation allowance, as described in Note 5 of Notes to
    Financial Statements. Also includes an impairment expense of
    $929,093 in connection with the write-off of our intangible
    asset associated with the acquisition of the license for the
    CorRestore System, as described in Note 2 of Notes to
    Financial Statements.

|                                      |  |   |           |  |  |   |           |  |  |   |           |  |  |   |           |   
|------------------------------------- |  | - | --------- |  |  | - | --------- |  |  | - | --------- |  |  | - | --------- | --
|Year Ended November 30, 2004          |  |   |           |  |  |   |           | 
|                                      |  |   |           |  |  |   |           | 
|Net revenues                          |  | $ | 2,670,265 |  |  | $ | 3,032,976 |  |  | $ | 3,076,373 |  |  | $ | 3,829,001 |   
|Gross margin                          |  |   | 2,149,872 |  |  |   | 2,513,660 |  |  |   | 2,632,536 |  |  |   | 3,262,294 |   
|Net income                            |  |   | 292,744   |  |  |   | 409,730   |  |  |   | 539,722   |  |  |   | 7,464,380 | **
|Net income per common share  basic   |  |   | $0.03     |  |  |   | $0.04     |  |  |   | $0.05     |  |  |   | $0.74     |   
|Net income per common share  diluted |  |   | $0.03     |  |  |   | $0.04     |  |  |   | $0.05     |  |  |   | $0.64     |   






|   |                                                                                                                                              
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------
|** | Includes the effects of a reversal of $6,700,000 of our
    valuation allowance, as described in Note 5 of Notes to
    Financial Statements.

F-22



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##### Table of Contents









2,100,000 Shares


Common Shares








PROSPECTUS


,
2006





Citigroup


SG Cowen & Co.


SunTrust Robinson Humphrey


Rodman & Renshaw










---



##### Table of Contents



PART II


INFORMATION NOT REQUIRED IN PROSPECTUS




|         |                                            
|-------- | -------------------------------------------
|Item 14. | Other Expenses of Issuance and Distribution



|                                                    |       |   |         |         | 
|--------------------------------------------------- | ----- | - | ------- | ------- | 
|Securities and Exchange Commission Registration Fee |       | $ | 7,003   |        
|NASD Filing Fee                                     |       |   | 7,045   |        
|The Nasdaq National Market Listing Fee              |       |   | 110,000 |        
|Printing and Engraving Expenses                     |       |   | 50,000  |        
|Accounting Fees and Expenses                        |       |   | 100,000 |        
|Legal Fees and Expenses                             |       |   | 150,000 |        
|Blue Sky Fees and Expenses                          |       |   | 20,000  |        
|Transfer Agents and Registrars Fees and Expenses  |       |   | 3,600   |        
|Miscellaneous Expenses                              |       |   | 52,352  |        
|                                                    |       |   |        
|                                                    | Total |   | $       | 500,000 | 
|                                                    |       |   |        





|         |                                          
|-------- | -----------------------------------------
|Item 15. | Indemnification of Directors and Officers









II-1



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##### Table of Contents





|         |         
|-------- | --------
|Item 16. | Exhibits





|         |             
|-------- | ------------
|Item 17. | Undertakings









| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) For purposes of determining any liability under the
    Securities Act of 1933, the information omitted from the form of
    prospectus filed as part of this registration statement in
    reliance upon Rule 430A and contained in a form of
    prospectus filed by the registrant pursuant to
    Rule 424(b)(1) or (4) or 497(h) under the Securities
    Act shall be deemed to be part of this registration statement as
    of the time it was declared effective.
|
| | (2) For the purpose of determining any liability under the
    Securities Act of 1933, each post-effective amendment that
    contains a form of prospectus shall be deemed to be a new
    registration statement relating to the securities offered
    therein, and the offering of such securities at that time shall
    be deemed to be the initial bona fide offering thereof.                                                                                         

II-2



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##### Table of Contents



SIGNATURES


S-3




| |                       
| | ----------------------
| | SOMANETICS CORPORATION
| | (Registrant)          



| |     |                     
| | --- | --------------------
| | By: | /s/ BRUCE J. BARRETT

| |                                           
| | ------------------------------------------
| |                                           
| | Bruce J. Barrett                          
| | Its: President and Chief Executive Officer




POWER OF ATTORNEY


attorneys-in attorneys-in S-3 attorneys-in attorneys-in







|                                       |  |                                                                                                                                              |  |                 
|-------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------
|Signature                              |  | Title                                                                                                                                        |  | Date            
|                                       |  |                                                                                                                                              |  |                 
|                                      
|/s/ BRUCE J. BARRETTBruce J. Barrett   |  | President and Chief Executive Officer and a Director
    (Principal Executive Officer)                                                       |  | January 30, 2006
|                                      
|/s/ WILLIAM M. IACONAWilliam M. Iacona |  | Vice President and Chief Financial Officer, Controller,
    and Treasurer
    (Principal Financial Officer and Principal Accounting Officer) |  | January 30, 2006

II-3



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##### Table of Contents



|                                                                 |  |          |  |                 
|---------------------------------------------------------------- |  | -------- |  | ----------------
|Signature                                                        |  | Title    |  | Date            
|                                                                 |  |          |  |                 
|                                                                
|/s/ JAMES I. AUSMAN, M.D.,
    Ph.D.James I. Ausman, M.D., Ph.D. |  | Director |  | January 28, 2006
|                                                                
|/s/ DANIEL S. FOLLISDaniel S. Follis                             |  | Director |  | January 30, 2006
|                                                                
|/s/ ROBERT R. HENRYRobert R. Henry                               |  | Director |  | January 30, 2006

II-4



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##### Table of Contents



EXHIBIT INDEX


|        |    |             |  |                                                                                                                                                                                                            
|------- | -- | ----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    | Description
|        |    |            
|        | 1  | .1          |  | Form of Underwriting Agreement.*                                                                                                                                                                           
|       
|        | 4  | .1          |  | Restated Articles of Incorporation of Somanetics Corporation,
    incorporated by reference to Exhibit 3(i) to the
    Companys Quarterly Report on Form 10-Q for the
    quarter ended February 28, 1998.
|       
|        | 4  | .2          |  | Amended and Restated Bylaws of Somanetics Corporation,
    incorporated by reference to Exhibit 3(ii) to the
    Companys Annual Report on Form 10-K for the fiscal
    year ended November 30, 2003.     
|       
|        | 5  | .1          |  | Opinion of Honigman Miller Schwartz and Cohn LLP concerning the
    legality of the securities being offered.*                                                                                             
|       
|        | 23 | .1          |  | Consent of Deloitte & Touche LLP.                                                                                                                                                                          
|       
|        | 23 | .2          |  | Consent of Honigman Miller Schwartz and Cohn LLP (included in
    the opinion filed as Exhibit 5.1 to this registration
    statement).*                                                                   
|       
|        | 24 | .1          |  | Powers of Attorney (included after the signature of the
    registrant contained on page II-3 of this registration
    statement).                                                                         






|  |                          
|- | -------------------------
|* | To be filed by amendment.