Somanetics Corp – ‘424B3’ on 10/11/96

As of:  Friday, 10/11/96   ·   Accession #:  950124-96-4369   ·   File #:  33-38438

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Prospectus   —   Rule 424(b)(3)
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 1: 424B3       Prospectus                                            30    165K 

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424B3
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                                                                  RULE 424(b)(3)
                                                               FILE NO. 33-38438

PROSPECTUS SUPPLEMENT DATED OCTOBER 11, 1996
TO SOMANETICS CORPORATION PROSPECTUS DATED APRIL 4, 1996

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

FORM 10-Q 

(Mark One)

(x) Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange 
Act of 1934                                                             
For the quarterly period ended AUGUST 31, 1996

OR

( )  Transition report pursuant to Section 13 or 15(d) of the Securities        
Exchange Act of 1934                                                  
For the transition period from                to              
                             ---------------   -------------

Commission file number 0-19095

SOMANETICS  CORPORATION 
(Exact name of registrant as specified in its charter)

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

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

(810) 689-3050
(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all       
reports required to be filed by Section 13 or 15(d) of the            
Securities Exchange Act of 1934 during the preceding 12 months (or    
for such shorter period that the registrant was required to file      
such reports), and (2) has been subject to such filing requirements   
for the past 90 days.                                                 

Yes      X          No  
             -----------        ----------

Number of common shares outstanding at October 3, 1996: 19,185,101

424B3
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PART I FINANCIAL INFORMATION

SOMANETICS CORPORATION
(A DEVELOPMENT STAGE COMPANY) 

BALANCE SHEETS

                                                        [Enlarge/Download Table]

                                                                    August 31,    November 30,   
                                                                       1996           1995       
ASSETS                                                             ------------  --------------  
                                                                   (Unaudited)     (Audited)     
                                                                                                 
CURRENT ASSETS:                                                                                  
  Cash and cash equivalents........................................  $   829,008     $   941,426 
  Accounts receivable, net of allowance for doubtful accounts of $0                              
    at August 31, 1996 and $194,000 at November 30, 1995...........      314,133         443,859 
  Inventory........................................................      991,960         936,421 
  Prepaid expenses.................................................       43,352          72,161 
                                                                     -----------     ----------- 
    Total current assets...........................................    2,178,453       2,393,867 
                                                                     -----------     ----------- 
PROPERTY AND EQUIPMENT (at cost):                                                                
  Machinery and equipment..........................................      452,158         412,217 
  Furniture and fixtures...........................................      192,749         193,339 
  Leasehold improvements...........................................      166,770         166,770 
                                                                     -----------     ----------- 
    Total..........................................................      811,677         772,326 
  Less accumulated depreciation and amortization...................     (726,810)       (685,835)
                                                                     -----------     ----------- 
    Net property and equipment.....................................       84,867          86,491 
                                                                     -----------     ----------- 
OTHER ASSETS:                                                                                    
  Note receivable - related party..................................      202,125         190,240 
  Patents and trademarks, net......................................       80,857          86,041 
  Other............................................................      129,201         104,616 
                                                                     -----------     ----------- 
    Total other assets.............................................      412,183         380,897 
                                                                     -----------     ----------- 
TOTAL ASSETS.......................................................  $ 2,675,503     $ 2,861,255 
                                                                     ===========     =========== 
LIABILITIES AND SHAREHOLDERS' EQUITY                                                             

CURRENT LIABILITIES:                                                                             
  Accounts payable.................................................  $   262,143     $   131,401 
  Accrued liabilities..............................................       32,263         416,356 
                                                                     -----------     ----------- 
  Total current liabilities........................................      294,406         547,757 
                                                                     -----------     ----------- 
COMMITMENTS AND CONTINGENCIES......................................       --             --      
REDEEMABLE CONVERTIBLE PREFERRED SHARES............................       --              19,843 
SHAREHOLDERS' EQUITY:                                                                            
  Preferred shares, authorized, 1,000,000 shares of $.01 par value;                              
    no shares issued or outstanding................................       --             --      
  Common shares, authorized, 30,000,000 shares of $.01 par                                       
    value; issued and outstanding, 19,154,118 and 17,768,552                                     
    shares at August 31, 1996 and November 30, 1995,                                             
    respectively...................................................      191,543         177,687 
  Additional paid-in capital.......................................   30,679,632      29,023,318 
  Deficit accumulated during the development stage.................  (28,490,078)    (26,907,350)
                                                                     -----------     ----------- 
    Total shareholders' equity.....................................    2,381,097       2,293,655 
                                                                     -----------     ----------- 
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.........................  $ 2,675,503     $ 2,861,255 
                                                                     ===========     =========== 

See notes to financial statements   

2 

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SOMANETICS CORPORATION
(A DEVELOPMENT STAGE COMPANY) 

STATEMENTS OF LOSS
(UNAUDITED) 

                                                        [Enlarge/Download Table]

                                                                                                        Cumulative     
                                                                                                      for the Period   
                                                                                                     January 15, 1982  
                                                Three Months                  Nine Months           (Date of Inception)
                                               Ended August 31,             Ended August 31,                To         
                                        ---------------------------   ----------------------------       August 31,    
                                            1996           1995           1996             1995            1996        
                                        -----------     -----------   -----------      -----------  ------------------ 
                                                                                                                       
REVENUES:                                                                                                              
 Net Sales............................. $    99,541     $   171,652   $   699,006      $ 1,078,277     $  5,649,738    
 Research and development activities...         --             --            --               --            122,500    
                                        -----------     -----------   -----------      -----------     ------------    
  Total revenues.......................      99,541         171,652       699,006        1,078,277        5,772,238    
COST OF SALES..........................      67,700          93,192       327,151          524,208        2,569,266    
                                        -----------     -----------   -----------      -----------     ------------    
GROSS MARGIN...........................      31,841          78,460       371,855          554,069        3,202,972    
                                        -----------     -----------   -----------      -----------     ------------    
OPERATING EXPENSES:                                                                                                    
 Research, development, and                                                                                            
    engineering........................      44,685          50,232       147,353          240,796        7,916,910    
 Selling, general and administrative...     678,766         923,150     1,878,482        2,774,069       24,518,265    
                                        -----------     -----------   -----------      -----------     ------------    
  Total operating expenses.............     723,451         973,382     2,025,835        3,014,865       32,435,175    
                                        -----------     -----------   -----------      -----------     ------------    
OPERATING LOSS.........................    (691,610)       (894,922)   (1,653,980)      (2,460,796)     (29,232,203)   
                                        -----------     -----------   -----------      -----------     ------------    
OTHER INCOME (EXPENSE):                                                                                                
 Interest income.......................      19,569          20,425        51,980           71,867        1,111,525    
 Interest expense......................        --              --            --               (772)        (231,225)   
 Other.................................       8,099           1,066        19,272            1,991         (118,333)   
                                        -----------     -----------   -----------      -----------     ------------    
  Total other income...................      27,668          21,491        71,252           73,086          761,967    
                                        -----------     -----------   -----------      -----------     ------------    
NET LOSS............................... $  (663,942)    $  (873,431)  $(1,582,728)     $(2,387,710)    $(28,470,236)   
                                        ===========     ===========   ===========      ===========     ============    

NET LOSS PER COMMON SHARE.............. $      (.03)    $      (.05)  $      (.09)     $      (.14)    $      (4.07)   
                                        -----------     -----------   -----------      -----------     ------------    
WEIGHTED AVERAGE NUMBER OF                                                                                             
COMMON SHARES OUTSTANDING..............  19,109,288      17,067,465    18,365,476       16,536,516        6,986,968    
                                        ===========     ===========   ===========      ===========     ============    

See notes to financial statements 

3 

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SOMANETICS CORPORATION
(A DEVELOPMENT STAGE COMPANY) 

STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIENCY) 
(UNAUDITED) 
(1 OF 2)

                                                        [Enlarge/Download Table]


                                                                               PRICE                              
                                                                                PER                         SHARE 
                                                                   DATE        SHARE         SHARES         VALUE 
                                                                   ----        -----         ------         ----- 
                                                                                                                  
ISSUANCE OF COMMON SHARES:                                                                                        

  For shareholders' contributions of test equipment ......... January, 1982     $ 0.032      830,376       $ 8,304
  For cash .................................................. July, 1982          1.31        78,345           783
  Net loss from January 15, 1982 (date of inception)                                                              
     to November 30, 1982 ...................................                                                     
                                                                                           ---------       -------
Balance at November 30, 1982 ................................                                908,721         9,087

  For cash .................................................. December, 1982      1.31        39,172           392
  For services .............................................. January, 1983       1.31        15,669           157
  For cash, less issuance costs of $5,863 ................... July, 1983          2.62       116,243         1,162
  For services .............................................. November, 1983      2.62         7,834            78
  Net loss for the year ended November 30, 1983 .............                                                     
                                                                                           ---------       -------
Balance at November 30, 1983 ................................                              1,087,639        10,876

  For cash, less issuance costs                               December, 1983-                                     
     of $7,735 .............................................. April, 1984         2.62       194,212         1,943
  For patents ............................................... February, 1984      2.62        48,944           489
  For cash .................................................. November, 1984      3.51        37,303           373
  Net loss for the year ended November 30, 1984 .............                                                     
                                                                                           ---------       -------
Balance at November 30, 1984 ................................                              1,368,098        13,681

  For cash, less issuance costs                               December, 1984-                                     
     of $3,726 .............................................. June, 1985          3.51       130,292         1,303
  For cash .................................................. November, 1985      7.02       144,838         1,448
  Net loss for the year ended November 30, 1985 .............                                                     
                                                                                           ---------       -------
Balance at November 30, 1985 ................................                              1,643,228        16,432

  Exercise of stock options for cash ........................ December, 1985      3.51         7,834            79
  For cash .................................................. January, 1986       7.02       104,442         1,044
  Net loss for the year ended November 30, 1986 .............                                                     
                                                                                           ---------       -------
Balance at November 30, 1986 ................................                              1,755,504        17,555

  For cash, less issuance costs                               March, 1987-                                        
     of $9,500 .............................................. September, 1987     5.11       103,591         1,036
  Net loss for the year ended November 30, 1987 .............                                                     
                                                                                           ---------       -------
Balance at November 30, 1987 ................................                              1,859,095        18,591

  For cash, less issuance costs                               February, 1988-                                     
     of $10,500 ............................................. April, 1988         5.11        32,905           329
  Net loss for the year ended November 30, 1988 .............                                                     
                                                                                           ---------       -------
Balance at November 30, 1988 ................................                              1,892,000        18,920

  For cash and the exchange of debt                           January, 1989-                                      
     due a shareholder ...................................... July, 1989          5.11        45,244           452
  Net loss for the year ended November 30, 1989 .............                                                     
                                                                                           ---------       -------
Balance at November 30, 1989 ................................                              1,937,244        19,372

  For services .............................................. August, 1990        5.11        47,006           471
  Net loss for the year ended November 30, 1990 .............                                                     
                                                                                           ---------       -------
Balance at November 30, 1990 ................................                              1,984,250        19,843

  For cash, less issuance costs of $1,630,241 ............... March, 1991         2.00     3,600,000        36,000
  Unit Purchase Option ...................................... March, 1991                                         
  Redeemable Convertible Preferred Stock dividend ........... April, 1991                                         
  For cash, less issuance costs of $126,900 ................. April, 1991         2.00       540,000         5,400
  Net loss for the year ended November 30, 1991 .............                                                     
                                                                                           ---------       -------
Balance at November 30, 1991 ................................                              6,124,250       $61,243


                                                                                                      TOTAL       
                                                                 ADDITIONAL        ACCUM-         SHAREHOLDERS'   
                                                                  PAID-IN          ULATED            EQUITY       
                                                                  CAPITAL          DEFICIT        (DEFICIENCY)    
                                                                 ----------        -------        ------------    
                                                                                                                  
ISSUANCE OF COMMON SHARES:                                                                                        

  For shareholders' contributions of test equipment .........   $    18,196     $    -           $      26,500    
  For cash ..................................................       101,217                            102,000    
  Net loss from January 15, 1982 (date of inception)                                                              
     to November 30, 1982 ...................................                      (107,083)          (107,083)   
                                                                -----------     ------------     -------------    
Balance at November 30, 1982 ................................       119,413        (107,083)            21,417    

  For cash ..................................................        50,608                             51,000    
  For services ..............................................        20,343                             20,500    
  For cash, less issuance costs of $5,863 ...................       297,139                            298,301    
  For services ..............................................        20,422                             20,500    
  Net loss for the year ended November 30, 1983 .............                      (291,986)          (291,986)   
                                                                -----------     ------------     -------------    
Balance at November 30, 1983 ................................       507,925        (399,069)           119,732    

  For cash, less issuance costs                                                                                   
     of $7,735 ..............................................       498,503                            500,446    
  For patents ...............................................       127,580                            128,069    
  For cash ..................................................       130,563                            130,936    
  Net loss for the year ended November 30, 1984 .............                      (700,380)          (700,380)   
                                                                -----------     ------------     -------------    
Balance at November 30, 1984 ................................     1,264,571      (1,099,449)           178,803    

  For cash, less issuance costs                                                                                   
     of $3,726 ..............................................       452,312                            453,615    
  For cash ..................................................     1,015,352                          1,016,800    
  Net loss for the year ended November 30, 1985 .............                      (559,871)          (559,871)   
                                                                -----------     ------------     -------------    
Balance at November 30, 1985 ................................     2,732,235      (1,659,320)         1,089,347    

  Exercise of stock options for cash ........................        27,421                             27,500    
  For cash ..................................................       732,157                            733,201    
  Net loss for the year ended November 30, 1986 .............                    (1,222,772)        (1,222,772)   
                                                                -----------     ------------     -------------    
Balance at November 30, 1986 ................................     3,491,813      (2,882,092)           627,276    

  For cash, less issuance costs                                                                                   
     of $9,500 ..............................................       518,364                            519,400    
  Net loss for the year ended November 30, 1987 .............                    (1,143,081)        (1,143,081)   
                                                                -----------     ------------     -------------    
Balance at November 30, 1987 ................................     4,010,177      (4,025,173)             3,595    

  For cash, less issuance costs                                                                                   
     of $10,500 .............................................       157,171                            157,500    
  Net loss for the year ended November 30, 1988 .............                      (352,311)          (352,311)   
                                                                -----------     ------------     -------------    
Balance at November 30, 1988 ................................     4,167,348      (4,377,484)          (191,216)   

  For cash and the exchange of debt                                                                               
     due a shareholder ......................................       230,548                            231,000    
  Net loss for the year ended November 30, 1989 .............                      (446,642)          (446,642)   
                                                                -----------     ------------     -------------    
Balance at November 30, 1989 ................................     4,397,896      (4,824,126)          (406,858)   

  For services ..............................................       239,529                            240,000    
  Net loss for the year ended November 30, 1990 .............                    (1,328,518)        (1,328,518)   
                                                                -----------     ------------     -------------    
Balance at November 30, 1990 ................................     4,637,425      (6,152,644)        (1,495,376)   

  For cash, less issuance costs of $1,630,241 ...............     5,533,759                          5,569,759    
  Unit Purchase Option ......................................           120                                120    
  Redeemable Convertible Preferred Stock dividend ...........                       (19,843)           (19,843)   
  For cash, less issuance costs of $126,900 .................       947,700                            953,100    
  Net loss for the year ended November 30, 1991 .............                    (2,058,493)        (2,058,493)   
                                                                -----------     ------------     -------------    
Balance at November 30, 1991 ................................   $11,119,004     $(8,230,980)     $   2,949,267    


4   

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SOMANETICS CORPORATION
(A DEVELOPMENT STAGE COMPANY) 

STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIENCY) 
(UNAUDITED) 
(2 OF 2)

                                                        [Enlarge/Download Table]

                                                                               PRICE                              
                                                                                PER                         SHARE 
                                                                   DATE        SHARE         SHARES         VALUE 
                                                                   ----        -----         ------         ----- 
                                                                                                                  

Balance at November 30, 1991.................................                              6,124,250      $ 61,243

  Exercise of Class A Warrants for cash,                      December, 1991-                                     
     less issuance costs of $702,917 ........................ May, 1992           3.00     4,139,000        41,390
                                                              February, 1992-                                     
  Exercise of Class B Warrants for cash ..................... November, 1992      4.00        34,055           341
                                                              July, 1992-         2.00-                           
  Exercise of stock options for cash ........................ November, 1992      2.19        30,100           301
  Net loss for year ended November 30, 1992 .................                                                     
                                                                                          ----------      --------
Balance at November 30, 1992 ................................                             10,327,405       103,275

                                                              December, 1992-                                     
  Exercise of Class B Warrants for cash ..................... October, 1993       4.00        29,766           298
                                                              March, 1993-                                        
  Exercise of Class M Warrants for cash ..................... October, 1993       1.00       600,179         6,002

                                                              March, 1993-        2.00-                           
  Exercise of Stock Options for cash ........................ September, 1993     4.38         3,100            31
  Exercise of Unit Purchase                                                                                       
     Options and Underlying Class A Warrants                  May, 1993-          3.00-                           
     for cash ............................................... October, 1993       3.30        10,002           100
  Net loss for the year ended November 30, 1993 .............                                                     
                                                                                          ----------      --------
Balance at November 30, 1993 ................................                             10,970,452       109,706

  For cash, less issuance costs of $490,790 ................. August, 1994        0.80     5,297,000        52,970
  Exercise of Stock Options for Cash......................... November, 1994      1.63-                           
                                                                                  3.59           100             1
  Net loss for the year ended November 30, 1994 .............                                                     
                                                                                          ----------      --------
Balance at November 30, 1994 ................................                             16,267,552       162,677

  Exercise of Stock Options for Cash ........................ February, 1995      0.84         1,000            10
  For cash, less issuance costs of $282,475 ................. July, 1995          1.25     1,500,000        15,000

  Net loss for the year ended November 30, 1995 .............                                                     
                                                                                          ----------      --------
Balance at November 30, 1995 ................................                             17,768,552       177,687

  Exercise of Stock Options for Cash ........................ January, 1996       0.84        20,000           200
                                                              February, 1996      0.84-       46,666           467
                                                                                  1.00                            
  For cash, less issuance costs of $143,587 ................. April, 1996         1.25     1,142,400        11,424
  Exercise of Stock Options for Cash ........................ May, 1996           1.33         7,800            78
  Exercise of Stock Options for Cash ........................ June, 1996           .84-        2,700            27
                                                                                  1.47                            

  Exercise of Warrants for Cash ............................. June, 1996-         1.75-      166,000         1,660
                                                              July, 1996          2.00                            
  Net loss for the nine month period ended                                                                        
    August 31, 1996 .........................................                                                     
                                                                                          ----------      --------

Balance at August 31, 1996 ..................................                             19,154,118      $191,543
                                                                                          ==========      ========


                                                                                                      TOTAL       
                                                                 ADDITIONAL        ACCUM-         SHAREHOLDERS'   
                                                                  PAID-IN          ULATED            EQUITY       
                                                                  CAPITAL          DEFICIT        (DEFICIENCY)    
                                                                 ----------        -------        ------------    
                                                                                                                  
Balance at November 30, 1991.................................    $11,119,004     $ (8,230,980)     $ 2,949,267    

  Exercise of Class A Warrants for cash,                                                                          
     less issuance costs of $702,917 ........................     11,672,693                        11,714,083    

  Exercise of Class B Warrants for cash .....................        135,879                           136,220    

  Exercise of stock options for cash ........................         65,774                            66,075    
  Net loss for year ended November 30, 1992 .................                      (5,390,637)      (5,390,637)   
                                                                 -----------     -------------     -----------    
Balance at November 30, 1992 ................................     22,993,350      (13,621,617)       9,475,008    

  Exercise of Class B Warrants for cash .....................        118,766                           119,064    

  Exercise of Class M Warrants for cash .....................        594,177                           600,179    

  Exercise of Stock Options for cash ........................         13,119                            13,150    
  Exercise of Unit Purchase                                                                                       
     Options and Underlying Class A Warrants                                                                      
     for cash ...............................................         31,406                            31,506    
  Net loss for the year ended November 30, 1993 .............                      (6,135,830)      (6,135,830)   
                                                                 -----------     -------------     -----------    
Balance at November 30, 1993 ................................     23,750,818      (19,757,447)       4,103,077    

  For cash, less issuance costs of $490,790 .................      3,693,840                         3,746,810    
  Exercise of Stock Options for Cash.........................                                                     
                                                                         201                               202    
  Net loss for the year ended November 30, 1994 .............                      (4,331,500)      (4,331,500)   
                                                                 -----------     -------------     -----------    
Balance at November 30, 1994 ................................     27,444,859      (24,088,947)       3,518,589    

  Exercise of Stock Options for Cash ........................            834                               844    
  For cash, less issuance costs of $282,475 .................      1,577,625                         1,592,625    

  Net loss for the year ended November 30, 1995 .............                      (2,818,403)      (2,818,403)   
                                                                 -----------     -------------     -----------    
Balance at November 30, 1995 ................................     29,023,318      (26,907,350)       2,293,655    

  Exercise of Stock Options for Cash ........................         16,675                            16,875    
                                                                      44,116                            44,583    

  For cash, less issuance costs of $143,587 .................      1,272,989                         1,284,413    
  Exercise of Stock Options for Cash ........................         10,261                            10,339    
  Exercise of Stock Options for Cash ........................          3,283                             3,310    

  Exercise of Warrants for Cash .............................        308,990                           310,650    

  Net loss for the nine month period ended                                                                        
    August 31, 1996 .........................................                      (1,582,728)      (1,582,728)   
                                                                 -----------     -------------     -----------    

Balance at August 31, 1996 ..................................    $30,679,632     $(28,490,078)     $ 2,381,097    
                                                                 ===========     =============     ===========    

See notes to financial statements 

5 

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SOMANETICS CORPORATION
(A DEVELOPMENT STAGE COMPANY) 

STATEMENTS OF CASH FLOWS
(UNAUDITED) 

                                                        [Enlarge/Download Table]

                                                                                                                Cumulative     
                                                                                                              for the Period   
                                                                                                             January 15, 1982  
                                                                                   Nine Months              (Date of Inception)
                                                                                 Ended August 31,                   to         
                                                                         --------------------------------        August 31,    
                                                                             1996                 1995             1996        
                                                                         -----------          -----------   ------------------ 
                                                                                                                               
CASH FLOWS FROM OPERATING ACTIVITIES:                                                                                          
 Net loss............................................................... $(1,582,728)         $(2,387,710)      $(28,470,236)  
 Adjustments to reconcile net loss to net cash used in operations:                                                             
   Depreciation and amortization........................................      47,530              113,028            810,517   
   Expenses paid through the issuance of common shares..................      --                   --                408,068   
   Loss on disposal of property.........................................      --                   --                 44,861   
   Changes in assets and liabilities:                                                                                          
     Accounts receivable (increase) decrease............................     129,726               72,552           (314,133)  
     Inventory (increase)...............................................     (55,539)             (43,556)          (991,960)  
     Prepaid expenses (increase) decrease...............................      28,809               19,713            (43,352)  
     Other assets (increase)............................................     (24,585)             (16,793)          (239,933)  
     Accounts payable increase..........................................     130,742               10,926            262,143   
     Accrued liabilities increase (decrease)............................    (384,093)              27,707             32,263   
                                                                         -----------          -----------       ------------   
      Net cash (used in) operations.....................................  (1,710,138)          (2,204,132)       (28,501,762)  
                                                                         -----------          -----------       ------------   
CASH FLOWS FROM INVESTING ACTIVITIES:                                                                                          
 Purchases of marketable securities.....................................      --                   --            (12,166,540)  
 Proceeds from sale of marketable securities............................      --                1,564,826         12,166,540   
 Acquisition of property and equipment (net)............................     (40,722)             (18,157)          (882,869)  
 Disbursement or accrual for note receivable - related party............     (11,885)             (11,083)          (202,125)  
                                                                         -----------          -----------       ------------   
      Net cash (used in) provided by investing activities...............     (52,607)           1,535,586         (1,084,994)  
                                                                         -----------          -----------       ------------   
CASH FLOWS FROM FINANCING ACTIVITIES:                                                                                          
 Proceeds from issuance of Common Shares................................   1,670,170            1,589,564         30,435,607   
 Redemption of Convertible Preferred Shares.............................     (19,843)              --                (19,843)  
 Proceeds from issuance of notes payable and long-term debt.............      --                   --              2,515,223   
 Repayments of notes payable and long-term debt.........................      --                  (30,000)        (2,515,223)  
                                                                         -----------          -----------       ------------   
      Net cash provided by financing activities.........................   1,650,327            1,559,564         30,415,764   
                                                                         -----------          -----------       ------------   
NET INCREASE (DECREASE) IN CASH AND CASH                                                                                       
 EQUIVALENTS............................................................    (112,418)             891,017            829,008   
CASH AND CASH EQUIVALENTS, BEGINNING                                                                                           
 OF PERIOD..............................................................     941,426              840,245             --       
                                                                         -----------          -----------       ------------   
CASH AND CASH EQUIVALENTS, END                                                                                                 
 OF PERIOD.............................................................. $   829,008          $ 1,731,262       $    829,008   
                                                                         ===========          ===========       ============   

SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITIES:                        
See Statements of Shareholders' Equity (Deficiency) for details of shares     
issued in exchange for noncash consideration.                                 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:                               
Cash paid for interest for the nine-month periods ended August 31, 1996 and   
1995 approximated $0 and $800, respectively.                                  

See notes to financial statements.  

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SOMANETICS CORPORATION
(A DEVELOPMENT STAGE COMPANY) 

NOTES TO FINANCIAL STATEMENTS 
(UNAUDITED) 

AUGUST 31, 1996 

1. ORGANIZATION AND OPERATIONS                                                  

Somanetics Corporation (the "Company") is a Michigan corporation formed in      
January 1982 to develop, manufacture and market processor-based medical         
diagnostic and patient monitoring equipment.  The equipment utilizes the        
Company's "In Vivo Optical Spectroscopy," or "INVOS(R)" technology to provide   
analyses of human blood and tissue.  The Company is in the development stage    
and has incurred research, product development and other expenses involved in   
designing, developing, marketing and selling its products, as well as devoting  
efforts to raising capital.                                                     

The Company is using its INVOS technology in processor-based medical equipment  
(the INVOS Cerebral Oximeter and related single-patient use SomaSensor(R)) that 
non-invasively and continuously monitors trends in regional hemoglobin oxygen   
saturation of blood in the brain of an individual.                              

2. FINANCIAL STATEMENT PRESENTATION                                             

The accompanying unaudited interim financial statements of Somanetics           
Corporation have been prepared pursuant to the rules and regulations of the     
Securities and Exchange Commission.  Accordingly, such financial statements do  
not include all of the information and footnotes normally included in the       
Company's annual financial statements prepared in accordance with generally     
accepted accounting principles, although the Company believes that the          
disclosures are adequate to make the information presented not misleading.      

The accompanying unaudited interim financial statements reflect all             
adjustments which are, in the opinion of management, necessary to a fair        
statement of the results for the interim periods presented.  All such           
adjustments are of a normal recurring nature, except those described in Note    
5 and those not material to the Company's financial condition.  Operating       
results for the nine-month period ended August 31, 1996, are not necessarily    
indicative of the results that may be expected for the year ending              
November 30, 1996, although the Company expects to continue to incur operating  
losses for the foreseeable future.  These financial statements should be read   
in conjunction with the financial statements and footnotes thereto for the      
year ended November 30, 1995 included in the Company's Annual Report on Form    
10-K for the fiscal year ended November 30, 1995.                               

The Company is in the development stage and, accordingly, has not achieved      
sales necessary to support operations.  The Company has incurred an accumulated 
deficit of $28,490,078 through August 31, 1996.  The Company had working        
capital of $1,884,047, cash and cash equivalents of $829,008, total current     
liabilities of $294,406 and shareholders' equity of $2,381,097, as of August    
31, 1996.                                                                       

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SOMANETICS CORPORATION
(A DEVELOPMENT STAGE COMPANY) 

NOTES TO FINANCIAL STATEMENTS 
(UNAUDITED) 

AUGUST 31, 1996 

Although on June 6, 1996 the Company received clearance from the FDA to market  
the Cerebral Oximeter in the United States, the Company's current financial     
condition and recent results of operations and the status of its product        
marketing efforts and sales have been affected by the process of obtaining such 
clearance.  On November 22, 1993, the Company received notification that the    
FDA had rescinded the Company's 510(k) clearance to market the Cerebral         
Oximeter.  As a result, all commercial sales of the Company's products were     
suspended and the Company notified its United States distributors to stop       
selling the Cerebral Oximeter and to advise their customers to stop using the   
device.  In February 1994, the Company resumed marketing its products in        
several foreign countries, including Japan, its largest market outside the      
United States.                                                                  

On February 1, 1995, the Company filed a new 510(k) application with the FDA.   
On October 5, 1995, the Company received a written response from the FDA,       
stating that the FDA could not determine if the device was substantially        
equivalent to a legally marketed device, and that the FDA considered the        
Company's 510(k) submission to be withdrawn.  On February 13, 1996, the Company 
filed a new 510(k) application with the FDA presenting additional information   
not previously considered by the agency, identifying alternative predicate      
devices and offering revisions to its product and its labeling.  On June 6,     
1996, the Company received clearance to market the INVOS 3100A Cerebral         
Oximeter in the United States.                                                  

The Company currently is marketing Cerebral Oximeters and SomaSensors in 25     
foreign countries, with sales in 13 countries in the first nine months of       
1996.  The Company expects to begin marketing the Cerebral Oximeter in other    
countries after complying with each country's local laws.  The Company began    
marketing the Cerebral Oximeter in the United States on a limited basis in the  
third quarter; most of the third quarter was devoted to product introduction    
activities and replacing existing Cerebral Oximeters with the INVOS 3100A       
Cerebral Oximeter.  Product introduction activities, including engaging United  
States distributors and hiring direct sales personnel, are expected to          
continue into the fourth quarter.  There can be no assurance that sales will    
continue or increase as a result of such marketing efforts, or that, even if    
they increase, they will provide sufficient cash to fund the Company's          
operations or make the Company profitable.                                      

As of August 31, 1996  the Company had 21 employees and four consultants. The   
Company expects to hire 16 additional employees before the end of the fiscal    
year, 12 in Sales and Marketing (three of whom have been hired), 1 in Research  
and development (who has been hired), 2 in Manufacturing and Quality Control    
(both of whom have been hired) and 1 in Administration.  The Company expects to 
incur these expenses before receiving substantially increased proceeds from     
sales of its products, and such expenses will continue even if revenues do not  
increase. Therefore, in the short-run, they are expected to increase the        
Company's net losses.                                                           

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SOMANETICS CORPORATION
(A DEVELOPMENT STAGE COMPANY) 

NOTES TO FINANCIAL STATEMENTS 
(UNAUDITED) 

AUGUST 31, 1996 

Management believes that markets exist for the products the Company has         
developed; however, there is an inherent uncertainty associated with the        
success of such new products.  The likelihood of success of the Company must be 
considered in view of the Company's limited resources and current financial     
condition, the problems and expenses frequently encountered in connection with  
formation of a new business, the ability to raise new funds, the development    
and application of new technology, and the competitive environment in which the 
Company intends to operate.                                                     

The net proceeds from previous sales of securities were sufficient to fund the  
Company's working capital requirements into the third quarter ended August 31,  
1996.  Current sales are not sufficient to fund operations.  On April 2, 1996,  
the Company completed the placement of 571,200 Units, at a price of $2.50 per   
Unit, for gross proceeds of $1,428,000, through an offering complying with      
Regulation S under the Securities Act of 1933, as amended.  The net proceeds to 
the Company, after deducting the placement agents' fee and the expenses of the  
offering, were approximately $1,284,000.  Each Unit consists of two             
newly-issued Common Shares, par value $0.01 per share, and one warrant to       
purchase one Common Share.                                                      

The Warrants are immediately exercisable and transferable separately from the   
Common Shares. Each Warrant entitles the holder to purchase one Common Share at 
an initial exercise price of $1.75 per share, subject to adjustment, at any     
time through April 1, 2001, unless earlier redeemed.  The Warrants are          
redeemable for $0.01 by the Company at any time if certain conditions are met.  
The Company also granted the placement agent warrants to purchase 114,240       
Common Shares at $1.25 per share exercisable during the four-year period        
beginning April 2, 1997.                                                        

Pursuant to an amended agreement with Rauscher Pierce & Clark, Inc. and         
Rauscher Pierce & Clark Limited (collectively, the "Placement Agent") in        
connection with the Regulation S offering, the Company has agreed to permit a   
person designated by the Placement Agent to attend meetings of the Company's    
Board of Directors until the 1998 Annual Meeting of Shareholders and to         
participate in discussions at such meetings.  The Placement Agent has not yet   
designated such person.  The Company is no longer required by its agreements    
with the Placement Agent to expand the size of its Board of Directors by two    
persons or to appoint persons nominated or acceptable to the Placement Agent to 
fill the vacancies.                                                             

Also during the third quarter, the Company received net proceeds of $313,961    
from the exercise of various outstanding warrants and stock options.            

Effective February 28, 1996, the Company redeemed all of its outstanding        
Convertible Preferred Shares for $.01 per share at a total redemption cost to   
the Company of approximately $19,843, and instead of the Convertible Preferred  
Shares formerly issuable                                                        

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SOMANETICS CORPORATION
(A DEVELOPMENT STAGE COMPANY) 

NOTES TO FINANCIAL STATEMENTS 
(UNAUDITED) 

AUGUST 31, 1996 

upon the exercise of certain options, the Company will pay $.01 to the person   
exercising such options for each Convertible Preferred Share otherwise          
receivable.                                                                     

The Company believes that the cash and cash equivalents on hand at August 31,   
1996 will be sufficient to sustain the Company's operations at budgeted levels  
and its needs for liquidity into the fourth quarter of fiscal 1996.  By that    
time the Company will be required to raise additional cash either through       
additional sales of products, through sales of securities, by incurring         
additional indebtedness or by some combination of the foregoing.  If the        
Company is unable to raise additional cash by that time, it will be required to 
further reduce or discontinue its operations.                                   

The expected uses of the Company's cash and cash equivalents are based on       
certain estimates and assumptions made by the Company.  Such estimates and      
assumptions are subject to change as a result of actual experience.  There can  
be no assurance that actual capital requirements necessary to market the        
Cerebral Oximeter and SomaSensor, to develop enhancements to, and product       
extensions of, the Cerebral Oximeter, to conduct research and development       
concerning additional potential applications of INVOS technology and for        
working capital will not be substantially greater than current estimates.       

The Company does not believe that product sales will be sufficient to fund the  
Company's operations in the fourth quarter ending November 30, 1996.            

In September 1996, the Company received approximately, $29,400 from the         
exercise of the remaining 30,983 outstanding Class M Warrants.                  

The Company proposes to offer up to 1,500,000 Common Shares, par value $.01 a   
share, in an offering complying with Regulation S under the Securities Act of   
1933, as amended (the "Act"). The Common Shares offered will not be registered  
under the Act and may not be offered or sold in the United States or to a U.S.  
person absent registration or an applicable exemption from the registration     
requirements.  However, such sales are subject to negotiation of definitive     
agreements and the identification of sufficient interested buyers.  There can   
be no assurance that the Company will be able to raise additional cash.         

As of August 31, 1996, there were 4,075,179 redeemable Class B Warrants and     
5,001 non-redeemable Class B Warrants outstanding, all exercisable at $3.89 per 
share, subject to adjustment.  On September 13, 1996, the Company announced the 
extension of the redemption date for its redeemable Class B Warrants, and the   
expiration date for its non-redeemable Class B Warrants, to November 14, 1996.  
Any Class B Warrants which have not been exercised before November 14, 1996     
will no longer be exercisable to purchase Common Shares.  Holders of Class B    
Warrants will have no further rights beyond November 14, 1996, except to        
receive, upon surrender of the Class B Warrant certificates evidencing redeemed 

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SOMANETICS CORPORATION
(A DEVELOPMENT STAGE COMPANY) 

NOTES TO FINANCIAL STATEMENTS 
(UNAUDITED) 

AUGUST 31, 1996 

Class B Warrants, payment of the redemption price of $.05 for each redeemable   
Class B Warrant outstanding and not already exercised as of November 14, 1996.  
There can be no assurance that additional Class B Warrant holders will          
exercise their Warrants and it is unlikely they will do so as long as the       
exercise price exceeds the market price of the Common Shares.  The Company has  
the right to reduce the exercise price of the Class B Warrants, to extend the   
redemption date or both.  If the proposed offering of Common Shares (described  
above) is successful and if the Company determines not to further extend the    
redemption date of its Class B Warrants, the Company expects to use a portion   
of the proceeds of that offering to redeem its outstanding Class B Warrants.    

Also as of August 31, 1996, there were 604,000 redeemable warrants outstanding, 
exercisable at $2.00 a share until July 13, 2000, and 551,200 redeemable        
warrants outstanding exercisable at $1.75 a share until April 1, 2001.  These   
warrants were issued in the Company's 1995 and 1996 Regulation S securities     
offerings.  The conditions permitting the Company to redeem these warrants have 
not been met as of October 1, 1996.  Between June 1, 1996 and July 12, 1996,    
146,000 of the warrants exercisable at $2.00 a share and 20,000 of the warrants 
exercisable at $1.75 a share had been exercised.  There can be no assurance     
that additional warrants will be exercised and it is unlikely that they will be 
exercised if the exercise price exceeds the market price of the Common Shares.  
The Company has the right to reduce the exercise price of these warrants.       

Effective March 19, 1996, all outstanding Unit Purchase Options expired.  None  
of the Unit Purchase Options had been exercised between December 1, 1995 and    
March 19, 1996.                                                                 

The Company has no commitments for additional loans.                            

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

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES                                   

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

                                                                [Download Table]

                      August 31, 1996  November 30, 1995
                      ---------------  -----------------
                                                        
Finished goods               $455,343           $516,420
Work in process               305,412            219,076
Purchased components          231,205            200,925
                             --------           --------
Total                        $991,960*          $936,421
                             ========           ========

* Net of an approximately $153,000 reserve for obsolete and excess inventory.   

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SOMANETICS CORPORATION
(A DEVELOPMENT STAGE COMPANY) 

NOTES TO FINANCIAL STATEMENTS 
(UNAUDITED) 

AUGUST 31, 1996 

Patents and Trademarks are recorded at cost and are being amortized on the      
straight-line method over 17 years.  Accumulated amortization was $30,876 and   
$25,692 at August 31, 1996 and November 30, 1995, respectively.                 

Loss Per Common Share is computed using the weighted average number of Common   
Shares outstanding during each period.  Common Shares issuable under stock      
options and warrants have not been considered in the computation of the net     
loss per Common Share because such inclusion would be antidilutive.             

4. ACCRUED LIABILITIES                                                          

Accrued liabilities consist of the following:                                   

                                                                [Download Table]

                               August 31, 1996  November 30, 1995
                               ---------------  -----------------
                                                                 
Professional fees                     $ 17,391           $ 75,702
Warranty                                13,651             15,000
Insurance                                3,122                   
Product Upgrades                        32,848            149,954
Shareholder Lawsuits (Note 5)          (34,719)           144,717
Other                                       -              30,983
                                      --------           --------
Total                                 $ 32,263           $416,356
                                      ========           ========

For a description of the change in the reserve for product upgrades, see Note   
5.                                                                              

5. COMMITMENTS AND CONTINGENCIES                                                

Before the Company received FDA clearance to market the Cerebral Oximeter in    
the United States, several domestic distributors of the INVOS Cerebral Oximeter 
expressed their desire to terminate their distributor agreements with the       
Company.  The Company does not believe that their distributor agreements        
require it to accept returns of products sold to distributors in connection     
with a termination of the distribution agreement.  The Company, however,        
reserved $194,000 at November 30, 1995, for the uncollectibility of accounts    
receivable from such distributors.                                              

The Company terminated 11 of its 15 domestic distributors in fiscal 1996.       

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SOMANETICS CORPORATION
(A DEVELOPMENT STAGE COMPANY) 

NOTES TO FINANCIAL STATEMENTS 
(UNAUDITED) 

AUGUST 31, 1996 

Because of the significant change in the composition of the Company's U.S.      
distributors, the change in the product being marketed by the U.S.              
distributors (the INVOS 3100A, rather than the INVOS 3100), and the changed     
terms and conditions applicable to the new and continuing distributors, the     
Company wrote off substantially all of its receivables from domestic            
distributors in exchange for the return of their, and their customers', old     
INVOS 3100 Cerebral Oximeters and SomaSensors.                                  

Additionally, in the third quarter ended August 31, 1996, the Company reversed  
its reserves for the extra cost of exchanging new INVOS 3100A Cerebral Oximeters
with such persons for their old devices, for the costs of upgrading the old     
devices for resale and for the cost of replacing SomaSensors recalled in 1993.  

Additional distributors might terminate their agreements with the Company or be 
terminated by the Company.  Distributor terminations may increase the Company's 
costs.  There can be no assurance that the Company will be able to replace      
distributors desiring to terminate their distribution agreements, engage        
distributors or direct sales employees in additional territories, or retain its 
existing distributors.  The Company's inability to retain distributors or       
engage replacement distributors or direct sales employees could have a material 
adverse effect on its ability to market and sell its product.                   

Purchasers of eight units (out of a total of eighteen units) of the INVOS 2100  
System, a product previously marketed by the Company have requested refunds     
claiming, in some cases, that the device identified too many women as having a  
high risk of breast cancer.  The Company believes that the devices are          
functioning as intended and that the purchasers have no contractual or other    
right to return the devices and are not entitled to refunds.  No provision has  
been recorded in the financial statements for any refunds that may become due   
to such purchasers or for any product liability claims because the Company      
believes that successful assertion of the claims does not appear probable and   
the ultimate amount of the loss, if any,                                        

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SOMANETICS CORPORATION
(A DEVELOPMENT STAGE COMPANY) 

NOTES TO FINANCIAL STATEMENTS 
(UNAUDITED) 

AUGUST 31, 1996 

cannot be reasonably estimated.  If the Company must refund all or a            
significant portion of the sales price for the INVOS 2100, or is exposed to any 
product liability claims, its financial condition and liquidity could be        
adversely affected.                                                             

The Company has not received any correspondence or inquiries regarding the      
INVOS 2100 since fiscal 1991, except for a letter dated August 3, 1994, from    
the FDA warning manufacturers of breast transillumination devices that these    
devices are in violation of the Federal Food Drug and Cosmetics Act ("the Act") 
in that their labeling is false or misleading and fails to bear adequate        
directions for use.  The Company responded to the FDA by explaining the INVOS   
2100 had not been available for sale by the Company commercially or otherwise   
since January 1989.  The Company has not received any correspondence or         
inquiries regarding the INVOS 2100 since fiscal 1991 (other than the August 3,  
1994 letter from the FDA) and believes the devices currently in the domestic    
marketplace are no longer being used, based on the manner in which the unit is  
to be used and the instructions in the user manual.  The Company believes no    
further action is required.                                                     

On March 14, 1994, a shareholder of the Company filed suit in the United States 
District Court for the Eastern District of Michigan, individually and on behalf 
of all others similarly situated, against the Company, four of its present and  
former directors and four other officers, former officers or employees of the   
Company in an action captioned Jacobson, et al v. Somanetics Corporation, et    
al.  The plaintiff alleged that various registration statements filed under the 
Securities Act of 1933, various reports filed under the Securities Exchange Act 
of 1934 and various annual reports and press releases contained material        
misstatements and omissions and that the Company and the named officers, former 
officers and employees of the Company made material misstatements and           
omissions.  The plaintiffs sought recovery pursuant to Sections 11, 12(2) and   
15 of the Securities Act of 1933, Sections 10(b) and 20(a) of the Securities    
Exchange Act of 1934, Rule 10b-5 under the Securities Exchange Act of 1934 and  
under common law for (i) rescission of their investment and compensation for    
the lost use of the money invested, (ii) other compensatory damages, (iii)      
punitive damages in the amount of $10,000,000, (iv) consequential damages, (v)  
reasonable attorneys' fees, (vi) costs and disbursements and (vii) such other   
relief as the court may deem just and proper.                                   

On April 25, 1994, another shareholder of the Company filed suit in the United  
States District Court for the Eastern District of Michigan, individually and on 
behalf of all others similarly situated, against the Company and Gary D. Lewis, 
the Company's former Chairman of the Board, in an action captioned Benjamin     
Langford v. Somanetics Corporation and Gary D. Lewis.  The allegations, relief  
requested and consequences of the action are similar to those in the Jacobson   
case described above.                                                           

The Company entered into a Stipulation And Agreement Of Compromise And          
Understanding (the "Agreement") with counsel for plaintiff Earl J. Jacobson.    
On July 3, 1996 the court                                                       

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SOMANETICS CORPORATION
(A DEVELOPMENT STAGE COMPANY) 

NOTES TO FINANCIAL STATEMENTS 
(UNAUDITED) 

AUGUST 31, 1996 

issued a final judgment approving the Agreement and certifying the class.       
The Agreement (along with an understanding with the Company's insurance         
company)  requires the Company to pay $250,000 in cash, less the amount of its  
legal fees  incurred in this action, and the Company's insurance company is     
required to  pay $250,000 in cash, plus the amount the Company has incurred in  
attorneys' fees.  Pursuant to the Agreement, the Company and its insurance      
company paid an aggregate of $500,000 to an escrow agent in the second quarter  
ended May 31, 1996.  However, approximately 11 persons, including Benjamin      
Langford, have opted out of the Jacobson action and this settlement and,        
therefore, are not barred by the settlement from pursuing their own claims      
against the Company.  Mr. Langford's action is still pending against the        
Company, although it is no longer a class action.  The Company's motion to      
dismiss the Langford action was denied and discovery is proceeding.             

The ultimate outcome of the Langford litigation cannot presently be determined. 
If the Company must pay any additional significant amount to defend or settle   
the Langford lawsuit or if it must pay a significant judgment in connection     
with this lawsuit, its financial condition and liquidity could be materially    
adversely affected, and capital intended for use in the marketing of the        
Cerebral Oximeter or to develop enhancements to, or product extensions of, the  
Cerebral Oximeter or other products may have to be reallocated to satisfy any   
such requirements.  In addition, any such expenses will, when incurred, have    
the effect of increasing the Company's net loss (or decreasing its net income)  
during the periods in which they are incurred.                                  

The Company may become subject to product liability claims by patients or       
doctors and may become a defendant in product liability or malpractice          
litigation.  The Company has obtained product liability insurance and an        
umbrella policy. There can be no assurance that the Company will be able to     
retain such insurance or that such insurance would be sufficient to protect the 
Company against such product liability.                                         

6. SUBSEQUENT EVENTS                                                            

In September 1996, the Company entered into a Master Distribution               
Agreement with MedLink Europe, an operational services company located in       
Amsterdam, with offices in other parts of Europe.  MedLink helps U.S.-based     
companies execute their marketing activities throughout Europe, and is expected 
to provide the Company with sales and marketing support as well as              
distribution, customer service and technical and product service.               

The Company has entered into a Consulting Order with NeuroPhysics Corporation,  
of Groton, Massachusetts, a research and development company, pursuant to which 
the Company is supporting NeuroPhysics' research into the feasibility and       
development of prototypes of four new products.  In exchange, NeuroPhysics has  
granted the Company certain rights in the new products, subject to the rights   
of the United States Federal government, which is also funding                  

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SOMANETICS CORPORATION
(A DEVELOPMENT STAGE COMPANY) 

NOTES TO FINANCIAL STATEMENTS 
(UNAUDITED) 

AUGUST 31, 1996 

the research, in the new products and a royalty in favor of NeuroPhysics.       
The potential new products are noninvasive, in vivo, near-infrared              
spectroscopy devices that monitor liver oxygenation for assessing and           
controlling hemorrahagic shock, locate and assess subdural hematomas in         
head trauma patients, monitor certain blood gases and monitor fetal cerebral    
blood oxygenation during labor and delivery.  There can be no assurance that    
the Company will be able to successfully apply the INVOS technology or related  
technologies in the development of commercially viable products or that         
competitors will not develop and market similar products before the Company     
does.                                                                           

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SOMANETICS CORPORATION
(A DEVELOPMENT STAGE COMPANY) 

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

AUGUST 31, 1996 

LIQUIDITY AND CAPITAL RESOURCES                                                 

Somanetics Corporation is a development stage company formed to develop,        
manufacture and market processor-based medical diagnostic and patient           
monitoring equipment using INVOS(R) technology.  Since inception (January 15,   
1982), the Company has incurred an accumulated deficit of $28,490,078 through   
August 31, 1996.                                                                

Net cash used in operations during the nine-month period ended August 31, 1996  
was approximately $1,710,000.  Cash was used primarily to (i) fund the          
Company's net loss, consisting primarily of selling, general and administrative 
expenses and research, development and engineering expenses (approximately      
$1,535,000, net of depreciation and amortization  expense), (ii) decrease       
accrued liabilities (approximately $384,000) primarily as a result of the (a)   
payment of professional fees, (b) payment of expenses and settlement costs      
associated with the class action lawsuits, (c) reversal of its reserve to       
exchange unpaid domestic INVOS 3100 Cerebral Oximeters for new INVOS 3100A's    
and upgrade the INVOS 3100's received, (d) reversal of its reserve to replace   
the 1993 recalled domestic SomaSensors, and (e) exchange of paid INVOS 3100's   
for new INVOS 3100A's, and (iii) increase inventory (approximately $56,000) as  
a result of increased manufacturing activity in preparation for domestic sales  
and returns of INVOS 3100's before shipment of replacement INVOS 3100A's.       
These uses of cash were partially offset by (i) a decrease in accounts          
receivable (approximately $130,000) due to reduced sales, and (ii) a $131,000   
increase in accounts payable due to increased legal and professional expenses,  
slower payment of trade payables and increased inventory purchases.  Management 
expects working capital requirements to increase if sales increase.             

Effective February 28, 1996, the Company redeemed all of its outstanding        
Convertible Preferred Shares for $.01 per share at a total redemption cost to   
the Company of approximately $19,843, and instead of the Convertible Preferred  
Shares formerly issuable upon the exercise of certain options, the Company will 
pay $.01 to the person exercising such options for each Convertible Preferred   
Share otherwise receivable.                                                     

On April 2, 1996, the Company completed the placement of 571,200 Units, at a    
price of $2.50 per Unit, for gross proceeds of $1,428,000, through an offering  
complying with Regulation S under the Securities Act of 1933, as amended.  The  
net proceeds to the Company, after deducting the placement agents' fee and the  
expenses of the offering, were approximately $1,284,000.  Each Unit consists of 
two newly-issued Common Shares, par value $0.01 per share, and one warrant to   
purchase one Common Share.                                                      

The Warrants are immediately exercisable and transferable separately from the   
Common Shares. Each Warrant entitles the holder to purchase one Common Share at 
an initial exercise                                                             

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SOMANETICS CORPORATION
(A DEVELOPMENT STAGE COMPANY) 

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

AUGUST 31, 1996 

price of $1.75 per share, subject to adjustment, at any time through April 1,   
2001, unless earlier redeemed.  The Warrants are redeemable for $0.01 by the    
Company at any time after July 2, 1996, if certain conditions are met.          

The Company also granted the placement agent warrants to purchase 114,240       
Common Shares at $1.25 per share exercisable during the four-year period        
beginning April 2, 1997.                                                        

Between June 1, 1996 and July 12, 1996, 146,000 warrants issued in the          
Company's 1995 Regulation S offering and exercisable at $2.00 a share, and      
20,000 warrants issued in the Company's 1996 Regulation S offering and          
exercisable at $1.75 a share, were exercised, and the Company paid the          
placement agent in such offerings a $16,350 fee in connection with those        
exercises.  Also, during the first three quarters of fiscal 1996, the Company   
has received approximately $75,000 from the exercise of employee stock options. 

As of August 31, 1996, the Company had working capital of $1,884,047 and cash   
and cash equivalents of $829,008.                                               

The Company believes that the cash and cash equivalents on hand at August 31,   
1996  will be sufficient to sustain the Company's operations at budgeted levels 
and its needs for liquidity into the fourth quarter of fiscal 1996.  By that    
time the Company will be required to raise additional cash either through       
additional sales of products, through sales of securities, by incurring         
additional indebtedness or by some combination of the foregoing.  If the        
Company is unable to raise additional cash by that time, it will be required to 
reduce or discontinue its operations.                                           

The expected uses of the Company's cash and cash equivalents are based on       
certain estimates and assumptions made by the Company.  Such estimates and      
assumptions are subject to change as a result of actual experience, and there   
can be no assurance that actual capital requirements necessary to market the    
Cerebral Oximeter and SomaSensor, to develop enhancements to, and product       
extensions of, the Cerebral Oximeter, to conduct research and development       
concerning additional potential applications of INVOS and other technology and  
for working capital will not be substantially greater than current estimates.   

Although on June 6, 1996 the Company received clearance from the FDA to market  
the Cerebral Oximeter in the United States, the Company's current financial     
condition and recent results of operations and the status of its product        
marketing efforts and sales have been affected by the process of obtaining such 
clearance.  On November 22, 1993, the Company received notification that the    
FDA had rescinded the Company's 510(k) clearance to market the Cerebral         
Oximeter.  As a result, all commercial sales of the Company's products were     
suspended and the Company notified its United States distributors to stop       
selling the Cerebral Oximeter and to advise their customers to stop using the   
device.  In February 1994, the Company resumed                                  

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SOMANETICS CORPORATION
(A DEVELOPMENT STAGE COMPANY) 

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

AUGUST 31, 1996 

marketing its products in several foreign countries, including Japan, its       
largest market outside the United States.                                       

On February 1, 1995, the Company filed a new 510(k) application with the FDA.   
On October 5, 1995, the Company received a written response from the FDA,       
stating that the FDA could not determine if the device was substantially        
equivalent to a legally marketed device, and that the FDA considered the        
Company's 510(k) submission to be withdrawn.  On February 13, 1996, the Company 
filed the new 510(k) application with the FDA presenting additional information 
not previously considered by the agency, identifying alternative predicate      
devices and offering revisions to its product and its labeling.  On June 6,     
1996, the Company received clearance to market the INVOS Cerebral Oximeter in   
the United States.                                                              

The Company does not believe that product sales will be sufficient to fund the  
Company's operations in the fourth quarter ending November 30, 1996.            

In September 1996, the Company received approximately $29,400 from the exercise 
of the remaining 30,983 outstanding Class M Warrants.                           

The Company proposes to offer up to 1,500,000 Common Shares, par value $.01 a   
share, in an offering complying with Regulation S under the Securities Act of   
1933, as amended (the "Act").  The Common Shares offered will not be registered 
under the Act and may not be offered or sold in the United States or to a U.S.  
person absent registration or an applicable exemption from the registration     
requirements.  However, such sales are subject to negotiation of definitive     
agreements and the identification of sufficient interested buyers.  There can   
be no assurance that the Company will be able to raise additional cash.         

The Company did not receive any proceeds from the exercise of Class B Warrants  
during the nine-month period ended August 31, 1996.  As of March 31, 1992, the  
Company gave notice of the redemption of the redeemable Class B Warrants at     
$.05 per Class B Warrant.  The Company has extended the redemption date ten     
times, most recently to November 14, 1996.  Any redeemable Class B Warrants     
which have not been exercised before November 14, 1996, will no longer be       
exercisable to purchase Common Shares.  Holders of redeemable Class B Warrants  
will have no further rights beyond November 14, 1996, except to receive, upon   
surrender of the Class B Warrant certificates evidencing redeemed Class B       
Warrants, payment of the redemption price of $.05 for each redeemable Class B   
Warrant outstanding and not already exercised as of November 14, 1996.  As of   
October 1, 1996, the closing sale price of the Common Shares was $2.063.  As of 
August 31, 1996, 4,080,180 Class B Warrants were outstanding, including 5,001   
non-redeemable Class B Warrants, each exercisable to purchase one Common Share  
at $3.89 a share, subject to adjustment.  There can be no assurance that        
additional Class B Warrant holders will exercise their Warrants and it is       
unlikely that they will do so as long as the exercise price exceeds the market  
price of the Common Shares.  The                                                

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SOMANETICS CORPORATION
(A DEVELOPMENT STAGE COMPANY) 

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

AUGUST 31, 1996 

Company has the right to reduce the exercise price of the Class B Warrants,     
extend the redemption date, or both. If the proposed offering of Common Shares  
(described above) is successful and if the Company determines not to further    
extend the redemption date of its Class B Warrants, the Company expects to use  
a portion of the proceeds of that offering to redeem its outstanding Class B    
Warrants.  The maximum potential redemption price for the Class B Warrants is   
$203,759, which the Company will be required to pay in November 1996 if the     
Class B Warrants are redeemed.                                                  

Also as of August 31, 1996, there were 604,000 redeemable warrants outstanding, 
exercisable at $2.00 a share until July 13, 2000, and 551,200 redeemable        
warrants outstanding exercisable at $1.75 a share until April 1, 2001.  These   
warrants were issued in the Company's 1995 and 1996 Regulation S securities     
offerings.  The conditions permitting the Company to redeem these warrants have 
not been met as of  October 1, 1996.  There can be no assurance that additional 
warrants will be exercised and it is unlikely that they will be exercised if    
the exercise price exceeds the market price of the Common Shares.  The Company  
has the right to reduce the exercise price of these warrants.                   

Effective March 19, 1996, all outstanding Unit Purchase Options expired.  None  
of the Unit Purchase Options had been exercised between December 1, 1995 and    
March 19, 1996.                                                                 

The Company has no loan commitments.                                            

There can be no assurance that even if the Company receives additional capital, 
it will be able to achieve the level of sales necessary to sustain its          
operations.  There can be no assurance that the Company will be able to obtain  
any funds on terms acceptable to the Company and at times required by the       
Company through sales of the Company's products, sales of securities or loans   
in sufficient quantities.                                                       

Before the Company received FDA clearance to market the Cerebral Oximeter in    
the United States, several domestic distributors of the INVOS Cerebral Oximeter 
expressed their desire to terminate their distributor agreements with the       
Company.  The Company does not believe that their distributor agreements        
require it to accept returns of products sold to distributors in connection     
with a termination of the distribution agreement.  The Company, however, has    
reserved $194,000 at November 30, 1995, for the uncollectibility of accounts    
receivable from such distributors.                                              

The Company terminated 11 of its 15 domestic distributors in fiscal 1996, and   
plans to have 6 United States distributors for its products and additional      
employees selling its product directly in the remaining territories.  The       
Company has entered into new distribution agreements with three of its four     
existing United States distributors on different terms and conditions,          
including different prices.  It expects to add the remaining three              

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SOMANETICS CORPORATION
(A DEVELOPMENT STAGE COMPANY) 

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

AUGUST 31, 1996 

distributors and additional direct sales personnel in fiscal 1996. There can    
be no assurance that the Company will be able to replace its terminated         
United States distributors, and any inability to retain distributors or         
engage replacement distributors could have a material adverse effect on its     
ability to market and sell its product.  Because of the significant change in   
the composition of the Company's U.S. distributors, the change in the product   
being marketed by the U.S. distributors (the INVOS 3100A, rather than the INVOS 
3100), and the changed terms and conditions applicable to the new and           
continuing distributors, the Company wrote off substantially all of its         
receivables from domestic distributors in exchange for the return of their, and 
their customers', old INVOS 3100 Cerebral Oximeters and SomaSensors (which      
returns resulted in a $68,000 recovery of bad debts in the third quarter ended  
August 31, 1996).  Because the Company has more INVOS 3100 Cerebral Oximeters   
that it expects to sell in the next year, the Company accrued a reserve for the 
value of the devices in excess of one year's supply in the third quarter ended  
August 31, 1996 (approximately $47,300).                                        

The Company intends to upgrade the returned INVOS 3100 Cerebral Oximeters and   
sell them in countries that do not require compliance with the standards met by 
the INVOS 3100A Cerebral Oximeter.  In addition, the Company intends to sell    
(rather than exchange) INVOS 3100A Cerebral Oximeters to United States          
distributors and customers who had not paid for the INVOS 3100 Cerebral         
Oximeters they returned to the Company.  Therefore, in the third quarter ended  
August 31, 1996, the Company reversed its $57,200 reserve for the extra cost of 
exchanging new INVOS 3100A Cerebral Oximeters with such persons for their old   
devices and for the costs of upgrading the old devices for resale.  Continuing  
distributors and customers who paid for their INVOS 3100 Cerebral Oximeters     
will be permitted to exchange their old devices for a new one.  As a result,    
each distributor and customer will only pay once and will receive a new model   
Cerebral Oximeter.  The Company also reversed its $27,000 reserve for the cost  
of replacing SomaSensors recalled in 1993.                                      

On March 14, 1994, a shareholder of the Company filed suit in the United States 
District Court for the Eastern District of Michigan, individually and on behalf 
of all others similarly situated, against the Company, four of its present and  
former directors and four other officers, former officers or employees of the   
Company in an action captioned Jacobson, et al v. Somanetics Corporation, et    
al.  The plaintiff alleges that various registration statements filed under the 
Securities Act of 1933, various reports filed under the Securities Exchange Act 
of 1934 and various annual reports and press releases contained material        
misstatements and omissions and that the Company and the named officers, former 
officers and employees of the Company made material misstatements and           
omissions.  The plaintiffs seek recovery pursuant to Sections 11, 12(2) and 15  
of the Securities Act of 1933, Sections 10(b) and 20(a) of the Securities       
Exchange Act of 1934, Rule 10b-5 under the Securities Exchange Act of 1934 and  
under common law for (i) rescission of their investment and compensation for    
the lost use of the money invested, (ii) other compensatory damages, (iii)      
punitive damages in the amount of                                               

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SOMANETICS CORPORATION
(A DEVELOPMENT STAGE COMPANY) 

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

AUGUST 31, 1996 

$10,000,000, (iv) consequential damages, (v) reasonable attorney's fees, (vi)   
costs and disbursements and (vii) such other relief as the court may deem just  
and proper.                                                                     

On April 25, 1994, another shareholder of the Company filed suit in the United  
States District Court for the Eastern District of Michigan, individually and on 
behalf of all others similarly situated, against the Company and Gary D. Lewis, 
the Company's former Chairman of the Board, in an action captioned Benjamin     
Langford v. Somanetics Corporation and Gary D. Lewis.  The allegations, relief  
requested and consequences of the action are similar to those in the Jacobson   
case described above.                                                           

The Company entered into a Stipulation And Agreement Of Compromise And          
Understanding (the "Agreement") with counsel for plaintiff Earl J. Jacobson.    
On July 3, 1996 the court issued a final judgement approving the Agreement and  
certifying the class.  The Agreement (along with an understanding with the      
Company's insurance company) requires the Company to pay $250,000 in cash, less 
the amount of its legal fees incurred in this action, and the Company's         
insurance company is required to pay $250,000 in cash, plus the amount the      
Company has incurred in attorneys' fees.  Pursuant to the Agreement, the        
Company and its insurance company paid an aggregate of $500,000 to an escrow    
agent in the second quarter ended May 31, 1996.  However, approximately 11      
persons, including Benjamin Langford, have opted out of the Jacobson action and 
this settlement and, therefore, are not barred by the settlement from pursuing  
their own claims against the Company.  Mr. Langford's action is still pending   
against the Company although it is no longer a class action.  The Company's     
motion to dismiss the action was denied and discovery is proceeding.            

The ultimate outcome of the Langford litigation cannot presently be determined. 
If the Company must pay any significant additional amount to defend or settle   
the Langford lawsuit or if it must pay a significant judgment in connection     
with this lawsuit, its financial condition and liquidity could be materially    
adversely affected, and capital intended for use in the marketing of the        
Cerebral Oximeter or to develop enhancements to, or product extensions of, the  
Cerebral Oximeter or other products may have to be reallocated to satisfy any   
such requirements.  In addition, any such expenses will, when incurred, have    
the effect of increasing the Company's net loss (or decreasing its net income)  
during the periods in which they are incurred.                                  

RESULTS OF OPERATIONS                                                           

Since the Company's inception (January 15, 1982) its primary activities have    
consisted of research and development of the INVOS technology, the INVOS 2100,  
the INVOS Cerebral Oximeter and the related disposable SomaSensor.  The Company 
is in the development stage and has accumulated losses of $28,470,236.          

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SOMANETICS CORPORATION
(A DEVELOPMENT STAGE COMPANY) 

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

AUGUST 31, 1996 

For the three and nine-month periods ended August 31, 1996, the Company         
realized a 24% and a 34% reduction in the respective net losses over the same   
periods in fiscal 1995.  The decrease for the nine-month period is primarily    
attributable to a 33% reduction in operating expenses, partially offset by a    
35% reduction in sales.                                                         

During the three-month periods ended August 31, 1996 and 1995, the Company      
recognized revenues of $99,541 and $171,652, respectively.  For the nine-month  
periods ended August 31, 1996 and 1995, the Company recognized revenues of      
$699,006 and $1,078,277, respectively.  The decrease in sales for the third     
quarter of 1996, as compared to the third quarter of 1995, is primarily         
attributable to a more than 20% decrease in the average selling price of        
Cerebral Oximeters to distributors and lower sales in the European market.      
The decrease in sales for the nine-month period was primarily attributable to   
a more than 20% decrease in the average selling price of Cerebral Oximeters to  
distributors and reduced shipments to Europe and to Baxter Limited in Japan.    

Sales of refurbished units, commercial units and SomaSensors comprised          
approximately 43%, 26% and 31%, respectively, of the Company's sales in the     
third quarter of fiscal 1996 and 19%, 45%, and 36%, respectively, of the        
Company's sales in the third quarter of fiscal 1995.  Sales of refurbished      
units, commercial units and SomaSensors comprised approximately 12%, 70% and    
18%, respectively, of the Company's sales in the nine months ended August 31,   
1996, and 9%, 74% and 17%, respectively, of the Company's sales in the nine     
months ended August 31, 1995.  All 1995 and approximately 70% (for the third    
quarter) and approximately 95% (for the first nine months) of 1996 sales were   
export sales.  Two international distributors accounted for approximately 68%   
and 14%, respectively, of total revenues for the nine months ended August 31,   
1996 and three international distributors accounted for approximately 49%, 25%  
and 9%, respectively, of total revenues for the three months ended August 31,   
1996.  Two international distributors accounted for approximately 53% and 12%,  
respectively, of total revenues in the nine months ended August 31, 1995, and   
two international distributors accounted for approximately 30% and 26%,         
respectively, of total revenues in the three months ended August 31, 1995.      

As described above in "Liquidity and Capital Resources," all commercial sales   
were suspended in late November 1993, upon notification from the FDA that it    
was rescinding the Company's 510(k) clearance.  FDA clearance is necessary to   
allow the Company to market its product in the United States.  On June 6, 1996, 
the Company received clearance from the United States Food and Drug             
Administration to market its INVOS 3100A Cerebral Oximeter in the United        
States.  See "Liquidity and Capital Resources" for a description of the effects 
of the FDA's rescission of the Company's 510(k) clearance in 1993 on the        
Company's distributors and terminations of distributors.                        

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SOMANETICS CORPORATION
(A DEVELOPMENT STAGE COMPANY) 

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

AUGUST 31, 1996 

There can be no assurance that the publication of adverse results from research 
regarding the Cerebral Oximeter, the events leading to a voluntary recall of    
SomaSensors in October 1993, the FDA's rescission of the Company's 510(k)       
clearance for the Cerebral Oximeter in 1993, the FDA's actions relating to the  
INVOS 2100 and the Company's financial condition will not adversely affect the  
Company's reputation or its ability to market and sell its device.              

The Company expects Cerebral Oximeter sales to increase from third quarter 1996 
levels, although Baxter Limited is not expected to order again until the first  
or second quarter of fiscal 1997 and the Company expects to continue to engage  
its remaining United States distributors and hire direct sales personnel in the 
fourth quarter of fiscal 1996.  The Company expects sales of the disposable     
SomaSensor to become a larger portion of the Company's revenues in the future   
after the Company sells a significant number of Cerebral Oximeters to           
distributors and they are resold to hospitals.  No assurance can be given that  
sales of the Cerebral Oximeter and SomaSensor will provide sufficient cash to   
fund the Company's operations, and the Company does not believe that product    
sales will be sufficient to fund the Company's operations in the fourth quarter 
ending November 30, 1996.                                                       

Gross margin as a percentage of revenues for the quarters ended August 31, 1996 
and 1995 were approximately 32% and 46%, respectively.  Gross margin as a       
percentage of revenues for the nine-month periods ended August 31, 1996 and     
1995 were approximately 53% and 51%, respectively.  Gross margin as a           
percentage of revenues decreased for the quarter ended August 31, 1996 from the 
fiscal 1995 level, primarily because 43% of total revenues in the three-month   
period ended August 31, 1996 consisted of sales of refurbished Cerebral         
Oximeters, which are sold approximately at cost, thereby reducing overall gross 
margin and an increase in the cost of the SomaSensor, partially offset by an    
approximately 10% decrease in materials cost for the Cerebral Oximeter.  Gross  
margin as a percentage of revenues increased in the nine-month period ended     
August 31, 1996 over the same period in 1995 primarily because the materials    
cost for the oximeter has decreased approximately 10%, partially offset by an   
increase in the cost of the SomaSensor and increased sales of refurbished       
Cerebral Oximeters.  Excluding sales of refurbished units, gross margins        
increased slightly over the same period in 1995 primarily as a result of lower  
material costs for the oximeter, partially offset by lower average selling      
prices for the Cerebral Oximeter.                                               

The direct and indirect costs to manufacture Cerebral Oximeters are expected to 
decline as a percentage of sales as and if (i) the Company increases sales,     
production and volume purchases, and (ii) the Company ceases to incur           
non-recurring tooling and manufacturing charges.  However, the Company expects  
to incur additional non-recurring tooling costs, manufacturing costs and        
engineering costs in fiscal 1996 in connection with enhancements to the         
SomaSensor and the production of the INVOS 3100A Cerebral Oximeter.  Any new    
products or enhancements developed during fiscal 1996 might also increase such  
costs.  In                                                                      

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SOMANETICS CORPORATION
(A DEVELOPMENT STAGE COMPANY) 

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

AUGUST 31, 1996 

addition, margins might be favorably impacted if direct sales by the            
Company in the United States increase the Company's average selling price of    
its products.                                                                   

The Company incurred research, development and engineering expenses of $44,685  
and $50,232 for the fiscal quarters ended August 31, 1996 and 1995,             
respectively, and $147,353 and $240,796 for the nine-month periods ended August 
31, 1996 and 1995, respectively.  The decrease for the nine-month period is     
primarily attributable to an approximately $70,000 charge (in 1995) to          
engineering expenses for obsolete purchased parts inventory relating to         
engineering design changes to the Cerebral Oximeter model designed to comply    
with TUV.  The decrease for the three-month period is primarily attributable to 
one fewer engineer.  Research, development and engineering activities in fiscal 
1996 consisted primarily of defending the previous 510(k) applications,         
preparing and filing a new 510(k) application in February 1996, developing      
improvements to the SomaSensor and completing modifications to the INVOS        
Cerebral Oximeter requested by the FDA.  Such activities in fiscal 1995         
consisted primarily of developing improvements to the SomaSensor, evaluating    
the results of the clinical trials supporting the 510(k) submission (for the    
nine-month period), preparing and defending the 510(k) application and gaining  
the CE mark and CSA certification for the INVOS 3100A Cerebral Oximeter (for    
the nine-month period) and purchasing materials.                                

Research, development and engineering expenses are expected to increase due to  
(i) the hiring of three additional persons in this department since May 31,     
1996 to support new projects, and (ii) projects for new product development,    
testing and possible future marketing.  The Company expects to incur research,  
development and engineering expense to develop and test product extensions of   
the Cerebral Oximeter for use on newborns in operating rooms and intensive care 
units, enhancements to the Cerebral Oximeter and other uses of the Company's    
technology and related technologies.  The Company has entered into a Consulting 
Order with NeuroPhysics Corporation pursuant to which the Company is supporting 
NeuroPhysics' research into the feasibility and development of prototypes of    
four new products.  See Note 6 of Notes to Financial Statements.  The Company   
expects this order to increase its research and development expenses by         
approximately $11,000 a month.                                                  

Selling, general and administrative expenses for the fiscal quarters ended      
August 31, 1996 and 1995 totaled $678,766 and $923,150, respectively, and       
$1,878,482 and $2,774,069 for the nine-month periods ended August 31, 1996 and  
1995, respectively.  For the three-month period ended August 31, 1996 over the  
same period in 1995, the decrease is primarily due to a $101,000 reduction in   
salaries, wages and related expenses, a $75,000 reduction in other fees, a      
$45,000 reduction in facility expenses, a $68,000 bad debt recovery, a          
$57,000 reversal of the Cerebral Oximeter exchange and upgrade reserve, and a   
$27,000 reversal of the reserve for replacing SomaSensors recalled in 1993,     
partially offset by a $47,000 reserve accrued for excess INVOS 3100 Cerebral    
Oximeters in inventory and a $40,000 increase in selling-related expenses.  The 
decrease for the nine-month period ended August 31, 1996 from the same          

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SOMANETICS CORPORATION
(A DEVELOPMENT STAGE COMPANY) 

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

AUGUST 31, 1996 

period in 1995 is primarily due to a $499,000 reduction in salaries, wages and  
related expenses, a $107,000 reduction in selling-related expenses, a $132,000  
reduction in facility expenses, a $104,000 reduction in other fees, a $68,000   
bad debt recovery, a $57,000 reversal of the Cerebral Oximeter exchange and     
upgrade reserve, and a $27,000 reversal of the reserve for replacing            
SomaSensors recalled in 1993, partially offset by a $47,000 reserve accrued for 
excess INVOS 3100 Cerebral Oximeters in inventory.                              

Salaries, wages, and related expenses, including expenses for temporary         
employees and consulting services, decreased approximately $101,000, or 21%,    
for the fiscal quarter ended August 31, 1996 over the fiscal quarter ended      
August 31, 1995, and approximately $499,000, or 34%, for the nine-month period  
ended August 31, 1996 over the same period in 1995.  The decreases for the      
three- and nine-month periods over the comparable periods in 1995 are primarily 
attributable to reductions in payroll and related benefits as a result of a     
reduction in workforce from an average of 25 employees during the periods ended 
August 31, 1995 to an average of 18-19 employees during the periods ended       
August 31, 1996, and for the nine-month period, reductions in the incentive     
compensation accrual and consulting services.  The Company has hired 11         
employees (and four consultants) since May 31, 1996 and expects to hire 10      
additional employees as needed, 9 in Sales and Marketing and 1 in               
Administration during the remainder of fiscal 1996 which will increase          
salaries, wages and related expenses in the future.  The Company expects to     
incur these expenses before receiving substantially increased proceeds from     
sales of its products, and such expenses will continue even if revenues do not  
increase.  Therefore, in the short-run, they are expected to increase the       
Company's net losses.                                                           

Selling expenses, including expenses for travel, entertainment, marketing,      
clinical research and industry trade show participation, increased              
approximately $40,000, or 41%, for the fiscal quarter ended August 31, 1996     
over the fiscal quarter ended August 31, 1995, and decreased approximately      
$107,000, or 37%, for the nine-month period ended August 31, 1996 over the same 
period in 1995.  The increase for the three-month period ended August 31, 1996  
over the same period in 1995 is primarily attributable to additional            
distributor support and demonstration units placed in the domestic market       
place, partially offset by a reduction in clinical research and travel-related  
expenses associated with training the Company's international distributors.     
The decrease for the nine-month period was primarily due to reduced clinical    
research and travel-expenses associated with training the Company's             
international distributors and reduced expenses associated with trade show      
participation.  The Company expects selling, marketing, travel, entertainment   
and trade show expenses to increase in conjunction with resumed marketing in    
the United States, engaging and training new United States distributors and     
additional direct sales personnel and supporting existing distributors and      
increased sales efforts in the international markets.  Clinical research        
expenses are expected to increase as the Company tests product extensions of    
the Cerebral Oximeter in a clinical setting.                                    

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SOMANETICS CORPORATION
(A DEVELOPMENT STAGE COMPANY) 

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

AUGUST 31, 1996 

Monthly office expenses, including lease commitments, supplies, subscriptions   
and related expenses decreased approximately $45,000, or 34%, for the           
three-month period ended August 31, 1996, over the same period last year, and   
approximately $132,000, or 33%, for the nine- month period ended August 31,     
1996 over the same period in 1995, primarily due to the reduction in personnel  
and the expiration of operating lease commitments.  The Company expects these   
expenses to increase as the Company hires additional personnel.                 

As described in "Liquidity and Capital Resources", in the third quarter ended   
August 31, 1996, (i) returns of INVOS 3100 Cerebral Oximeters by domestic       
distributors whose receivables had been written off resulted in a $68,000       
recovery of bad debts, (ii) the Company accrued a $47,300 reserve for the value 
of INVOS 3100 Cerebral Oximeters in excess of one year's supply, (iii) the      
Company reversed its $57,200 reserve for the extra cost of exchanging new INVOS 
3100A Cerebral Oximeters for INVOS 3100 Cerebral Oximeters held by domestic     
distributors who had not yet paid for their devices, and the cost of upgrading  
the old devices for a new one, and (iv) the Company reversed its $27,000        
reserve for the replacement of SomaSensors recalled in 1993.  These amounts are 
included in Selling, General and Administrative expenses for the third quarter  
ended August 31, 1996.                                                          

Other income, including interest income and expense, increased approximately    
$6,000  for the three-month period ended August 31, 1996 over the comparable    
three-month period in fiscal 1995, and decreased approximately $2,000 for the   
nine-month period ended August 31, 1996 over the comparable nine-month period   
in fiscal 1995.  The increase in the three-month period ended August 31, 1996   
over the same period last year, is the result of sub-lease income received on a 
portion of the Company's facilities, partially offset by a reduction in         
interest income primarily as a result of the lower balance of cash available    
for investment.  For the nine-month period ended August 31, 1996, the reduction 
is the result of reduced interest income, partially offset by sub-lease income  
from a portion of the Company's facilities.  The Company expects interest       
income to decrease as it continues to use cash in its operations, unless its    
proposed offering of Common Shares is successful, thereby increasing its cash   
available for investment purposes.                                              

Each of the above statements regarding future revenues or expenses may be a     
"forward looking statement" within the meaning of the Securities Exchange Act   
of 1934.  Such statements are subject to important factors that could cause     
actual results to differ materially from those in the forward-looking           
statement, including the factors set forth in this Management's Discussion and  
Analysis of Financial Condition and Results of Operations, and the factors set  
forth under the caption "Risk Factors" on pages 15-25 of the prospectus         
included in Post-Effective Amendment No. 6 to the Company's Registration        
Statement on Form S-1 (file no. 33-38438; effective April 4, 1996).             

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PART II OTHER INFORMATION 

Item 1.  Legal Proceedings                                                      

For a description of the settlement effective July 3, 1996 of a suit filed by a 
shareholder of the Company on March 14, 1994 in the United States District      
Court for the Eastern District of Michigan, individually and on behalf of all   
others similarly situated, against the Company, four current and former         
directors and four other officers, former officers or employees of the Company  
in an action captioned Jacobson, et al v. Somanetics Corporation, et al, see    
Note 5 of Notes to Financial Statements included in Part I of this Report,      
which description is incorporated in this Item 1 by reference.                  

For a description of a suit filed by another shareholder of the Company on      
April 25, 1994 in the United States District Court for the Eastern District of  
Michigan, individually and on behalf of all others similarly situated, against  
the Company and Gary D. Lewis, the Company's former Chairman, in an action      
captioned Benjamin Langford v. Somanetics Corporation and Gary D. Lewis, see    
Note 5 of Notes to Financial Statements included in Part I of this Report,      
which description is incorporated in this Item 1 by reference.                  

As described in Note 5, on July 3, 1996, the court issued a final judgement     
approving the Stipulation And Agreement of Compromise And Understanding,        
regarding the settlement of the Jacobson action, and certifying the class.      
However, approximately 11 persons, including Benjamin Langford, have opted out  
of the Jacobson action and this settlement and, therefore, are not barred by    
the settlement from pursuing their own claims against the Company. Mr.          
Langford's action is still pending against the Company, although it is no       
longer a class action.  The Company's motion to dismiss the Langford action was 
denied and discovery is proceeding.                                             

Item 6.  Exhibits and Reports on Form 8-K                                       

(a)  Exhibits                                                       

10.1 Engagement Letter, dated as of         
                   September 9, 1996, between Somanetics Corporation and
Gruntal & Co., Incorporated.      

10.2 Consulting Order, dated as of October  
                    1, 1996, among Somanetics Corporation and NeuroPhysics
                 Corporation, Hugh F. Stoddart and Hugh A. Stoddart,
Ph.D., as Consultants.            

27.1 Financial Data Schedule                

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PART II OTHER INFORMATION   

(b)   Reports on Form 8-K                                             

          The Company filed a Form 8-K, dated April 3, 1996, to announce under
       Item 5 that it had completed the placement of 571,200 Units, at a
       price $2.50 per Unit, for gross proceeds of $1,428,000 through an
      offering complying with Regulation S under the Securities Act of
1933, as amended (the "Act").  Each Unit consists of two  
    newly-issued Common Shares, par value $0.01 per share, and one
warrant to purchase one Common Share.                     

          The Warrants are immediately exercisable and transferable separately
  from the Common Shares.  Each Warrant entitles the holder to
         purchase one Common Share at an initial exercise price of $1.75 per
      share, subject to adjustment, at any time through April 1, 2001,
        unless earlier redeemed.  The Warrants are redeemable for $0.01 by
       the Company at any time after July 2, 1996, if certain conditions
are met.                                                  

        The Company also announced that it had granted the placement agent
   warrants to purchase 114,240 Common Shares at $1.25 per share
      exercisable during the four-year period beginning April 2, 1997.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the        
registrant has duly caused this report to be signed on its behalf by the        
undersigned thereunto duly authorized.                                          

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

Date:    October 11, 1996                           By: /s/  Raymond W. Gunn    
                                                       -----------------------
                                       Raymond W. Gunn
                                                Executive Vice President
                                                   and Chief Financial Officer
                                            (Duly Authorized and
                                                    Principal Financial Officer)

30

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Filed on:		10/11/96		1		30			10-Q
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