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

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

Proposed Maximum

Proposed Maximum

Amount of

Title of Each Class of

Amount to be

Offering Price Per

Aggregate Offering

Registration

Securities to be Registered

Registered(1)

Share(2)

Price(2)

Fee(3)

Common Shares, par value $.01 per share

2,300,000

$23.145

$53,233,500

$5,695.99

(1)	Includes 300,000 shares which the underwriters have the option to purchase to cover over-allotments, if any.
(2)	Estimated solely for the purpose of computing the registration fee, based on the average of the high and low reported sale prices of the Registrant’s common shares on February 7, 2006 as reported on The Nasdaq National Market, pursuant to Rule 457(c).
(3)	$7,002.78 paid with the original filing.

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

		Per Share				Total
Public Offering Price		$				$
Underwriting Discount		$				$
Proceeds to Somanetics Corporation (before expenses)		$				$

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

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

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

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

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

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

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

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

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	Patients might assert product liability claims against us.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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			High				Low
Fiscal Year Ended November 30, 2004
	First Quarter		$	10.00			$	6.00
	Second Quarter			15.86				8.77
	Third Quarter			16.70				9.23
	Fourth Quarter			14.98				10.65
Fiscal Year Ended November 30, 2005
	First Quarter		$	16.00			$	13.00
	Second Quarter			18.85				12.50
	Third Quarter			25.74				17.66
	Fourth Quarter			36.95				21.51
Fiscal Year Ending November 30, 2006
	First Quarter (through February 7, 2006)		$	36.64			$	21.98

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				As of November 30, 2005
				Actual				As Adjusted
				(in thousands, except
				share data)
Long-Term Debt					—				—
Shareholders’ Equity:
Preferred shares; authorized 1,000,000 shares of $0.01 par value; no shares issued or outstanding					—				—
Common shares, authorized 20,000,000 shares of $0.01 par value; issued and outstanding, 10,715,885 as of November 30, 2005 and 12,715,885 shares, as adjusted				$	107			$	127
Additional paid-in capital					64,865				106,795
Accumulated deficit					(37,131	)			(37,131	)
	Total shareholders’ equity				27,841				69,791
		Total capitalization		$	27,841			$	69,791

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

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

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

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

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	Net Revenues and Cost of Sales

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	Operating Expenses

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

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

	Deferred Tax Assets and Impairment Charges

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

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

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

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

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

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

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

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

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

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

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

	Effects of Inflation

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	General

	Cash Flows From Operating Activities

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

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

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	Cash Flows From Investing Activities

	Cash Flows From Financing Activities

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

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	CorRestore Intangible Asset

	Employee Stock Options

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	No Capital Cost Sales Revenue Recognition

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	Market Opportunity

	Brain Oxygen Imbalances and Its Effects

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	Limitations of Traditional Monitoring Technologies

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

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

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

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

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

	Overview of INVOS Technology

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	Applications and Market Segments

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

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

	Murkin Study

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	Goldman Study

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	Diabetic Patients Studies

	Other Future Studies

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	License Agreement

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	Marketing

	Sales and Distribution

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

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

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

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

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	Board of Directors

	Audit Committee

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

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

	Compensation Committee

	Nominating Committee

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	Summary Compensation Table

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

(1)

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

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	Stock Option Grants

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

(1)

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

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	Aggregated Option Exercises and Fiscal Year-End Option Value Table

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

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

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

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

		Common Shares								Common Shares
		Beneficially Owned								Beneficially Owned
		Before Offering								After Offering
						Percent of								Percent of
		Number				Class (1)				Number				Class (2)
Dr. James I. Ausman(3)			46,785				*				46,785				*
Daniel S. Follis(4)			31,620				*				31,620				*
Robert R. Henry(5)			283,200				2.6				283,200				2.2
Bruce J. Barrett(6)			778,919				6.8				778,919				5.8
Richard S. Scheuing(7)			138,220				1.3				138,220				1.1
Dominic J. Spadafore(8)			121,180				1.1				121,180				*
Mary Ann Victor(9)			158,361				1.5				158,361				1.2
Pamela A. Winters(10)			163,220				1.5				163,220				1.3
All directors and executive officers as a group (10 persons)(11)			1,968,137				15.9				1,968,137				13.7

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

	(1)	Based on 10,715,885 common shares outstanding.
	(2)	Based on 12,715,885 common shares outstanding, assuming all 2,000,000 common shares offered by this prospectus are sold to third parties.
	(3)	Includes 34,011 common shares that Dr. Ausman has the right to acquire within 60 days of the date of this prospectus, 9,744 common shares owned jointly with his wife, and 3,030 shares held in an individual retirement account over which Dr. Ausman exercises sole voting and investment control.
	(4)	Includes 13,500 common shares that Mr. Follis has the right to acquire within 60 days of the date of this prospectus. The 31,620 common shares shown above as beneficially owned by Mr. Follis include 8,820 common shares owned by The Infinity Fund, a limited partnership in which Mr. Follis is a six percent limited partner and a 50 percent general partner and which is administered by Verschuren & Follis, Inc., a corporation in which Mr. Follis is a 50 percent shareholder, a director and the President.
	(5)	Includes 26,500 common shares that Mr. Henry has the right to acquire within 60 days of the date of this prospectus.

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

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

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

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

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

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

		No Exercise				Full Exercise
Per share		$				$
Total		$				$

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	•	Our Annual Report on Form 10-K for the fiscal year ended November 30, 2005;
	•	Our Current Report on Form 8-K filed January 31, 2006 reporting on January 27, 2006 events; and
	•	The description of our common shares included in our prospectus, dated March 20, 1991, included in our registration statement on Form S-1 (file no. 33-38438) effective March 20, 1991, under the caption “Description of Securities” on pages 41 through 46 of the prospectus and incorporated by reference into our registration statement on Form 8-A effective March 27, 1991, including any amendment or report filed for the purpose of updating such description.

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

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				November 30,
				2005				2004
ASSETS
CURRENT ASSETS:
	Cash and cash equivalents (Note 2)			$	13,148,237			$	7,069,542
	Accounts receivable				3,531,740				2,022,544
	Inventory (Note 2)				1,058,101				682,910
	Prepaid expenses				623,303				257,893
	Deferred tax asset — current (Note 5)				1,561,322				510,000
		Total current assets			19,922,703				10,542,889
PROPERTY AND EQUIPMENT: (Note 2)
	Demonstration and no capital cost sales equipment at customers				1,916,655				1,628,431
	Machinery and equipment				768,992				704,581
	Furniture and fixtures				289,397				255,044
	Leasehold improvements				187,135				171,882
		Total			3,162,179				2,759,938
	Less accumulated depreciation and amortization				(1,836,438	)			(1,675,881	)
		Net property and equipment			1,325,741				1,084,057
OTHER ASSETS:
	Deferred tax asset — non-current (Note 5)				8,438,678				6,190,000
	Intangible assets, net (Note 2)				16,921				952,926
	Other				15,000				15,000
		Total other assets			8,470,599				7,157,926
TOTAL ASSETS				$	29,719,043			$	18,784,872
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
	Accounts payable			$	712,796			$	529,097
	Accrued liabilities (Notes 4 and 6)				1,165,594				703,109
		Total current liabilities			1,878,390				1,232,206
COMMITMENTS AND CONTINGENCIES (Note 6)
SHAREHOLDERS’ EQUITY: (Note 3)
	Preferred shares; authorized, 1,000,000 shares of $.01 par value; no shares issued or outstanding				—				—
	Common shares; authorized, 20,000,000 shares of $.01 par value; issued and outstanding, 10,715,885 shares at November 30, 2005, and 10,137,782 shares at November 30, 2004				107,159				101,378
	Additional paid-in capital				64,864,554				62,333,435
	Accumulated deficit				(37,131,060	)			(44,882,147	)
		Total shareholders’ equity			27,840,653				17,552,666
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY				$	29,719,043			$	18,784,872

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

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

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

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1.	Organization and Operations

2.	Summary of Significant Accounting Policies

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

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

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

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

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3.	Stock Offerings and Common Shares

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

4.	Accrued Liabilities

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

5.	Income Tax

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

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

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6.	Commitments and Contingencies

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

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7.	Stock Option Plans

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

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

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

8.	Related Party Transactions

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9.	Major Customers and Foreign Sales

10.	Segment Information

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

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

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

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

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Item 14.	Other Expenses of Issuance and Distribution

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

Item 15.	Indemnification of Directors and Officers

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Item 16.	Exhibits

Item 17.	Undertakings

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

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	SOMANETICS CORPORATION
	(Registrant)

	By:	/s/ BRUCE J. BARRETT

	Bruce J. Barrett
	Its: President and Chief Executive Officer

Signature		Title		Date
/s/ BRUCE J. BARRETT Bruce J. Barrett		President and Chief Executive Officer and a Director (Principal Executive Officer)		February 8, 2006
/s/ WILLIAM M. IACONA William M. Iacona		Vice President and Chief Financial Officer, Controller, and Treasurer (Principal Financial Officer and Principal Accounting Officer)		February 8, 2006
* James I. Ausman, M.D., Ph.D.		Director		February 8, 2006
* Daniel S. Follis		Director		February 8, 2006
* Robert R. Henry		Director		February 8, 2006
*By: /s/ WILLIAM M. IACONA William M. Iacona, Attorney-in-fact				February 8, 2006

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

	*	To be filed by amendment.

**	Filed with this amendment no. 1 to registration statement.