<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
(x) Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended FEBRUARY 28, 1997
OR
( ) Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
--------------- ----------------
Commission file number 0-19095
SOMANETICS CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
MICHIGAN 38-2394784
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
</TABLE>
1653 EAST MAPLE ROAD,
TROY, MICHIGAN
48083-4208
(Address of principal executive offices)
(Zip Code)
(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 April 11, 1997: 2,285,351
<PAGE> 2
PART I FINANCIAL INFORMATION
SOMANETICS CORPORATION
(A development stage company)
BALANCE SHEETS
<TABLE>
February 28, November 30,
ASSETS 1997 1996
------------ ------------
<S> <C> <C>
CURRENT ASSETS: (Unaudited) (Audited)
Cash and cash equivalents .................................... $ 1,844,674 $ 3,291,911
Accounts receivable, net of allowance for doubtful accounts of
approximately $46,000 at February 28, 1997 and November 30,
1996, respectively......................................... 323,775 191,436
Inventory....................................................... 951,932 931,135
Prepaid expenses ............................................... 67,133 65,435
------------ ------------
Total current assets ..................................... 3,187,514 4,479,917
------------ ------------
PROPERTY AND EQUIPMENT (at cost):
Machinery and equipment ..................................... 478,012 479,757
Furniture and fixtures ...................................... 193,683 193,343
Leasehold improvements ...................................... 166,770 166,770
------------ ------------
Total .................................................... 838,465 839,870
Less accumulated depreciation and amortization .............. (752,929) (743,775)
------------ ------------
Net property and equipment ............................... 85,536 96,095
------------ ------------
OTHER ASSETS:
Patents and trademarks, net ................................. 77,401 79,129
Other ....................................................... 16,600 16,600
------------ ------------
Total other assets ....................................... 94,001 95,729
------------ ------------
TOTAL ASSETS ................................................... $ 3,367,051 $ 4,671,741
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ............................................ $ 406,143 $ 364,032
Accrued liabilities ......................................... 203,953 254,110
------------ -----------
Total current liabilities ................................ 610,096 618,142
------------ -----------
COMMITMENTS AND CONTINGENCIES .................................. -- --
SHAREHOLDERS' EQUITY:
Preferred shares; authorized, 1,000,000 shares of $.01 par
value; no shares issued or outstanding ................... -- --
Common shares; authorized, 6,000,000 shares of $.01 par value;
issued and outstanding, 2,285,351 shares at February 28, 1997
and November 30, 1996, respectively ...................... 22,854 22,854
Additional paid-in capital .................................. 34,253,566 34,241,798
Deficit accumulated during the development stage ............ (31,519,465) (30,211,053)
------------ -----------
Total shareholders' equity ............................... 2,756,955 4,053,599
------------ -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ..................... $ 3,367,051 $ 4,671,741
============ ===========
</TABLE>
See notes to financial statements
2
<PAGE> 3
SOMANETICS CORPORATION
(A development Stage Company)
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Cumulative
For the Three-Month for the Period
Periods Ended January 15, 1982
----------------------------------- (Date of Inception)
February 28, February 29, to February 28,
1997 1996 1997
------------ ------------ ---------------
<S> <C> <C> <C>
REVENUES:
Net sales .............................. $ 353,863 $ 515,079 $ 6,082,795
Research and development activities .... 122,500
------------ ------------ ---------------
Total revenues ..................... 353,863 515,079 6,205,295
COST OF SALES .............................. 180,271 211,134 2,807,522
------------ ------------ ---------------
GROSS MARGIN ............................... 173,592 303,945 3,397,773
------------ ------------ ---------------
OPERATING EXPENSES:
Research, development and engineering... 164,211 49,936 8,169,122
Selling, general and administrative .... 1,359,088 590,331 27,548,810
------------ ------------ ---------------
Total operating expenses ........... 1,523,299 640,267 35,717,932
------------ ------------ ---------------
OPERATING LOSS ............................. (1,349,707) (336,322) (32,320,159)
------------ ------------ ---------------
OTHER INCOME (EXPENSE):
Interest income ........................ 33,195 13,660 1,154,343
Interest expense ....................... (231,674)
Other .................................. 8,100 3,073 (102,133)
------------ ------------ ---------------
Total other income ................. 41,295 16,733 820,536
------------ ------------ ---------------
NET LOSS ................................... $ (1,308,412) $ (319,589) $ (31,499,623)
------------ ------------ ---------------
NET LOSS PER COMMON SHARE .................. $ (.57) $ (.18) $ (41.03)
------------ ------------ ---------------
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING .................. $ 2,285,351 $ 1,778,046 $ 767,745
============ ============ ===============
</TABLE>
See notes to financial statements
3
<PAGE> 4
SOMANETICS CORPORATION
(A development stage company)
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIENCY)
(UNAUDITED)
(1 OF 2)
<TABLE>
<CAPTION>
TOTAL
PRICE ADDITIONAL ACCUM- SHAREHOLDERS'
PER SHARE PAID-IN ULATED EQUITY
DATE SHARE SHARES VALUE CAPITAL DEFICIT (DEFICIENCY)
----------- ---- ------ ------ ---------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
ISSUANCE OF COMMON SHARES:
For shareholders' contributions of test equipment .. January, 1982 $ 0.32 83,037 $ 830 $ 25,670 $ - $ 26,500
For cash ........................................... July, 1982 13.08 7,835 79 101,921 102,000
Net loss from January 15, 1982 (date of inception)
to November 30, 1982 ............................. (107,083) (107,083)
------- ------ --------- ---------- ----------
Balance at November 30, 1982 ....................... 90,872 909 127,591 (107,083) 21,417
For cash ......................................... December, 1982 13.08 3,917 39 50,961 51,000
For services ..................................... January, 1983 13.08 1,567 16 20,484 20,500
For cash, less issuance costs of $5,863 .......... July, 1983 6.17 11,624 116 298,185 298,301
For services ..................................... November, 1983 26.17 784 8 20,492 20,500
Net loss for the year ended November 30, 1983 .... (291,986) (291,986)
------- ------ --------- ---------- ----------
Balance at November 30, 1983 ....................... 108,764 1,088 517,713 (399,069) 119,732
For cash, less issuance costs December, 1983-
of $7,735 April, 1984 26.17 19,421 194 500,252 500,446
For patents February, 1984 26.17 4,895 49 128,020 128,069
For cash November, 1984 35.10 3,730 37 130,899 130,936
Net loss for the year ended November 30, 1984 .... (700,380) (700,380)
------- ------ --------- ---------- ----------
Balance at November 30, 1984 ....................... 136,810 1,368 1,276,884 (1,099,449) 178,803
For cash, less issuance costs December, 1984-
of $3,726 June, 1985 35.10 13,029 130 453,485 453,615
For cash November, 1985 70.20 14,484 145 1,016,655 1,016,800
Net loss for the year ended November 30, 1985 .... (559,871) (559,871)
------- ------ ---------- ---------- ----------
Balance at November 30, 1985 ....................... 164,323 1,643 2,747,024 (1,659,320) 1,089,347
Exercise of stock options for cash ............... December, 1985 35.10 783 8 27,492 27,500
For cash ......................................... January, 1986 70.20 10,444 104 733,097 733,201
Net loss for the year ended November 30, 1986 .... (1,222,772) (1,222,772)
------- ------ --------- ---------- ----------
Balance at November 30, 1986 ....................... 175,550 1,755 3,507,613 (2,882,092) 627,276
For cash, less issuance costs March, 1987-
of $9,500 September, 1987 51.06 10,359 104 519,296 519,400
Net loss for the year ended November 30, 1987 .... (1,143,081) (1,143,081)
------- ------ --------- ----------- ----------
Balance at November 30, 1987 ....................... 185,909 1,859 4,026,909 (4,025,173) 3,595
For cash, less issuance costs February, 1988-
of $10,500 April, 1988 51.06 3,291 33 157,467 157,500
Net loss for the year ended November 30, 1988 .... (352,311) (352,311)
------- ------ --------- ---------- ----------
Balance at November 30, 1988 ....................... 189,200 1,892 4,184,376 (4,377,484) (191,216)
For cash and the exchange of debt January, 1989-
due a shareholder .............................. July, 1989 51.06 4,524 45 230,955 231,000
Net loss for the year ended November 30, 1989 .... (446,642) (446,642)
------- ------ --------- ---------- ----------
Balance at November 30, 1989 ....................... 193,724 1,937 4,415,331 (4,824,126) (406,858)
For services ..................................... August, 1990 51.06 4,701 47 239,953 240,000
Net loss for the year ended November 30, 1990 .... (1,328,518) (1,328,518)
------- ------ --------- ---------- ----------
Balance at November 30, 1990 ....................... 198,425 1,984 4,655,284 (6,152,644) (1,495,376)
For cash, less issuance costs of $1,630,241 ...... March, 1991 20.00 360,000 3,600 5,566,159 5,569,759
Unit Purchase Option ............................. March, 1991 120 120
Redeemable Convertible Preferred Stock dividend .. April, 1991 (19,843) (19,843)
For cash, less issuance costs of $126,900 ........ April, 1991 20.00 54,000 540 952,560 953,100
Net loss for the year ended November 30, 1991 .... (2,058,493) (2,058,493)
------- ------ ---------- ----------- ----------
Balance at November 30, 1991 ....................... 612,425 $6,124 $11,174,123 $(8,230,980) $2,949,267
</TABLE>
See notes to financial statements
4
<PAGE> 5
SOMANETICS CORPORATION
(A development Stage Company)
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIENCY)
(UNAUDITED)
(2 OF 2)
<TABLE>
<CAPTION>
TOTAL
PRICE ADDITIONAL ACCUM- SHAREHOLDERS'
PER SHARE PAID-IN ULATED EQUITY
DATE SHARE SHARES VALUE CAPITAL DEFICIT (DEFICIENCY)
-------------- ------ ------ ----- ----------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at November 30, 1991 ....................... 612,425 $ 6,124 $11,174,123 $ (8,230,980) $2,949,267
Exercise of Class A Warrants for cash, December, 1991-
less issuance costs of $702,917.................May, 1992 30.00 413,900 4,139 11,709,944 11,714,083
February, 1992-
Exercise of Class B Warrants for cash.............November, 1992 40.00 3,406 34 136,186 136,220
July, 1992- 20.00-
Exercise of stock options for cash................November, 1992 21.90 3,010 30 66,045 66,075
Net loss for year ended November 30, 1992 ........ (5,390,637) (5,390,637)
--------- ------- ----------- ------------- ----------
Balance at November 30, 1992 ....................... 1,032,741 10,327 23,086,298 (13,621,617) 9,475,008
December, 1992-
Exercise of Class B Warrants for cash.............October, 1993 40.00 2,976 30 119,034 119,064
March, 1993-
Exercise of Class M Warrants for cash.............October, 1993 10.00 60,018 601 599,578 600,179
March, 1993- 20.00-
Exercise of stock options for cash................September, 1993 43.80 310 3 13,147 13,150
Exercise of Unit Purchase Options and May, 1993- 30.00-
underlying Class A Warrants for cash............October, 1993 33.00 1,000 10 31,496 31,506
Net loss for the year ended November 30, 1993 .... (6,135,830) (6,135,830)
---------- ------ ----------- ------------ ---------
Balance at November 30, 1993 ....................... 1,097,045 10,971 23,849,553 (19,757,447) 4,103,077
For cash, less issuance costs of $490,790 ........August, 1994 8.00 529,700 5,297 3,741,513 3,746,810
Exercise of stock options for cash ...............November, 1994 16.25-
35.90 10 -- 202 202
Net loss for the year ended November 30, 1994 .... (4,331,500) (4,331,500)
--------- ------ ----------- ------------ ----------
Balance at November 30, 1994 ....................... 1,626,755 16,268 27,591,268 (24,088,947) 3,518,589
Exercise of stock options for cash ...............February, 1995 8.40 100 1 843 844
For cash, less issuance costs of $282,475 ........July, 1995 12.50 150,000 1,500 1,591,125 1,592,625
Net loss for the year ended November 30, 1995 ... (2,818,403) (2,818,403)
--------- ------ ----------- ------------- ---------
Balance at November 30, 1995 ....................... 1,776,855 17,769 29,183,236 (26,907,350) 2,293,655
January, 1996- 8.40-
Exercise of stock options for cash ...............June, 1996 14.70 7,717 77 75,030 75,107
For cash, less issuance costs of $143,587 ........April, 1996 12.50 114,240 1,143 1,283,270 1,284,413
Exercise of warrants for cash, less issuance June, 1996-
costs of $16,350 ...............................September, 1996 20.00 19,698 197 339,886 340,083
For cash, less issuance costs of $650,872 ........November, 1996 11.50 366,841 3,668 3,564,135 3,567,803
Redemption of Class B Warrants ...................November, 1996 0.50 (203,759) (203,759)
Net loss for the year ended November 30, 1996 .... (3,303,703) (3,303,703)
--------- ------- ---------- ------------- ----------
Balance at November 30, 1996 ....................... 2,285,351 22,854 34,241,798 (30,211,053) 4,053,599
Reduce issuance costs for November, 1996
offering....................................... 11,768 11,768
Net loss for the three-month period ended
February 28, 1997 .............................. (1,308,412) (1,308,402)
--------- ------- ----------- ------------- ---------
Balance at February 28, 1997 ....................... 2,285,351 $22,854 $34,253,566 $(31,519,465) $2,756,955
========= ======= =========== ============= ==========
</TABLE>
See notes to financial statements
5
<PAGE> 6
SOMANETICS CORPORATION
(A development stage company)
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Cumulative
For the Three-Month for the Period
Periods Ended January 15, 1982
-------------------------- (Date of Inception)
February 28, February 29, to February 28,
1997 1996 1997
------------ ----------- -------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss................................................... $(1,308,412) $ (319,589) $ (31,499,623)
Adjustments to reconcile net loss to net cash used in
operations:
Depreciation and amortization ......................... 13,863 15,883 843,072
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) .................... (132,340) (144,084) (323,776)
Inventory (increase) decrease ..................... (20,797) 135,070 (951,932)
Prepaid expenses (increase) ....................... (1,697) (6,250) (67,132)
Other assets (increase) decrease .................. 1,280 (127,332)
Accounts payable increase (decrease) .............. 42,111 (11,392) 406,143
Accrued liabilities increase (decrease) ........... (50,157) (59,688) 203,953
----------- ----------- ---------------
Net cash (used in) operations .................. (1,457,429) (388,770) (31,063,698)
----------- ----------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of marketable securities ........................ (12,166,540)
Proceeds from sale of marketable securities ............... 12,166,540
Acquisition of property and equipment (net) ............... (1,576) 3,255 (912,637)
Accrual for note receivable - related party ............... (4,010)
----------- ----------- ---------------
Net cash (used in) investing activities ........ (1,576) (755) (912,637)
----------- ----------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of Common Shares ................... 11,768 61,458 34,044,611
Redemption of Redeemable Convertible Preferred Shares ..... (19,843) (19,843)
Redemption of Class B Warrants ............................ (203,759)
Proceeds from issuance of notes payable and long-term debt 2,515,223
Repayments of notes payable and long-term debt ............ (2,515,223)
----------- ----------- ---------------
Net cash provided by financing activities ...... 11,768 41,615 33,821,009
----------- ----------- ---------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS ............................................... (1,447,237) (347,910) 1,844,674
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD ................................................. 3,291,911 941,426
----------- ----------- ---------------
CASH AND CASH EQUIVALENTS, END
OF PERIOD ................................................. $ 1,844,674 $ 593,516 $ 1,844,674
=========== =========== ===============
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITIES:
See Statements of Shareholders' Equity (Deficiency) for details of shares
issued in exchange for non-cash consideration.
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest for the three-month periods ended February 28, 1997
and February 29, 1996 approximated $0 and $0, respectively.
See notes to financial statements
6
<PAGE> 7
SOMANETICS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
FEBRUARY 28, 1997
1. ORGANIZATION AND OPERATIONS
Somanetics Corporation (the "Company"), a Michigan corporation formed in
January 1982, develops, manufactures and markets the INVOS 3100A Cerebral
Oximeter (the "Cerebral Oximeter), the only FDA-cleared, non-invasive patient
monitoring system that continuously measures changes in the blood oxygen level
in the adult brain. The Cerebral Oximeter is based on the Company's
proprietary In Vivo Optical Spectroscopy ("INVOS(R)") technology. INVOS
analyzes various characteristics of human blood and tissue by measuring and
analyzing low-intensity visible and near infrared light transmitted into
portions of the body. The Company is in the development stage and has incurred
research, product development and other expenses involved in designing,
developing, marketing and selling its product, as well as devoting efforts to
raising capital.
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 not material to the
Company's financial condition or results of operations. Operating results for
the three-month period ended February 28, 1997, are not necessarily indicative
of the results that may be expected for the year ending November 30, 1997,
although the Company expects to continue to incur operating losses for the
foreseeable future. The unaudited interim financial statements should be read
in conjunction with the financial statements and footnotes thereto for the year
ended November 30, 1996 included in the Company's Annual Report on Form 10-K
for the fiscal year ended November 30, 1996.
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 $31,519,465 through February 28, 1997. The Company had working
capital of $2,577,418, cash and cash equivalents of $1,844,674, total current
liabilities of $610,096 and shareholders' equity of $2,756,955, as of February
28, 1997.
Management believes that markets exist for the product the Company has
developed; however, there is an inherent uncertainty associated with the
success of such new product. 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 the sale of Common Shares in the Regulation S
offering in November 1996 were sufficient to fund the Company's working capital
requirements for the three months ended February 28, 1997. Current sales are
not sufficient to fund operations, and the Company did not raise any equity or
debt capital during the three months ended February 28, 1997. The Company
believes that the cash and cash equivalents on hand at February 28, 1997 will
be sufficient to sustain the Company's operations at budgeted levels and its
needs for liquidity into the third quarter of fiscal 1997. By that time the
Company will be required to raise additional cash either through additional
sales of its product, through sales of securities, by incurring 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.
7
<PAGE> 8
SOMANETICS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
FEBRUARY 28, 1997
The estimated length of time current cash and cash equivalents will
sustain the Company's operations is 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 the Company's technology and for working capital will not be substantially
greater than current estimates.
Product Sales. Although on June 5, 1996 the Company received clearance
from the FDA to market the Cerebral Oximeter in the United States, the Company
does not believe that product sales will be sufficient to fund the Company's
operations in fiscal 1997. In addition, the long sales cycle, the customer
education required in connection with a new technology, the inexperience of the
Company's sales force with the Cerebral Oximeter, and the short time since the
Company obtained FDA clearance to market the product in the United States make
future sales predictions uncertain. There can be no assurance that the Company
will ever be successful or profitable in marketing the Cerebral Oximeter and
the related SomaSensor.
Securities Sales. The Company has entered into a Letter Agreement, dated
as of January 10, 1997, pursuant to which the Company has exclusively retained
a managing underwriter to underwrite a proposed public offering by the Company
of 1,800,000 newly-issued Common Shares. The Company has also agreed to grant
the underwriter an option to purchase an additional 270,000 Common Shares to
cover over-allotments and a five-year warrant to purchase an amount of shares
equal to 10% of the Common Shares sold in the offering at an exercise price
equal to 120% of the purchase price for the Common Shares in the offering.
Among other things the offering is contingent on the satisfactory completion of
a due diligence investigation of the Company by the underwriter and its agents.
Any such offering will be made only by means of a prospectus. In addition,
the type and amount of security, if any, that might ultimately be issued in any
such offering have not yet been definitively determined and will be dependent
on negotiations with the underwriter, market conditions and management's then
current estimate of the proceeds necessary or desired to sustain the Company's
operations. There can be no assurance that such offering will occur or that
the Company will be able to raise any capital or capital in amounts it desires,
or on terms and conditions acceptable to the Company.
Also as of February 28, 1997, there were 60,400 redeemable warrants
outstanding, exercisable at $20.00 per share until July 13, 2000, and 55,120
redeemable warrants outstanding exercisable at $17.50 per share until April 1,
2001. These warrants were issued in 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 April 11, 1997. In addition, the placement
agents and their transferees hold warrants to purchase 52,970 Common Shares
exercisable at $12.50 per share, 15,000 warrants exercisable at $14.40 per
share, and 11,242 warrants exercisable at $12.50 per share. It is unlikely
that these warrants 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.
Indebtedness. 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 product, sales of securities or loans
in sufficient quantities. The report of the Company's Independent Auditors
contains an explanatory paragraph relating to an uncertainty concerning the
Company's ability to continue as a going concern.
8
<PAGE> 9
SOMANETICS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
February 28, 1997
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:
<TABLE>
<CAPTION>
February 28, 1997 November 30, 1996
----------------- -----------------
<S> <C> <C>
Finished goods .......... $419,465 $437,079
Work in process ......... 347,929 307,510
Purchased components .... 383,358 386,996
---------- ----------
Sub-total ............ 1,150,752 1,131,585
Less reserve for obsolete
and excess inventory . (198,820) (200,450)
---------- ----------
Total ................ $951,932 $931,135
========== ==========
</TABLE>
Patents and Trademarks are recorded at cost and are being amortized on the
straight-line method over 17 years. Accumulated amortization was $34,332 and
$32,604 at February 28, 1997 and November 30, 1996, 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:
<TABLE>
<CAPTION>
February 28, 1997 November 30, 1996
----------------- -----------------
<S> <C> <C>
Professional Fees .. $ 33,739 $ 101,697
Product Upgrades ... 16,341 18,261
Warranty ........... 17,467 12,421
Accrued Insurance .. 34,613 32,231
Accrued Incentive... 37,863 --
Other............... 63,930 89,500
-------- --------
Total............. $203,953 $254,110
======== ========
</TABLE>
5. COMMITMENTS AND CONTINGENCIES
On April 25, 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 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 plaintiff alleges
that Company documents contained material
<PAGE> 10
SOMANETICS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
FEBRUARY 28, 1997
misstatements and omissions in violation of various securities laws. He seeks
unspecified compensatory and punitive damages. While the Company settled a
class action in 1996 raising similar issues, approximately 11 persons,
including Benjamin Langford, opted out of that action and the related
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. Management
believes it has substantial defenses to the Langford claim.
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
maintain such insurance or that such insurance would be sufficient to protect
the Company against such product liability.
6. SUBSEQUENT EVENTS
On January 15, 1997, the Company's Board of Directors approved an
amendment and restatement of the Company's Restated Articles of Incorporation
to (i) effect a one-for-ten reverse stock split of the Company's Common Shares
while keeping 6,000,000 authorized Common Shares, at a par value of $0.01, and
(ii) remove provisions relating to the Convertible Preferred Shares redeemed
February 28, 1996, all subject to shareholder approval at the 1997 Annual
Meeting of Shareholders. The Company's shareholders approved such amendment
and restatement at the 1997 Annual Meeting of Shareholders on March 25, 1997
and the reverse stock split became effective April 10, 1997. All information
contained in this report gives retroactive effect to the 1-for-10 reverse stock
split effected April 10, 1997.
In addition, on January 15, 1997, the Company's Board of Directors
approved the Somanetics Corporation 1997 Stock Option Plan, pursuant to which
295,000 Common Shares (after giving effect to the one-for-ten reverse stock
split described above) are reserved for issuance pursuant to options to be
granted to key employees, directors, consultants and advisors of the Company,
all subject to approval of the reverse stock split described above, subject to
shareholder approval at the 1997 Annual Meeting of Shareholders. The Company's
shareholders approved the reverse stock split and the 1997 Stock Option Plan at
the 1997 Annual Meeting of Shareholders on March 25, 1997, and the reverse
stock split became effective on April 10, 1997.
On March 27, 1997, the 4,500 Exchange Warrants expired unexercised.
10
<PAGE> 11
SOMANETICS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
February 28, 1997
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations includes forward-looking statements with respect to
the Company's future financial performance. These forward-looking statements
are subject to various risks and uncertainties, including the factors described
under "Risk Factors" in the Company's Registration Statement on Form S-3 (file
no. 33-60260), that could cause actual results to differ materially from
historical results or those currently anticipated.
RESULTS OF OPERATIONS
OVERVIEW
Somanetics Corporation develops, manufactures and markets the INVOS 3100A
Cerebral Oximeter, the only FDA cleared, non-invasive patient monitoring system
that continuously measures changes in the blood oxygen level in the adult
brain. In 1988, the Company began clinical studies of the Cerebral Oximeter on
human patients. In June 1992, the Company received 510(k) clearance from
the FDA to market the Cerebral Oximeter in the United States for use on adults.
The Company began commercial shipments of Cerebral Oximeters and SomsaSensors
in May 1993. In November 1993, the FDA rescinded the Company's clearance to
market the Cerebral Oximeter and the related disposable SomaSensor in the
United States, and the Company suspended all commercial sales. In February
1994, the Company resumed marketing its product in several foreign countries,
and in June 1996 the Company received clearance from the FDA to market the
Cerebral Oximeter and the related disposable SomaSensor in the United States.
The Company is in the development stage and has accumulated losses of
$31,499,623 through February 28, 1997. From its inception in January 1982
through February 28, 1997, its primary activities have consisted of research and
development of the INVOS technology, a discontinued product, the Cerebral
Oximeter and the related disposable SomaSensor. The Company believes that its
accumulated deficit will continue to increase for the foreseeable future.
The Company derives its revenues from sales of Cerebral Oximeters and
SomaSensors to its distributors and, since the June 1996 FDA clearance, to
hospitals through its direct sales employees. The Company recognizes revenues
when it ships its product to its distributors or to hospitals. Payment terms
are generally net 30 days for United States sales and net 60 days or longer for
international sales. The Company's primary expenses, excluding the cost of its
product, are selling, general and administrative expenses and research,
development and engineering expenses, which are generally expensed as incurred.
The Company capitalizes its patent costs and amortizes them over 17 years.
Since May 1994, the Company has exchanged the new model 3100A Cerebral Oximeters
for its model 3100 Cerebral Oximeters. The new Company refurbishes the model
3100 Cerebral Oximeters it receives and sells them approximately at cost in
countries that do not require compliance with the standards met by the model
3100A. Such sales reduce the Company's overall gross margin.
THREE MONTHS ENDED FEBRUARY 28, 1997 COMPARED TO THREE MONTHS ENDED FEBRUARY
29, 1996
Net sales decreased by approximately $161,000, or 31%, from $515,079 in
the three-month period ended February 29, 1996 to $353,863 in the three-month
period ended February 28, 1997. The decrease in sales was primarily
attributable to a 26% decrease in the average selling price of Cerebral
Oximeters to Baxter Limited to make their price similar to that of other
distributors and reduced shipments to Baxter Limited in Japan, which purchased
its requirements for all of 1996 in the first quarter of fiscal 1996. Sales of
refurbished model 3100 Cerebral Oximeters, model 3100A Cerebral Oximeters and
SomaSensors comprised approximately 5%, 73% and 22%, respectively, of the
Company's sales in the first quarter of fiscal 1997 and 5%, 84% and 11%,
respectively, of the Company's sales in the first quarter of fiscal 1996.
Approximately 63% of the Company's net sales in the first quarter of fiscal
1997 were export sales, compared to 100% of the Company's net sales in the
first quarter of fiscal 1996. One international distributor and two United
States distributors accounted for approximately 42%, 14% and 11%, respectively,
of total net sales for the three months ended February 28,
11
<PAGE> 12
SOMANETICS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
February 28, 1997
1997, and two international distributors accounted for approximately 86% and 6%
of total net sales for the three months ended February 29, 1996.
Gross margin as a percentage of net sales for the quarters ended February
28, 1997 and February 29, 1996 was approximately 49% and 59%, respectively.
Gross margin as a percentage of net sales decreased in the first quarter ended
February 28, 1997 from the first quarter of fiscal 1996 primarily because
the Company realized lower average selling prices for model 3100A Cerebral
Oximeters, and the cost to the Company of the SomaSensor was higher in the
first quarter of fiscal 1997 and because sensors were a larger portion of
overall sales. This decrease was partially offset by an approximately 4%
decrease in materials cost for the Cerebral Oximeter in the first quarter of
fiscal 1997.
The Company's research, development and engineering expenses increased
approximately $114,000, or 229%, from $49,936 for the three months ended
February 29, 1996 to $164,211 for the three-month period ended February 28,
1997. The increase is primarily attributable to increased consulting fees
and costs of development materials in fiscal 1997 in connection with new product
development, an increase in research, development, and engineering
personnel from two employees at February 29, 1996 to five employees at February
28, 1997, increased clinical testing in the first quarter of fiscal 1997, and
increased obsolescence costs in the first quarter of fiscal 1997.
Selling, general and administrative expenses increased approximately
$768,000, or 130%, from $590,331 for the three months ended February 29, 1996
to $1,359,088 for the three months ended February 28, 1997. The increase in
selling, general and administrative expense is primarily attributable to a
$496,000 increase in salaries, wages and related expenses as a result of the
additional employees hired since May 31, 1996 (from an average of 19 employees
in the first quarter of fiscal 1996 to 36 employees in the first quarter of
fiscal 1997), and an increase in incentive compensation accrual, and a $181,000
increase in selling-related expenses as a result of the costs associated with
training and equipping direct sales personnel with demonstration equipment,
the added cost of promotional equipment and materials in the United States, an
increase in travel and related expenses, due to distributor training and
support and additional employees in sales and marketing, and an increase in
trade show participation expenses.
For the three-month period ended February 28, 1997, the Company realized a
309% increase in its net loss over the same period in fiscal 1996. The
increase is primarily attributable to a 31% reduction in sales and a 137%
increase in operating expenses.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operations during the three-month period ended February
28, 1997 was approximately $1,457,000. Cash was used primarily to (i) fund the
Company's net loss, including selling, general and administrative expenses and
research, development and engineering expenses (approximately $1,295,000, net
of
12
<PAGE> 13
SOMANETICS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FEBRUARY 28, 1997
depreciation and amortization expense), (ii) increase accounts receivable
(approximately $132,000) primarily due to higher sales in the first quarter of
fiscal 1997 than in the prior two quarters, (iii) decrease accrued liabilities
primarily as a result of the payment of professional fees (approximately
$50,000), and (iv) increase inventories as a result of increased manufacturing
activity in preparation for domestic sales (approximately $21,000). These uses
of cash were partially offset by an increase in accounts payable (approximately
$42,000) primarily due to increased legal and professional expenses and
inventory purchases in preparation for selling and marketing efforts in the
United States combined with slower payment. Management expects working capital
requirements to increase if sales increase.
As of February 28, 1997 the Company had working capital of $2,577,418, and
cash and cash equivalents of $1,844,674, total current liabilities of $610,096
and shareholder's equity of $2,756,955. The Company has no loan commitments.
The Company believes that the cash and cash equivalents on hand at
February 28, 1997 will be sufficient to sustain the Company's operations at
budgeted levels and its needs for liquidity into the third quarter of fiscal
1997. By that time the Company will be required to raise additional cash
either (i) through additional sales of its product, (ii) through sales of
securities, (iii) by incurring indebtedness or (iv) 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 estimated length of time current cash and cash equivalents will
sustain the Company's operations is 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 the Company's technology and for working capital will not be substantially
greater than current estimates.
Product Sales. Although on June 5, 1996 the Company received clearance
from the FDA to market the Cerebral Oximeter in the United States, the Company
does not believe that product sales will be sufficient to fund the Company's
operations in fiscal 1997. In addition, the long sales cycle, the customer
education required in connection with a new technology, the inexperience of the
Company's sales force with the Cerebral Oximeter, and the short time since the
Company obtained FDA clearance to market the product in the United States make
future sales predictions uncertain. There can be no assurance that the Company
will ever be successful or profitable in marketing the Cerebral Oximeter and
the related SomaSensor.
Securities Sales. The Company has entered into a Letter Agreement, dated
as of January 10, 1997, pursuant to which the Company has exclusively retained
a managing underwriter to underwrite a proposed public offering by the Company
of 1,200,000 newly-issued Common Shares. The Company has also agreed to grant
the underwriter an option to purchase an additional 180,000 Common Shares to
cover over-allotments and a five-year warrant to purchase an amount of shares
equal to 10% of the Common Shares sold in the offering at an exercise price
equal to 120% of the purchase price for the Common Shares in the offering.
Among other things the offering is contingent on the satisfactory completion of
a due diligence investigation of the Company by the underwriter and its agents.
Any such offering will be made only by means of a prospectus. In addition,
the type and amount of security, if any, that might ultimately be issued in any
such offering have not yet been definitively determined and will be dependent
on negotiations with the underwriter, market conditions and management's then
current estimate of the proceeds necessary or desired to sustain the Company's
operations. There can be no assurance that such offering will occur or that
the Company will be able to raise any capital or capital in amounts it desires,
or on terms and conditions acceptable to the Company.
13
<PAGE> 14
SOMANETICS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FEBRUARY 28, 1997
Also as of February 28, 1997, there were 60,400 redeemable warrants
outstanding, exercisable at $20.00 per share until July 13, 2000, and 55,120
redeemable warrants outstanding exercisable at $17.50 per share until April 1,
2001. These warrants were issued in the Company's 1995 and April 1996
Regulation S securities offerings. The conditions permitting the Company to
redeem these warrants have not been met as of April 11, 1997. In addition, the
placement agents and their transferees hold warrants to purchase 52,970 Common
Shares exercisable at $12.50 per share, 15,000 warrants exercisable at $14.40
per share, and 11,424 warrants exercisable at $12.50 per share. It is unlikely
that these warrants 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.
Indebtedness. 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 product, sales of securities or loans
in sufficient quantities. The report of the Company's Independent Auditors
contains an explanatory paragraph relating to an uncertainty concerning the
Company's ability to continue as a going concern.
For a description of a lawsuit alleging various securities law violations
filed by a shareholder of the Company on April 25, 1994, see Note 5 of Notes to
Financial Statements included in Item 1 of this report.
14
<PAGE> 15
PART II OTHER INFORMATION
Item 2. Changes in Securities
Effective as of the close of business on April 10, 1997, the Company
amended and restated its articles of incorporation to (i) effect a one-for-ten
reverse stock split of the Company's Common Shares, while keeping 6,000,000
authorized Common Shares, at a par value of $0.01, and (ii) remove provisions
relating to the Convertible Preferred Shares redeemed February 28, 1996. As a
result of the reverse stock split, as of the close of business on April 10,
1997, each 10 pre-split Common Shares were automatically combined and changed
into one post-split Common Share. Each certificate representing pre-split
Common Shares now represents for all purposes one-tenth of that number of
post-split Common Shares. Shareholders are being asked to exchange their
certificates representing Common Shares held before the close of business on
April 10, 1997 for new Common Shares issued as a result of the reverse stock
split. Certificates representing pre-split Common Shares presented for
transfer will not be transferred on the books and records of the Company, but
will be returned to the tendering person for exchange.
No scrip or fractional post-split Common Shares will be issued to any
shareholder in connection with the reverse stock split. All shareholders of
record who would otherwise be entitled to receive fractional post-split Common
Shares, will, upon surrender of their certificates representing pre-split
Common Shares, receive a cash payment in lieu thereof equal to the fair value of
such fraction share, based on the closing price of the Common Shares on The
Nasdaq SmallCap Market on April 10, 1997.
The reverse stock split will not affect the par value of the authorized
Common Shares, and the number of authorized Common Shares after the reverse
stock split will be 6,000,000 Common Shares, par value $0.01 a share. This
number of authorized Common Shares together with the decrease in the number of
Common Shares outstanding and reserved for issuance pursuant to the exercise of
options and warrants has resulted in an increase in the number of shares
available for issuance. The terms of the post-split Common Shares are the same
as the terms of the pre-split Common Shares. The reverse stock split will not
affect the number or par value of the authorized Preferred Shares, which will
remain at 1,000,000 Preferred Shares, par value $0.01 per share.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3(i) Restated Articles of Incorporation of Somanetics Corporation.
10.1 Letter Agreement, dated as of February 20, 1997, between
Somanetics Corporation and Mitani & Co., LLC.
27.1 Financial Data Schedule.
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the quarter
for which this report is filed.
15
<PAGE> 16
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: April 14, 1997 By: /s/ RAYMOND W. GUNN
---------------------
Raymond W. Gunn
Executive Vice President
and Chief Financial
Officer (Duly Authorized
and Principal Financial
Officer)
16
<PAGE> 17
EXHIBIT INDEX
EXHIBIT DESCRIPTION
3(i) Restated Articles of Incorporation of Somanetics Corporation.
10.1 Letter Agreement, dated as of February 20, 1997, between
Somanetics Corporation and Mitani & Co., LLC.
27.1 Financial Data Schedule.
17
<PAGE> 1
EXHIBIT 3(i)
[THE STATE OF MICHIGAN SEAL]
Michigan Department of Consumer and Industry Services
Lansing, Michigan
This is to Certify that the Annexed copy has been compared by me with the
record on file in this Department and that the same is a true copy thereof.
In testimony whereof, I have hereunto set my
hand and affixed the Seal of the Department,
in the City of Lansing, this 10th day
of April, 1997.
/s/ Craig B. Newell, Acting Director
Corporation, Securities and Land Development Bureau
<PAGE> 2
<TABLE>
<S><C>
- ------------------------------------------------------------------------------------------------------------------------------------
MICHIGAN DEPARTMENT OF CONSUMER AND INDUSTRY SERVICES
CORPORATION, SECURITIES AND LAND DEVELOPMENT BUREAU
- ------------------------------------------------------------------------------------------------------------------------------------
Date Received (FOR BUREAU USE ONLY)
APR 10 1997
- ---------------------
FILED
Name APR 10 1997
Robert J. Krueger
Honigman Miller Schwartz and Cohn Administrator
- -------------------------------------------------------------------- MI DEPARTMENT OF CONSUMER & INDUSTRY SERVICES
Address CORPORATION, SECURITIES & LAND DEVELOPMENT BUREAU
2290 First National Building
- --------------------------------------------------------------------
City State Zip Code
Detroit, Michigan 48226-3583
EFFECTIVE DATE:
- --------------------------------------------------------------------
Document will be returned to the name and address you enter above
RESTATED ARTICLES OF INCORPORATION
For use by Domestic Profit Corporations
(Please read information and instructions on the last page)
Pursuant to the provisions of Act 284, Public Acts of 1972, the undersigned corporation executes the following Articles:
- ------------------------------------------------------------------------------------------------------------------------------------
1. The present name of the corporation is: Somanetics Corporation
---------------------------------------------------------------------------------------------------------------------------
2. The identification number assigned by the Bureau is: 261-155
-------------------------
3. All former names of the corporation are: N/A
4. The date of filing the original Articles of Incorporation was: January 15, 1982
----------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
The following Restated Articles of Incorporation supersede the Articles of Incorporation as amended and shall be the
Articles of Incorporation for the corporation:
ARTICLE I
- ------------------------------------------------------------------------------------------------------------------------------------
The name of the corporation is: Somanetics Corporation
- ------------------------------------------------------------------------------------------------------------------------------------
ARTICLE II
- ------------------------------------------------------------------------------------------------------------------------------------
The purpose or purposes for which the corporation is formed is to engage in any activity within the purposes for which
corporations may be organized under the Business Corporation Act of Michigan.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
SEAL APPEARS ONLY ON ORIGINAL
<PAGE> 3
ARTICLE III
The total authorized shares:
1. Common Shares 6,000,000, par value $0.01 per share
Preferred Shares 1,000,000, par value $0.01 per share
2. A statement of all or any of the relative rights, preferences and
limitations of the shares of each class is as follows:
a. Preferred Shares. The Board of Directors may cause the
Corporation to issue Preferred Shares in one or more series, each series
to bear a distinctive designation and to have such relative rights and
preferences as shall be prescribed by resolution of the Board. Such
resolutions, when filed, shall constitute amendments to these Articles
of Incorporation.
b. Reverse Stock Split. Effective as of the close of
business on the date of filing these Restated Articles of
Incorporation (the "Effective Time"), the filing of these Restated
Articles of Incorporation shall effect a reverse stock split on the
basis of one new Common Share for each ten then issued and outstanding
Common Shares, while maintaining the number of authorized Common Shares
and Preferred Shares, and their par values, as set forth in this Article
III (the "Reverse Split").
Immediately as of the Effective Time, and without any action by
the holders of outstanding Common Shares, but subject to the redemption
of fractional shares described below, outstanding certificates
representing the Corporation's Common Shares shall represent for all
purposes, and each Common Share issued and outstanding immediately
before the Effective Time shall automatically be converted into, new
Common Shares in the ratio of ten old Common Shares for one new Common
Share, all by virtue of the Reverse Split and without any action on the
part of the holder of such Common Shares.
Notwithstanding any of the foregoing to the contrary, no scrip
or fractional Common Shares shall be issued in connection with the
Reverse Split. In lieu thereof each record holder of Common Shares as
of the Effective Date who would otherwise have been entitled to
receive a fractional new Common Share shall, upon surrender of such
shareholder's certificates representing pre-split Common Shares, be
entitled to receive a cash payment equal to the closing sale price of
one Common Share on The Nasdaq SmallCap Market on the Effective
Date, or, if there are no reported sales on such date, the average of
the last reported high bid and low asked prices on such day multiplied
by the fractional share which would otherwise be issuable after
giving effect to the Reverse Split, and such amount shall in no event
accrue any interest. As of the Effective Time such fractional shares
shall no longer represent equity interests in the Corporation, and
shall not be entitled to any voting, dividend or other shareholder
rights; rather, they shall represent only the right to receive the
cash payment described in this paragraph.
<PAGE> 4
<TABLE>
<S><C>
ARTICLE IV
- ------------------------------------------------------------------------------------------------------------------------------------
1. The address of the current registered office is:
1653 East Maple Road, Troy, Michigan 48083-4208
------------------------------------- ------------------------------------
(Street Address) (City) (ZIP Code)
2. The mailing address of the current registered office, if different than above:
Michigan
------------------------------------------------------ ----------------------------
(Street Address or P.O. Box) (City) (ZIP Code)
3. The name of the current resident agent is: Bruce J. Barrett
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
ARTICLE V
- --------------------------------------------------------------------------------
When a compromise or arrangement or a plan of reorganization of this corporation
is proposed between this corporation and its creditors or any class of them or
between this corporation and its shareholders or any class of them, a court of
equity jurisdiction within the state, on application of this corporation or of a
creditor or shareholder thereof, or on application of a receiver appointed for
the corporation, may order a meeting of the creditors or class of creditors or
of the shareholders or class of shareholders to be affected by the
proposed compromise or arrangement or reorganization, to be summoned in such
manner as the court directs. If a majority in number representing 3/4 in value
of the creditors or class of creditors, or of the shareholders or class of
shareholders to be affected by the proposed compromise or arrangement or a
reorganization, agree to a compromise or arrangement or a reorganization of this
corporation as a consequence of the compromise or arrangement, the compromise or
arrangement and the reorganization, if sanctioned by the court to which the
application has been made, shall be binding on all the creditors or class of
creditors, or on all the shareholders or class of shareholders and also on this
corporation.
- --------------------------------------------------------------------------------
<PAGE> 5
ARTICLE VI
- --------------------------------------------------------------------------------
A director of the Corporation shall not be personally liable to the
Corporation or its shareholders for monetary damages for breach of the
director's fiduciary duty. However, this Article VI shall not eliminate or
limit the liability of a director for any of the following:
(1) A breach of the director's duty of loyalty to the Corporation
or its shareholders.
(2) Acts or omissions not in good faith or that involve
intentional misconduct or knowing violation of law.
(3) A violation of Section 551(1) of the Michigan Business
Corporation Act.
(4) A transaction from which the director derived an improper
personal benefit.
(5) An act or omission occurring before the effective date of
this Article VI.
Any repeal or modification of this Article VI by the shareholders of the
Corporation shall not adversely affect any right or protection of any director
of the Corporation existing at the time of, or for or with respect to, any acts
or omissions occurring before such repeal or modification.
- --------------------------------------------------------------------------------
<PAGE> 6
ARTICLE VII
The business and affairs of the Corporation shall be managed by or
under the direction of a Board of Directors consisting of not less than three or
more than fifteen directors, the exact number of directors to be determined
from time to time solely by a resolution adopted by an affirmative vote of a
majority of the directors then in office. The directors shall be divided into
three classes, designated Class I, Class II and Class III. Each class shall
consist, as nearly as may be possible, of one-third of the total number of
directors constituting the entire Board of Directors. At the 1992 Annual
Meeting of Shareholders, Class I director shall be elected for a one-year term,
Class II directors for a two-year term and Class III directors for a three-year
term. At each succeeding annual meeting of shareholders, commencing in 1993,
successors to the class of directors whose term expires at that annual meeting
shall be elected for a three-year term.
If the number of directors is changed, any increase or decrease shall
be apportioned among the classes of directors so as to maintain the number of
directors in each class as nearly equal as possible, but in no case will a
decrease in the number of directors shorten the term of any incumbent
director. When the number of directors is increased by the Board of Directors
and any newly-created directorships are filled by the Board, the additional
directors shall be classified as provided by the Board.
A director shall hold office until the meeting for the year in which
his or her term expires and until his or her successor shall be elected and
shall qualify, subject, however, to prior death, resignation, retirement,
disqualification or removal from office. Newly created directorships resulting
from an increase in the number of directors and any vacancy on the Board of
Directors may be filled by an affirmative vote of a majority of the directors
then in office. If the number of directors then in office is less then a
quorum, such newly created directorships and vacancies may be filled by a
majority of the directors then in office, although less than a quorum, or by
the sole remaining director. A director elected by the Board of Directors to
fill a vacancy shall hold office until the next election successor of the class
for which the director shall have been chosen and until his or her shall be
elected and shall qualify. A director or the entire Board of Directors may be
removed only for cause.
Notwithstanding the foregoing, whenever the holders of any one or more
classes of Preferred Shares or series thereof issued by the Corporation shall
have the right, voting separately by class or series, to elect directors at an
annual or special meeting of shareholders, the election, term of office, filling
of vacancies and other features of such directorship shall be governed by the
terms of these Restated Articles of Incorporation applicable thereto, and such
directors so elected shall not be divided into classes pursuant to this Article.
This Article VII may only be amended by the affirmative vote of holders
of 90% of the outstanding Common Shares of the Corporation, in addition to the
vote otherwise required by the Michigan Business Corporation Act.
<PAGE> 7
(ADDITIONAL PROVISIONS, IF ANY, MAY BE INSERTED HERE; ATTACH ADDITIONAL PAGES
IF NEEDED.)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
5. COMPLETE SECTION (a) IF THE RESTATED ARTICLES WERE ADOPTED BY THE
UNANIMOUS CONSENT OF THE INCORPORATOR(S) BEFORE THE FIRST MEETING OF THE
BOARD OF DIRECTORS; OTHERWISE, COMPLETE SECTION (b), DO NOT COMPLETE
BOTH.
a. / / These Restated Articles of Incorporation were duly adopted on
the _______ day of ________, 19 _____, in accordance with the
provisions of Section 642 of the Act by the unanimous consent of
the incorporator(s) before the first meeting of the Board of
Directors.
Signed this __ day of ________, 19__.
------------------------ ----------------------------
------------------------ ----------------------------
(SIGNATURES OF INCORPORATORS; TYPE OR PRINT NAME UNDER EACH SIGNATURE)
b. [x] These Restated Articles of Incorporation were duly adopted on
the 25th day of March, 1997 in accordance with the provisions
of Section 642 of the Act and: (check one of the following)
[ ] were duly adopted by the Board of Directors without a vote
of the shareholders. These Restated Articles of
Incorporation only restate and integrate and do not further
amend the provisions of the Articles of Incorporation as
heretofore amended and there is no material discrepancy
between those provisions and the provisions of these
Restated Articles.
[x] were duly adopted by the shareholders. The necessary
number of shares as required by statute were voted in
favor of these Restated Articles.
[ ] were duly adopted by the written consent of the
shareholders having not less than the minimum number of
votes required by statute in accordance with Section 407(1)
of the Act. Written notice to shareholders who have not
consented in writing has been given. (Note: Written
consent by less than all of the shareholders is permitted
only if such provisions appears in the Articles of
Incorporation.)
[ ] were duly adopted by the written consent of all the
shareholders entitled to vote in accordance with section
407(2) of the Act.
Signed this 27th day of March, 1997
By /s/ Bruce J. Barrett
------------------------------------------------
(Signature of President, Vice-President,
Chairperson, or Vice-Chairperson)
Bruce J. Barrett, President
----------------------------------------------------
(Type or Print Name) (Type or Print Title)
<PAGE> 1
EXHIBIT 10.1
[MITANI & CO., LLC LETTERHEAD]
CONFIDENTIAL
Somanetics Corporation
1653 East Maple Road
Troy, MI 48083-4208
Re: Engagement Agreement
Gentlemen:
This letter agreement (the "Agreement") confirms the engagement of Mitani &
Co., LLC (collectively with its Affiliates, referred to herein as the "Agent")
to provide investment banking and advisory services to Somanetics Corporation
(collectively with its Affiliates, referred to herein as the "Company") in
connection with a strategic transaction (including a joint venture,
partnership, acquisition, financing, sale of securities or assets, and/or
licensing or granting of rights to technology, intellectual property,
distribution, import, marketing and manufacturing) relating only to those
markets listed in Schedule I hereto (the "Target Markets") (such transaction
shall be referred to herein as a "Transaction"). This Agreement confirms the
engagement of the Agent during the term hereof as the Company's sole and
exclusive representative to arrange such Transactions and does not authorize
the Agent to arrange any transactions unrelated to the Target Markets.
1. Services: During the term of this Agreement, the Agent will provide the
Company with the following services:
a. financial advice and assistance with respect to the Target
Markets and structuring, planning, and negotiating any
Transactions;
b. identification, evaluation, and solicitation of potential
counterparties to Transactions, (collectively with their
Affiliates, referred to herein as "Counterparties") to be
communicated to the Company periodically in writing;
c. negotiation with Counterparties that indicate interest in a
potential Transaction; and
d. assistance in consummating any potential Transactions. All
decisions relating to any Transaction and the terms thereof
shall be made by the Company in its sole discretion.
<PAGE> 2
Somanetics Corporation
February 20, 1997
Page 2
As a condition of the Agent's sole and exclusive representation of the Company
hereunder, the Company agrees and acknowledges that (i) it shall promptly
direct to the Agent any inquiry (either solicited or unsolicited, and
originating either directly or indirectly from Counterparties located or doing
business in the Target Markets) relating to a Transaction and received by the
Company during the term of this Agreement, and (ii) the Agent shall be entitled
to the full Fee hereunder for any Transaction consummated with such
Counterparty. Notwithstanding the foregoing, the Agent agrees and acknowledges
that in no event shall Baxter, Limited or Dong Bang Healthcare Products Co.,
Ltd. be deemed Counterparties; provided, that the Company agrees that it shall
refrain from negotiating with Baxter, Limited or Dong Bang Healthcare Products
Co., Ltd. in any manner regarding the Target Markets during the term of this
Agreement.
2. Fees: In consideration of our services as your Agent in connection with a
Transaction as described in Section 1, the Company agrees to compensate the
Agent pursuant to the following fee schedule (the "Fee"):
a. Immediately upon the receipt, in connection with a Transaction,
of Consideration, as defined below, other than a purchase of
equity in the Company, the Company agrees to pay the Agent a
Fee in cash equal to: 10% of Consideration up to and including
$2 million; 8% of Consideration in excess of $2 million and up
to and including $4 million; and 6% of Consideration in excess
of $4 million and up to and including $6 million; and 4% of
Consideration in excess of $6 million.
b. Immediately upon receipt of Consideration, in connection with a
Transaction, for the purchase of equity in the Company, the
Company agrees to pay the Agent a Fee in cash and five (5) year
warrants to purchase shares of common stock in the Company in
accordance with the following schedule:
CONSIDERATION CASH WARRANT TOTAL
Up to and including
$2 million: 5% 5% 10%
In excess of $2 million
and up to and including
$4 million: 4% 4% 8%
In excess of $4 million
and up to and including
$6 million: 3% 3% 6%
In excess of $6 million: 2% 2% 4%
The warrant portion of the Fee shall be calculated by
multiplying the "Warrant" percentage above by a fraction, the
numerator of which is the Consideration, as defined below, and
the denominator of which is the Exercise Price. The "Exercise
Price" per share of such warrant will equal one hundred ten
percent (110%) of (i) the price per share of the Company's
common
<PAGE> 3
Somanetics Corporation
February 20, 1997
Page 3
stock sold in connection with the Transaction, or, if other equity
securities are sold, (ii) the average of the closing prices of the
Company's shares of common stock for the 90 trading days prior to the
day of announcement of the Transaction. Such warrant will have
antidilution protection (including for stock splits, reverse splits,
reclassifications, rights offerings, stock dividends and similar
transactions), cashless exercise provisions, and piggyback
registration rights.
Notwithstanding the foregoing piggyback registration rights shall not be
available in the next underwritten public offering of the Company's
securities proposed in the Company's Letter Agreement dated January 17,
1997 with Brean Murray & Co., Inc., including any amendments or renewals
thereof (the "Underwriting Agreement"). Additionally, no Fee shall be
payable in connection with the issuance or sale of any securities of the
Company pursuant to the Underwriting Agreement.
c. The Company agrees to pay the Agent a cash Fee equal to a percentage
of Transaction Revenues, as defined below, pursuant to the following
schedule:
(i) For Transaction Revenues that are royalties or fees, 10%
of such Transaction Revenues.
(ii) For Transaction Revenues that are product sales revenues
or any revenues other than royalties or fees, 6.5% of
Net Sales Revenues received by the Company, as such term
is defined below.
The foregoing Fee shall be payable with respect to (i) the Company's
Cerebral Oximeter monitoring system, (which, collectively with any
later generation products or relabeled products, shall be referred to
as the "Cerebral Oximeter") and (ii) separate products or technologies
sold in connection with a Transaction, for a period of fifteen (15)
years after the date of first commercial sale of such respective
product or technology by a Counterparty in connection with such
Transaction. The expiration of such fifteen-year period with respect
to one product or technology, such as the Cerebral Oximeter, shall not
affect or terminate any fifteen-year period relating to other products
or technologies sold in connection with such Transaction. The parties
agree to establish a mutually acceptable arrangement for the regular
payment of such cash Fee to the Agent or to an entity designated by
the Agent, and the Company agrees to provide the Agent with current
information relating to the payment of such Fee, including the basis
for calculation of the Fee, promptly and subject to audit upon the
Agent's reasonable request.
"Consideration" shall be defined as (i) any form of payment for the securities
or assets of the Company (including the fair market value of any assets, net of
any liabilities, contributed to a joint venture); (ii) license fees, technology
access fees, milestone payments, research and development payments, option
payments, deposits or any other form of payment to the Company related to the
Transaction; (iii) the repayment or assumption by the Counterparty of
obligations of the Company, including without limitation indebtedness for money
borrowed or amounts owed by the Company to inventors or owners of technology;
and (iv) the cash, assets or debt assumption received by the Company in any
separate transactions affecting assets of the Company (e.g., purchase or lease
of any real estate or other assets owned by the Company or its shareholders)
that are related to the Transaction. Consideration shall not include any
Transaction Revenues.
<PAGE> 4
Somanetics Corporation
February 20, 1997
Page 4
"Transaction Revenues" shall be defined as the gross payments actually made to
the Company relating to products, services or technologies sold, marketed or
distributed in connection with a Transaction, including without limitation
royalties, fees, product sales revenues, joint venture revenues (net of the
initial capitalization by the Company) and any other revenues.
"Net Sales Revenues" shall be defined as the gross amount billed for products
sold pursuant to a Transaction, net of (i) any actual documented freight,
packaging, crating, transportation insurance, sales taxes, or other shipping
charges collected by the Company; and (ii) actual documented discounts,
rebates, returns, allowances, and credits.
3. Subsequent Acquisition: In the event that the Company is substantially
acquired by, merges into, or combines with a Counterparty located or doing
business in the Target Markets with whom a Transaction is consummated hereunder
within four (4) years after the closing date of such Transaction, the Company
will pay to the Agent the full Fee on such transaction as a separate
Transaction calculated in accordance with Section 2.a., notwithstanding the
expiration or termination of this Agreement, provided, that the Agent shall
agree to negotiate exclusively on behalf of the Company if requested to do so
by the Company in its sole discretion. If the Company elects in its sole
discretion to engage another advisor in connection with such acquisition, the
Agent and such other advisor shall split the Fee as they mutually agree, and
absent such agreement, they shall share such Fee equally. If the Agent
represents another party in such acquisition, then the Agent shall waive its
rights to any Fee under this Section 3.
4. Expenses: The Company agrees to reimburse actual and reasonable
out-of-pocket expenses and advance travel expenses incurred by the Agent in
connection with this engagement during the term of this Agreement, subject to
the prior approval of the Company. This shall include a non-refundable expense
advance of $7,500 to be paid upon the execution of this Agreement. The parties
acknowledge that $8,000 has been additionally budgeted for the initial
presentations by the Agent to Counterparties in Korea.
5. Indemnification: The Company and the Agent agree to indemnify and hold
harmless the other and each of their directors, officers, agents, employees and
controlling persons to the extent and as provided in Addendum A attached hereto
and incorporated herein by reference. The provisions of this Section 5 and
Addendum A incorporated herein by reference shall survive the termination of
the Agent's engagement under this letter and shall be binding upon any
successor or assigns of the parties hereto.
6. Term: This Agreement shall expire six months after the date of your
signature hereto, and shall automatically renew for successive six month terms
thereafter unless either party elects not to renew by written notice to the
other 10 business days prior to the expiration of such term. This Agreement
may be terminated by either party at any time upon ten (10) business days'
prior written notice to the other party. The indemnification provisions of
Section 5 and Addendum A, and the obligation of the Company to pay the Agent the
Fee pursuant to Sections 2 and 3, and to reimburse expenses incurred pursuant
to Section 4 shall survive the expiration or termination of the Agreement. In
addition, if this Agreement expires or is terminated prior to the consummation
of a Transaction and the Company consummates a Transaction, (i) within
twenty-four months after such expiration or termination, with a Counterparty
approached by the Agent during the term hereof with the consent (as defined
below) of the Company; or (ii) within three months after such expiration of
termination, with any Counterparty domiciled in Korea, then the Company will
pay the Agent the full Fee calculated pursuant to Section 2 with respect to
such Transaction. "Consent" shall be deemed given by the
<PAGE> 5
Somanetics Corporation
February 20, 1997
Page 5
Company if the Agent notifies the Company of a Counterparty in writing pursuant
to Section 1 and the Company does not object to such Counterparty within five
working days of delivery of such notice by telecopy or mail.
7. Due Diligence: The Company agrees to provide the Agent with relevant
information requested by the Agent concerning the Company and will provide the
Agent with reasonable access to the Company's officers, accountants and
counsel. The Agent acknowledges that the information provided and its
activities hereunder are highly confidential and will execute an appropriate
Confidentiality Agreement if requested to do so by the Company. The Agent will
not disclose to any person, firm or corporation, nor use for its own benefit,
during or after the term of this Agreement, any trade secrets or other
confidential information of the Company to the extent any such information is
not generally available to the public other than as a result of an unauthorized
disclosure by the Agent. This Agreement is subject in its entirety to the
satisfactory completion of due diligence by the Agent, and if such due
diligence is not favorably completed by March 15, 1997, this Agreement shall
terminate without any obligation by the parties hereto.
8. General: This Agreement, and the rights and obligations of the parties
hereto, shall be governed by and construed in accordance with New York law
(without regard to any rules or principles of conflicts of law that might look
to any jurisdiction outside of New York). This Agreement supersedes all prior
discussions, negotiations and agreements, if any, between the parties hereto,
and shall be binding upon the parties hereto and their respective Affiliates,
legal representatives, agents, successors and assigns, including any party that
succeeds to, is assigned or acquires all or substantially all of the Company's
interest in or control of any product, compound, technology or intellectual
property related to any Transaction. This Agreement and the transactions
contemplated herein have been duly authorized by each party in accordance with
all necessary corporate action on its part. This Agreement may be assigned by
the Agent in its sole discretion to an Affiliate thereof. This Agreement may
not be modified other than by a written amendment signed by the parties hereto.
For the purpose of this Agreement, the term "Affiliate" shall mean an
executive, director or subsidiary of such entity or any entity or person that
controls, is controlled by, or is under common control with such entity.
Affiliate shall also include any joint venture, partnership, investor
consortium, business group or other similar entity, not included in the
foregoing, to which such entity or any of its Affiliates is currently a party
or becomes a party.
<PAGE> 6
Somanetics Corporation
February 20, 1997
Page 6
If the foregoing letter is in accordance with your understanding of the terms
of our engagement, please sign and return to us the enclosed duplicate hereof.
Very truly yours,
MITANI & CO., LLC
/s/ Bruce E. Roberts
- ----------------------------
Bruce E. Roberts
President
AGREED AND ACCEPTED:
SOMANETICS CORPORATION
/s/ Bruce J. Barrett
- ----------------------------
Bruce J. Barrett
President
Dated: Feb. 21, 1997
-----------------------
<PAGE> 7
SCHEDULE I
TARGET MARKETS
South Korea
North Korea
Taiwan
China (including Hong Kong)
Philippines
Indonesia
Malaysia
Singapore
Vietnam
Myanmar
Mongolia
Cambodia
Brunei
India
Laos
Thailand
Pakistan
Bangladesh
Nepal
Sri Lanka
<PAGE> 8
ADDENDUM A
Somanetics Corporation (collectively with its Affiliates, the "Company") agrees
to indemnify and hold harmless Mitani & Co., LLC ("the Agent"), its officers,
directors, employees and agents, and each person, if any, who controls the Agent
(all of the foregoing are referred to as an "Indemnified Party"), from any and
all losses, claims, damages or liabilities, joint or several, as they are
incurred (including, without limitation, any reasonable legal or any other
reasonable expenses incurred by any Indemnified Party in connection with the
preparation for or defense of any such action, claim or proceeding subject to
indemnification hereunder, whether or not resulting in any liability) to which
such Indemnified Party may become subject under any statute, common law or
otherwise, relating to or arising out of this Agreement, this assignment or any
transactions referred to in this letter or any transactions arising out of the
transactions contemplated by this letter; provided, however, that the Company
shall not be liable to an Indemnified Party in any such case to the extent that
any such loss, claim, damage or liability resulted from said Indemnified
Party's bad faith, willful misconduct or gross negligence, or any information
furnished by the Indemnified Party to the Company. Promptly after receipt by an
Indemnified Party of notice of any claim or the commencement of any action or
proceeding in respect of which indemnity may be sought against the Company,
such Indemnified Party will notify the Company in writing of the receipt or
commencement thereof, and the Company shall assume the defense of such action
or proceeding (including the employment of counsel reasonably satisfactory to
the Indemnified Party and the payment of the fees and expenses of such
counsel). Notwithstanding the preceding sentence, the Indemnified Party will
be entitled to employ its own counsel in such action if the Indemnified Party
reasonably determines that a conflict of interest exists which makes
representation by counsel chosen by the Company not advisable. In such event,
the fees and disbursements of one separate counsel will be paid by the Company,
in connection with such action or proceeding subject to indemnification
hereunder.
The Agent agrees to indemnify and hold the Company, its officers, directors,
employees and agents, and each person, if any, who controls the Company (all of
the foregoing are referred to as a "Company Indemnified Party") from any and
all losses, claims, damages or liabilities, joint or several, as they are
incurred (including, without limitation, any reasonable legal or any other
reasonable expenses incurred by any Company Indemnified Party in connection
with the preparation for or defense of any such action, claim or proceeding
subject to indemnification hereunder, whether or not resulting in any
liability) to which such Company Indemnified Party may become subject under any
statute, common law or otherwise, relating to or arising out of the Agent's bad
faith, willful misconduct or gross negligence in connection with its duties
under this Agreement; provided, however, that the Agent shall not be liable to
a Company Indemnified Party in any such case to the extent that any such loss,
claim, damage or liability resulted from said Company Indemnified Party's bad
faith, willful misconduct or gross negligence, or any information furnished by
the Company Indemnified Party. In no event shall the Agent or any Indemnified
Party have any liability to the Company or Company Indemnified Party in
connection with any Transaction consummated in connection with this Agreement.
Promptly after receipt by a Company Indemnified Party of notice of any claim or
the commencement of any action or proceeding in respect of which indemnity may
be sought against the Agent, such Company Indemnified Party will notify the
Agent in writing of the receipt or commencement thereof, and the Agent shall
assume the defense of such action or proceeding (including the employment of
counsel reasonably satisfactory to the Company Indemnified Party and the
payment of the fees and expenses of such counsel). Notwithstanding the
preceding sentence, the Company Indemnified Party will be entitled to employ
its own counsel in such action if the Company Indemnified Party reasonably
determines that a conflict of interest exists which makes representation by
counsel chosen by the Agent not advisable. In such event, the fees and
disbursements of one separate counsel will be paid by the Agent, in connection
with such action or proceeding subject to indemnification hereunder.
<PAGE> 9
If for any reason the foregoing indemnity, hold harmless and reimbursement
provisions, rights, remedies and protections are unavailable to any Indemnified
Party or Company Indemnified Party, or insufficient to hold any Indemnified
Party or Company Indemnified Party harmless, then the Company and the Agent
shall contribute to the amount paid or payable by such Indemnified Party or
Company Indemnified Party as a result of such losses, claims, damages,
liabilities or expenses in such proportion as is appropriate to reflect the
relative fault of the Company or the Agent on the one hand and the Indemnified
Party or Company Indemnified Party on the other hand, as well as any relevant
equitable considerations. It is hereby further agreed that the relative fault of
the Company or the Agent on the one hand and an Indemnified Party or Company
Indemnified Party on the other hand, with respect to the transactions shall be
determined by reference to, among other things, whether any untrue or alleged
untrue statement of a material fact or incorrect opinion or conclusion or the
omission or alleged omission to state a material fact relates to information
supplied by the Company or the Agent on the one hand or by the Indemnified Party
or Company Indemnified Party on the other hand, as well as the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement, opinion, conclusion or omission.
The indemnity, contribution and expense reimbursement agreements and
obligations set forth herein shall be in addition to any other rights, remedies
or indemnification which any Indemnified Party or Company Indemnified Party may
have or be entitled to at common law or otherwise, and shall remain operative
and in full force and effect regardless of any investigation made by or on
behalf of any Indemnified Party or Company Indemnified Party.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF SOMANETICS CORPORATION AS OF, AND FOR THE THREE MONTHS
ENDED, FEBRUARY 28, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS AND ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-END> FEB-28-1997
<CASH> 1,844,674
<SECURITIES> 0
<RECEIVABLES> 369,775
<ALLOWANCES> 46,000
<INVENTORY> 951,932
<CURRENT-ASSETS> 3,187,514
<PP&E> 838,465
<DEPRECIATION> 752,929
<TOTAL-ASSETS> 3,367,051
<CURRENT-LIABILITIES> 610,096
<BONDS> 0
0
0
<COMMON> 22,854
<OTHER-SE> 2,734,101
<TOTAL-LIABILITY-AND-EQUITY> 3,367,051
<SALES> 353,863
<TOTAL-REVENUES> 353,863
<CGS> 180,271
<TOTAL-COSTS> 180,271
<OTHER-EXPENSES> 1,523,299
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,308,412)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,308,412)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,308,412)
<EPS-PRIMARY> (.57)
<EPS-DILUTED> (.57)
</TABLE>
