##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-K
 (Mark One)
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended November 30, 2009
 or
 o
    
    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
  MICHIGAN
    
    38-2394784(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)
 
 2600 Troy Center Drive, Troy, Michigan
    
    48084-4771(Address of principal executive offices)
    
    (Zip Code)
 
 (248) 244-1400
  Title of each class
    
    Name of each exchange on which registeredCommon Shares, par value $.01 per share
    
    The NASDAQ Stock Market
 None
 o þ
 o þ
 þ o
  o o
 þ
  Large accelerated filer o

    
    Accelerated filer þ
    
    Non-accelerated filer   o
(Do not check if a smaller reporting company)
    
    Smaller reporting company o
 o þ
   Documents Incorporated by Reference




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##### 



SOMANETICS CORPORATION
 ANNUAL REPORT ON FORM 10-K
 FOR THE FISCAL YEAR ENDED NOVEMBER 30, 2009
 TABLE OF CONTENTS
 PAGEPART I
    
    
    2ITEM 1. BUSINESS
    
    
    2ITEM 1A. RISK FACTORS
    
    
    21ITEM 1B. UNRESOLVED STAFF COMMENTS
    
    
    34ITEM 2. PROPERTIES
    
    
    34ITEM 3. LEGAL PROCEEDINGS
    
    
    34ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
    
    
    34SUPPLEMENTAL ITEM. EXECUTIVE OFFICERS OF THE REGISTRANT
    
    
    35PART II
    
    
    37ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED
SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
    
    
    37ITEM 6. SELECTED FINANCIAL DATA
    
    
    40ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
    
    
    41ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
    
    
    53ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
    
    
    54ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
    
    
    73ITEM 9A. CONTROLS AND PROCEDURES
    
    
    73ITEM 9B. OTHER INFORMATION
    
    
    73PART III
    
    
    74ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
    
    
    74ITEM 11. EXECUTIVE COMPENSATION
    
    
    74ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
    
    
    74ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND
DIRECTOR INDEPENDENCE
    
    
    74ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
    
    
    75PART IV
    
    
    76ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
    
    
    76EX-14.1EX-21.1EX-23.1EX-31.1EX-31.2EX-32.1




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PART I
 
 ITEM 1. BUSINESS
 Overview
      2




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
    
    The measurement of regional cerebral oxygen saturation (rSO2) is an indication
of whether oxygen delivery to the brain is adequate. Prolonged declines in rSO2
are indicative of, or may result in, potential brain injury.
 
    
    When used as an indication of compromised cerebral oxygenation, interventions to return the
patients rSO2 to baseline using the INVOS System have been shown to improve
outcomes after surgery.
 
    
    In neonates, infants and children, cerebral and somatic rSO2 provide noninvasive
indications of oxygen changes in the cerebral and peripheral circulatory systems and may
provide an early indication of oxygen deficits associated with impending shock states and
anaerobiosis.
     Our Corporate Information
 www.somanetics.com
 3




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® ® ® ® ® ® ® ® ®
 Industry
 Market Opportunity
   Brain Oxygen Imbalances and Its Effects
     4




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Our Solution
    5




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Features
    
    BenefitsNon-invasive
    
     Reduced risk to patients and medical professionals Consistent with market trend toward less invasive medical proceduresContinuous Information
    
     Immediate information regarding oxygen imbalances to
help guide therapeutic interventions Trend information, rather than at a single point in time4-Channel Monitoring
    
     Simultaneous cerebral and other tissue monitoring Provides more data points to help manage patient careCost-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 careEasy to Use
    
     Does not require a dedicated technician to operate or
interpret Automatic sensor calibration Simple user interface and controlsEffective 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 hypovolemiaPortable/Compatible
    
     Placed at patients bedside Lightweight Can be integrated or interfaced with existing multi-modality systems
 ICU Data Systems, Inc.
   Business Strategy
  6




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
    
    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,
orthopedic surgeries and other major surgeries involving high risk 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 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 700 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. In addition, in January 2007 the results of the first
prospective, randomized clinical trial mentioned above were published in a peer-reviewed
anesthesia journal. We plan to sponsor clinical studies using the INVOS System to
demonstrate its benefits. We are also sponsoring and evaluating sponsorship of other
clinical trials which may allow us to more actively target the sale of the INVOS System for
use in other high risk patient populations and 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. In early 2008, The
Society of Thoracic Surgeons began collecting cerebral oximetry information as part of its
STS Adult Cardiac Surgery Database, which is used to develop practice standards intended to
improve qualify and safety.
    
    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 firm and distributors. We sell the INVOS System and Vital Sync System
through a direct sales team in the United States, the size of which has increased from 53
persons at the end of fiscal 2007 to 63 persons at the end of fiscal 2009, and an
independent sales representative firm. We expect to increase the size of our U.S. direct
sales team in fiscal 2010 and have hired and may hire additional direct salespersons and
clinical specialists in Europe to support Covidien and to sell our Vital Sync
System. 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 our sensors. We expect that such arrangements will provide another distribution
channel for our INVOS System. We launched our newly-acquired data integration technology,
as a stand-alone device that we call Vital Sync, in the third quarter of fiscal 2009. The
INVOS System is one of many devices whose data can be integrated into the stand-alone
device. To support the addition of the derived parameter features to the system, or
calculated parameters based on the combination of two or more discrete parameters, we have
filed a new FDA 510(k) premarket notification in the fourth quarter of fiscal 2009. In
addition, we expect to invest to combine the ICU Data Systems and INVOS System technologies
in a single product in fiscal 2010. Upon completion of development of a single product
combining the Vital Sync System with our INVOS System technology, we also plan to pursue a
new FDA 510(k) clearance for this integrated device for a launch currently expected in
mid-2011.
 7




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
    
    Develop Additional Applications and Markets for the INVOS System.We have developed a
smaller sensor for use with infants and neonates, and are making other advances to the
design and performance features of the INVOS System, including the disposable sensor. We
are also evaluating additional potential market segments for our INVOS System, such as use
in orthopedic surgeries and other major surgeries, in the adult ICU, in assessing
individuals with sleep disorders, and for applications of the technology to monitor other
tissues. We are also exploring several novel near-infrared spectroscopy and imaging
technologies and products under a Contract Development Agreement with Shirley Research
Corporation, an Exclusive Sublicense Agreement with Raba Equity Partners II, LLC (Raba
coreFoundry), and a Development and Exclusive License Agreement with an inventor and his
company. See NeuroPhysics Corporation and Shirley Research Corporation, Raba Equity
Partners II, LLC  and Compartment Syndrome below. Pursuit of some of these potential
market segments may require additional FDA clearance. We believe that these natural
extensions of our technology will increase our market potential without the more
significant risks and costs associated with developing entirely new products.
 The INVOS System
 Components of the INVOS System
  
    
    Monitor.Our oximeter is a portable monitor that uses our proprietary technology to
analyze information received from the disposable sensors. It provides a continuous digital
and trend display of the blood oxygen saturation in the region of the body under the
sensors. 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 USB storage device or through a direct link to a computer. Our four-channel
cerebral and somatic INVOS System monitor, which we launched in fiscal 2006, measures
approximately 11 inches wide, 9 inches high, and 7 inches deep and weighs approximately 11
pounds. We provide a one-year warranty on the monitor. As of November 30, 2009, we had an
installed base of 2,927 INVOS System monitors in the United States in 782 hospitals.
    
    Disposable sensors.Each single-use disposable sensor contains a light source and two
light detectors. For multi-channel cerebral monitoring, disposable sensors 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 four-channel cerebral and somatic INVOS System
monitor, which we launched in fiscal 2006, can display information from four sensors. This
feature allows for the simultaneous monitoring of blood oxygen saturation in tissues
beneath the sensors in four different places in the body in patients with or at risk for
restricted blood flow. The number of sensors used depends on the application. The INVOS
System is being used to monitor simultaneously the brain and other tissue initially for
patients in the pediatric and neonatal ICU and for monitoring other, non-brain tissue
alone, and we expect that it will later also be used on adults for other, non-brain tissue.
The disposable sensors contain information that is processed by the INVOS System allowing
it to automatically calibrate each sensor. During our fiscal year ended November 30, 2009,
net revenues from our disposable sensors comprised approximately 81% of our net revenues.
During fiscal 2009 we sold 502,026 sensors worldwide.
 Overview of INVOS Technology
  8




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Applications and Market Segments
  
    
    Cardiac and Carotid Artery Surgery.Until 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.In fiscal 2005, we initiated selling and marketing efforts
for the INVOS System in the pediatric ICU. In the first half of fiscal 2008, we expanded
the use of our INVOS System in the pediatric and neonatal ICUs with the launch of our
smaller sensor. Our four-channel cerebral and somatic INVOS System monitor, which we
launched in fiscal 2006, can display information from four disposable sensors. This
feature allows for the simultaneous monitoring of blood oxygen saturation in tissues
beneath the sensor in four different places in the body in patients with or at risk for
restricted blood flow. The INVOS System is being used to monitor simultaneously the brain
and other tissue initially for patients in the pediatric and neonatal ICU.
    
    Other Applications.We are also sponsoring and evaluating sponsorship of other clinical
trials which may allow us to more actively target the sale of the INVOS System for use in
other high risk patient populations and other patient populations. In addition, we are
evaluating other potential market segments for our INVOS System, such as use in orthopedic
surgeries and other major surgeries, in the adult ICU, in assessing individuals with sleep
disorders, and for applications of the technology in other tissues in the body.
 9




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Clinical Development
  Murkin Study
 Monitoring Brain Oxygen Saturation
During Coronary Bypass Surgery: A Randomized, Prospective Study
  10




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Goldman Study
 Optimizing Intraoperative Cerebral Oxygen Delivery Using
Noninvasive Cerebral Oximetry Decreases the Incidence of Stroke for Cardiac Surgical Patients
    11




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Other Future Studies
  Marketing, Sales and Distribution
 Marketing
    Sales and Distribution
  
   12




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Research and Development
   NeuroPhysics Corporation and Shirley Research Corporation
   13




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Raba Equity Partners II, LLC (Raba coreFoundry)
 ®
   Compartment Syndrome
    14




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Manufacturing
   Competition
   15




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Proprietary Rights Information
        16




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Government Regulation
  
    
    product development;
    
    product testing;
    
    product manufacturing;
    
    product labeling;
    
    product storage;
    
    premarket clearance or approval;
    
    advertising and promotion;
    
    product sales and distribution; and
    
    product event reports and complaint handling.
  510(k) Clearance Pathway .
   17




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
    
    The measurement of regional cerebral oxygen saturation (rSO2) is an
indication of whether oxygen delivery to the brain is adequate. Prolonged declines in
rSO2 are indicative of, or may result in, potential brain injury.
    
    When used as an indication of compromised cerebral oxygenation, interventions to return
the patients rSO2 to baseline using the INVOS System have been shown to improve
outcomes after surgery.
    
    In neonates, infants and children, cerebral and somatic rSO2 provide
noninvasive indications of oxygen changes in the cerebral and peripheral circulatory
systems and may provide an early indication of oxygen deficits associated with impending
shock states and anaerobiosis.
 PMA Approval Pathway .
   Clinical Trials .
  18




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Postmarket .
  
    
    fines, injunctions, consent decrees and civil penalties;
    
    repair, replacement, refunds, recall or seizure of products;
    
    limitations on exports;
    
    operating restrictions or partial suspension or total shutdown of production;
    
    refusing or delaying our requests for 510(k) clearance or PMA approval of new products
or new intended uses;
    
    withdrawing 510(k) clearance or PMA approvals already granted; and
    
    criminal prosecution.
    Seasonality
  Employees
  19




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Insurance
  Where You Can Get Information We File With The SEC
 http://www.sec.gov
 http://www.somanetics.com
  20




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ITEM 1A. RISK FACTORS
 An investment in our common shares involves a high degree of risk. You should carefully
consider the specific factors described below, together with the cautionary statement under the
caption Forward  Looking Statements below and in Item 7 of this report and the other information
included in this report, before purchasing our common shares. The risks described below are not
the only ones that we face. Additional risks that are not yet known to us or that we currently
think are immaterial could also impair our business, financial condition or results of operations.
If any of the following risks actually occurs, our business, financial condition or results of
operations could be adversely affected. In such case, the trading price of our common shares could
decline, and you may lose all or part of your investment.
 Risks Relating to Our Business
 Our future growth depends on increased market acceptance of our INVOS System in existing market
segments and market acceptance in new market segments.
      21




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We are dependent on our international distributors for a substantial portion of our sales, and
their failure to sell our products adequately would adversely affect our business.
   The global economic crisis has had and may continue to have a negative effect on our business
and operations.
  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.
  22




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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.
  23




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If we fail to manage our growth effectively, our business and operating results could be harmed.
   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.
   24




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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; 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;
    
    limitations on exports;
    
    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.
  25




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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.
  If we fail to comply with the FDAs Quality System Regulation, our manufacturing operations
could be halted, and our business would suffer.
  Our products may in the future be subject to product recalls that could harm our reputation,
business and financial results.
  If our products cause or contribute to a death or a serious injury, or malfunction in certain
ways, we will be subject to medical device reporting regulations, which can result in voluntary
corrective actions or agency enforcement actions.
  26




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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.
  The lengthy sales cycle for the INVOS System could cause variability in our operating results.
  Sales employee and clinical specialist employee turnover could have an adverse effect on our
business and 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 likely be adversely
affected and our competitive position could be harmed.
  27




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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;
 29




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
    
    cease the development, manufacture, importation, use and sale of products that infringe
the patent rights of others, including our INVOS System and Vital Sync 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 which may not be available at all.
    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.
  30




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We have broad discretion to determine how to allocate our cash, cash equivalents, marketable
securities and investments and may not use them effectively.
  Risks Relating to Our Common Shares
 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.
   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;
 31




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
    
    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 currently do not expect to pay
any cash dividends in the foreseeable future.
  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.
  Forward-Looking Statements
   32




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33




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ITEM 1B. UNRESOLVED STAFF COMMENTS
  
 ITEM 2. PROPERTIES
   
 ITEM 3. LEGAL PROCEEDINGS
 ®
 
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  34




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SUPPLEMENTAL ITEM. EXECUTIVE OFFICERS OF THE REGISTRANT
  ExecutiveName
    
    Officer Since
    
    Age
    
    PositionBruce J. Barrett
    
    6/94
    
    
    50
    
    
    President and Chief Executive OfficerArik A. Anderson
    
    01/09
    
    
    43
    
    
    Senior Vice President, R&D and OperationsWilliam M. Iacona
    
    12/00
    
    
    39
    
    
    Vice President, Chief Financial Officer, Controller and TreasurerDominic J. Spadafore
    
    8/02
    
    
    50
    
    
    Senior Vice President, U.S. Sales and MarketingMary Ann Victor
    
    1/98
    
    
    52
    
    
    Vice President, Chief Administrative Officer, General Counsel and Secretary
  Biographical Information
     35




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PART II
 
 ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
  High
    
    LowFiscal Year Ended November 30, 2008First Quarter
    
    $
    29.53
    
    
    $
    19.45Second Quarter
    
    
    28.00
    
    
    
    10.01Third Quarter
    
    
    26.17
    
    
    
    16.76Fourth Quarter
    
    
    25.21
    
    
    
    14.11Fiscal Year Ended November 30, 2009First Quarter
    
    $
    18.25
    
    
    $
    12.09Second Quarter
    
    
    17.25
    
    
    
    10.18Third Quarter
    
    
    18.48
    
    
    
    12.94Fourth Quarter
    
    
    17.23
    
    
    
    12.90
   Performance Graph
 i.e.
 37




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COMPARISON OF CUMULATIVE TOTAL RETURN*
AMONG SOMANETICS CORPORATION,
THE RUSSELL 2000 INDEX, AND
NASDAQ MEDICAL DEVICES INDEX**
 Comparison of Cumulative Five Year Total Return
 
 2004
    
    2005
    
    2006
    
    2007
    
    2008
    
    2009Somanetics Corporation
    
    
    100.00
    
    
    
    222.69
    
    
    
    139.77
    
    
    
    144.16
    
    
    
    126.37
    
    
    
    103.24The Russell 2000 Index
    
    
    100.00
    
    
    
    108.14
    
    
    
    127.00
    
    
    
    125.50
    
    
    
    78.49
    
    
    
    97.75NASDAQ Medical Devices Index
    
    
    100.00
    
    
    
    113.23
    
    
    
    117.33
    
    
    
    148.09
    
    
    
    78.74
    
    
    
    111.89
  
 *
    
    Total return assumes reinvestment of dividends.**
    
    Fiscal Year ending November 30. 38




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Unregistered Sales of Equity Securities and Use of Proceeds
  TotalNumber of
    
    ApproximateShares
    
    Dollar ValuePurchased
    
    of SharesTotal
    
    
    
    
    
    as Part of
    
    That May YetNumber of
    
    Average
    
    Publicly
    
    Be PurchasedShares
    
    Price Paid
    
    Announced Plans
    
    Under the PlansPeriod
    
    Purchased
    
    Per Share
    
    or Programs
    
    or ProgramsSeptember 1-30, 2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,550,580October 1-31, 2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,550,580November 1-30, 2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,550,580Total
    
    
    0
    
    
    
    N/A
    
    
    
    0
  39




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ITEM 6. SELECTED FINANCIAL DATA
  Year Ended November 30,2009
    
    
    2008 (4)
    
    
    2007
    
    
    2006
    
    
    2005(in thousands, except per share data)Statement of Operations Data:Net revenues
    
    $
    50,014
    
    
    $
    47,455
    
    
    $
    38,586
    
    
    $
    28,701
    
    
    $
    20,509Cost of sales
    
    
    6,581
    
    
    
    6,249
    
    
    
    4,726
    
    
    
    3,566
    
    
    
    2,601Gross margin
    
    
    43,433
    
    
    
    41,206
    
    
    
    33,860
    
    
    
    25,135
    
    
    
    17,908Operating expenses:Research, development and engineering (1)
    
    
    3,947
    
    
    
    1,259
    
    
    
    669
    
    
    
    1,582
    
    
    
    526Selling, general and administrative (2)
    
    
    29,621
    
    
    
    26,166
    
    
    
    22,269
    
    
    
    16,485
    
    
    
    13,241Total operating expenses
    
    
    33,568
    
    
    
    27,425
    
    
    
    22,938
    
    
    
    18,067
    
    
    
    13,767Operating income
    
    
    9,865
    
    
    
    13,781
    
    
    
    10,922
    
    
    
    7,068
    
    
    
    4,141Other income:Interest income
    
    
    1,063
    
    
    
    2,630
    
    
    
    4,008
    
    
    
    2,582
    
    
    
    310Total other income
    
    
    1,063
    
    
    
    2,630
    
    
    
    4,008
    
    
    
    2,582
    
    
    
    310Income before income taxes
    
    $
    10,928
    
    
    $
    16,411
    
    
    $
    14,930
    
    
    $
    9,650
    
    
    $
    4,451Income tax (expense) benefit (3)
    
    
    (4,110
    )
    
    
    (5,965
    )
    
    
    (5,248
    )
    
    
    750
    
    
    
    3,300Net income
    
    $
    6,818
    
    
    $
    10,446
    
    
    $
    9,682
    
    
    $
    10,400
    
    
    $
    7,751Net income per common share  basic
    
    $
    .57
    
    
    $
    .82
    
    
    $
    .73
    
    
    $
    .83
    
    
    $
    .75Net income per common share  diluted
    
    $
    .53
    
    
    $
    .76
    
    
    $
    .67
    
    
    $
    .75
    
    
    $
    .66Weighted average number of common shares
outstanding  basic
    
    
    12,069
    
    
    
    12,671
    
    
    
    13,213
    
    
    
    12,463
    
    
    
    10,322Weighted average number of common shares
outstanding  diluted
    
    
    12,936
    
    
    
    13,672
    
    
    
    14,384
    
    
    
    13,824
    
    
    
    11,798
 As of November 30,2009
    
    2008 (4)
    
    2007
    
    2006
    
    2005(in thousands)Balance Sheet Data:Cash, cash equivalents, securities and investments
    
    $
    79,733
    
    
    $
    69,996
    
    
    $
    85,804
    
    
    $
    71,571
    
    
    $
    13,148Working capital
    
    
    64,251
    
    
    
    65,640
    
    
    
    62,998
    
    
    
    57,968
    
    
    
    18,044Total assets
    
    
    101,288
    
    
    
    87,968
    
    
    
    104,984
    
    
    
    92,423
    
    
    
    29,719Total liabilities
    
    
    3,255
    
    
    
    3,120
    
    
    
    2,819
    
    
    
    2,205
    
    
    
    1,878Retained Earnings (Accumulated deficit)
    
    
    216
    
    
    
    (6,603
    )
    
    
    (17,049
    )
    
    
    (26,731
    )
    
    
    (37,131
    )Total shareholders equity
    
    
    98,033
    
    
    
    84,848
    
    
    
    102,165
    
    
    
    90,218
    
    
    
    27,841
 
 (1)
    
    Includes a $1,000,000 expense in fiscal 2006 in connection with our Contract Development and
Exclusive Licensing Agreement we entered into with NeuroPhysics Corporation, and a $2,000,000
expense in fiscal 2009 in connection with our Exclusive Sublicensing Agreement with Raba
Equity Partners II, LLC and our Development and Exclusive License Agreement with an inventor
and his company.(2)
    
    Includes an impairment expense of $929,093 in fiscal 2005 in connection with the write-off of
an intangible asset.(3)
    
    Fiscal 2006 and 2005 amounts are net of a fourth quarter reversal of a portion of our income
tax valuation allowance in the amount of $4,068,613 and $4,837,420, respectively.(4)
    
    Fiscal 2008 amounts reflect 1) our acquisition of substantially all of the assets of ICU Data
Systems, Inc. in November 2008, and 2) our common share repurchase program. See Notes 2 and 8
of Notes to Financial Statements in Item 8. 40




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##### Table of Contents



ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Forward-Looking Statements
 You should read the following discussion and analysis of our financial condition and results
of operations together with our financial statements and the related notes and other financial data
included elsewhere in this report. Some of the information contained in this discussion and
analysis or set forth elsewhere in this report, including information with respect to our plans and
strategy for our business, includes forward-looking statements that involve risks and
uncertainties. You should review the Risk Factors section of this report for a discussion of
important factors that could cause actual results to differ materially from the results described
in or implied by the forward-looking statements contained in the following discussion and analysis.
See also Forward-Looking Statements in Item 1A of this report.
 Overview
  
    
    The measurement of regional cerebral oxygen saturation (rSO2) is an indication
of whether oxygen delivery to the brain is adequate. Prolonged declines in rSO2
are indicative of, or may result in, potential brain injury.
    
    When used as an indication of compromised cerebral oxygenation, interventions to return the
patients rSO2 to baseline using the INVOS System have been shown to improve
outcomes after surgery.
    
    In neonates, infants and children, cerebral and somatic rSO2 provide noninvasive
indications of oxygen changes in the cerebral and peripheral circulatory systems and may
provide an early indication of oxygen deficits associated with impending shock states and
anaerobiosis.
  41




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Net Revenues and Cost of Sales
    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, stock compensation, 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.
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Deferred Tax Assets and Impairment Charges
    Results of Operations
 Fiscal Year Ended November 30, 2009 Compared to Fiscal Year Ended November 30, 2008
 Net Revenues.
 
    
    an increase in U.S. sales of $2,124,351, or 6%, from $38,035,145 in fiscal 2008 to
$40,159,496 in fiscal 2009. The increase in U.S. sales was primarily due to an increase in
sales of the disposable sensor of $4,737,655, or 16%, primarily as a result of a 12%
increase in sensor unit sales. This increase was partially offset by a decrease in sales
of the INVOS System monitor in the United States of $2,737,468, or 36%, primarily as a
result of the current economic downturn in the United States that is affecting hospital
budget spending and lengthening the sales cycle for our INVOS System monitor; and
    
    an increase in international sales of $433,766, or 5%, from $9,420,472 in fiscal 2008 to
$9,854,238 in fiscal 2009. The increase in international sales was primarily due to
increased sales of our disposable sensor of $1,174,742, or 30%, primarily as a result of
increased purchases of approximately $832,000 by Covidien in Europe and $235,000 by Edwards
Lifesciences in Japan. This increase was partially offset by a decrease in sales of the
INVOS System monitor internationally of $740,976, or 13%, primarily due to reduced
purchases by Covidien in Europe as a result of the current economic downturn
internationally that is affecting hospital budget spending and lengthening the sales cycle
for our INVOS System monitor. In fiscal 2009 and fiscal 2008, international sales
represented 20% of our net revenues. Purchases by Covidien accounted for 13% of net
revenues in fiscal 2009, compared to 14% in fiscal 2008.
  43




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Fiscal Year Ended November 30,Product
    
    2009
    
    2008Sensors
    
    
    81
    %
    
    
    72
    %INVOS System Monitors
    
    
    19
    %
    
    
    28
    %Total
    
    
    100
    %
    
    
    100
    %
  Gross Margin.
 Research, Development and Engineering Expenses.
 Selling, General and Administrative Expenses.
 
    
    a $2,261,456 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 105 employees for the fiscal year ended November 30, 2008 to an average of 123 employees
for the fiscal year ended November 30, 2009) and an increase in employee insurance premiums
and salaries of existing employees;
    
    an $782,640 increase in travel, marketing and selling-related expenses as a result of
our increased sales personnel and increased sales and marketing activities, including trade
shows, sales training and advertising expenses;
    
    a $359,477 increase in professional service fees, primarily due to increased legal and
accounting fees associated with the establishment of Somanetics International BV and the
related branches and operations, and legal fees associated with the patent infringement
action that we have filed against CAS Medical Systems, Inc., in addition to other corporate
and intellectual property matters;
 44




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##### Table of Contents




    
    a $291,558 increase in office and administrative expenses, primarily due to the addition
of new employees during fiscal 2009 and the establishment of Somanetics International BV
and the hiring of employees in the related branches and operations, and costs associated
with terminating our CorRestore license;
    
    a $278,088 increase in stock compensation expense due to stock compensation issued to
our officers, employees, directors and one of our consultants in fiscal 2008 and 2009;
    
    a $217,112 increase in accrued incentive compensation expense due to our fiscal year
2009 financial performance, primarily sales and operating income compared to targets in
accordance with the 2009 incentive compensation plans;
    
    a $187,451 increase in clinical research expenses, primarily as a result of educational
grants and clinical trials evaluating the use of our INVOS System; and
    
    a $182,197 increase in recruiting and training, primarily as a result of an increase in
the number of employees, principally in sales and marketing.
   Other Income.
 Income Taxes.
 Fiscal Year Ended November 30, 2008 Compared to Fiscal Year Ended November 30, 2007
 Net Revenues.
 
    
    an increase in U.S. sales of $6,474,215, or 21%, from $31,560,930 in fiscal 2007 to
$38,035,145 in fiscal 2008. The increase in U.S. sales was primarily due to an increase in
sales of the disposable sensor of $5,619,820, or 23%, primarily as a result of a 16%
increase in sensor unit sales. In addition, sales of the INVOS System monitor in the
United States increased $932,969, or 14%, primarily as a result of increased purchases by
pediatric hospitals; and
    
    an increase in international sales of $2,395,570, or 34%, from $7,024,902 in fiscal 2007
to $9,420,472 in fiscal 2008. The increase in international sales was primarily due to
increased purchases of our INVOS System monitor and disposable sensors of $1,655,456 by
Covidien in Europe, and $686,471 by Edwards Lifesciences in Japan. In fiscal 2008,
international sales represented 20% of our net revenues, compared to 18% of our net
revenues in fiscal 2007. Purchases by Covidien accounted for 14% of net revenues in fiscal
2008, compared to 13% in fiscal 2007.
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Fiscal Year Ended November 30,Product
    
    2008
    
    2007Sensors
    
    
    72
    %
    
    
    73
    %INVOS System Monitors
    
    
    28
    %
    
    
    27
    %Total
    
    
    100
    %
    
    
    100
    %
 Gross Margin.
 Research, Development and Engineering Expenses.
 Selling, General and Administrative Expenses.
 
    
    a $2,275,304 increase in salaries, wages, commissions and related expenses, primarily as
a result of an increase in the number of employees, principally in sales and marketing
(from an average of 88 employees for the fiscal year ended November 30, 2007 to an average
of 105 employees for the fiscal year ended November 30, 2008) and an increase in salaries
of existing employees;
    
    an $673,212 increase in travel, marketing and selling-related expenses as a result of
our increased sales personnel and increased sales and marketing activities, including sales
training and trade shows;
    
    a $557,282 increase in stock compensation expense due to stock compensation issued to
our officers, employees, directors and one of our consultants in fiscal 2006, 2007 and
2008;
    
    a $465,769 increase in professional service fees, primarily due to increased legal,
auditing and tax fees;
    
    a $217,099 increase in accrued incentive compensation expense due to our fiscal year
2008 financial performance, primarily increased sales and operating income in accordance
with the 2008 incentive compensation plans; and
    
    a $173,672 increase in office and facility expenses primarily as a result of increased
employees.
  Other Income.
 Income Taxes.
 46




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Effects of Inflation
  Liquidity and Capital Resources
 General
      47




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®
     Cash Flows From Operating Activities
  
    
    $8,646,991 of income before income taxes and non-cash depreciation, amortization, stock
compensation expense and excess tax benefits from stock option exercises; and
    
    a $195,439 increase in accounts payable, primarily as a result of increased inventory
and operating expenses, partially offset by more timely payments made to vendors.
  
    
    a $1,384,230 increase in inventories, primarily due to lower than expected fiscal 2009
sales and the acquisition of components associated with our disposable sensors and 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;
    
    a $1,016,839 increase in accounts receivable, primarily as a result of higher fourth
quarter sales in fiscal 2009 than in the fourth quarter of fiscal 2008, the timing of more
of the sales in the fourth quarter of fiscal
 48




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2009 towards the end of the quarter than in the fourth quarter of fiscal 2008 and less
timely collections in fiscal 2009 than in fiscal 2008;
 
    
    a $489,990 increase in prepaid expenses, primarily due to prepaid expenses related to
our planned move into our new corporate headquarters and assembly and storage facility in
December 2009;
    
    a $230,000 increase in deferred income tax benefits as a result of payments made for
estimated alternative minimum tax that we expect will result in future tax credits when we
use our net operating loss carryforwards;
    
    a $121,432 increase in accrued interest income, primarily due to our increased
marketable securities and long-term investment balances, partially offset by decreased
interest rates; and
    
    a $60,120 decrease in accrued liabilities, primarily as a result of a decrease in
accrued state, local and property taxes as a result of payments made in 2009, and a
decrease in accrued sales commissions as a result of lower than expected 2009 sales,
partially offset by an increase in accrued legal fees associated with the patent
infringement action that we have filed against CAS Medical Systems, Inc., and an increase
in accrued incentive compensation due to our fiscal year 2009 financial performance,
primarily sales and operating income compared to targets in accordance with the 2009
incentive compensation plans.
    Cash Flows From Investing Activities
  Cash Flows From Financing Activities
   49




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Contractual Obligations
  Payments due by periodLess
    
    
    
    
    
    
    
    
    
    Morethan 1
    
    1-3
    
    3-5
    
    than 5Contractual Obligations
    
    Total
    
    year
    
    years
    
    years
    
    yearsLong-term debt obligations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Capital lease obligations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Operating lease obligations
    
    $
    3,412,000
    
    
    $
    365,000
    
    
    $
    911,500
    
    
    $
    957,600
    
    
    $
    1,177,800Purchase obligations
    
    
    6,225,700
    
    
    
    6,218,700
    
    
    
    7,000
    
    
    
    
    
    
    
    Other long-term liabilities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
  Off-Balance Sheet Arrangements
  New Accounting Pronouncements
  Critical Accounting Policies
  Stock Compensation
   50




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Income Taxes
    No Capital Cost Sales Revenue Recognition
  51




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Technology Acquisition Costs Intangible Asset and Goodwill
    52




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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  November 30, 2009
Expected Maturity Dates By Fiscal Year
 2010
    
    2011
    
    2012
    
    2013
    
    2014
    
    Thereafter
    
    Total
    
    Fair ValueInvestments:Marketable Securities and Long-term Investments:Fixed Rate ($)
    
    
    24,763,854
    
    
    
    20,000,000
    
    
    
    1,010,681
    
    
    
    4,994,314
    
    
    
    
    
    
    
    
    
    
    
    50,768,849
    
    
    
    51,155,992Average interest rate
    
    
    .94
    %
    
    
    1.84
    %
    
    
    2.35
    %
    
    
    5.05
    %
    
    
    N/A
    
    
    
    N/A
    
    
    
    1.73
    %
 November 30, 2008
Expected Maturity Dates By Fiscal Year
 2009
    
    2010
    
    2011
    
    2012
    
    2013
    
    Thereafter
    
    Total
    
    Fair ValueInvestments:Marketable Securities and Long-term Investments:Fixed Rate ($)
    
    
    19,992,545
    
    
    
    3,845,241
    
    
    
    
    
    
    
    4,000,000
    
    
    
    4,992,469
    
    
    
    
    
    
    
    32,830,255
    
    
    
    32,823,806Average interest rate
    
    
    .53
    %
    
    
    4.72
    %
    
    
    N/A
    
    
    
    5.00
    %
    
    
    5.05
    %
    
    
    N/A
    
    
    
    2.25
    %
  53




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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 MANAGEMENTS REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
     54




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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
     55




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56




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SOMANETICS CORPORATION
 BALANCE SHEETS
 November 30,2009
    
    
    2008ASSETSCURRENT ASSETS:Cash and cash equivalents (Note 2)
    
    $
    28,964,273
    
    
    $
    37,166,141Marketable securities
    
    
    24,763,854
    
    
    
    19,992,545Accounts receivable
    
    
    8,878,942
    
    
    
    7,862,103Inventory (Note 2)
    
    
    3,622,531
    
    
    
    2,960,422Prepaid expenses
    
    
    1,087,450
    
    
    
    597,460Accrued interest receivable
    
    
    138,099
    
    
    
    16,667Deferred tax asset  current (Note 5)
    
    
    51,060
    
    
    
    164,615Total current assets
    
    
    67,506,209
    
    
    
    68,759,953PROPERTY AND EQUIPMENT: (Note 2)Demonstration and no capital cost sales equipment at customers
    
    
    4,285,163
    
    
    
    3,919,296Machinery and equipment
    
    
    1,886,582
    
    
    
    1,638,597Furniture and fixtures
    
    
    545,796
    
    
    
    504,485Leasehold improvements
    
    
    197,450
    
    
    
    197,450Total
    
    
    6,914,991
    
    
    
    6,259,828Less accumulated depreciation and amortization
    
    
    (3,966,645
    )
    
    
    (3,418,697
    )Net property and equipment
    
    
    2,948,346
    
    
    
    2,841,131OTHER ASSETS:Long-term investments
    
    
    26,004,995
    
    
    
    12,837,710Deferred tax asset  non-current (Note 5)
    
    
    2,795,963
    
    
    
    1,587,977Intangible assets, net (Note 2)
    
    
    234,003
    
    
    
    246,318Goodwill (Note 2)
    
    
    1,783,712
    
    
    
    1,679,713Other
    
    
    15,000
    
    
    
    15,000Total other assets
    
    
    30,833,673
    
    
    
    16,366,718TOTAL ASSETS
    
    $
    101,288,228
    
    
    $
    87,967,802LIABILITIES AND SHAREHOLDERS EQUITYCURRENT LIABILITIES:Accounts payable
    
    $
    1,466,497
    
    
    $
    1,271,058Accrued liabilities (Notes 4 and 6)
    
    
    1,788,552
    
    
    
    1,848,672Total current liabilities
    
    
    3,255,049
    
    
    
    3,119,730COMMITMENTS 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, 12,104,462 shares at November 30, 2009,
and 12,034,074 shares at November 30, 2008
    
    
    121,045
    
    
    
    120,341Additional paid-in capital
    
    
    97,696,229
    
    
    
    91,330,305Retained Earnings (Accumulated deficit)
    
    
    215,905
    
    
    
    (6,602,574
    )Total shareholders equity
    
    
    98,033,179
    
    
    
    84,848,072TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
    
    $
    101,288,228
    
    
    $
    87,967,802
  57




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SOMANETICS CORPORATION
 STATEMENTS OF OPERATIONS
 For the Years Ended November 30,2009
    
    
    2008
    
    
    2007NET REVENUES (Notes 2 and 9)
    
    $
    50,013,734
    
    
    $
    47,455,617
    
    
    $
    38,585,832COST OF SALES
    
    
    6,580,766
    
    
    
    6,249,256
    
    
    
    4,726,146Gross margin
    
    
    43,432,968
    
    
    
    41,206,361
    
    
    
    33,859,686OPERATING EXPENSES:Research, development and engineering
(Note 2)
    
    
    3,947,509
    
    
    
    1,259,227
    
    
    
    668,815Selling, general and administrative
    
    
    29,620,618
    
    
    
    26,166,120
    
    
    
    22,269,184Total operating expenses
    
    
    33,568,127
    
    
    
    27,425,347
    
    
    
    22,937,999OPERATING INCOME
    
    
    9,864,841
    
    
    
    13,781,014
    
    
    
    10,921,687OTHER INCOME:Interest income
    
    
    1,063,147
    
    
    
    2,629,967
    
    
    
    4,008,537Total other income
    
    
    1,063,147
    
    
    
    2,629,967
    
    
    
    4,008,537INCOME BEFORE INCOME TAXES
    
    $
    10,927,988
    
    
    $
    16,410,981
    
    
    $
    14,930,224INCOME TAX EXPENSE (Note 5)
    
    
    (4,109,508
    )
    
    
    (5,964,734
    )
    
    
    (5,247,943
    )NET INCOME
    
    $
    6,818,480
    
    
    $
    10,446,247
    
    
    $
    9,682,281NET INCOME PER COMMON
SHARE  BASIC (Note 2)
    
    $
    .57
    
    
    $
    .82
    
    
    $
    .73NET INCOME PER COMMON
SHARE  DILUTED (Note 2)
    
    $
    .53
    
    
    $
    .76
    
    
    $
    .67WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 
BASIC (Note 2)
    
    
    12,069,361
    
    
    
    12,671,452
    
    
    
    13,213,428WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 
DILUTED (Note 2)
    
    
    12,935,886
    
    
    
    13,671,730
    
    
    
    14,384,445
  58




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SOMANETICS CORPORATION
 STATEMENTS OF SHAREHOLDERS EQUITY
 Additional
    
    
    Retained Earnings
    
    
    TotalCommon
    
    
    Share
    
    
    Paid-In
    
    
    (Accumulated
    
    
    Shareholders
    
    
    ComprehensiveShares
    
    
    Value
    
    
    Capital
    
    
    Deficit)
    
    
    Equity
    
    
    IncomeBalance at December 1, 2006
    
    
    13,163,627
    
    
    $
    131,636
    
    
    $
    116,817,012
    
    
    $
    (26,731,103
    )
    
    $
    90,217,545For cash, exercise of stock options
    
    
    271,334
    
    
    
    2,714
    
    
    
    1,481,153
    
    
    
    
    
    
    
    1,483,867Stock compensation expense
    
    
    
    
    
    
    
    
    
    
    781,308
    
    
    
    
    
    
    
    781,308Restricted share grant
    
    
    9,000
    
    
    
    90
    
    
    
    (90
    )
    
    
    
    
    
    
    Net income and comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,682,281
    
    
    
    9,682,281
    
    
    $
    9,682,281Balance at November 30, 2007
    
    
    13,443,961
    
    
    $
    134,440
    
    
    $
    119,079,383
    
    
    $
    (17,048,822
    )
    
    $
    102,165,001For cash, exercise of stock options
    
    
    319,969
    
    
    
    3,199
    
    
    
    1,332,129
    
    
    
    
    
    
    
    1,335,328Stock compensation expense
    
    
    
    
    
    
    
    
    
    
    1,338,590
    
    
    
    
    
    
    
    1,338,590Restricted share grant
    
    
    75,273
    
    
    
    753
    
    
    
    (753
    )
    
    
    
    
    
    
    Repurchase of common shares
    
    
    (1,805,129
    )
    
    
    (18,051
    )
    
    
    (31,431,369
    )
    
    
    
    
    
    
    (31,449,420
    )Income tax benefit from stock option exercises
    
    
    
    
    
    
    
    
    
    
    1,012,325
    
    
    
    
    
    
    
    1,012,325Net income and comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,446,247
    
    
    
    10,446,247
    
    
    $
    10,446,247Balance at November 30, 2008
    
    
    12,034,074
    
    
    $
    120,341
    
    
    $
    91,330,305
    
    
    $
    (6,602,574
    )
    
    $
    84,848,072For cash, exercise of stock options
    
    
    52,800
    
    
    
    528
    
    
    
    169,475
    
    
    
    
    
    
    
    170,003Stock compensation expense
    
    
    
    
    
    
    
    
    
    
    1,616,678
    
    
    
    
    
    
    
    1,616,678Restricted share grant
    
    
    17,588
    
    
    
    176
    
    
    
    (176
    )
    
    
    
    
    
    
    Income tax benefit from stock option exercises
    
    
    
    
    
    
    
    
    
    
    4,579,947
    
    
    
    
    
    
    
    4,579,947Net income and comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,818,480
    
    
    
    6,818,480
    
    
    $
    6,818,480Balance at November 30, 2009
    
    
    12,104,462
    
    
    $
    121,045
    
    
    $
    97,696,229
    
    
    $
    215,905
    
    
    $
    98,033,179
  59




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SOMANETICS CORPORATION
 STATEMENTS OF CASH FLOWS
 For the Years Ended November 30,2009
    
    
    2008
    
    
    2007CASH FLOWS FROM OPERATING ACTIVITIES:Net income
    
    $
    6,818,480
    
    
    $
    10,446,247
    
    
    $
    9,682,281Adjustments to reconcile net income to net
cash provided by operations:Income tax expense (benefit)
    
    
    3,715,516
    
    
    
    5,586,906
    
    
    
    5,076,276Depreciation and amortization
    
    
    1,076,264
    
    
    
    951,906
    
    
    
    806,034Stock compensation expense
    
    
    1,616,678
    
    
    
    1,338,590
    
    
    
    781,308Excess tax benefits from stock option exercises
    
    
    (4,579,947
    )
    
    
    (1,012,325
    )
    
    
    Changes in assets and liabilities net of effects from
purchase of ICU Data Systems, Inc.:Accounts receivable (increase)
    
    
    (1,016,839
    )
    
    
    (375,532
    )
    
    
    (2,746,528
    )Accrued interest receivable (increase) decrease
    
    
    (121,432
    )
    
    
    534,450
    
    
    
    (199,451
    )Inventory (increase)
    
    
    (1,384,230
    )
    
    
    (1,606,952
    )
    
    
    (658,895
    )Deferred income tax benefit (increase)
    
    
    (230,000
    )
    
    
    (252,488
    )
    
    
    (400,960
    )Prepaid expenses (increase)
    
    
    (489,990
    )
    
    
    (36,575
    )
    
    
    (66,063
    )Accounts payable increase
    
    
    195,439
    
    
    
    153,055
    
    
    
    72,276Accrued liabilities (decrease) increase
    
    
    (60,120
    )
    
    
    147,191
    
    
    
    541,711Accrued income tax expense decrease
    
    
    
    
    
    
    
    
    
    
    194,000Net cash provided by operating activities
    
    
    5,539,819
    
    
    
    15,874,473
    
    
    
    13,081,989CASH FLOWS FROM INVESTING ACTIVITIES:Purchases of marketable securities and
long-term investments
    
    
    (58,528,869
    )
    
    
    (35,021,241
    )
    
    
    (63,795,275
    )Proceeds from maturities of marketable securities and
long-term investments
    
    
    40,590,275
    
    
    
    54,822,160
    
    
    
    54,000,000Payment for purchase of ICU Data Systems, Inc.
    
    
    (104,000
    )
    
    
    (1,926,031
    )
    
    
    Acquisition of property and equipment
    
    
    (449,043
    )
    
    
    (654,430
    )
    
    
    (332,473
    )Net cash (used in) provided by investing activities
    
    
    (18,491,637
    )
    
    
    17,220,458
    
    
    
    (10,127,748
    )CASH FLOWS FROM FINANCING ACTIVITIES:Repurchase of common shares
    
    
    
    
    
    
    (31,449,420
    )
    
    
    Excess tax benefits from stock option exercises
    
    
    4,579,947
    
    
    
    1,012,325
    
    
    
    Proceeds from issuance of common shares due to
exercise of stock options
    
    
    170,003
    
    
    
    1,335,328
    
    
    
    1,483,867Net cash provided by (used in) financing activities
    
    
    4,749,950
    
    
    
    (29,101,767
    )
    
    
    1,483,867NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS
    
    
    (8,201,868
    )
    
    
    3,993,164
    
    
    
    4,438,108CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD
    
    
    37,166,141
    
    
    
    33,172,977
    
    
    
    28,734,869CASH AND CASH EQUIVALENTS,
END OF PERIOD
    
    $
    28,964,273
    
    
    $
    37,166,141
    
    
    $
    33,172,977Supplemental Disclosure of Non cash investing activities:Demonstration and no capital cost sales equipment capitalized
from inventory (Note 2)
    
    $
    722,121
    
    
    $
    644,814
    
    
    $
    833,069Supplemental Disclosure of Taxes paid:Federal and state income taxes (Note 5)
    
    $
    653,992
    
    
    $
    600,317
    
    
    $
    572,627
  60




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##### Table of Contents



SOMANETICS CORPORATION
 NOTES TO FINANCIAL STATEMENTS
 1. Organization and Operations
 ®
   2. Summary of Significant Accounting Policies
 Cash Equivalents
 Marketable Securities and Long-Term Investments
 Inventory
 61




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##### Table of Contents



SOMANETICS CORPORATION
 NOTES TO FINANCIAL STATEMENTS  (Continued)
 November 30,2009
    
    
    2008Purchased components
    
    $
    2,358,037
    
    
    $
    2,141,050Finished goods
    
    
    1,042,205
    
    
    
    587,808Work in process
    
    
    222,289
    
    
    
    231,564Total
    
    $
    3,622,531
    
    
    $
    2,960,422
 Property and Equipment
 Intangible Assets and Goodwill
 November 30,2009
    
    
    2008Technology acquisition costs
    
    $
    246,318
    
    
    $
    246,318Less: accumulated amortization
    
    
    (12,315
    )
    
    
    Total
    
    $
    234,003
    
    
    $
    246,318
    62




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##### Table of Contents



SOMANETICS CORPORATION
 NOTES TO FINANCIAL STATEMENTS  (Continued)
   Revenue Recognition
 Research, Development and Engineering
 Net Income Per Common Share  basic and diluted
 2009
    
    2008
    
    2007Weighted average shares  basic
    
    
    12,069,361
    
    
    
    12,671,452
    
    
    
    13,213,428Add: effect of dilutive common
shares
    
    
    866,525
    
    
    
    1,000,278
    
    
    
    1,171,017Weighted average shares  diluted
    
    
    12,935,886
    
    
    
    13,671,730
    
    
    
    14,384,445
  Common Share Repurchase Program
 63




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##### Table of Contents



SOMANETICS CORPORATION
 NOTES TO FINANCIAL STATEMENTS  (Continued)
  Accounting Pronouncements
 Use Of Estimates
 3. Stock Offerings and Common Shares
   1991 Incentive Stock Option Plan
    
    
    14,6631997 Stock Option Plan
    
    
    1,023,5082005 Stock Incentive Plan
    
    
    1,026,139Options Granted Independent of Option Plans
    
    
    55,000Total shares reserved for future issuance
    
    
    2,119,310
 4. Accrued Liabilities
  November 30,2009
    
    
    2008Incentive Compensation
    
    $
    1,185,225
    
    
    $
    978,520Sales Commissions
    
    
    425,969
    
    
    
    637,516Professional Fees
    
    
    159,458
    
    
    
    39,500Warranty
    
    
    17,900
    
    
    
    19,440Taxes
    
    
    
    
    
    
    121,683Clinical Research
    
    
    
    
    
    
    51,671401(k) Match
    
    
    
    
    
    
    342Total
    
    $
    1,788,552
    
    
    $
    1,848,672
 5. Income Taxes
  64




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##### Table of Contents



SOMANETICS CORPORATION
 NOTES TO FINANCIAL STATEMENTS  (Continued)
   November 30,2009
    
    
    2008(in thousands)Net operating loss carryforwards
    
    $
    2,641
    
    
    $
    7,119Stock compensation expense
    
    
    1,475
    
    
    
    885Other
    
    
    66
    
    
    
    85Basis difference of fixed assets and intangibles
    
    
    196
    
    
    
    (212
    )Alternative minimum tax credit carryforward
    
    
    883
    
    
    
    653Research and general business tax credit carryforwards
    
    
    176
    
    
    
    176Subtotal
    
    
    5,437
    
    
    
    8,706Reduction for future stock option tax benefits valuation
    
    
    (2,590
    )
    
    
    (6,953
    )Deferred tax asset
    
    $
    2,847
    
    
    $
    1,753
  For the Fiscal Year Ended November 30,2009
    
    
    2008
    
    
    2007Taxes at U.S. statutory rate  34%
    
    $
    3,715,516
    
    
    $
    5,579,734
    
    
    $
    5,076,276State and local income taxes
    
    
    338,826
    
    
    
    325,763
    
    
    
    122,347Nondeductible meals and entertainment
    
    
    55,166
    
    
    
    59,237
    
    
    
    49,320Income tax expense from
continuing operations
    
    $
    4,109,508
    
    
    $
    5,964,734
    
    
    $
    5,247,943Effective tax rate
    
    
    37.6
    %
    
    
    36.3
    %
    
    
    35.1
    %The components of current and deferred federal and state income tax expense are as follows:For the Fiscal Year Ended November 30,2009
    
    
    2008
    
    
    2007Federal income tax expense  current
    
    $
    230,000
    
    
    $
    252,488
    
    
    $
    206,960Federal income tax expense  deferred
    
    
    3,510,516
    
    
    
    5,360,450
    
    
    
    4,891,042State income tax expense  current
    
    
    338,826
    
    
    
    325,763
    
    
    
    122,347State income tax expense  deferred
    
    
    30,166
    
    
    
    26,033
    
    
    
    27,594Income tax expense from
continuing operations
    
    $
    4,109,508
    
    
    $
    5,964,734
    
    
    $
    5,247,943
 65




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##### Table of Contents



SOMANETICS CORPORATION
 NOTES TO FINANCIAL STATEMENTS  (Continued)
     6. Commitments and Contingencies
    66




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##### Table of Contents



SOMANETICS CORPORATION
 NOTES TO FINANCIAL STATEMENTS  (Continued)
 Year ending November 30,2010
    
    $
    365,1002011
    
    
    450,1002012
    
    
    461,4002013
    
    
    472,9002014
    
    
    484,7002015
    
    
    497,0002016
    
    
    509,6002017
    
    
    171,200Total
    
    $
    3,412,000
     67




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##### Table of Contents



SOMANETICS CORPORATION
 NOTES TO FINANCIAL STATEMENTS  (Continued)
  ®
  7. Stock Option Plans
     68




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##### Table of Contents



SOMANETICS CORPORATION
 NOTES TO FINANCIAL STATEMENTS  (Continued)
     2009
    
    
    2008
    
    
    2007Weighted
    
    
    
    
    
    
    Weighted
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    Average
    
    
    
    
    
    
    AverageCommon
    
    
    Exercise
    
    
    Common
    
    
    Exercise
    
    
    Common
    
    
    ExerciseShares
    
    
    Price
    
    
    Shares
    
    
    Price
    
    
    Shares
    
    
    PriceOptions outstandingDecember 1,
    
    
    1,822,187
    
    
    $
    8.12
    
    
    
    1,895,656
    
    
    $
    6.75
    
    
    
    2,071,990
    
    
    $
    6.01Options granted
    
    
    68,250
    
    
    
    14.77
    
    
    
    253,000
    
    
    
    13.56
    
    
    
    96,000
    
    
    
    19.25Options exercised
    
    
    (52,800
    )
    
    
    3.22
    
    
    
    (319,969
    )
    
    
    4.17
    
    
    
    (271,334
    )
    
    
    5.47Options canceled
    
    
    (23,000
    )
    
    
    18.15
    
    
    
    (6,500
    )
    
    
    14.92
    
    
    
    (1,000
    )
    
    
    18.85Options outstandingNovember 30,
    
    
    1,814,637
    
    
    
    8.38
    
    
    
    1,822,187
    
    
    
    8.12
    
    
    
    1,895,656
    
    
    
    6.75Options exercisableNovember 30,
    
    
    1,411,587
    
    
    $
    6.42
    
    
    
    1,352,587
    
    
    $
    5.51
    
    
    
    1,609,456
    
    
    $
    4.76
  69




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##### Table of Contents



SOMANETICS CORPORATION
 NOTES TO FINANCIAL STATEMENTS  (Continued)
  Options outstanding
    
    
    Options exercisableWeighted
    
    
    Weighted
    
    
    
    
    
    
    Weighted
    
    
    WeightedAverage
    
    
    Average
    
    
    
    
    
    
    Average
    
    
    AverageRange of Exercise
    
    Options
    
    
    Exercise
    
    
    Remaining
    
    
    Options
    
    
    Exercise
    
    
    RemainingPrices
    
    Outstanding
    
    
    Price
    
    
    Life (years)
    
    
    Exercisable
    
    
    Price
    
    
    Life (years)$1.70 - $10.00
    
    
    1,014,638
    
    
    $
    2.90
    
    
    
    2.34
    
    
    
    1,014,638
    
    
    $
    2.90
    
    
    
    2.34$10.01 - $15.00
    
    
    439,503
    
    
    
    13.36
    
    
    
    7.38
    
    
    
    213,253
    
    
    
    13.47
    
    
    
    6.03$15.01 - $19.93
    
    
    360,496
    
    
    
    17.74
    
    
    
    7.03
    
    
    
    183,696
    
    
    
    17.70
    
    
    
    6.86Total
    
    
    1,814,637
    
    
    $
    8.38
    
    
    
    4.49
    
    
    
    1,411,587
    
    
    $
    6.42
    
    
    
    3.49
  8. Acquisitions
    9. Major Customers and Foreign Sales
  70




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##### Table of Contents



SOMANETICS CORPORATION
 NOTES TO FINANCIAL STATEMENTS  (Continued)
  10. Segment Information
  11. Subsequent Events
    71




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##### Table of Contents



QUARTERLY INFORMATION (unaudited)
  QuarterFirst
    
    Second
    
    Third
    
    Fourth*Year Ended November 30, 2009Net revenues
    
    $
    11,155,354
    
    
    $
    11,831,560
    
    
    $
    12,513,135
    
    
    $
    14,513,685Gross margin
    
    
    9,574,873
    
    
    
    10,227,805
    
    
    
    10,970,234
    
    
    
    12,660,056Net income
    
    
    1,302,179
    
    
    
    1,777,565
    
    
    
    2,229,046
    
    
    
    1,509,690Net income per common
share  basic
    
    $
    0.11
    
    
    $
    0.15
    
    
    $
    0.18
    
    
    $
    0.13Net income per common
share  diluted
    
    $
    0.10
    
    
    $
    0.14
    
    
    $
    0.17
    
    
    $
    0.12Year Ended November 30, 2008Net revenues
    
    $
    8,693,274
    
    
    $
    12,740,063
    
    
    $
    12,367,988
    
    
    $
    13,654,292Gross margin
    
    
    7,676,450
    
    
    
    11,060,807
    
    
    
    10,650,130
    
    
    
    11,818,974Net income
    
    
    1,028,429
    
    
    
    3,052,252
    
    
    
    3,046,454
    
    
    
    3,319,112Net income per common
share  basic
    
    $
    0.08
    
    
    $
    0.23
    
    
    $
    0.25
    
    
    $
    0.28Net income per common
share  diluted
    
    $
    0.07
    
    
    $
    0.21
    
    
    $
    0.23
    
    
    $
    0.25
 
 *
    
    Fourth quarter 2009 research, development and engineering expenses included $2,000,000 of
up-front, non-refundable payments in connection with two license agreements entered into in that
quarter. 72




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##### Table of Contents



ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
  
 ITEM 9A. CONTROLS AND PROCEDURES
    
 ITEM 9B. OTHER INFORMATION
  73




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##### Table of Contents



PART III
 
 ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
   
 ITEM 11. EXECUTIVE COMPENSATION
  
 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
  
 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
  74




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ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
  75




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PART IV
 
 ITEM 15 EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
 (a)
    (1)
    
    Financial StatementsOur financial statements for the following years are included in response to Item 8 of this report:Report of Independent Registered Public Accounting FirmBalance Sheets  November 30, 2009 and 2008Statements of Operations  For Each of the Three Years in the Period Ended November
30, 2009Statements of Shareholders Equity  For Each of the Three Years in the Period Ended
November 30, 2009Statements of Cash Flows  For Each of the Three Years in the Period Ended November
30, 2009Notes to Financial Statements(2)
    
    Financial Statement SchedulesNone.(3)
    
    ExhibitsThe Exhibits to this report are as set forth in the Exhibit Index on pages 78 to
80 of this report. Each management contract or compensatory plan or arrangement
filed as an exhibit to this report is identified in the Index to Exhibits with an
asterisk before the exhibit number.
 76




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##### Table of Contents



SIGNATURES
  Somanetics CorporationDate:  February 3, 2010
    By:
    /s/ Bruce J. BarrettBruce J. BarrettPresident & Chief Executive Officer  Signature
    
    Title
    
    Date/s/ BRUCE J. BARRETT
    
    President and Chief Executive Officer and a Director
    
    February 3, 2010Bruce J. Barrett
    
    (Principal Executive Officer)/s/ WILLIAM M. IACONA
    
    Vice President and Chief Financial Officer,
    
    February 3, 2010William M. Iacona
    
    Controller, and Treasurer(Principal Financial Officer and Principal Accounting Officer)/s/ JAMES I. AUSMAN
    
    Director
    
    February 2, 2010James I. Ausman, M.D., Ph.D./s/ DANIEL S. FOLLIS
    
    Director
    
    February 2, 2010Daniel S. Follis/s/ JOHN P. JUMPER
    
    Director
    
    February 2, 2010John P. Jumper/s/ RICHARD R. SORENSEN
    
    Director
    
    February 2, 2010Richard R. Sorensen
 77




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EXHIBIT INDEX
 Exhibit
    
    Description3(i)
    
    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,
1998.3(ii)
    
    Amended and Restated Bylaws of Somanetics Corporation, incorporated
by reference to Exhibit 3(ii) to the Companys Current Report on
Form 8-K dated November 2, 2007 and filed November 5, 2007.10.1
    
    Lease Agreement, dated September 10, 1991, between Somanetics
Corporation and WS Development Company, incorporated by reference
to Exhibit 10.3 to the Companys Quarterly Report on Form 10-Q for
the quarter ended August 31, 1991.10.2
    
    Extension of Lease, between Somanetics Corporation and WS
Development Company, dated July 22, 1994, incorporated by reference
to Exhibit 10.11 to the Companys Quarterly Report on Form 10-Q for
the quarter ended August 31, 1994.10.3
    
    Change in ownership of Lease Agreement for 1653 E. Maple Road,
Troy, MI 48083, dated September 12, 1994, between Somanetics
Corporation and First Industrial, L.P., incorporated by reference
to Exhibit 10.12 to the Companys Quarterly Report on Form 10-Q for
the quarter ended August 31, 1994.10.4
    
    Second Addendum, between Somanetics Corporation and First
Industrial Mortgage Partnership, L.P., dated April 14, 1997,
incorporated by reference to Exhibit 10.1 to the Companys
Quarterly Report on Form 10-Q for the quarter ended May 31, 1997.10.5
    
    Third Amendment, between Somanetics Corporation and First
Industrial Mortgage Partnership, L.P., dated April 23, 1999,
incorporated by reference to Exhibit 10.2 to the Companys
Quarterly Report on Form 10-Q for the quarter ended May 31, 1999.10.6
    
    Fourth Amendment, between Somanetics Corporation and First
Industrial Mortgage Partnership, L.P., dated April 13, 2000,
incorporated by reference to Exhibit 10.1 to the Companys
Quarterly Report on Form 10-Q for the quarter ended May 31, 2000.10.7
    
    Fifth Amendment, between Somanetics Corporation and First
Industrial Mortgage Partnership, L.P., dated January 22, 2003,
incorporated by reference to Exhibit 10.7 to the Companys Annual
Report on Form 10-K for the fiscal year ended November 30, 2002.10.8
    
    Sixth Amendment, between Somanetics Corporation and First
Industrial Mortgage Partnership, L.P., dated April 21, 2004,
incorporated by reference to Exhibit 10.1 to the Companys
Quarterly Report on Form 10-Q for the quarter ended May 31, 2004.10.9
    
    Seventh Amendment, between Somanetics Corporation and First
Industrial Mortgage Partnership, L.P., dated April 16, 2009,
incorporated by reference to Exhibit 10.1 to the Companys
Quarterly Report on Form 10-Q for the quarter ended May 31, 2009.10.10
    
    Lease, dated as of July 22, 2009, between Kirts Office Center
Associates, L.L.C. and Somanetics Corporation, incorporated by
reference to Exhibit 10.1 to the Companys Current Report on Form
8-K dated July 22, 2009 and filed on July 27, 2009.*10.11
    
    Somanetics Corporation Amended and Restated 1991 Incentive Stock
Option Plan, incorporated by reference to Exhibit 10.5 to the
Companys Annual Report on Form 10-K for the fiscal year ended
November 30, 1991.*10.12
    
    Fourth Amendment to Somanetics Corporation 1991 Incentive Stock
Option Plan, incorporated by reference to Exhibit 10.7 to the
Companys Annual Report on Form 10-K for the fiscal year ended
November 30, 1992.*10.13
    
    Amended and Restated Fifth Amendment to Somanetics Corporation 1991
Incentive Stock Option Plan, incorporated by reference to Exhibit
10.10 to the Companys Annual Report on Form 10-K for the fiscal
year ended November 30, 1995.*10.14
    
    Somanetics Corporation 1997 Stock Option Plan, incorporated by
reference to Exhibit 10.9 to the Companys Annual Report on Form
10-K for the fiscal year ended November 30, 1996.*10.15
    
    First Amendment to Somanetics Corporation 1997 Stock Option Plan,
incorporated by reference to Exhibit 10.11 to the Companys Annual
Report on Form 10-K for the fiscal year ended November 30, 1997.*10.16
    
    Second Amendment to Somanetics Corporation 1997 Stock Option Plan,
incorporated by reference to Exhibit 10.12 to the Companys Annual
Report on Form 10-K for the fiscal year
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##### Table of Contents



EXHIBIT INDEX
 Exhibit
    
    Descriptionended November 30, 1998.*10.17
    
    Third Amendment to Somanetics Corporation 1997 Stock Option Plan,
incorporated by reference to Exhibit 10.14 to the Companys Annual
Report on Form 10-K for the fiscal year ended November 30, 1999.*10.18
    
    Fourth Amendment to Somanetics Corporation 1997 Stock Option Plan,
incorporated by reference to Exhibit 10.16 to the Companys Annual
Report on Form 10-K for the fiscal year ended November 30, 2000.*10.19
    
    Fifth Amendment to Somanetics Corporation 1997 Stock Option Plan,
incorporated by reference to Exhibit 10.1 to the Companys
Quarterly Report on Form 10-Q for the quarter ended February 28,
2002.*10.20
    
    Sixth Amendment to Somanetics Corporation 1997 Stock Option Plan,
incorporated by reference to Exhibit 10.18 to the Companys Annual
Report on Form 10-K for the fiscal year ended November 30, 2002.*10.21
    
    Somanetics Corporation 2005 Stock Incentive Plan, incorporated by
reference to Exhibit 10.1 to the Companys Current Report on Form
8-K, dated February 24, 2005*10.22
    
    First Amendment to Somanetics Corporation 2005 Stock Incentive
Plan, incorporated by reference to Exhibit 10.3 to the Companys
Current Report on Form 8-K, dated January 17, 2007 and filed
January 23, 2007.*10.23
    
    Second Amendment to Somanetics Corporation 2005 Stock Incentive
Plan, incorporated by reference to Exhibit 10.2 to the Companys
Current Report on Form 8-K, dated January 20, 2010 and filed
January 26, 2010.*10.24
    
    Somanetics Corporation 2009 Executive Officer Incentive
Compensation Plan, incorporated by reference to Exhibit 10.1 to the
Companys Current Report on Form 8-K, dated January 21, 2009 and
filed January 23, 2009.*10.25
    
    Somanetics Corporation 2010 Executive Officer Incentive
Compensation Plan, incorporated by reference to Exhibit 10.1 to the
Companys Current Report on Form 8-K, dated January 20, 2010 and
filed January 26, 2010.*10.26
    
    Amended and Restated Employment Agreement between Somanetics
Corporation and Bruce J. Barrett, dated as of June 17, 2008,
incorporated by reference to Exhibit 99.3 to the Companys Current
Report on Form 8-K, dated June 17, 2008 and filed June 23, 2008.*10.27
    
    Amended and Restated Employment Agreement between Somanetics
Corporation and Dominic J. Spadafore, dated as of June 17, 2008,
incorporated by reference to Exhibit 99.2 to the Companys Current
Report on Form 8-K, dated June 17, 2008 and filed June 23, 2008.*10.28
    
    Form of Amended and Restated Change in Control Agreement, between
Somanetics Corporation and executive officers, dated as of June 17,
2008, incorporated by reference to Exhibit 99.1 to the Companys
Current Report on Form 8-K, dated June 17, 2008 and filed June 23,
2008.*10.29
    
    Form of Director Stock Option Agreement, incorporated by reference
to Exhibit 10.30 to the Companys Annual Report on Form 10-K for
the fiscal year ended November 30, 2004.*10.30
    
    Form of Officer Non-Qualified Stock Option Agreement, incorporated
by reference to Exhibit 10.31 to the Companys Annual Report on
Form 10-K for the fiscal year ended November 30, 2004.*10.31
    
    Form of Employee Non-Qualified Stock Option Agreement, incorporated
by reference to Exhibit 10.32 to the Companys Annual Report on
Form 10-K for the fiscal year ended November 30, 2004.*10.32
    
    Form of Incentive Stock Option Agreement, incorporated by reference
to Exhibit 10.33 to the Companys Annual Report on Form 10-K for
the fiscal year ended November 30, 2004.*10.33
    
    Form of 2005 Stock Incentive Plan Incentive Stock Option Agreement,
incorporated by reference to Exhibit 10.1 to the Companys
Quarterly Report on Form 10-Q for the quarter ended May 31, 2005.*10.34
    
    Form of 2005 Stock Incentive Plan Officer Non-Qualified Stock
Option Agreement, incorporated by reference to Exhibit 10.2 to the
Companys Quarterly Report on Form 10-Q for the quarter ended May
31, 2005.*10.35
    
    Form of 2005 Stock Incentive Plan Non-Officer Non-Qualified Stock
Option Agreement, incorporated by reference to Exhibit 10.3 to the
Companys Quarterly Report on Form 10-Q for
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##### Table of Contents



EXHIBIT INDEX
 Exhibit
    
    Descriptionthe quarter ended May
31, 2005.*10.36
    
    Form of 2005 Stock Incentive Plan Director Stock Option Agreement,
incorporated by reference to Exhibit 10.4 to the Companys
Quarterly Report on Form 10-Q for the quarter ended May 31, 2005.*10.37
    
    Form of Restricted Stock Agreement, incorporated by reference to
Exhibit 10.1 to the Companys Current Report on Form 8-K, dated
June 29, 2006 and filed July 5, 2006.*10.38
    
    Stock Option Agreement, dated as of August 1, 2002, between
Somanetics Corporation and Dominic J. Spadafore, incorporated by
reference to Exhibit 10.3 to the Companys Quarterly Report on Form
10-Q for the quarter ended August 31, 2002.*10.39
    
    Summary of Outside Director Compensation, incorporated by reference
to Item 8.01 to the Companys Current Report on Form 8-K dated May
7, 2009 and filed May 8, 2009.10.40
    
    Contract Development Agreement, dated as of February 6, 2009 among
Somanetics Corporation, Shirley Research Corporation, Hugh F.
Stoddart, and Hugh A. Stoddart, incorporated by reference to
Exhibit 99.1 to the Companys Current Report on Form 8-K, dated
February 6, 2009 and filed February 10, 2009.10.41
    
    Current Form of Somanetics Corporation Confidentiality Agreement
used for testing hospitals and clinics, incorporated by reference
to Exhibit 10.22 to the Companys Annual Report on Form 10-K for
the fiscal year ended November 30, 1992.10.42
    
    Current Form of Somanetics Corporation Confidentiality Agreement
used for the Companys employees and agents, incorporated by
reference to Exhibit 10.3 to the Companys Quarterly Report on Form
10-Q for the quarter ended August 31, 1992.14.1
    
    Somanetics Corporation Code of Business Conduct and Ethics, as
re-adopted December 8, 2009.21.1
    
    Subsidiaries of the Registrant.23.1
    
    Consent of Deloitte & Touche LLP.31.1
    
    Certifications of Chief Executive Officer Pursuant to Rule
13a-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.31.2
    
    Certifications of Chief Financial Officer Pursuant to Rule
13a-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.32.1
    
    Certifications of Chief Executive Officer and Chief Financial
Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
 80