##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-K
  þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended November 30, 2007 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
(State or other jurisdiction of 
incorporation or organization)
    
    38-2394784
(I.R.S. Employer
Identification No.)
 
 1653 East Maple Road, Troy, Michigan
(Address of principal executive offices)
    
    48083-4208
(Zip Code)
 
 (248) 689-3050
  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
 þ
  o þ o o
  o þ
   Documents Incorporated by Reference




---



##### 



SOMANETICS CORPORATION
 ANNUAL REPORT ON FORM 10-K
 FOR THE FISCAL YEAR ENDED NOVEMBER 30, 2007
 TABLE OF CONTENTS
 PAGEPART I
    
    
    
    
    2ITEM 1.
    
    BUSINESS
    
    
    2ITEM 1A.
    
    RISK FACTORS
    
    
    19ITEM 1B.
    
    UNRESOLVED STAFF COMMENTS
    
    
    31ITEM 2.
    
    PROPERTIES
    
    
    31ITEM 3.
    
    LEGAL PROCEEDINGS
    
    
    31ITEM 4.
    
    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
    
    
    31SUPPLEMENTAL
ITEM. EXECUTIVE OFFICERS OF THE REGISTRANT
    
    
    32PART II
    
    
    
    
    33ITEM 5.
    
    MARKET FOR REGISTRANTS COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
    
    
    33ITEM 6.
    
    SELECTED FINANCIAL DATA
    
    
    35ITEM 7.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    
    
    36ITEM 7A.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    47ITEM 8.
    
    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
    
    
    48ITEM 9.
    
    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
    
    
    66ITEM 9A.
    
    CONTROLS AND PROCEDURES
    
    
    66ITEM 9B.
    
    OTHER INFORMATION
    
    
    67PART III
    
    
    
    
    68ITEM 10.
    
    DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
    
    
    68ITEM 11.
    
    EXECUTIVE COMPENSATION
    
    
    68ITEM 12.
    
    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
    
    
    68ITEM 13.
    
    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
    
    
    68ITEM 14.
    
    PRINCIPAL ACCOUNTANT FEES AND SERVICES
    
    
    69PART IV
    
    
    
    
    70ITEM 15.
    
    EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
    
    
    70Code of Business Conduct and EthicsConsent of Deloitte & Touche LLPCertifications of CEO Pursuant to Section 302Certifications of CFO Pursuant to Section 302Certifications of CEO and CFO Pursuant to Section 906




---



##### Table of Contents



PART I
 
 ITEM 1. BUSINESS
 Overview
     2




---



##### Table of Contents



Our Corporate Information
 www.somanetics.com
 ® ® ® ® ® ® ®
 Industry
 Market Opportunity
   Brain Oxygen Imbalances and Its Effects
   3




---



##### Table of Contents



Limitations of Traditional Monitoring Technologies
  Our Solution
   4




---



##### Table of Contents



Features
    
    BenefitsNon-invasive
    
       Reduced
risk to patients and medical professionals   Consistent with market trend toward less invasive
medical proceduresContinuous Information
    
       Immediate information regarding brain oxygen imbalances
to help guide therapeutic interventions   Trend information, rather than at a single point in time4-Channel Monitoring
    
      
 Simultaneous cerebral and somatic 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 SomaSensor 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
 The CorRestore System
  Business Strategy
  
    
    Target Surgical Procedures and Other Critical Care Situations with a High Risk of Oxygen
Imbalances.We target surgical procedures and other critical care situations with a high
risk of oxygen imbalances. Some of our current and potential future markets include
cardiac surgeries, carotid artery surgeries, pediatric and neonatal ICU applications and
other major surgeries involving diabetic or elderly patients. We believe that the medical
professionals involved in these surgeries and ICU treatments are most aware of
 5




---



##### Table of Contents



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 500 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 currently sponsoring a prospective, randomized, blinded
clinical trial involving diabetic patients over age 50 who are undergoing major general
surgery. The study group will consist of patients whose surgeries are managed based on
information provided by the INVOS System, and the control group will consist of similarly
situated patients whose surgeries are not managed based on information provided by the
INVOS System. The two groups will be compared across measures of patient outcomes and
hospital costs, including length of hospital stay. Diabetics are at particular risk of
oxygen imbalances because of a higher incidence of vascular disease. If results of this
trial are positive, we intend to target more actively the sale of the INVOS System for use
in diabetic patients undergoing major general surgeries, consistent with FDA requirements.
We are also evaluating sponsorship of other clinical trials which may allow us to more
actively target the sale of the INVOS System for use in other patient populations. We use
the results of clinical studies to help convince the medical community of the clinical
importance of the information provided by the INVOS System. We also sponsor peer-to-peer
educational opportunities and promote use of the INVOS System in regional centers of
influence that we believe will influence its adoption by others.
    
    Invest in Sales and Marketing Activities.We continue to increase our investment in our
distribution network consisting of our direct sales employees, independent sales
representative firms and distributors. We sell the INVOS System through a direct sales
team in the United States, the size of which has increased from 26 persons at the end of
fiscal 2005 to 53 persons at the end of fiscal 2007, and four independent sales
representative firms. We expect to increase the size of our U.S. direct sales team in
fiscal 2008 and are evaluating placing direct salespersons and clinical specialists in
Europe to support Covidien. We participate in trade shows and medical conferences, ongoing
peer-to-peer educational programs and targeted public relations opportunities.
    
    Interface and Integrate Our Technology into Other Manufacturers Multi-Modality Systems.
There are many existing monitoring systems in the operating room and the ICU. We would
like to interface with these monitors. We have interfaced the INVOS System with the
Philips Medical Systems VueLink System to provide data, alarm events and status messages
from the INVOS System on any monitor that accepts the VueLink module, a multi-parameter
monitor. This enables oximetry data from our INVOS System to be displayed on the VueLink
screen and integrated with other vital patient information. We plan to support the
interface and integration of our INVOS System technology with other medical device
manufacturers to expand the installed base of INVOS System monitors and increase the demand
for SomaSensors. We expect that such arrangements will provide another distribution
channel for our INVOS System.
    
    Develop Additional Applications and Markets for the INVOS System.We have developed a
smaller SomaSensor for use with infants, and are making other advances to the design and
performance features of the INVOS System, including the SomaSensor. We are also evaluating
additional potential market segments for our INVOS System, such as use in other major
surgeries, in the adult ICU, and for other somatic applications of the technology. We are
also exploring several novel near-infrared spectroscopy and imaging technologies and
products under a Contract Development and Exclusive Licensing Agreement with NeuroPhysics
Corporation. See NeuroPhysics Corporation 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.
 6




---



##### Table of Contents



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 SomaSensors. It provides a continuous digital and
trend display of an index of the oxygen saturation in the region of the body under the
SomaSensors. The monitor includes menus for users to set high and low audible alarms,
customize the display and retrieve data. Single-function keys allow users to silence
alarms, mark important events, store data for up to 28 surgical procedures, and retrieve
data by USB storage device or through a direct link to a computer. Our four-channel
cerebral and somatic INVOS System monitor, which we launched in the second quarter of 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, 2007, we had an installed base of 2,006 INVOS System monitors in the United States in
664 hospitals.
    
    SomaSensors.Each single-use SomaSensor contains a light source and two light
detectors. For multi-channel cerebral monitoring, SomaSensors are placed on both sides of
a patients forehead and are connected to the monitor, which allows for monitoring both
sides of the brain. Our four-channel cerebral and somatic INVOS System monitor, which we
launched in the second quarter of 2006, can display information from four SomaSensors,
which allows for the simultaneous monitoring of changes in blood oxygen saturation in the
brain and, in patients with or at risk for restricted blood flow, in somatic tissue. The
number of sensors used depends on the application. The INVOS System is being used to
monitor simultaneously the brain and somatic tissue initially for patients in the pediatric
and neonatal ICU, and we expect that it will later also be used on adults and for
monitoring somatic tissue alone. The SomaSensors contain information that is processed by
the INVOS System allowing it to automatically calibrate each sensor. During our fiscal
year ended November 30, 2007, net revenues from SomaSensors comprised approximately 73
percent of our net revenues. During fiscal 2007 we sold approximately 371,000 SomaSensors
worldwide.
 Overview of INVOS Technology
    7




---



##### Table of Contents



Applications and Market Segments
  
    
    Cardiac and Carotid Artery Surgery.Until the first quarter of fiscal 2005, we focused
our marketing efforts primarily on cardiac and carotid artery surgeries. We believed it
would be easier to demonstrate clinical importance of the information provided by the INVOS
System and potentially gain market acceptance for our products in connection with these
surgeries. Moreover, much of the earliest clinical data regarding the use of the INVOS
System involved these surgeries. In September 2000, we received 510(k) clearance from the
FDA to market the model 5100 INVOS System in the United States. Unlike earlier models, the
model 5100 INVOS System has the added capability of being able to monitor pediatric
patients. After receiving this clearance, we expanded our marketing efforts to include
pediatric cardiac surgeries.
    
    Pediatric and Neonatal ICU.In the first quarter of fiscal 2005, we initiated selling
and marketing efforts for the INVOS System in the pediatric ICU. We plan to launch the
INVOS System into the neonatal ICU in early 2008, after completing additional market
research of a smaller SomaSensor. Our four-channel cerebral and somatic INVOS System
monitor, which we launched in the second quarter of 2006, can display information from four
SomaSensors, which will allow for the simultaneous monitoring of changes in blood oxygen
saturation in the brain and, in patients with or at risk for restricted blood flow, in
somatic tissue. We expect that the INVOS System will be used to monitor simultaneously the
brain and somatic tissue initially for patients in the pediatric and neonatal ICU.
    
    Diabetic Patient Major Surgeries.We are currently sponsoring a prospective,
randomized, blinded clinical trial involving diabetic patients over age 50 who are
undergoing major general surgery. The study group will consist of patients whose surgeries
are managed based on information provided by the INVOS System, and the control group will
consist of similarly situated patients whose surgeries are not managed based on information
provided by the INVOS System. The two groups will be compared across measures of patient
outcomes and hospital costs, including length of hospital stay. Diabetics are at
particular risk of oxygen imbalances because of a higher incidence of vascular disease. If
results of this trial are positive, we intend to target more actively the sale of the INVOS
System for use in diabetic patients undergoing major general surgeries, consistent with FDA
requirements.
    
    Other Applications.We are also evaluating sponsorship of other clinical trials which
may allow us to more actively target the sale of the INVOS System for use in other patient
populations. If the results of these trials are positive, following completion of these
trials and publication of the results, we intend to target the sale of the INVOS System for
use on elderly patients undergoing major surgeries. We are also evaluating additional
potential market segments for our INVOS System, such as use in other major surgeries, in
the adult ICU, and for other somatic applications of the technology. We are also exploring
several novel near-infrared spectroscopy and imaging technologies and products under a
Contract Development and Exclusive
 8




---



##### Table of Contents



Licensing Agreement with NeuroPhysics Corporation. See NeuroPhysics Corporation below.
Pursuit of some of these potential market segments may require additional FDA clearance.
 Clinical Development
  Murkin Study
 Monitoring Brain Oxygen Saturation
During Coronary Bypass Surgery: A Randomized, Prospective Study
     9




---



##### Table of Contents



Goldman Study
 Optimizing Intraoperative Cerebral Oxygen Delivery Using
Noninvasive Cerebral Oximetry Decreases the Incidence of Stroke for Cardiac Surgical Patients
    Diabetic Patients Studies
 th
  10




---



##### Table of Contents



Other Future Studies
  The CorRestore System
  License Agreement
  Marketing, Sales and Distribution
 Marketing
  11




---



##### Table of Contents



Sales and Distribution
        12




---



##### Table of Contents



Research and Development
  NeuroPhysics Corporation
   Manufacturing
   13




---



##### Table of Contents



Competition
     Proprietary Rights Information
   14




---



##### Table of Contents



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.
 15




---



##### Table of Contents



510(k) Clearance Pathway .
  PMA Approval Pathway .
 Clinical Trials .
  16




---



##### Table of Contents



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.
     17




---



##### Table of Contents



Seasonality
  Employees
  Insurance
  Where You Can Get Information We File With The SEC
 http://www.sec.gov
 http://www.somanetics.com
  18




---



##### Table of Contents



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.
      19




---



##### Table of Contents



We are dependent on our distributors and our independent sales representative firms for a
substantial portion of our sales, and their failure to sell our products adequately would
adversely affect our business.
   We currently depend on single-source suppliers for key components of the INVOS System, and the
loss of any of these suppliers could harm our ability to manufacture and sell our products,
increase the cost of our components or delay our clinical trials.
   We may become subject to competition which may adversely affect us.
  20




---



##### Table of Contents



We also compete with companies that have longer operating histories, more established products
and greater resources than we do for, among other things, forehead monitoring space, limited
hospital capital budgets and alternative products.
  If we fail to manage our growth effectively, our business and operating results could be harmed.
   Patients might assert product liability claims against us.
  21




---



##### Table of Contents



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.
    The FDA might require us to obtain a new clearance to label or promote the INVOS System for
specific patient subgroups, such as diabetics; if we fail to obtain such clearances, our sales
and revenues may be adversely affected.
  After clearance or approval of our products, we are subject to continuing regulation by the FDA,
and if we fail to comply with FDA regulations, our business could suffer.
  22




---



##### Table of Contents




    
    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.
  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.
  23




---



##### Table of Contents



Failure to obtain or maintain regulatory approval in foreign jurisdictions would prevent us from
marketing our products abroad.
  Federal regulatory reforms may adversely affect our ability to sell our products profitably.
  Changes in our actual or estimated future taxable income could change the value of our deferred
tax asset, potentially resulting in a decrease in net income, which could adversely affect the
price of our common shares.
  Stock option accounting rules are increasing our reported expenses, which could adversely affect
the price of our common shares.
  24




---



##### Table of Contents



The lengthy sales cycle for the INVOS System could cause variability in our operating results.
  Sales 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.
    25




---



##### Table of Contents



If we are found to infringe or are alleged to infringe any third party intellectual property
rights, then our business may be adversely affected.
   26




---



##### Table of Contents




    
    pay damages, including up to treble damages and the other partys attorneys fees, which
may be substantial;
    
    cease the development, manufacture, importation, use and sale of products that infringe
the patent rights of others, including our INVOS System, through a court-imposed sanction
called an injunction;
    
    expend significant resources to redesign our technology so that it does not infringe
others patent rights, or to develop or acquire non-infringing intellectual property, which
may not be possible;
    
    discontinue manufacturing or other processes incorporating infringing technology; and/or
    
    obtain licenses to the infringed intellectual property, which may not be available to us
on acceptable terms, or which may not be available at all.
    27




---



##### Table of Contents



Our success depends on our ability to attract and retain key personnel.
  Any acquisitions that we make could disrupt our business and harm our financial condition.
  We have had limited success in marketing the CorRestore System, which could result in claims
against us.
    We have broad discretion to determine how to allocate our cash, cash equivalents, marketable
securities and investments and may not use them effectively.
  28




---



##### Table of Contents



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;
    
    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.
  29




---



##### Table of Contents



We have never paid cash dividends on our capital stock, and we do not anticipate paying 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
    30




---



##### Table of Contents



ITEM 1B. UNRESOLVED STAFF COMMENTS
  
 ITEM 2. PROPERTIES
  
 ITEM 3. LEGAL PROCEEDINGS
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  31




---



##### Table of Contents



SUPPLEMENTAL ITEM. EXECUTIVE OFFICERS OF THE REGISTRANT
  ExecutiveName
    
    Officer Since
    
    Age
    
    PositionBruce J. Barrett
    
    6/94
    
    
    48
    
    
    President and Chief Executive OfficerWilliam M. Iacona
    
    12/00
    
    
    37
    
    
    Vice President and Chief Financial Officer, Controller, and TreasurerDominic J. Spadafore
    
    8/02
    
    
    48
    
    
    Senior Vice President, Sales and MarketingMary Ann Victor
    
    1/98
    
    
    50
    
    
    Vice President and Chief Administrative Officer and Secretary
  Biographical Information
     32




---



##### Table of Contents



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, 2006First Quarter
    
    $
    36.64
    
    
    $
    21.53Second Quarter
    
    
    27.02
    
    
    
    15.28Third Quarter
    
    
    19.97
    
    
    
    14.51Fourth Quarter
    
    
    24.75
    
    
    
    16.55Fiscal Year Ended November 30, 2007First Quarter
    
    $
    23.63
    
    
    $
    18.35Second Quarter
    
    
    21.10
    
    
    
    17.35Third Quarter
    
    
    19.81
    
    
    
    16.08Fourth Quarter
    
    
    20.59
    
    
    
    17.93
   Performance Graph
 i.e.
 33




---



##### Table of Contents



COMPARISON OF CUMULATIVE TOTAL RETURN*
AMONG SOMANETICS CORPORATION,
THE RUSSELL 2000 INDEX, AND
NASDAQ MEDICAL DEVICES INDEX**
 
 2002
    
    2003
    
    2004
    
    2005
    
    2006
    
    2007Somanetics Corporation
    
    
    100.00
    
    
    
    387.13
    
    
    
    687.13
    
    
    
    1,530.20
    
    
    
    960.40
    
    
    
    990.59The Russell 2000 Index
    
    
    100.00
    
    
    
    136.29
    
    
    
    159.81
    
    
    
    172.83
    
    
    
    202.95
    
    
    
    200.57NASDAQ Medical Devices Index
    
    
    100.00
    
    
    
    144.60
    
    
    
    167.13
    
    
    
    189.24
    
    
    
    196.10
    
    
    
    247.53
  
 *
    
    Total return assumes reinvestment of dividends.**
    
    Fiscal Year ending November 30. 34




---



##### Table of Contents



ITEM 6. SELECTED FINANCIAL DATA
  Year Ended November 30,2007
    
    2006
    
    2005
    
    2004
    
    2003(in thousands, except per share data)Statement of Operations Data:Net revenues
    
    $
    38,586
    
    
    $
    28,701
    
    
    $
    20,509
    
    
    $
    12,609
    
    
    $
    9,361Cost of sales
    
    
    4,726
    
    
    
    3,566
    
    
    
    2,601
    
    
    
    2,050
    
    
    
    2,140Gross margin
    
    
    33,860
    
    
    
    25,135
    
    
    
    17,908
    
    
    
    10,558
    
    
    
    7,221Operating expenses:Research, development and engineering (1)
    
    
    669
    
    
    
    1,582
    
    
    
    526
    
    
    
    369
    
    
    
    413Selling, general and administrative (2)
    
    
    22,269
    
    
    
    16,485
    
    
    
    13,241
    
    
    
    8,237
    
    
    
    6,759Total operating expenses
    
    
    22,938
    
    
    
    18,067
    
    
    
    13,767
    
    
    
    8,606
    
    
    
    7,172Operating income
    
    
    10,922
    
    
    
    7,068
    
    
    
    4,141
    
    
    
    1,952
    
    
    
    49Other income:Interest income
    
    
    4,008
    
    
    
    2,582
    
    
    
    310
    
    
    
    55
    
    
    
    23Total other income
    
    
    4,008
    
    
    
    2,582
    
    
    
    310
    
    
    
    55
    
    
    
    23Income before income taxes
    
    $
    14,930
    
    
    $
    9,650
    
    
    $
    4,451
    
    
    $
    2,007
    
    
    $
    72Income tax (expense) benefit (3)
    
    
    (5,248
    )
    
    
    750
    
    
    
    3,300
    
    
    
    6,700
    
    
    
    Net income
    
    $
    9,682
    
    
    $
    10,400
    
    
    $
    7,751
    
    
    $
    8,707
    
    
    $
    72Net income per common share 
basic
    
    $
    .73
    
    
    $
    .83
    
    
    $
    .75
    
    
    $
    .89
    
    
    $
    .01Net income per common share 
diluted
    
    $
    .67
    
    
    $
    .75
    
    
    $
    .66
    
    
    $
    .77
    
    
    $
    .01Weighted average number of common shares
outstanding  basic
    
    
    13,213
    
    
    
    12,463
    
    
    
    10,322
    
    
    
    9,780
    
    
    
    9,114Weighted average number of common shares
outstanding  diluted
    
    
    14,384
    
    
    
    13,824
    
    
    
    11,798
    
    
    
    11,323
    
    
    
    9,467
 As of November 30,2007
    
    2006
    
    2005
    
    2004
    
    2003(in thousands)Balance Sheet Data:Cash, cash equivalents,
securities and investments
    
    $
    85,804
    
    
    $
    71,571
    
    
    $
    13,148
    
    
    $
    7,070
    
    
    $
    2,239Working capital
    
    
    62,998
    
    
    
    57,968
    
    
    
    18,044
    
    
    
    9,311
    
    
    
    4,480Total assets
    
    
    104,984
    
    
    
    92,423
    
    
    
    29,719
    
    
    
    18,785
    
    
    
    7,156Total liabilities
    
    
    2,819
    
    
    
    2,205
    
    
    
    1,878
    
    
    
    1,232
    
    
    
    991Accumulated deficit
    
    
    (17,049
    )
    
    
    (26,731
    )
    
    
    (37,131
    )
    
    
    (44,882
    )
    
    
    (53,589
    )Total shareholders equity
    
    
    102,165
    
    
    
    90,218
    
    
    
    27,841
    
    
    
    17,553
    
    
    
    6,165
 
 (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.(2)
    
    Includes an impairment expense of $929,093 in fiscal 2005 in connection with the write-off of
our intangible asset associated with the acquisition of the license for the CorRestore System.(3)
    
    Fiscal 2006, 2005, and 2004 amounts are net of a fourth quarter reversal of a portion of our
income tax valuation allowance in the amount of $4,068,613, $4,837,420 and $7,397,345,
respectively. 35




---



##### 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
      Net Revenues and Cost of Sales
  36




---



##### Table of Contents



Operating Expenses
  
    
    salaries, wages and related expenses of our employees and consultants;
    
    sales and marketing expenses, such as employee sales commissions, commissions to
independent sales representatives, travel, entertainment, advertising, education and
training expenses, depreciation of demonstration monitors and attendance at selected
medical conferences;
    
    clinical research expenses, such as costs of supporting clinical trials; and
    
    general and administrative expenses, such as the cost of corporate operations,
professional services, 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.
  Deferred Tax Assets and Impairment Charges
  
    
    We recorded an impairment expense of $929,093 associated with the write-down of our
intangible asset associated with the acquisition of the license for the CorRestore System.
    
    We adjusted our deferred tax asset valuation allowance resulting in the recognition of
additional deferred tax assets due to expected future tax benefits related to our net
operating loss carryforwards. Recognition
 37




---



##### Table of Contents



of this additional deferred tax asset resulted in a non-cash net tax benefit on our
statement of operations for fiscal 2005 of $3,300,000.
   Results of Operations
 Fiscal Year Ended November 30, 2007 Compared to Fiscal Year Ended November 30, 2006
 Net Revenues.
 
    
    an increase in U.S. sales of $8,284,866, or 36 percent, from $23,276,064 in fiscal 2006
to $31,560,930 in fiscal 2007. The increase in U.S. sales was primarily due to an increase
in sales of the disposable SomaSensor of $5,691,400, or 30 percent, primarily as a result
of a 24 percent increase in SomaSensor unit sales. In addition, sales of the INVOS System
monitor in the United States increased $2,841,360, or 75 percent, primarily as a result of
increased purchases by pediatric hospitals; and
    
    an increase in international sales of $1,600,366, or 30 percent, from $5,424,536 in
fiscal 2006 to $7,024,902 in fiscal 2007. The increase in international sales was
primarily due to increased purchases of the INVOS System monitor and disposable SomaSensor
by Covidien, formerly Tyco Healthcare, in Europe, and increased purchases by Edwards
Lifesciences in connection with the launch of our four-channel cerebral and somatic INVOS
System monitor in Japan, partially for evaluation and demonstration purposes. In fiscal
2007, international sales represented 18 percent of our net revenues, compared to 19
percent of our net revenues in fiscal 2006. Purchases by Covidien accounted for 13 percent
of net revenues in fiscal 2007, compared to 15 percent in fiscal 2006.
  38




---



##### Table of Contents



Fiscal Year Ended November 30,Product
    
    2007
    
    2006SomaSensors
    
    
    73
    %
    
    
    75
    %INVOS System Monitors
    
    
    27
    %
    
    
    24
    %Total INVOS System
    
    
    100
    %
    
    
    99
    %CorRestore Systems
    
    
    0
    %
    
    
    1
    %Total
    
    
    100
    %
    
    
    100
    %
 Gross Margin.
 Research, Development and Engineering Expenses.
 Selling, General and Administrative Expenses.
 
    
    a $2,575,653 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 64 employees for the fiscal year ended November 30, 2006 to an average of 88 employees
for the fiscal year ended November 30, 2007) and an increase in salaries of existing
employees;
    
    an $1,200,884 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, product sponsorship, trade shows and advertising;
    
    an $1,147,564 increase in employee sales commissions as a result of increased sales and
hiring additional sales employees in fiscal 2007;
    
    a $513,754 increase in accrued incentive compensation expense due to our fiscal year
2007 financial performance, primarily increased sales and operating income in accordance
with the 2007 incentive compensation plans;
    
    a $477,060 increase in stock compensation expense due to stock compensation issued to
directors, officers, employees and a consultant in fiscal 2006 and 2007;
    
    a $233,693 increase in clinical research expenses primarily as a result of a grant for
neonatal research that we are supporting and a clinical trial we are sponsoring evaluating
the use of the INVOS System on diabetic patients over age 50; and
    
    a $165,935 increase in corporate insurance expenses due to increased coverage limits and
increased premiums.
   39




---



##### Table of Contents



Other Income.
 Income Taxes.
 Fiscal Year Ended November 30, 2006 Compared to Fiscal Year Ended November 30, 2005
 Net Revenues.
 
    
    an increase in U.S. sales of $6,070,504, or 35 percent, from $17,205,560 in fiscal 2005
to $23,276,064 in fiscal 2006. The increase in U.S. sales was primarily due to an increase
in sales of the disposable SomaSensor of $5,219,040, or 38 percent, primarily as a result
of a 31 percent increase in SomaSensor unit sales. In addition, sales of the INVOS System
monitor in the United States increased $952,289, or 34 percent, primarily as a result of
increased purchases by pediatric hospitals after the launch of our products into the
pediatric ICU in the first quarter of fiscal 2005; and
    
    an increase in international sales of $2,120,844, or 64 percent, from $3,303,692 in
fiscal 2005 to $5,424,536 in fiscal 2006. The increase in international sales was
primarily due to increased purchases of the INVOS System monitor and disposable SomaSensor
by Covidien in Europe. In fiscal 2006, international sales represented 19 percent of our
net revenues, compared to 16 percent of our net revenues in fiscal 2005. Purchases by
Covidien accounted for 15 percent of net revenues in fiscal 2006, compared to 11 percent in
fiscal 2005.
   Fiscal Year Ended November 30,Product
    
    2006
    
    2005SomaSensors
    
    
    75
    %
    
    
    75
    %INVOS System Monitors
    
    
    24
    %
    
    
    23
    %Total INVOS System
    
    
    99
    %
    
    
    98
    %CorRestore Systems
    
    
    1
    %
    
    
    2
    %Total
    
    
    100
    %
    
    
    100
    %
 40




---



##### Table of Contents



Gross Margin.
 Research, Development and Engineering Expenses.
 Selling, General and Administrative Expenses.
 
    
    a $1,734,244 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 42 employees for the fiscal year ended November 30, 2005 to an average of 64 employees
for the fiscal year ended November 30, 2006) and an increase in salaries of existing
employees;
    
    an $897,099 increase in travel, marketing and selling-related expenses as a result of
our increased sales personnel and increased sales and marketing activities, primarily sales
training and trade shows;
    
    an $527,765 increase in employee sales commissions as a result of increased sales and
hiring additional sales employees in fiscal 2006;
    
    a $403,352 increase in professional service fees, primarily due to increased legal and
consulting fees;
    
    a $293,026 increase in stock compensation expense due to stock compensation issued to
directors, officers, employees and a consultant in fiscal 2006;
    
    a $196,586 increase in office and facilities expenses primarily as a result of increased
employees and increased insurance costs; and
    
    a $101,405 increase in depreciation expense due to increased capitalized tooling for our
four-channel cerebral and somatic INVOS System.
  Other Income.
 Income Taxes.
 41




---



##### Table of Contents



Effects of Inflation
  Liquidity and Capital Resources
 General
      Cash Flows From Operating Activities
  
    
    $16,345,899 of net income before income taxes and non-cash depreciation, amortization
and stock compensation expense;
    
    a $541,711 increase in accrued liabilities, primarily as a result of the increased
accrued incentive compensation and accrued sales commissions as a result of our fiscal 2007
financial performance;
    
    a $194,000 decrease in accrued income tax expense as a result of payments made in fiscal
2007; and
    
    a $72,276 increase in accounts payable, primarily as a result of increased inventory and
operating expenses, partially offset by more timely payments made to vendors.
  
    
    a $2,746,528 increase in accounts receivable, primarily as a result of higher fourth
quarter sales in fiscal 2007 than in the fourth quarter of fiscal 2006, and the timing of
more of the sales in fiscal 2007 towards the end of the fourth quarter;
 42




---



##### Table of Contents




    
    a $658,895 increase in inventories, primarily due to the acquisition of components
associated with our SomaSensors and our INVOS System monitor due to anticipated sales,
partially offset by the $180,521 write-down of our CorRestore inventory described above;
inventories on our balance sheet decreased 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 $400,960 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 $199,451 increase in accrued interest income, primarily due to our increased cash,
cash equivalents, marketable securities and long-term investment balances, and increased
interest rates; and
    
    a $66,063 increase in prepaid expenses, primarily as a result of prepaid costs
associated with the construction of a new trade show booth.
   Cash Flows From Investing Activities
  Cash Flows From Financing Activities
  43




---



##### Table of Contents



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
    
    $
    306,900
    
    
    $
    145,800
    
    
    $
    161,100
    
    
    
    
    
    
    
    Purchase obligations
    
    
    4,931,700
    
    
    
    4,879,600
    
    
    
    52,100
    
    
    
    
    
    
    
    Other long-term liabilities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
  Off-Balance Sheet Arrangements
  New Accounting Pronouncements
  Critical Accounting Policies
  Stock Compensation
   44




---



##### Table of Contents



Income Taxes
  45




---



##### Table of Contents



No Capital Cost Sales Revenue Recognition
  46




---



##### Table of Contents



ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  November 30, 2007
Expected Maturity Dates By Fiscal Year
 2008
    
    2009
    
    2010
    
    2011
    
    2012
    
    Thereafter
    
    Total
    
    Fair ValueInvestments:Marketable Securities and Long-term Investments:Fixed Rate ($)
    
    
    18,978,074
    
    
    
    
    
    
    
    8,666,244
    
    
    
    6,996,231
    
    
    
    17,990,624
    
    
    
    
    
    
    
    52,631,173
    
    
    
    52,785,570Average interest rate
    
    
    5.25
    %
    
    
    N/A
    
    
    
    5.08
    %
    
    
    5.23
    %
    
    
    5.12
    %
    
    
    N/A
    
    
    
    5.17
    %
 November 30, 2006
Expected Maturity Dates By Fiscal Year
 2007
    
    2008
    
    2009
    
    2010
    
    2011
    
    Thereafter
    
    Total
    
    Fair ValueInvestments:Marketable Securities and Long-term Investments:Fixed Rate ($)
    
    
    20,918,134
    
    
    
    11,943,252
    
    
    
    9,974,512
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    42,835,898
    
    
    
    42,912,370Average interest rate
    
    
    5.17
    %
    
    
    5.25
    %
    
    
    5.33
    %
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    5.22
    %
  47




---



##### Table of Contents



ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 MANAGEMENTS REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
     48




---



##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 Internal Control  Integrated
    49




---



##### Table of Contents



Internal Control  Integrated
 /s/ DELOITTE & TOUCHE LLPDetroit, MichiganFebruary 6, 2008 50




---



##### Table of Contents



SOMANETICS CORPORATION
 BALANCE SHEETS
 November 30,2007
    
    
    2006ASSETSCURRENT ASSETS:Cash and cash equivalents (Note 2)
    
    $
    33,172,977
    
    
    $
    28,734,869Marketable securities
    
    
    18,978,074
    
    
    
    20,918,134Accounts receivable
    
    
    7,486,571
    
    
    
    4,740,043Inventory (Note 2)
    
    
    1,998,284
    
    
    
    2,172,458Prepaid expenses
    
    
    560,885
    
    
    
    494,822Accrued interest receivable
    
    
    551,117
    
    
    
    351,666Deferred tax asset  current (Note 5)
    
    
    3,069,929
    
    
    
    2,761,217Total current assets
    
    
    65,817,837
    
    
    
    60,173,209PROPERTY AND EQUIPMENT: (Note 2)Demonstration and no capital cost sales equipment at customers
    
    
    3,386,287
    
    
    
    2,650,939Machinery and equipment
    
    
    1,531,387
    
    
    
    1,263,015Furniture and fixtures
    
    
    307,919
    
    
    
    300,037Leasehold improvements
    
    
    196,700
    
    
    
    195,565Total
    
    
    5,422,293
    
    
    
    4,409,556Less accumulated depreciation and amortization
    
    
    (2,931,596
    )
    
    
    (2,285,279
    )Net property and equipment
    
    
    2,490,697
    
    
    
    2,124,277OTHER ASSETS:Long-term investments
    
    
    33,653,099
    
    
    
    21,917,764Deferred tax asset  non-current (Note 5)
    
    
    3,004,755
    
    
    
    8,182,783Intangible assets, net (Note 2)
    
    
    3,097
    
    
    
    10,009Other
    
    
    15,000
    
    
    
    15,000Total other assets
    
    
    36,675,951
    
    
    
    30,125,556TOTAL ASSETS
    
    $
    104,984,485
    
    
    $
    92,423,042LIABILITIES AND SHAREHOLDERS EQUITYCURRENT LIABILITIES:Accounts payable
    
    $
    1,118,003
    
    
    $
    1,045,727Accrued liabilities (Notes 4 and 6)
    
    
    1,701,481
    
    
    
    1,159,770Total current liabilities
    
    
    2,819,484
    
    
    
    2,205,497COMMITMENTS 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, 13,443,961 shares at November 30, 2007,
and 13,163,627 shares at November 30, 2006
    
    
    134,440
    
    
    
    131,636Additional paid-in capital
    
    
    119,079,383
    
    
    
    116,817,012Accumulated deficit
    
    
    (17,048,822
    )
    
    
    (26,731,103
    )Total shareholders equity
    
    
    102,165,001
    
    
    
    90,217,545TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
    
    $
    104,984,485
    
    
    $
    92,423,042
  51




---



##### Table of Contents



SOMANETICS CORPORATION
 STATEMENTS OF OPERATIONS
 For the Years Ended November 30,2007
    
    
    2006
    
    
    2005NET REVENUES (Notes 2 and 9)
    
    $
    38,585,832
    
    
    $
    28,700,600
    
    
    $
    20,509,252COST OF SALES
    
    
    4,726,146
    
    
    
    3,565,588
    
    
    
    2,601,488Gross margin
    
    
    33,859,686
    
    
    
    25,135,012
    
    
    
    17,907,764OPERATING EXPENSES:Research, development and engineering
(Note 2)
    
    
    668,815
    
    
    
    1,582,521
    
    
    
    525,679Selling, general and administrative (Note 2)
    
    
    22,269,184
    
    
    
    16,484,567
    
    
    
    13,241,053Total operating expenses
    
    
    22,937,999
    
    
    
    18,067,088
    
    
    
    13,766,732OPERATING INCOME
    
    
    10,921,687
    
    
    
    7,067,924
    
    
    
    4,141,032OTHER INCOME:Interest income
    
    
    4,008,537
    
    
    
    2,582,033
    
    
    
    310,055Total other income
    
    
    4,008,537
    
    
    
    2,582,033
    
    
    
    310,055INCOME BEFORE INCOME TAXES
    
    $
    14,930,224
    
    
    $
    9,649,957
    
    
    $
    4,451,087INCOME TAX (EXPENSE) BENEFIT (Note 5)
    
    
    (5,247,943
    )
    
    
    750,000
    
    
    
    3,300,000NET INCOME
    
    $
    9,682,281
    
    
    $
    10,399,957
    
    
    $
    7,751,087NET INCOME PER COMMON
SHARE  BASIC (Note 2)
    
    $
    .73
    
    
    $
    .83
    
    
    $
    .75NET INCOME PER COMMON
SHARE  DILUTED (Note 2)
    
    $
    .67
    
    
    $
    .75
    
    
    $
    .66WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 
BASIC (Note 2)
    
    
    13,213,428
    
    
    
    12,463,075
    
    
    
    10,322,226WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 
DILUTED (Note 2)
    
    
    14,384,445
    
    
    
    13,824,467
    
    
    
    11,797,799
  52




---



##### Table of Contents



SOMANETICS CORPORATION
 STATEMENTS OF SHAREHOLDERS EQUITY
 Additional
    
    
    
    
    
    
    TotalCommon
    
    
    Share
    
    
    Paid-In
    
    
    Accumulated
    
    
    Shareholders
    
    
    ComprehensiveShares
    
    
    Value
    
    
    Capital
    
    
    Deficit
    
    
    Equity
    
    
    IncomeBalance at December 1, 2004
    
    
    10,137,782
    
    
    $
    101,378
    
    
    $
    62,333,435
    
    
    $
    (44,882,147
    )
    
    $
    17,552,666For cash, exercise of stock options
    
    
    561,839
    
    
    
    5,618
    
    
    
    2,520,061
    
    
    
    
    
    
    
    2,525,679Cashless exercise of warrants
    
    
    16,264
    
    
    
    163
    
    
    
    (163
    )
    
    
    
    
    
    
    Consultant stock option expense
    
    
    
    
    
    
    
    
    
    
    11,221
    
    
    
    
    
    
    
    11,221Net income and comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,751,087
    
    
    
    7,751,087
    
    
    $
    7,751,087Balance at November 30, 2005
    
    
    10,715,885
    
    
    $
    107,159
    
    
    $
    64,864,554
    
    
    $
    (37,131,060
    )
    
    $
    27,840,653For cash, less issuance costs of $3,967,226
    
    
    2,300,000
    
    
    
    23,000
    
    
    
    51,209,774
    
    
    
    
    
    
    
    51,232,774For cash, exercise of stock options
    
    
    79,742
    
    
    
    797
    
    
    
    439,116
    
    
    
    
    
    
    
    439,913Stock compensation expense
    
    
    
    
    
    
    
    
    
    
    304,248
    
    
    
    
    
    
    
    304,248Restricted share grant
    
    
    68,000
    
    
    
    680
    
    
    
    (680
    )
    
    
    
    
    
    
    Net income and comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,399,957
    
    
    
    10,399,957
    
    
    $
    10,399,957Balance at November 30, 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
    )
    
    $
    102,165,001
  53




---



##### Table of Contents



SOMANETICS CORPORATION
 STATEMENTS OF CASH FLOWS
 For the Years Ended November 30,2007
    
    
    2006
    
    
    2005CASH FLOWS FROM OPERATING ACTIVITIES:Net income
    
    $
    9,682,281
    
    
    $
    10,399,957
    
    
    $
    7,751,087Adjustments to reconcile net income to net
cash provided by operations:Income tax expense (benefit)
    
    
    5,076,276
    
    
    
    (750,000
    )
    
    
    (3,300,000
    )Depreciation and amortization
    
    
    806,034
    
    
    
    592,061
    
    
    
    383,986Stock compensation expense
    
    
    781,308
    
    
    
    304,248
    
    
    
    11,221Intangible asset impairment
    
    
    
    
    
    
    
    
    
    
    929,093Changes in assets and liabilities:Accounts receivable (increase)
    
    
    (2,746,528
    )
    
    
    (1,208,303
    )
    
    
    (1,509,196
    )Accrued interest income (increase)
    
    
    (199,451
    )
    
    
    (351,666
    )
    
    
    Inventory (increase)
    
    
    (658,895
    )
    
    
    (1,943,049
    )
    
    
    (859,312
    )Deferred income tax benefit (increase)
    
    
    (400,960
    )
    
    
    
    
    
    
    Prepaid expenses (increase) decrease
    
    
    (66,063
    )
    
    
    128,481
    
    
    
    (365,410
    )Accounts payable increase
    
    
    72,276
    
    
    
    332,931
    
    
    
    183,699Accrued liabilities increase (decrease)
    
    
    541,711
    
    
    
    (5,825
    )
    
    
    462,485Accrued income tax expense (increase) decrease
    
    
    194,000
    
    
    
    (194,000
    )
    
    
    --_ _Net cash provided by operating activities
    
    
    13,081,989
    
    
    
    7,304,835
    
    
    
    3,687,653CASH FLOWS FROM INVESTING ACTIVITIES:Purchases of marketable securities and
long-term investments
    
    
    (63,795,275
    )
    
    
    (47,835,897
    )
    
    
    Proceeds from maturities of marketable securities and
long-term investments
    
    
    54,000,000
    
    
    
    5,000,000
    
    
    
    Acquisition of property and equipment
    
    
    (332,473
    )
    
    
    (554,993
    )
    
    
    (134,637
    )Net cash (used in) investing activities
    
    
    (10,127,748
    )
    
    
    (43,390,890
    )
    
    
    (134,637
    )CASH FLOWS FROM FINANCING ACTIVITIES:Proceeds from issuance of common shares
    
    
    
    
    
    
    51,232,774
    
    
    
    Proceeds from issuance of common shares due to
exercise of stock options
    
    
    1,483,867
    
    
    
    439,913
    
    
    
    2,525,679Net cash provided by financing activities
    
    
    1,483,867
    
    
    
    51,672,687
    
    
    
    2,525,679NET INCREASE IN CASH AND
CASH EQUIVALENTS
    
    
    4,438,108
    
    
    
    15,586,632
    
    
    
    6,078,695CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD
    
    
    28,734,869
    
    
    
    13,148,237
    
    
    
    7,069,542CASH AND CASH EQUIVALENTS,
END OF PERIOD
    
    $
    33,172,977
    
    
    $
    28,734,869
    
    
    $
    13,148,237Supplemental Disclosure of Non cash investing activities:Demonstration and no capital cost sales equipment capitalized
from inventory (Note 2)
    
    $
    833,069
    
    
    $
    828,692
    
    
    $
    484,121Supplemental Disclosure of Taxes paid:Federal and state income taxes (Note 5)
    
    $
    572,627
    
    
    $
    
    
    
    $
    
  54




---



##### 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
 November 30,2007
    
    
    2006Purchased components
    
    $
    1,702,878
    
    
    $
    1,456,059Finished goods
    
    
    174,451
    
    
    
    610,016Work in process
    
    
    120,955
    
    
    
    106,383Total
    
    $
    1,998,284
    
    
    $
    2,172,458
  Property and Equipment
 55




---



##### Table of Contents



SOMANETICS CORPORATION
 NOTES
TO FINANCIAL STATEMENTS  (Continued)
  Intangible Assets
 November 30,2007
    
    
    2006Patents and trademarks
    
    $
    111,733
    
    
    $
    111,733Less: accumulated amortization
    
    
    (108,636
    )
    
    
    (101,724
    )Total
    
    $
    3,097
    
    
    $
    10,009
   Revenue Recognition
 Research, Development and Engineering
 Net Income Per Common Share  basic and diluted
 2007
    
    
    2006
    
    
    2005Weighted average shares  basic
    
    
    13,213,428
    
    
    
    12,463,075
    
    
    
    10,322,226Add: effect of dilutive common
shares and warrants
    
    
    1,171,017
    
    
    
    1,361,392
    
    
    
    1,475,573Weighted average shares  diluted
    
    
    14,384,445
    
    
    
    13,824,467
    
    
    
    11,797,799
  56




---



##### 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
    
    
    1,378,7772005 Stock Incentive Plan
    
    
    1,121,500Options Granted Independent of Option Plans
    
    
    70,000Total shares reserved for future issuance
    
    
    2,584,940
 57




---



##### Table of Contents



SOMANETICS CORPORATION
 NOTES
TO FINANCIAL STATEMENTS  (Continued)
 4.
    
    Accrued Liabilities
  November 30,2007
    
    
    2006Incentive Compensation
    
    $
    958,642
    
    
    $
    495,014Sales Commissions
    
    
    548,046
    
    
    
    277,521Clinical Research
    
    
    110,639
    
    
    
    60,005Professional Fees
    
    
    61,550
    
    
    
    22,053Warranty
    
    
    19,800
    
    
    
    19,900Royalty
    
    
    2,804
    
    
    
    11,473Taxes
    
    
    
    
    
    
    228,085401(k) Match
    
    
    
    
    
    
    45,719Total
    
    $
    1,701,481
    
    
    $
    1,159,770
 5.
    
    Income Taxes
   November 30,2007
    
    
    2006(in thousands)Net operating loss carryforwards
    
    $
    11,037
    
    
    $
    14,834Other
    
    
    434
    
    
    
    150Basis difference of fixed assets and intangibles
    
    
    51
    
    
    
    113Alternative minimum tax credit carryforward
    
    
    401
    
    
    
    194Research and general business tax credit carryforwards
    
    
    176
    
    
    
    443Subtotal
    
    
    12,099
    
    
    
    15,734Reduction for future stock option tax benefits valuation
    
    
    (6,024
    )
    
    
    (4,790
    )Deferred tax asset
    
    $
    6,075
    
    
    $
    10,944
  58




---



##### Table of Contents



SOMANETICS CORPORATION
 NOTES
TO FINANCIAL STATEMENTS  (Continued)
 For the Fiscal Year Ended November 30,2007
    
    
    2006
    
    
    2005Taxes at U.S. statutory rate  34 percent
    
    $
    5,076,276
    
    
    $
    3,280,985
    
    
    $
    1,513,370State and local income taxes
    
    
    122,347
    
    
    
    
    
    
    
    Nondeductible meals and entertainment
    
    
    49,320
    
    
    
    37,628
    
    
    
    24,050Change in valuation allowance
    
    
    
    
    
    
    (4,068,613
    )
    
    
    (4,837,420
    )Income tax (benefit) from
continuing operations
    
    $
    5,247,943
    
    
    $
    (750,000
    )
    
    $
    (3,300,000
    )Effective tax rate
    
    
    35.1
    %
    
    
    (7.8
    )%
    
    
    (74.1
    )%
  For the Fiscal Year Ended November 30,2007
    
    
    2006
    
    
    2005Federal income tax expense (benefit)  current
    
    $
    206,960
    
    
    $
    194,000
    
    
    $
    Federal income tax expense (benefit)  deferred
    
    
    4,891,042
    
    
    
    (944,000
    )
    
    
    (3,300,000
    )State income tax expense (benefit)  current
    
    
    122,347
    
    
    
    
    
    
    
    State income tax expense (benefit)  deferred
    
    
    27,594
    
    
    
    
    
    
    
    Income tax (benefit) from
continuing operations
    
    $
    5,247,943
    
    
    $
    (750,000
    )
    
    $
    (3,300,000
    )
     59




---



##### Table of Contents



SOMANETICS CORPORATION
 NOTES
TO FINANCIAL STATEMENTS  (Continued)
 6.
    
    Commitments and Contingencies
   Year ending November 30,2008
    
    $
    145,8002009
    
    
    148,7002010
    
    
    12,400Total
    
    $
    306,900
     60




---



##### Table of Contents



SOMANETICS CORPORATION
 NOTES
TO FINANCIAL STATEMENTS  (Continued)
   7.     Stock Option Plans
       61




---



##### Table of Contents



SOMANETICS CORPORATION
 NOTES TO FINANCIAL STATEMENTS  (Continued)
     For the FiscalYear EndedNovember 30,2005Net income
    
    $
    7,751,087Add: Stock-based employee compensation
included in actual net income
    
    $
    11,221Deduct: Total stock-based employee
compensation, had fair value method been
applied
    
    $
    (1,804,000
    )Pro-forma net income
    
    $
    5,958,308Net income per common share  basic
    
    $
    .75Net income per common share  diluted
    
    $
    .66Pro-forma net income per common
share  basic, had fair value method been
applied
    
    $
    .58Pro-forma net income per common
share  diluted, had fair value method been
applied
    
    $
    .51
  62




---



##### Table of Contents



SOMANETICS CORPORATION
 NOTES TO FINANCIAL STATEMENTS  (Continued)
   2007
    
    
    2006
    
    
    2005Weighted
    
    
    
    
    
    
    Weighted
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    Average
    
    
    
    
    
    
    AverageCommon
    
    
    Exercise
    
    
    Common
    
    
    Exercise
    
    
    Common
    
    
    ExerciseShares
    
    
    Price
    
    
    Shares
    
    
    Price
    
    
    Shares
    
    
    PriceOptions outstanding
December 1,
    
    
    2,071,990
    
    
    $
    6.01
    
    
    
    1,914,232
    
    
    $
    4.59
    
    
    
    2,316,315
    
    
    $
    3.83Options granted
    
    
    96,000
    
    
    
    19.25
    
    
    
    239,000
    
    
    
    17.30
    
    
    
    168,257
    
    
    
    13.79Options exercised
    
    
    (271,334
    )
    
    
    5.47
    
    
    
    (79,742
    )
    
    
    5.52
    
    
    
    (561,839
    )
    
    
    4.50Options canceled
    
    
    (1,000
    )
    
    
    18.85
    
    
    
    (1,500
    )
    
    
    17.56
    
    
    
    (8,501
    )
    
    
    8.29Options outstanding
November 30,
    
    
    1,895,656
    
    
    
    6.75
    
    
    
    2,071,990
    
    
    
    6.01
    
    
    
    1,914,232
    
    
    
    4.59Options exercisable
November 30,
    
    
    1,609,456
    
    
    $
    4.76
    
    
    
    1,832,990
    
    
    $
    4.53
    
    
    
    1,914,232
    
    
    $
    4.59
   Options outstanding
    
    
    Options exercisableWeighted
    
    
    Weighted
    
    
    
    
    
    
    Weighted
    
    
    WeightedAverage
    
    
    Average
    
    
    
    
    
    
    Average
    
    
    AverageOptions
    
    
    Exercise
    
    
    Remaining
    
    
    Options
    
    
    Exercise
    
    
    RemainingRange of Exercise Prices
    
    Outstanding
    
    
    Price
    
    
    Life (years)
    
    
    Exercisable
    
    
    Price
    
    
    Life (years)$1.70  $5.00
    
    
    1,305,597
    
    
    $
    2.99
    
    
    
    4.07
    
    
    
    1,305,597
    
    
    $
    2.99
    
    
    
    4.07$5.01  $10.00
    
    
    71,298
    
    
    
    5.87
    
    
    
    .33
    
    
    
    71,298
    
    
    
    5.87
    
    
    
    .33$10.01  $18.06
    
    
    518,761
    
    
    
    16.33
    
    
    
    8.35
    
    
    
    232,561
    
    
    
    14.33
    
    
    
    7.70Total
    
    
    1,895,656
    
    
    $
    6.75
    
    
    
    5.10
    
    
    
    1,609,456
    
    
    $
    4.76
    
    
    
    4.43
  8.     Related Party Transactions
  63




---



##### Table of Contents



SOMANETICS CORPORATION
 NOTES TO FINANCIAL STATEMENTS  (Continued)
  9.      Major Customers and Foreign Sales
   10.     Segment Information
  64




---



##### Table of Contents



QUARTERLY INFORMATION (unaudited)
  QuarterFirst
    
    Second
    
    Third
    
    FourthYear Ended November 30, 2007Net revenues
    
    $
    8,024,872
    
    
    $
    9,122,178
    
    
    $
    10,163,509
    
    
    $
    11,275,273Gross margin
    
    
    7,023,149
    
    
    
    8,075,061
    
    
    
    8,825,091
    
    
    
    9,936,385Net income
    
    
    1,683,551
    
    
    
    2,406,456
    
    
    
    2,792,689
    
    
    
    2,799,585Net income per common
share  basic
    
    $
    0.13
    
    
    $
    0.18
    
    
    $
    0.21
    
    
    $
    0.21Net income per common
share  diluted
    
    $
    0.12
    
    
    $
    0.17
    
    
    $
    0.19
    
    
    $
    0.19Year Ended November 30, 2006Net revenues
    
    $
    5,753,715
    
    
    $
    7,394,857
    
    
    $
    7,867,739
    
    
    $
    7,684,289Gross margin
    
    
    5,043,216
    
    
    
    6,470,360
    
    
    
    6,785,849
    
    
    
    6,835,587Net income
    
    
    988,287
    
    
    
    2,174,452
    
    
    
    1,893,371
    
    
    
    5,343,847
    *Net income per common
share  basic
    
    $
    0.09
    
    
    $
    0.17
    
    
    $
    0.14
    
    
    $
    0.41Net income per common
share  diluted
    
    $
    0.08
    
    
    $
    0.15
    
    
    $
    0.13
    
    
    $
    0.37
 
 *
    
    Includes the effects of a net reversal of $3,354,663 of our valuation allowance, as described in
Note 5 of Notes to Financial Statements. Also includes a research and development expense of
$1,000,000 in connection with the Contract Development and Exclusive Licensing Agreement we entered
into with NeuroPhysics Corporation, as described in Note 6 of Notes to Financial Statements. 65




---



##### Table of Contents



ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
  
 ITEM 9A. CONTROLS AND PROCEDURES
    66




---



##### Table of Contents



ITEM 9B. OTHER INFORMATION
  67




---



##### 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
  68




---



##### Table of Contents



ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
  69




---



##### Table of Contents



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, 2007 and 2006Statements of Operations  For Each of the Three Years in the Period Ended November
30, 2007Statements of Shareholders Equity  For Each of the Three Years in the Period Ended
November 30, 2007Statements of Cash Flows  For Each of the Three Years in the Period Ended November
30, 2007Notes to Financial Statements(2
    )
    
    Financial Statement SchedulesNone.(3
    )
    
    ExhibitsThe Exhibits to this report are as set forth in the Exhibit Index on pages 72 to
74 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.
 70




---



##### Table of Contents



SIGNATURES
  Somanetics CorporationDate:  February 5, 2008
    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 5, 2008Bruce J. Barrett
    
    (Principal Executive Officer)/s/ WILLIAM M. IACONA
    
    Vice President and Chief Financial Officer,
    
    February 5, 2008William M. Iacona
    
    Controller, and Treasurer
(Principal Financial Officer and Principal Accounting Officer)/s/ JAMES I. AUSMAN
    
    Director
    
    February 4, 2008James I. Ausman, M.D., Ph.D./s/ DANIEL S. FOLLIS
    
    Director
    
    February 4, 2008Daniel S. Follis/s/ ROBERT R. HENRY
    
    Director
    
    February 4, 2008Robert R. Henry/s/ JOHN P. JUMPER
    
    Director
    
    February 4, 2008John P. Jumper/s/ RICHARD R. SORENSEN
    
    Director
    
    February 4, 2008Richard R. Sorensen
 71




---



##### Table of Contents



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
    
    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.*10.10
    
    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.*10.11
    
    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.*10.12
    
    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.*10.13
    
    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.*10.14
    
    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 ended November 30, 1998.
 72




---



##### Table of Contents



EXHIBIT INDEX
 Exhibit
    
    Description*10.15
    
    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.*10.16
    
    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.*10.17
    
    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.*10.18
    
    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.*10.19
    
    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*10.20
    
    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.*10.21
    
    Somanetics Corporation 2006 Incentive Compensation Plan,
incorporated by reference to Exhibit 10.1 to the Companys Current
Report on Form 8-K, dated March 24, 2006 and filed March 30, 2006.*10.22
    
    Summary of Dominic Spadafore Fiscal 2006 Commission Arrangement,
incorporated by reference to the last two paragraphs of Item 1.01
of the Companys Current Report on Form 8-K, dated March 24, 2006
and filed March 30, 2006.*10.23
    
    Somanetics Corporation 2007 Executive Officer Incentive
Compensation Plan, incorporated by reference to Exhibit 10.1 to the
Companys Current Report on Form 8-K, dated January 17, 2007 and
filed January 23, 2007.*10.24
    
    Summary of Dominic Spadafore Fiscal 2007 Commission Arrangement,
incorporated by reference to the two paragraphs under the heading
2007 Sales Commission Arrangement for Dominic Spadafore in Item
5.02 of the Companys Current Report on Form 8-K, dated January 17,
2007 and filed January 23, 2007.*10.25
    
    Somanetics Corporation 2008 Executive Officer Incentive
Compensation Plan, incorporated by reference to Exhibit 10.1 to the
Companys Current Report on Form 8-K, dated December 17, 2007 and
filed December 18, 2007.*10.26
    
    Amended and Restated Employment Agreement between Somanetics
Corporation and Bruce J. Barrett, incorporated by reference to
Exhibit 99.1 to the Companys Current Report on Form 8-K, dated
April 19, 2006 and filed April 24, 2006.*10.27
    
    Amended and Restated Employment Agreement between Somanetics
Corporation and Dominic J. Spadafore, incorporated by reference to
Exhibit 99.2 to the Companys Current Report on Form 8-K, dated
June 13, 2005 and filed June 14, 2005.*10.28
    
    Form of Change in Control, Invention, Confidentiality, Non-Compete
and Non-Solicitation Agreement, between Somanetics Corporation and
five officers, dated as of June 13, 2005, incorporated by reference
to Exhibit 99.1 to the Companys Current Report on Form 8-K, dated
June 13, 2005 and filed June 14, 2005.*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.
 73




---



##### Table of Contents



EXHIBIT INDEX
 Exhibit
    
    Description*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 the 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 1.01 to the Companys Current Report on Form 8-K dated June
29, 2006 and filed July 5, 2006.10.40
    
    Contract Development and Exclusive Licensing Agreement, dated as of
September 18, 2006, among Somanetics Corporation, NeuroPhysics
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 September 18, 2006 and filed September 20, 2006.10.41
    
    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, 1992.10.43
    
    Registration Rights Agreement, dated as of April 9, 2001, among
Somanetics Corporation and the selling shareholders, incorporated
by reference to Exhibit 4.3 to the Somanetics Corporation
Registration Statement on Form S-3 (file no. 333-59376) filed April
23, 2001 and effective May 3, 2001.10.44
    
    License Agreement, dated as of June 2, 2000, among Somanetics
Corporation, CorRestore LLC, Constantine L. Athanasuleas, M.D. and
Gerald D. Buckberg, M.D., including forms of warrants from
Somanetics Corporation to CorRestore LLC and Joe B. Wolfe,
incorporated by reference to Exhibit 10.2 to the Companys
Quarterly Report on Form 10-Q for the quarter ended May 31, 2000.10.45
    
    Amendment No. 1 to License Agreement, dated as of August 1, 2002,
among Somanetics Corporation, CorRestore LLC, Constantine L.
Athanasuleas, M.D., and Gerald D. Buckberg, M.D., incorporated by
reference to Exhibit 10.1 to the Companys Quarterly Report on Form
10-Q for the quarter ended August 31, 2002.14.1
    
    Somanetics Corporation Code of Business Conduct and Ethics, as
re-adopted November 2, 2007.23.1
    
    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.
 74