##### 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, 2006 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 classCommon Shares, par value $.01 per share
    
    Name of each exchange on which registeredThe Nasdaq Stock Market
 None
 o þ
 o þ
 þ o
 þ
  o þ 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, 2006
 TABLE OF CONTENTS
 PAGEPART I
    
    
    2ITEM 1.
    
    BUSINESS
    
    
    2ITEM 1A.
    
    RISK FACTORS
    
    
    20ITEM 1B.
    
    UNRESOLVED STAFF COMMENTS
    
    
    32ITEM 2.
    
    PROPERTIES
    
    
    32ITEM 3.
    
    LEGAL PROCEEDINGS
    
    
    32ITEM 4.
    
    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
    
    
    32SUPPLEMENTAL ITEM. EXECUTIVE OFFICERS OF THE REGISTRANT
    
    
    33PART II
    
    
    34ITEM 5.
    
    MARKET FOR
REGISTRANTS COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
    
    
    34ITEM 6.
    
    SELECTED FINANCIAL DATA
    
    
    36ITEM 7.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    
    
    37ITEM 7A.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    48ITEM 8.
    
    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
    
    
    49ITEM 9.
    
    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
    
    
    68ITEM 9A.
    
    CONTROLS AND PROCEDURES
    
    
    68ITEM 9B.
    
    OTHER INFORMATION
    
    
    69PART III
    
    
    70ITEM 10.
    
    DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
    
    
    70ITEM 11.
    
    EXECUTIVE COMPENSATION
    
    
    70ITEM 12.
    
    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
    
    
    70ITEM 13.
    
    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
    
    
    70ITEM 14.
    
    PRINCIPAL ACCOUNTANT FEES AND SERVICES
    
    
    71PART IV
    
    
    72ITEM 15.
    
    EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
    
    
    72Code of Business Conduct and EthicsConsent of Deloitte & Touche LLPCertification of Chief Executive Officer Pursuant to Section 302Certification of Chief Financial Officer Pursuant to Section 302Certifications of Chief Executive Officer & Chief Financial Officer Pursuant to Section 906




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PART I
 
 ITEM 1. BUSINESS
 Overview
     2




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




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Limitations of Traditional Monitoring Technologies
  Our Solution
   4




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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 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




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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 400 presentations, study abstracts and
published papers. During the second quarter of fiscal 2004, results of both the first
prospective, randomized clinical trial and a larger retrospective review evaluating the
INVOS System were presented, which we believe have contributed to the INVOS System gaining
further market penetration. 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 expect to begin this marketing in 2009. 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 44 persons at the end of fiscal 2006, and six independent sales
representative firms. We expect to increase the size of our U.S. direct sales team in
fiscal 2007 and are evaluating placing direct salespersons and clinical specialists in
Europe to support Tyco Healthcare. We also have a co-promotion relationship with Fresenius
Medical Care Cardiovascular Resources, Inc.s North American Extracorporeal Alliance. We
participate in trade shows and medical conferences, ongoing peer-to-peer educational
programs and targeted public relations opportunities.
    
    Interface and Integrate Our Technology into Other Manufacturers Multi-Modality Systems.
There are many existing monitoring systems in the operating room and the ICU. We would
like to interface with these monitors. We have interfaced the INVOS System with the
Philips Medical Systems VueLink System to provide data, alarm events and status messages
from the INVOS System on any monitor that accepts the VueLink module, a multi-parameter
monitor. This enables oximetry data from our INVOS System to be displayed on the VueLink
screen and integrated with other vital patient information. We plan to support the
interface and integration of our INVOS System technology with other medical device
manufacturers to expand the installed base of INVOS System monitors and increase the demand
for SomaSensors. We expect that such arrangements will provide another distribution
channel for our INVOS System.
    
    Develop Additional Applications and Markets for the INVOS System.We are developing a
smaller SomaSensor for use with newborns, and making other advances to the design and
performance features of the INVOS System, including the SomaSensor. We are also evaluating
additional potential market segments for our INVOS System, such as use in other major
surgeries, in the adult ICU, 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
 6




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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 and Software.Our oximeter is a portable monitor that uses our proprietary
software to analyze information received from the SomaSensors. It provides a continuous
digital and trend display of an index of the oxygen saturation in the region of the body
under the SomaSensors. The monitor includes menus for users to set high and low audible
alarms, customize the display and retrieve data. Single-function keys allow users to
silence alarms, mark important events, store data for up to 28 surgical procedures, and
retrieve data by disk or through a USB link to a computer. Our next generation 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, and we offer service for the monitor for a fee
after the warranty expires. As of November 30, 2006, we had an installed base of 1,497
INVOS System monitors in the United States in 584 hospitals.
    
    SomaSensors.Each single-use SomaSensor contains a light source and two light
detectors. For multi-channel cerebral monitoring, SomaSensors are placed on both sides of
a patients forehead and are connected to the monitor, which allows for monitoring both
sides of the brain. Our next generation INVOS System monitor, which we 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, 2006, net
revenues from SomaSensors comprised approximately 75 percent of our net revenues. During
fiscal 2006 we sold approximately 289,000 SomaSensors worldwide.
 Overview of INVOS Technology
    7




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Applications and Market Segments
  
    
    Cardiac and Carotid Artery Surgery.Until the first quarter of fiscal 2005, we focused
our marketing efforts primarily on cardiac and carotid artery surgeries. We believed it
would be easier to demonstrate clinical importance of the information provided by the INVOS
System and potentially gain market acceptance for our products in connection with these
surgeries. Moreover, much of the earliest clinical data regarding the use of the INVOS
System involved these surgeries. In September 2000, we received 510(k) clearance from the
FDA to market the model 5100 INVOS System in the United States. Unlike earlier models, the
model 5100 INVOS System has the added capability of being able to monitor pediatric
patients. After receiving this clearance, we expanded our marketing efforts to include
pediatric cardiac surgeries.
    
    Pediatric and Neonatal ICU.In the first quarter of fiscal 2005, we initiated selling
and marketing efforts for the INVOS System in the pediatric ICU. We plan to launch the
product into the neonatal ICU in 2007, after completing development of a smaller
SomaSensor. Our next generation 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. We expect to begin this marketing in 2009.
    
    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




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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




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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




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Other Future Studies
  The CorRestore System
    Surgical Ventricular Restoration in the Treatment of
Congestive Heart Failure Due to Post-Infarction Ventricular Dilation
 11




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License Agreement
     Marketing, Sales and Distribution
 Marketing
    12




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Sales and Distribution
         13




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Research and Development
  NeuroPhysics Corporation
   Manufacturing
   14




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Competition
     Proprietary Rights Information
   15




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Government Regulation
  
    
    product development;
    
    product testing;
    
    product manufacturing;
    
    product labeling;
    
    product storage;
    
    premarket clearance or approval;
    
    advertising and promotion; and
    
    product sales and distribution.
 16




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510(k) Clearance Pathway .
  PMA Approval Pathway .
 Clinical Trials .
  17




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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.
     18




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Seasonality
  Employees
  Insurance
  Where You Can Get Information We File With The SEC
 http://www.sec.gov
 http://www.somanetics.com
  19




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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.
      20




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We are dependent on our distributors and our independent sales representative firms for a
substantial portion of our sales, and their failure to sell our products adequately would
adversely affect our business.
   We currently depend on single-source suppliers for key components of the INVOS System, and the
loss of any of these suppliers could harm our ability to manufacture and sell our products,
increase the cost of our components or delay our clinical trials.
   We may become subject to competition which may adversely affect us.
  21




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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.
  22




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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.
  23




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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.
  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.
  24




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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.
  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.
  New stock option accounting rules will increase our reported expenses, which could adversely
affect the price of our common shares.
  25




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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.
    26




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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.
   27




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
    
    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.
    28




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Our success depends on our ability to attract and retain key personnel.
  Any acquisitions that we make could disrupt our business and harm our financial condition.
  We have had limited success in marketing the CorRestore System, which could result in claims
against us.
    We have broad discretion to determine how to allocate our cash, cash equivalents, marketable
securities and investments and may not use them effectively.
  29




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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
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
    
    other developments affecting us or our competitors.
  We have never paid cash dividends on our capital stock, and we do not anticipate paying any cash
dividends in the foreseeable future.
  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
    31




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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
  32




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SUPPLEMENTAL ITEM. EXECUTIVE OFFICERS OF THE REGISTRANT
  ExecutiveName
    
    Officer Since
    
    Age
    
    PositionBruce J. Barrett
    
    6/94
    
    
    47
    
    
    President and Chief Executive OfficerWilliam M. Iacona
    
    12/00
    
    
    36
    
    
    Vice President and Chief Financial Officer, Controller, and TreasurerDominic J. Spadafore
    
    8/02
    
    
    47
    
    
    Vice President, Sales and MarketingMary Ann Victor
    
    1/98
    
    
    49
    
    
    Vice President and Chief Administrative Officer and Secretary
  Biographical Information
     33




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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, 2005First Quarter
    
    $
    16.00
    
    
    $
    13.00Second Quarter
    
    
    18.85
    
    
    
    12.50Third Quarter
    
    
    25.74
    
    
    
    17.66Fourth Quarter
    
    
    36.95
    
    
    
    21.51Fiscal Year Ended November 30, 2006First Quarter
    
    $
    36.64
    
    
    $
    21.53Second Quarter
    
    
    27.02
    
    
    
    15.28Third Quarter
    
    
    19.97
    
    
    
    14.51Fourth Quarter
    
    
    24.75
    
    
    
    16.55
   Performance Graph
 i.e.
 34




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COMPARISON OF CUMULATIVE TOTAL RETURN*
AMONG SOMANETICS CORPORATION,
THE RUSSELL 2000 INDEX, AND
NASDAQ MEDICAL DEVICES INDEX**
 
 2001
    
    2002
    
    2003
    
    2004
    
    2005
    
    2006Somanetics Corporation
    
    
    100.00
    
    
    
    52.47
    
    
    
    203.12
    
    
    
    360.52
    
    
    
    802.86
    
    
    
    503.90The Russell 2000 Index
    
    
    100.00
    
    
    
    89.40
    
    
    
    121.85
    
    
    
    142.88
    
    
    
    154.51
    
    
    
    181.45Nasdaq Medical Devices Index
    
    
    100.00
    
    
    
    88.04
    
    
    
    127.30
    
    
    
    147.14
    
    
    
    166.60
    
    
    
    163.08
  
 *
    
    Total return assumes reinvestment of dividends.**
    
    Fiscal Year ending November 30. 35




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ITEM 6. SELECTED FINANCIAL DATA
  Year Ended November 30,2006
    
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002(in thousands, except per share data)Statement of Operations Data:Net revenues
    
    $
    28,701
    
    
    $
    20,509
    
    
    $
    12,609
    
    
    $
    9,361
    
    
    $
    6,706Cost of sales
    
    
    3,566
    
    
    
    2,601
    
    
    
    2,050
    
    
    
    2,140
    
    
    
    2,049Gross margin
    
    
    25,135
    
    
    
    17,908
    
    
    
    10,558
    
    
    
    7,221
    
    
    
    4,657Operating expenses:Research, development and engineering (1)
    
    
    1,582
    
    
    
    526
    
    
    
    369
    
    
    
    413
    
    
    
    571Selling, general and administrative (2)
    
    
    16,485
    
    
    
    13,241
    
    
    
    8,237
    
    
    
    6,759
    
    
    
    5,344Total operating expenses
    
    
    18,067
    
    
    
    13,767
    
    
    
    8,606
    
    
    
    7,172
    
    
    
    5,915Operating income (loss)
    
    
    7,068
    
    
    
    4,141
    
    
    
    1,952
    
    
    
    49
    
    
    
    (1,258
    )Other income:Interest income
    
    
    2,582
    
    
    
    310
    
    
    
    55
    
    
    
    23
    
    
    
    52Interest expense and other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1
    )Total other income
    
    
    2,582
    
    
    
    310
    
    
    
    55
    
    
    
    23
    
    
    
    51Income (loss) before income taxes
    
    $
    9,650
    
    
    $
    4,451
    
    
    $
    2,007
    
    
    
    72
    
    
    
    (1,207
    )Income tax benefit (3)
    
    
    750
    
    
    
    3,300
    
    
    
    6,700
    
    
    
    
    
    
    
    Net income (loss)
    
    $
    10,400
    
    
    $
    7,751
    
    
    $
    8,707
    
    
    $
    72
    
    
    $
    (1,207
    )Net income (loss) per common share 
basic
    
    $
    0.83
    
    
    $
    0.75
    
    
    $
    0.89
    
    
    $
    0.01
    
    
    $
    (0.13
    )Net income (loss) per common share 
diluted
    
    $
    0.75
    
    
    $
    0.66
    
    
    $
    0.77
    
    
    $
    0.01
    
    
    $
    (0.13
    )Weighted average number of common shares
outstanding  basic
    
    
    12,463
    
    
    
    10,322
    
    
    
    9,780
    
    
    
    9,114
    
    
    
    8,951Weighted average number of common shares
outstanding  diluted
    
    
    13,824
    
    
    
    11,798
    
    
    
    11,323
    
    
    
    9,467
    
    
    
    8,951
 As of November 30,2006
    
    2005
    
    2004
    
    2003
    
    2002(in thousands)Balance Sheet Data:Cash, cash equivalents, securities and investments
    
    $
    71,571
    
    
    $
    13,148
    
    
    $
    7,070
    
    
    $
    2,239
    
    
    $
    2,382Working capital
    
    
    57,968
    
    
    
    18,044
    
    
    
    9,311
    
    
    
    4,480
    
    
    
    4,047Total assets
    
    
    92,423
    
    
    
    29,719
    
    
    
    18,785
    
    
    
    7,156
    
    
    
    6,164Total liabilities
    
    
    2,205
    
    
    
    1,878
    
    
    
    1,232
    
    
    
    991
    
    
    
    664Accumulated deficit
    
    
    (26,731
    )
    
    
    (37,131
    )
    
    
    (44,882
    )
    
    
    (53,589
    )
    
    
    (53,661
    )Total shareholders equity
    
    
    90,218
    
    
    
    27,841
    
    
    
    17,553
    
    
    
    6,165
    
    
    
    5,501
 
 (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)
    
    Represents income recognized in fiscal 2006, 2005 and 2004 as a result of a reversal of a
portion of our income tax valuation allowance. 36




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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
     Net Revenues and Cost of Sales
  37




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##### 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, 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
  38




---



##### Table of Contents




    
    We recorded an impairment expense of $929,093 associated with the write-down of our
intangible asset associated with the acquisition of the license for the CorRestore System.
    
    We further adjusted our deferred tax asset valuation allowance resulting in the
recognition of additional deferred tax assets due to expected future tax benefits related
to our net operating loss carryforwards. Recognition of this additional deferred tax asset
resulted in a non-cash tax benefit on our statement of operations for fiscal 2005 of
$3,300,000.
  Results of Operations
 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 Tyco Healthcare 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 Tyco Healthcare 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
    %
 39




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##### 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
next generation INVOS System.
   Other Income.
 Income Tax Benefit.
 40




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##### Table of Contents



Fiscal Year Ended November 30, 2005 Compared to Fiscal Year Ended November 30, 2004
 Net Revenues.
 
    
    an increase in U.S. sales of $6,688,546, or 64 percent, from $10,517,014 in fiscal 2004
to $17,205,560 in fiscal 2005. The increase in U.S. sales was primarily due to an increase
in sales of the disposable SomaSensor of $4,900,660, or 54 percent, as a result of a 38
percent increase in SomaSensor unit sales and a 12 percent increase in SomaSensor average
selling prices. This increase in our average selling prices is attributable to the
addition of new customers at our higher suggested retail prices and increased sales of our
pediatric SomaSensor which sells for a higher price than the adult SomaSensor. In
addition, sales of the INVOS System monitor in the United States increased $1,817,406, or
180 percent, primarily as a result of increased purchases by pediatric hospitals after the
launch of our products into the pediatric ICU in the first quarter of fiscal 2005; and
    
    an increase in international sales of $1,212,090, or 58 percent, from $2,091,602 in
fiscal 2004 to $3,303,692 in fiscal 2005. The increase in international sales was
primarily due to increased purchases of the INVOS System monitor and disposable SomaSensor
by Tyco Healthcare in Europe, which was partially offset by decreased purchases by Edwards
Lifesciences in Japan. In fiscal 2005, international sales represented 16 percent of our
net revenues, compared to 17 percent of our net revenues in fiscal 2004. Purchases by Tyco
Healthcare accounted for 11 percent of net revenues in fiscal 2005.
   Fiscal Year Ended November 30,Product
    
    2005
    
    2004SomaSensors
    
    
    75
    %
    
    
    78
    %INVOS System Monitors
    
    
    23
    %
    
    
    18
    %Total INVOS System
    
    
    98
    %
    
    
    96
    %CorRestore Systems
    
    
    2
    %
    
    
    4
    %Total
    
    
    100
    %
    
    
    100
    %
  Gross Margin.
 Research, Development and Engineering Expenses.
 41




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##### Table of Contents



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




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##### Table of Contents



Cash Flows From Operating Activities
  
    
    $10,000,600 of net income before income taxes and non-cash depreciation, amortization,
stock compensation expense, accrued interest income, and accrued income tax expense;
    
    a $332,931 increase in accounts payable, primarily as a result of increased inventory
and operating expenses, partially offset by more timely payments made to vendors; and
    
    a $128,481 decrease in prepaid expenses, primarily because we capitalized to machinery
and equipment tooling that was completed in fiscal 2006 for our next generation INVOS
System monitor, partially offset by increased prepaid insurance premiums as of November 30,
2006;
  
    
    a $1,943,049 increase in inventories, primarily due to the acquisition of components
associated with our SomaSensors 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 $1,208,303 increase in accounts receivable, primarily as a result of higher fourth
quarter sales in fiscal 2006 than in the fourth quarter of fiscal 2005 and less timely
collections;
    
    a $5,825 decrease in accrued liabilities, primarily as a result of the payment of
year-end 2005 accrued incentive compensation and accrued sales commissions and lower
amounts accrued for fiscal 2006, partially offset by increased accrued income taxes payable
and accrued clinical research fees.
  43




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##### Table of Contents



Cash Flows From Investing Activities
  Cash Flows From Financing Activities
  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
    
    $
    449,800
    
    
    $
    142,900
    
    
    $
    294,500
    
    
    $
    12,400
    
    
    
    Purchase obligations
    
    
    2,951,100
    
    
    
    2,951,100
    
    
    
    
    
    
    
    
    
    
    
    Other long-term liabilities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
  Off-Balance Sheet Arrangements
  New Accounting Pronouncements
  44




---



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Critical Accounting Policies
  Stock Compensation
     45




---



##### Table of Contents



Income Taxes
    No Capital Cost Sales Revenue Recognition
  46




---



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47




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##### Table of Contents



ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  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
    %
  48




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##### Table of Contents



ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 MANAGEMENTS REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
     49




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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 Managements Report on
Internal Control Over Financial Reporting Internal ControlIntegrated Framework
    Internal ControlIntegrated Framework Internal ControlIntegrated Framework
  
 50




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
    Internal ControlIntegrated
Framework
  
 51




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##### Table of Contents



SOMANETICS CORPORATION
 BALANCE SHEETS
 November 30,2006
    
    
    2005ASSETSCURRENT ASSETS:Cash and cash equivalents (Note 2)
    
    $
    28,734,869
    
    
    $
    13,148,237Marketable securities
    
    
    20,918,134
    
    
    
    Accounts receivable
    
    
    4,740,043
    
    
    
    3,531,740Inventory (Note 2)
    
    
    2,172,458
    
    
    
    1,058,101Prepaid expenses
    
    
    494,822
    
    
    
    623,303Accrued interest receivable
    
    
    351,666
    
    
    
    Deferred tax asset  current (Note 5)
    
    
    2,761,217
    
    
    
    1,561,322Total current assets
    
    
    60,173,209
    
    
    
    19,922,703PROPERTY AND EQUIPMENT: (Note 2)Demonstration and no capital cost sales equipment at customers
    
    
    2,650,939
    
    
    
    1,916,655Machinery and equipment
    
    
    1,263,015
    
    
    
    768,992Furniture and fixtures
    
    
    300,037
    
    
    
    289,397Leasehold improvements
    
    
    195,565
    
    
    
    187,135Total
    
    
    4,409,556
    
    
    
    3,162,179Less accumulated depreciation and amortization
    
    
    (2,285,279
    )
    
    
    (1,836,438
    )Net property and equipment
    
    
    2,124,277
    
    
    
    1,325,741OTHER ASSETS:Long-term investments
    
    
    21,917,764
    
    
    
    Deferred tax asset  non-current (Note 5)
    
    
    8,182,783
    
    
    
    8,438,678Intangible assets, net (Note 2)
    
    
    10,009
    
    
    
    16,921Other
    
    
    15,000
    
    
    
    15,000Total other assets
    
    
    30,125,556
    
    
    
    8,470,599TOTAL ASSETS
    
    $
    92,423,042
    
    
    $
    29,719,043LIABILITIES AND SHAREHOLDERS EQUITYCURRENT LIABILITIES:Accounts payable
    
    $
    1,045,727
    
    
    $
    712,796Accrued liabilities (Notes 4 and 6)
    
    
    1,159,770
    
    
    
    1,165,594Total current liabilities
    
    
    2,205,497
    
    
    
    1,878,390COMMITMENTS 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, 13,163,627 shares at
November 30, 2006,
and 10,715,885 shares at November 30, 2005
    
    
    131,636
    
    
    
    107,159Additional paid-in capital
    
    
    116,817,012
    
    
    
    64,864,554Accumulated deficit
    
    
    (26,731,103
    )
    
    
    (37,131,060
    )Total shareholders equity
    
    
    90,217,545
    
    
    
    27,840,653TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
    
    $
    92,423,042
    
    
    $
    29,719,043
  52




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SOMANETICS CORPORATION
 STATEMENTS OF OPERATIONS
 For the Years Ended November 30,2006
    
    
    2005
    
    
    2004NET REVENUES (Notes 2 and 9)
    
    $
    28,700,600
    
    
    $
    20,509,252
    
    
    $
    12,608,615COST OF SALES
    
    
    3,565,588
    
    
    
    2,601,488
    
    
    
    2,050,253Gross margin
    
    
    25,135,012
    
    
    
    17,907,764
    
    
    
    10,558,362OPERATING EXPENSES:Research, development and engineering
(Note 2)
    
    
    1,582,521
    
    
    
    525,679
    
    
    
    369,106Selling, general and administrative (Note 2)
    
    
    16,484,567
    
    
    
    13,241,053
    
    
    
    8,237,401Total operating expenses
    
    
    18,067,088
    
    
    
    13,766,732
    
    
    
    8,606,507OPERATING INCOME
    
    
    7,067,924
    
    
    
    4,141,032
    
    
    
    1,951,855OTHER INCOME:Interest income
    
    
    2,582,033
    
    
    
    310,055
    
    
    
    54,721Total other income
    
    
    2,582,033
    
    
    
    310,055
    
    
    
    54,721INCOME BEFORE INCOME TAXES
    
    $
    9,649,957
    
    
    $
    4,451,087
    
    
    $
    2,006,576INCOME TAX BENEFIT
    
    
    750,000
    
    
    
    3,300,000
    
    
    
    6,700,000NET INCOME
    
    $
    10,399,957
    
    
    $
    7,751,087
    
    
    $
    8,706,576NET INCOME PER COMMON
SHARE  BASIC (Note 2)
    
    $
    .83
    
    
    $
    .75
    
    
    $
    .89NET INCOME PER COMMON
SHARE  DILUTED (Note 2)
    
    $
    .75
    
    
    $
    .66
    
    
    $
    .77WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 
BASIC (Note 2)
    
    
    12,463,075
    
    
    
    10,322,226
    
    
    
    9,780,104WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 
DILUTED (Note 2)
    
    
    13,824,467
    
    
    
    11,797,799
    
    
    
    11,323,272
  53




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##### 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, 2003
    
    
    9,298,669
    
    
    $
    92,987
    
    
    $
    59,660,804
    
    
    $
    (53,588,723
    )
    
    $
    6,165,068For cash, exercise of stock options
    
    
    321,276
    
    
    
    3,213
    
    
    
    1,537,809
    
    
    
    
    
    
    
    1,541,022For cash, exercise of warrants
    
    
    380,000
    
    
    
    3,800
    
    
    
    1,136,200
    
    
    
    
    
    
    
    1,140,000Cashless exercise of warrants
    
    
    137,837
    
    
    
    1,378
    
    
    
    (1,378
    )
    
    
    
    
    
    
    Net income and comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,706,576
    
    
    
    8,706,576
    
    
    $
    8,706,576Balance at November 30, 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
    )
    
    $
    90,217,545
  54




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##### Table of Contents



SOMANETICS CORPORATION
 STATEMENTS OF CASH FLOWS
 For the Years Ended November 30,2006
    
    
    2005
    
    
    2004CASH FLOWS FROM OPERATING ACTIVITIES:Net income
    
    $
    10,399,957
    
    
    $
    7,751,087
    
    
    $
    8,706,576Adjustments to reconcile net income to net
cash provided by operations:Income tax benefit
    
    
    (750,000
    )
    
    
    (3,300,000
    )
    
    
    (6,700,000
    )Depreciation and amortization
    
    
    592,061
    
    
    
    383,986
    
    
    
    282,558Accrued interest income
    
    
    (351,666
    )
    
    
    
    
    
    
    Stock compensation expense
    
    
    304,248
    
    
    
    11,221
    
    
    
    Accrued income tax expense
    
    
    (194,000
    )
    
    
    
    
    
    
    Intangible asset impairment
    
    
    
    
    
    
    929,093
    
    
    
    Changes in assets and liabilities:Accounts receivable (increase)
    
    
    (1,208,303
    )
    
    
    (1,509,196
    )
    
    
    (3,929
    )Inventory (increase)
    
    
    (1,943,049
    )
    
    
    (859,312
    )
    
    
    (158,611
    )Prepaid expenses (increase) decrease
    
    
    128,481
    
    
    
    (365,410
    )
    
    
    (134,690
    )Accounts payable increase (decrease)
    
    
    332,931
    
    
    
    183,699
    
    
    
    (112,135
    )Accrued liabilities increase (decrease)
    
    
    (5,825
    )
    
    
    462,485
    
    
    
    353,562Net cash provided by operating activities
    
    
    7,304,835
    
    
    
    3,687,653
    
    
    
    2,233,331CASH FLOWS FROM INVESTING ACTIVITIES:Purchases of marketable securities and
long-term investments
    
    
    (47,835,897
    )
    
    
    
    
    
    
    Proceeds from maturities of marketable securities and
long-term investments
    
    
    5,000,000
    
    
    
    
    
    
    
    Acquisition of property and equipment (net)
    
    
    (554,993
    )
    
    
    (134,637
    )
    
    
    (84,003
    )Net cash (used in) investing activities
    
    
    (43,390,890
    )
    
    
    (134,637
    )
    
    
    (84,003
    )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
    
    
    439,913
    
    
    
    2,525,679
    
    
    
    2,681,022Net cash provided by financing activities
    
    
    51,672,687
    
    
    
    2,525,679
    
    
    
    2,681,022NET INCREASE IN CASH AND
CASH EQUIVALENTS
    
    
    15,586,632
    
    
    
    6,078,695
    
    
    
    4,830,350CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD
    
    
    13,148,237
    
    
    
    7,069,542
    
    
    
    2,239,192CASH AND CASH EQUIVALENTS,
END OF PERIOD
    
    $
    28,734,869
    
    
    $
    13,148,237
    
    
    $
    7,069,542Supplemental Disclosure of Non cash investing activities:Demonstration and no capital cost sales equipment
capitalized
from inventory (Note 2)
    
    $
    828,692
    
    
    $
    484,121
    
    
    $
    565,962
  55




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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
 November 30,2006
    
    
    2005Purchased components
    
    $
    1,456,059
    
    
    $
    652,876Finished goods
    
    
    610,016
    
    
    
    352,560Work in process
    
    
    106,383
    
    
    
    52,665Total
    
    $
    2,172,458
    
    
    $
    1,058,101
 56




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##### Table of Contents



SOMANETICS CORPORATION
 NOTES TO FINANCIAL STATEMENTS  (Continued)
 Property and Equipment
 Intangible Assets
 November 30,2006
    
    
    2005Patents and trademarks
    
    $
    111,733
    
    
    $
    111,733Less: accumulated amortization
    
    
    (101,724
    )
    
    
    (94,812
    )Total
    
    $
    10,009
    
    
    $
    16,921
   Revenue Recognition
 Research, Development and Engineering
 Net Income Per Common Share  basic and diluted
 57




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##### Table of Contents



SOMANETICS CORPORATION
 NOTES TO FINANCIAL STATEMENTS  (Continued)
 2006
    
    
    2005
    
    
    2004Weighted average shares  basic
    
    
    12,463,075
    
    
    
    10,322,226
    
    
    
    9,780,104Add: effect of dilutive common
shares and warrants
    
    
    1,361,392
    
    
    
    1,475,573
    
    
    
    1,543,168Weighted average shares  diluted
    
    
    13,824,467
    
    
    
    11,797,799
    
    
    
    11,323,272
  Accounting Pronouncements
  Use Of Estimates
 3. Stock Offerings and Common Shares
   58




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##### Table of Contents



SOMANETICS CORPORATION
 NOTES TO FINANCIAL STATEMENTS  (Continued)
       1991 Incentive Stock Option Plan
    
    
    14,6631997 Stock Option Plan
    
    
    1,653,6122005 Stock Incentive Plan
    
    
    532,000Options Granted Independent of Option Plans
    
    
    71,500Total shares reserved for future issuance
    
    
    2,271,775
 59




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##### Table of Contents



SOMANETICS CORPORATION
 NOTES TO FINANCIAL STATEMENTS  (Continued)
 4. Accrued Liabilities
  November 30,2006
    
    
    2005Incentive Compensation
    
    $
    495,014
    
    
    $
    701,658Sales Commissions
    
    
    277,521
    
    
    
    352,459Taxes
    
    
    228,085
    
    
    
    11,375Clinical Research
    
    
    60,005
    
    
    
    21,675401(k) Match
    
    
    45,719
    
    
    
    42,164Professional Fees
    
    
    22,053
    
    
    
    5,625Warranty
    
    
    19,900
    
    
    
    16,850Royalty
    
    
    11,473
    
    
    
    13,788Total
    
    $
    1,159,770
    
    
    $
    1,165,594
 5. Income Tax
   November 30,2006
    
    
    2005(in thousands)Net operating loss carryforwards
    
    $
    14,834
    
    
    $
    17,620Other
    
    
    150
    
    
    
    91Basis difference of fixed assets and intangibles
    
    
    113
    
    
    
    167Alternative minimum tax credit carryforward
    
    
    194
    
    
    
    Research and general business tax credit carryforwards
    
    
    443
    
    
    
    443Subtotal
    
    
    15,734
    
    
    
    18,321Valuation allowance
    
    
    (4,790
    )
    
    
    (8,321
    )Deferred tax asset
    
    $
    10,944
    
    
    $
    10,000
  60




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##### Table of Contents



SOMANETICS CORPORATION
 NOTES TO FINANCIAL STATEMENTS  (Continued)
 For the Fiscal Year Ended November 30,2006
    
    
    2005
    
    
    2004Taxes at U.S. statutory rate  34 percent
    
    $
    3,280,985
    
    
    $
    1,513,370
    
    
    $
    682,236Nondeductible meals and entertainment
    
    $
    37,628
    
    
    $
    24,050
    
    
    $
    15,109Change in valuation allowance
    
    $
    (4,068,613
    )
    
    $
    (4,837,420
    )
    
    $
    (7,397,345
    )Income tax (benefit) from
continuing operations
    
    $
    (750,000
    )
    
    $
    (3,300,000
    )
    
    $
    (6,700,000
    )Effective tax rate
    
    
    (7.8
    )%
    
    
    (74.1
    )%
    
    
    (333.9
    )%
     6. Commitments and Contingencies
   Year ending November 30,2007
    
    $
    142,9002008
    
    $
    145,8002009
    
    $
    148,7002010
    
    $
    12,400Total
    
    $
    449,800
 61




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##### Table of Contents



SOMANETICS CORPORATION
 NOTES TO FINANCIAL STATEMENTS  (Continued)
     7. Stock Option Plans
 62
    Table of Contents   SOMANETICS CORPORATION
 NOTES TO FINANCIAL STATEMENTS  (Continued)
        63
    Table of Contents   SOMANETICS CORPORATION
 NOTES TO FINANCIAL STATEMENTS  (Continued)
    For the Fiscal Year EndedNovember 30,2005
    
    
    2004Net income
    
    $
    7,751,087
    
    
    $
    8,706,576Add: Stock-based employee compensation
included in actual net income
    
    $
    11,221
    
    
    $
    0Deduct: Total stock-based employee
compensation, had fair value method been
applied
    
    $
    (1,804,000
    )
    
    $
    (796,000
    )Pro-forma net income
    
    $
    5,958,308
    
    
    $
    7,910,576Net income per common share  basic
    
    $
    .75
    
    
    $
    .89Net income per common share  diluted
    
    $
    .66
    
    
    $
    .77Pro-forma net income per common
share  basic, had fair value method been
applied
    
    $
    .58
    
    
    $
    .81Pro-forma net income per common
share  diluted, had fair value method been
applied
    
    $
    .51
    
    
    $
    .70
   2006
    
    
    2005
    
    
    2004Weighted
    
    
    
    
    
    
    Weighted
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    Average
    
    
    
    
    
    
    AverageCommon
    
    
    Exercise
    
    
    Common
    
    
    Exercise
    
    
    Common
    
    
    ExerciseShares
    
    
    Price
    
    
    Shares
    
    
    Price
    
    
    Shares
    
    
    PriceOptions outstanding
December 1,
    
    
    1,914,232
    
    
    $
    4.59
    
    
    
    2,316,315
    
    
    $
    3.83
    
    
    
    2,603,722
    
    
    $
    3.89Options granted
    
    
    239,000
    
    
    
    17.30
    
    
    
    168,257
    
    
    
    13.79
    
    
    
    53,500
    
    
    
    10.23Options exercised
    
    
    (79,742
    )
    
    
    5.52
    
    
    
    (561,839
    )
    
    
    4.50
    
    
    
    (321,276
    )
    
    
    4.79Options canceled
    
    
    (1,500
    )
    
    
    17.56
    
    
    
    (8,501
    )
    
    
    8.29
    
    
    
    (19,631
    )
    
    
    13.94Options outstanding
November 30,
    
    
    2,071,990
    
    
    
    6.01
    
    
    
    1,914,232
    
    
    
    4.59
    
    
    
    2,316,315
    
    
    
    3.83Options exercisable
November 30,
    
    
    1,832,990
    
    
    $
    4.53
    
    
    
    1,914,232
    
    
    $
    4.59
    
    
    
    1,827,008
    
    
    $
    3.91
 64




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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 - $5.00
    
    
    1,371,597
    
    
    $
    3.03
    
    
    
    5.13
    
    
    
    1,371,597
    
    
    $
    3.03
    
    
    
    5.13$5.01 - $10.00
    
    
    272,132
    
    
    
    5.88
    
    
    
    1.40
    
    
    
    272,132
    
    
    
    5.88
    
    
    
    1.40$10.01 - $18.06
    
    
    428,261
    
    
    
    15.63
    
    
    
    9.09
    
    
    
    189,261
    
    
    
    13.52
    
    
    
    8.46Total
    
    
    2,071,990
    
    
    $
    6.01
    
    
    
    5.46
    
    
    
    1,832,990
    
    
    $
    4.53
    
    
    
    4.92
   8. Related Party Transactions
   9. Major Customers and Foreign Sales
   65




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##### Table of Contents



SOMANETICS CORPORATION
 NOTES TO FINANCIAL STATEMENTS  (Continued)
 10. Segment Information
  11. Subsequent Events
  66




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##### Table of Contents



QUARTERLY INFORMATION (unaudited)
  QuarterFirst
    
    Second
    
    
    
    
    
    Third
    
    Fourth(in thousands, except per share data)Year 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. Year Ended November 30, 2005Net revenues
    
    $
    4,032,617
    
    
    $
    5,082,746
    
    
    $
    5,242,848
    
    
    $
    6,151,041Gross margin
    
    
    3,482,468
    
    
    
    4,437,906
    
    
    
    4,581,652
    
    
    
    5,405,738Net income
    
    
    563,926
    
    
    
    890,183
    
    
    
    994,147
    
    
    
    5,302,831
    **Net income per common
share  basic
    
    $
    0.06
    
    
    $
    0.09
    
    
    $
    0.10
    
    
    $
    0.50Net income per common
share  diluted
    
    $
    0.05
    
    
    $
    0.08
    
    
    $
    0.08
    
    
    $
    0.43
 
 **
    
    Includes the effects of a net reversal of $4,561,223 of our valuation allowance, as described in
Note 5 of Notes to Financial Statements. Also includes an impairment expense of $929,093 in
connection with the write-off of our intangible asset associated with the acquisition of the
license for the CorRestore System, as described in Note 2 of Notes to Financial Statements. 67




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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
    68




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##### Table of Contents



ITEM 9B. OTHER INFORMATION
  69




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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
  70




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##### Table of Contents



ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
  71




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##### Table of Contents



PART IV
 
 ITEM 15 EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
 (a)
    
    (1)    Financial Statements
        (2)
    
    Financial Statement Schedules
  (3)
    
    Exhibits
  72




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##### Table of Contents



SIGNATURES
  Somanetics CorporationDate:  February 8, 2007
    By:
    /s/ Bruce J. BarrettBruce J. BarrettPresident & Chief Executive Officer  Signature
    
    Title
    
    Date/s/ BRUCE J. BARRETT

Bruce J. Barrett
    
    President and Chief Executive Officer and a Director
(Principal Executive Officer)
    
    February 8, 2007/s/ WILLIAM M. IACONA

William M. Iacona
    
    Vice President and Chief Financial Officer,
Controller, and Treasurer
(Principal Financial Officer and Principal Accounting Officer)
    
    February 8, 2007/s/ JAMES I. AUSMAN

James I. Ausman, M.D., Ph.D.
    
    Director
    
    February 8, 2007/s/ DANIEL S. FOLLIS

Daniel S. Follis
    
    Director
    
    February 7, 2007/s/ ROBERT R. HENRY

Robert R. Henry
    
    Director
    
    February 7, 2007/s/ RICHARD R. SORENSEN

Richard R. Sorensen
    
    Director
    
    February 7, 2007
 73




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##### 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 Annual Report on
Form 10-K for the fiscal year ended November 30, 2003.10.1
    
    
    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.
 74




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##### 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 2005 Incentive Compensation Plan, dated as
of November 9, 2004, incorporated by reference to Exhibit 10.1 to
the Companys Current Report on Form 8-K, dated November 9, 2004
and filed November 12, 2004.*10.22
    
    
    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.*10.23
    
    
    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.*10.24
    
    
    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.*10.25
    
    
    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.*10.26
    
    
    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.
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##### 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
    
    
    Form of Stock Option Agreement, dated as of April 24, 1997, between
Somanetics Corporation and twenty-three employees, incorporated by
reference to Exhibit 10.32 to Amendment No. 1 to the Registration
Statement on Form S-1 (file no. 333-25275), filed with the
Securities and Exchange Commission on May 30, 1997.*10.39
    
    
    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.*10.40
    
    
    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.*10.41
    
    
    Consulting Agreement, dated February 28, 1983, as amended, between
Somanetics Corporation and Hugh F. Stoddart, incorporated by
reference to Exhibit 10.13 to the Companys Annual Report on Form
10-K for the fiscal year ended November 30, 1991.10.42
    
    
    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, 2006.10.43
    
    
    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, 1992.10.44
    
    
    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, 1992.10.45
    
    
    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, 2001.10.46
    
    
    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, 2000.10.47
    
    
    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 16, 2006.23.1
    
    
    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
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##### Table of Contents



EXHIBIT INDEX
 Exhibit
    
    DescriptionSection 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.
 77