##### 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, 2008
 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
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer   o
(Do not check if a smaller reporting company)
    
    Smaller reporting company o
 o þ
   Documents Incorporated by Reference




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##### 



SOMANETICS CORPORATION
 ANNUAL REPORT ON FORM 10-K
 FOR THE FISCAL YEAR ENDED NOVEMBER 30, 2008
 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
    
    
    34ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED SHAREHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
    
    
    34ITEM 6. SELECTED FINANCIAL DATA
    
    
    37ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
    
    
    38ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    50ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
    
    
    51ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
    
    
    69ITEM 9A. CONTROLS AND PROCEDURES
    
    
    69ITEM 9B. OTHER INFORMATION
    
    
    70PART III
    
    
    71ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
    
    
    71ITEM 11. EXECUTIVE COMPENSATION
    
    
    71ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS
    
    
    71ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
    
    
    71ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
    
    
    72PART IV
    
    
    73ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
    
    
    73EX-14.1EX-23.1EX-31.1EX-31.2EX-32.1




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PART I
 
 ITEM 1. BUSINESS
 Overview
     2




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Our Corporate Information
 www.somanetics.com
 ® ® ® ® ® ® ® ® ® ®
 Industry
 Market Opportunity
   3




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Brain Oxygen Imbalances and Its Effects
     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 oxygen imbalances to
help guide therapeutic interventions     Trend information, rather than at a single point in time4-Channel Monitoring
    
         Simultaneous cerebral and other tissue monitoring     Provides more data points to help manage patient careCost-Effective
    
         Low cost relative to traditional brain monitoring
methods     Small portion of the total cost of the procedures in
which it is used     Information can potentially improve patient outcomes
and reduce the overall cost of careEasy to Use
    
         Does not require a dedicated technician to operate or
interpret     Automatic sensor calibration     Simple user interface and controlsEffective in Difficult
Circumstances
    
         Provides information when the patient is unconscious,
lacks a strong peripheral pulse or has suppressed neural
activity, specifically during cardiac arrest,
hypothermia, hypertension, hypotension and hypovolemiaPortable/Compatible
    
         Placed at patients bedside     Lightweight     Can be integrated or interfaced with existing
multi-modality systems
 ICU Data Systems, Inc.
  5




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##### Table of Contents



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 high risk patients. We believe that the medical
professionals involved in these surgeries and ICU treatments are most aware of the risks of
brain and other damage resulting from oxygen imbalances. Therefore, we believe that it
will be easier to demonstrate the clinical importance of the information provided by the
INVOS System to these professionals and potentially gain market acceptance for our products
in connection with these surgeries and ICU treatments.
    
    Sponsor Clinical Studies to Promote Expanded Acceptance of the INVOS System.We believe
that our INVOS System has been evaluated in over 600 presentations, study abstracts and
published papers. During the second quarter of fiscal 2004, results of both the first
prospective, randomized clinical trial and a larger retrospective review evaluating the
INVOS System were presented, which we believe have contributed to the INVOS System gaining
further market penetration. In addition, in January 2007 the results of the first
prospective, randomized clinical trial mentioned above were published in a peer-reviewed
anesthesia journal. We plan to sponsor clinical studies using the INVOS System to
demonstrate its benefits. We are also sponsoring and evaluating sponsorship of other
clinical trials which may allow us to more actively target the sale of the INVOS System for
use in other high risk patient populations. We use the results of clinical studies to help
convince the medical community of the clinical importance of the information provided by
the INVOS System. We also sponsor peer-to-peer educational opportunities and promote use
of the INVOS System in regional centers of influence that we believe will influence its
adoption by others. In early 2008, The Society of Thoracic Surgeons began collecting
cerebral oximetry information as part of its STS Adult Cardiac Surgery Database, which is
used to develop practice standards intended to improve qualify and safety.
    
    Invest in Sales and Marketing Activities.We continue to increase our investment in our
distribution network consisting of our direct sales employees, independent sales
representative firms and distributors. We sell the INVOS System through a direct sales
team in the United States, the size of which has increased from 44 persons at the end of
fiscal 2006 to 55 persons at the end of fiscal 2008, and two independent sales
representative firms. The direct sales team will also be expected to sell our integrated
data device. We expect to increase the size of our U.S. direct sales team in fiscal 2009
and are planning to hire 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
 6




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manufacturers to expand the installed base of INVOS System monitors and increase the demand
for our sensors. We expect that such arrangements will provide another distribution channel
for our INVOS System. We plan to further develop and launch our newly-acquired data
integration technology as a stand-alone device in mid-2009. The INVOS System is one of many
devices whose data can be integrated into the stand-alone device. In addition, we expect to
invest to combine the ICU Data Systems and INVOS System technologies in a single product for
launch expected in the second half of 2010. We also plan to pursue a new FDA 510(k)
clearance for this integrated device in 2010.
    
    Develop Additional Applications and Markets for the INVOS System.We have developed a
smaller sensor for use with infants, and are making other advances to the design and
performance features of the INVOS System, including the disposable sensor. We are also
evaluating additional potential market segments for our INVOS System, such as use in other
major surgeries, in the adult ICU, and for applications of the technology to monitor other
tissues. We are also exploring several novel near-infrared spectroscopy and imaging
technologies and products under a Contract Development Agreement with Shirley Research
Corporation. See NeuroPhysics Corporation and Shirley Research 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.
 The INVOS System
 Components of the INVOS System
  
    
    Monitor.Our oximeter is a portable monitor that uses our proprietary technology to
analyze information received from the disposable sensors. It provides a continuous digital
and trend display of an index of the oxygen saturation in the region of the body under the
sensors. The monitor includes menus for users to set high and low audible alarms,
customize the display and retrieve data. Single-function keys allow users to silence
alarms, mark important events, store data for up to 28 surgical procedures, and retrieve
data by USB storage device or through a direct link to a computer. Our four-channel
cerebral and somatic INVOS System monitor, which we launched in 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, 2008, we had an installed base of 2,523 INVOS System monitors in the United States in
714 hospitals.
    
    Disposable sensors.Each single-use disposable sensor contains a light source and two
light detectors. For multi-channel cerebral monitoring, disposable sensors are placed on
both sides of a patients forehead and are connected to the monitor, which allows for
monitoring both sides of the brain. Our four-channel cerebral and somatic INVOS System
monitor, which we launched in the second quarter of 2006, can display information from four
sensors. This feature allows for the simultaneous monitoring of changes in blood oxygen
saturation in tissues beneath the sensors in four different places in the body in patients
with or at risk for restricted blood flow. The number of sensors used depends on the
application. The INVOS System is being used to monitor simultaneously the brain and other
tissue initially for patients in the pediatric and neonatal ICU and for monitoring other,
non-brain tissue alone, and we expect that it will later also be used on adults for other,
non-brain tissue. The disposable sensors contain information that is processed by the
INVOS System allowing it to automatically calibrate each sensor. During our fiscal year
ended November 30, 2008, net revenues from our disposable sensors comprised approximately
72 percent of our net revenues. During fiscal 2008 we sold 424,647 sensors 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 are currently
expanding the use of our INVOS System in the pediatric and neonatal ICUs with the launch
of our smaller sensor in the first half of fiscal 2008. Our four-channel cerebral and
somatic INVOS System monitor, which we launched in the second quarter of 2006, can display
information from four disposable sensors. This feature allows for the simultaneous
monitoring of changes in blood oxygen saturation in tissues beneath the sensor in four
different places in the body in patients with or at risk for restricted blood flow. The
INVOS System is being used to monitor simultaneously the brain and other tissue initially
for patients in the pediatric and neonatal ICU.
 8




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
    
    Other Applications.We are also sponsoring and evaluating sponsorship of other clinical
trials which may allow us to more actively target the sale of the INVOS System for use in
other high risk patient populations. 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 high risk 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 applications of the technology in other
tissues in the body.
   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
    10




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Diabetic Patients Studies
 th
  Other Future Studies
  Marketing, Sales and Distribution
 Marketing
    11




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Sales and Distribution
       Research and Development
  12




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NeuroPhysics Corporation and Shirley Research Corporation
   Manufacturing
   Competition
  13




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Proprietary Rights Information
     14




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Government Regulation
  
    
    product development;
    
    product testing;
    
    product manufacturing;
    
    product labeling;
    
    product storage;
    
    premarket clearance or approval;
    
    advertising and promotion;
    
    product sales and distribution; and
    
    product event reports and complaint handling.
  510(k) Clearance Pathway .
 15




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PMA Approval Pathway .
 Clinical Trials .
  Postmarket .
  16




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
    
    fines, injunctions, consent decrees and civil penalties;
    
    repair, replacement, refunds, recall or seizure of products;
    
    limitations on exports;
    
    operating restrictions or partial suspension or total shutdown of production;
    
    refusing or delaying our requests for 510(k) clearance or PMA approval of new products
or new intended uses;
    
    withdrawing 510(k) clearance or PMA approvals already granted; and
    
    criminal prosecution.
     Seasonality
  Employees
  17




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




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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.
      19




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We are dependent on our international distributors for a substantial portion of our sales, and
their failure to sell our products adequately would adversely affect our business.
   The recent global economic crisis has had and may continue to have a negative effect on our
business and operations.
  We currently depend on single-source suppliers for key components of the INVOS System, and the
loss of any of these suppliers could harm our ability to manufacture and sell our products,
increase the cost of our components or delay our clinical trials.
  20




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We may become subject to competition which may adversely affect us.
   We also compete with companies that have longer operating histories, more established products
and greater resources than we do for, among other things, forehead monitoring space, limited
hospital capital budgets and alternative products.
  If we fail to manage our growth effectively, our business and operating results could be harmed.
  21




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Patients might assert product liability claims against us.
  If we fail to obtain and maintain necessary U.S. Food and Drug Administration clearances for our
products and indications or if clearances for future products and indications are delayed or not
issued, our business would be harmed.
   22




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The FDA might require us to obtain a new clearance to label or promote the INVOS System for
specific patient subgroups; if we fail to obtain such clearances, our sales and revenues may be
adversely affected.
  After clearance or approval of our products, we are subject to continuing regulation by the FDA,
and if we fail to comply with FDA regulations, our business could suffer.
   
    
    untitled letters, warning letters, fines, injunctions, consent decrees and civil
penalties;
    
    repair, replacement, refunds, recall or seizure of our products;
    
    limitations on exports;
    
    operating restrictions or partial suspension or total shutdown of production;
    
    refusing or delaying our requests for 510(k) clearance or premarket approval of new
products or new intended uses;
    
    withdrawing 510(k) clearance or premarket approvals that have already been granted; and
    
    criminal prosecution.
  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.
  23




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If we fail to comply with the FDAs Quality System Regulation, our manufacturing operations
could be halted, and our business would suffer.
  Failure to obtain or maintain regulatory approval in foreign jurisdictions would prevent us from
marketing our products abroad.
  Federal regulatory reforms may adversely affect our ability to sell our products profitably.
  The lengthy sales cycle for the INVOS System could cause variability in our operating results.
  24




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Sales employee and clinical specialist employee turnover could have an adverse effect on our
business and cause variability in our operating results.
  If we are unable to obtain or maintain intellectual property rights relating to our technology
and products, the commercial value of our technology and products will likely be adversely
affected and our competitive position could be harmed.
       25




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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.
    26




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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 and data integration device,
through a court-imposed sanction called an injunction;
    
    expend significant resources to redesign our technology so that it does not infringe
others patent rights, or to develop or acquire non-infringing intellectual property, which
may not be possible;
    
    discontinue manufacturing or other processes incorporating infringing technology; and/or
    
    obtain licenses to the infringed intellectual property, which may not be available to us
on acceptable terms, or which may not be available at all.
    Our success depends on our ability to attract and retain key personnel.
  27




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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.
  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.
  28




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The market price of our common shares has been volatile and may continue to remain so.
  
    
    changes in our quarterly financial condition or operating results;
    
    changes in general conditions in the economy;
    
    changes in the financial markets;
    
    changes in the medical equipment industry;
    
    changes in financial estimates by securities analysts or differences between those
estimates and our actual results;
    
    the liquidity of the market for the common shares;
    
    developments with respect to patents and proprietary rights;
    
    publication of clinical research results regarding our products;
    
    changes in health care policies in the United States or foreign countries;
    
    grants or exercises of stock options or warrants;
    
    news announcements;
    
    litigation involving us;
    
    actions by governmental agencies, including the FDA, or changes in regulations; and
    
    other developments affecting us or our competitors.
  We have never paid cash dividends on our capital stock, and we do not anticipate paying any cash
dividends in the foreseeable future.
  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.
  29




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Forward-Looking Statements
    30




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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
  31




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SUPPLEMENTAL ITEM. EXECUTIVE OFFICERS OF THE REGISTRANT
  ExecutiveName
    
    Officer Since
    
    Age
    
    PositionBruce J. Barrett
    
    6/94
    
    
    49
    
    
    President and Chief Executive OfficerArik A. Anderson
    
    01/09
    
    
    42
    
    
    Senior Vice President, R&D and OperationsWilliam M. Iacona
    
    12/00
    
    
    38
    
    
    Vice President and Chief Financial Officer, Controller, and TreasurerDominic J. Spadafore
    
    8/02
    
    
    49
    
    
    Senior Vice President, U.S. Sales and MarketingMary Ann Victor
    
    1/98
    
    
    51
    
    
    Vice President and Chief Administrative Officer and Secretary
  Biographical Information
     32




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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, 2007First Quarter
    
    $
    23.63
    
    
    $
    18.35Second Quarter
    
    
    21.10
    
    
    
    17.35Third Quarter
    
    
    19.81
    
    
    
    16.08Fourth Quarter
    
    
    20.59
    
    
    
    17.93Fiscal Year Ended November 30, 2008First Quarter
    
    $
    29.53
    
    
    $
    19.45Second Quarter
    
    
    28.00
    
    
    
    10.01Third Quarter
    
    
    26.17
    
    
    
    16.76Fourth Quarter
    
    
    25.21
    
    
    
    14.11
   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**
 
 2003
    
    2004
    
    2005
    
    2006
    
    2007
    
    2008Somanetics Corporation
    
    
    100.00
    
    
    
    177.49
    
    
    
    395.27
    
    
    
    248.08
    
    
    
    255.88
    
    
    
    224.30The Russell 2000 Index
    
    
    100.00
    
    
    
    117.26
    
    
    
    126.81
    
    
    
    148.91
    
    
    
    147.16
    
    
    
    92.04NASDAQ Medical Devices Index
    
    
    100.00
    
    
    
    115.59
    
    
    
    130.88
    
    
    
    135.62
    
    
    
    171.17
    
    
    
    91.01
  
 *
    
    Total return assumes reinvestment of dividends.**
    
    Fiscal Year ending November 30. Unregistered Sales of Equity Securities and Use of Proceeds
  35




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TotalNumber of
    
    ApproximateShares
    
    Dollar ValuePurchased
    
    of SharesTotal
    
    
    
    
    
    as Part of
    
    That May YetNumber of
    
    Average
    
    Publicly
    
    Be PurchasedShares
    
    Price Paid
    
    Announced Plans
    
    Under the PlansPeriod
    
    Purchased
    
    Per Share
    
    or Programs
    
    or ProgramsSeptember 1-30, 2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,550,580October 1-31, 2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,550,580November 1-30, 2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,550,580Total
    
    
    0
    
    
    
    N/A
    
    
    
    0
  36




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ITEM 6. SELECTED FINANCIAL DATA
  Year Ended November 30,2008 (4)
    
    
    2007
    
    
    2006
    
    
    2005
    
    
    2004(in thousands, except per share data)Statement of Operations Data:Net revenues
    
    $
    47,455
    
    
    $
    38,586
    
    
    $
    28,701
    
    
    $
    20,509
    
    
    $
    12,609Cost of sales
    
    
    6,249
    
    
    
    4,726
    
    
    
    3,566
    
    
    
    2,601
    
    
    
    2,050Gross margin
    
    
    41,206
    
    
    
    33,860
    
    
    
    25,135
    
    
    
    17,908
    
    
    
    10,558Operating expenses:Research, development and engineering (1)
    
    
    1,259
    
    
    
    669
    
    
    
    1,582
    
    
    
    526
    
    
    
    369Selling, general and administrative (2)
    
    
    26,166
    
    
    
    22,269
    
    
    
    16,485
    
    
    
    13,241
    
    
    
    8,237Total operating expenses
    
    
    27,425
    
    
    
    22,938
    
    
    
    18,067
    
    
    
    13,767
    
    
    
    8,606Operating income
    
    
    13,781
    
    
    
    10,922
    
    
    
    7,068
    
    
    
    4,141
    
    
    
    1,952Other income:Interest income
    
    
    2,630
    
    
    
    4,008
    
    
    
    2,582
    
    
    
    310
    
    
    
    55Total other income
    
    
    2,630
    
    
    
    4,008
    
    
    
    2,582
    
    
    
    310
    
    
    
    55Income before income taxes
    
    $
    16,411
    
    
    $
    14,930
    
    
    $
    9,650
    
    
    $
    4,451
    
    
    $
    2,007Income tax (expense) benefit (3)
    
    
    (5,965
    )
    
    
    (5,248
    )
    
    
    750
    
    
    
    3,300
    
    
    
    6,700Net income
    
    $
    10,446
    
    
    $
    9,682
    
    
    $
    10,400
    
    
    $
    7,751
    
    
    $
    8,707Net income per common share 
basic
    
    $
    .82
    
    
    $
    .73
    
    
    $
    .83
    
    
    $
    .75
    
    
    $
    .89Net income per common share 
diluted
    
    $
    .76
    
    
    $
    .67
    
    
    $
    .75
    
    
    $
    .66
    
    
    $
    .77Weighted average number of common shares
outstanding  basic
    
    
    12,671
    
    
    
    13,213
    
    
    
    12,463
    
    
    
    10,322
    
    
    
    9,780Weighted average number of common shares
outstanding  diluted
    
    
    13,672
    
    
    
    14,384
    
    
    
    13,824
    
    
    
    11,798
    
    
    
    11,323
 As of November 30,2008 (4)
    
    2007
    
    2006
    
    2005
    
    2004(in thousands)Balance Sheet Data:Cash, cash equivalents, securities and investments
    
    $
    69,996
    
    
    $
    85,804
    
    
    $
    71,571
    
    
    $
    13,148
    
    
    $
    7,070Working capital
    
    
    65,640
    
    
    
    62,998
    
    
    
    57,968
    
    
    
    18,044
    
    
    
    9,311Total assets
    
    
    87,968
    
    
    
    104,984
    
    
    
    92,423
    
    
    
    29,719
    
    
    
    18,785Total liabilities
    
    
    3,120
    
    
    
    2,819
    
    
    
    2,205
    
    
    
    1,878
    
    
    
    1,232Accumulated deficit
    
    
    (6,603
    )
    
    
    (17,049
    )
    
    
    (26,731
    )
    
    
    (37,131
    )
    
    
    (44,882
    )Total shareholders equity
    
    
    84,848
    
    
    
    102,165
    
    
    
    90,218
    
    
    
    27,841
    
    
    
    17,553
 
 (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
an intangible asset.(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.(4)
    
    Fiscal 2008 amounts reflect 1) our acquisition of substantially all of the assets of ICU Data
Systems, Inc. in November 2008, and 2) our common share repurchase program. See Notes 2 and 8
of Notes to Financial Statements in Item 8. 37




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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
      38




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##### Table of Contents



Net Revenues and Cost of Sales
    Operating Expenses
  
    
    salaries, wages and related expenses of our employees and consultants;
    
    sales and marketing expenses, such as employee sales commissions, commissions to
independent sales representatives, travel, entertainment, advertising, education and
training expenses, depreciation of demonstration monitors and attendance at selected
medical conferences;
    
    clinical research expenses, such as costs of supporting clinical trials; and
    
    general and administrative expenses, such as the cost of corporate operations,
professional services, stock compensation, insurance, warranty and royalty expenses,
investor relations, depreciation and amortization, facilities expenses and other general
operating expenses.
   
    
    salaries, wages and related expenses of our research and development personnel and
consultants;
    
    costs of various development projects; and
    
    costs of preparing and processing applications for FDA clearance of new products.
  39




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##### Table of Contents



Deferred Tax Assets and Impairment Charges
    Results of Operations
 Fiscal Year Ended November 30, 2008 Compared to Fiscal Year Ended November 30, 2007
 Net Revenues.
 
    
    an increase in U.S. sales of $6,474,215, or 21 percent, from $31,560,930 in fiscal 2007
to $38,035,145 in fiscal 2008. The increase in U.S. sales was primarily due to an increase
in sales of the disposable sensor of $5,619,820, or 23 percent, primarily as a result of a
16 percent increase in sensor unit sales. In addition, sales of the INVOS System monitor
in the United States increased $932,969, or 14 percent, primarily as a result of increased
purchases by pediatric hospitals; and
    
    an increase in international sales of $2,395,570, or 34 percent, from $7,024,902 in
fiscal 2007 to $9,420,472 in fiscal 2008. The increase in international sales was
primarily due to increased purchases of our INVOS System monitor and disposable sensors of
$1,655,456 by Covidien in Europe, and $686,471 by Edwards Lifesciences in Japan. In fiscal
2008, international sales represented 20 percent of our net revenues, compared to 18
percent of our net revenues in fiscal 2007. Purchases by Covidien accounted for 14 percent
of net revenues in fiscal 2008, compared to 13 percent in fiscal 2007.
  40




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##### Table of Contents



Fiscal Year Ended November 30,Product
    
    2008
    
    2007Sensors
    
    
    72
    %
    
    
    73
    %INVOS System Monitors
    
    
    28
    %
    
    
    27
    %Total
    
    
    100
    %
    
    
    100
    %
  Gross Margin.
 Research, Development and Engineering Expenses.
 Selling, General and Administrative Expenses.
 
    
    a $2,275,304 increase in salaries, wages, commissions and related expenses, primarily as
a result of an increase in the number of employees, principally in sales and marketing
(from an average of 88 employees for the fiscal year ended November 30, 2007 to an average
of 105 employees for the fiscal year ended November 30, 2008) and an increase in salaries
of existing employees;
    
    an $673,212 increase in travel, marketing and selling-related expenses as a result of
our increased sales personnel and increased sales and marketing activities, including sales
training and trade shows;
    
    a $557,282 increase in stock compensation expense due to stock compensation issued to
our officers, employees, directors and one of our consultants in fiscal 2006, 2007 and
2008;
    
    a $465,769 increase in professional service fees, primarily due to increased legal,
auditing and tax fees;
    
    a $217,099 increase in accrued incentive compensation expense due to our fiscal year
2008 financial performance, primarily increased sales and operating income in accordance
with the 2008 incentive compensation plans; and
    
    a $173,672 increase in office and facility expenses primarily as a result of increased
employees.
  41




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##### Table of Contents



Other Income.
 Income Taxes.
 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 sensor of $5,691,400, or 30 percent, primarily as a result of a
24 percent increase in sensor 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 sensors 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.
   Fiscal Year Ended November 30,Product
    
    2007
    
    
    2006Sensors
    
    
    73
    %
    
    
    75
    %INVOS System Monitors
    
    
    27
    %
    
    
    24
    %Total INVOS System
    
    
    100
    %
    
    
    99
    %Other
    
    
    0
    %
    
    
    1
    %Total
    
    
    100
    %
    
    
    100
    %
 Gross Margin.
 42




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##### Table of Contents



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 and a clinical trial 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.
  Other Income.
 Income Taxes.
 Effects of Inflation
  43




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Liquidity and Capital Resources
 General
        44




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Cash Flows From Operating Activities
  
    
    $17,311,324 of income before income taxes and non-cash depreciation, amortization, stock
compensation expense and excess tax benefits from stock option exercises;
    
    a $534,450 decrease in accrued interest income, primarily due to our decreased
marketable securities and long-term investment balances primarily due to the use of cash
from maturing investments for the repurchase of common shares and decreased interest rates;
    
    a $153,055 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 $147,191 increase in accrued liabilities, primarily as a result of an increase in
accrued state, local and property taxes and accrued sales commissions as a result of our
fiscal 2008 financial performance.
  
    
    a $1,606,952 increase in inventories, primarily due to the acquisition of components
associated with our disposable sensors and our INVOS System monitor due to anticipated
sales; inventories on our balance sheet increased less because we capitalized INVOS System
monitors to property and equipment that are being used as demonstration units and no
capital cost sales equipment, as described below;
    
    a $375,532 increase in accounts receivable, primarily as a result of higher fourth
quarter sales in fiscal 2008 than in the fourth quarter of fiscal 2007, partially offset by
the timing of more of the sales in the fourth quarter of fiscal 2007 towards the end of the
quarter; and
    
    a $252,488 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.
    Cash Flows From Investing Activities
  Cash Flows From Financing Activities
  45




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##### 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
    
    $
    185,100
    
    
    $
    172,700
    
    
    $
    12,400
    
    
    
    
    
    
    
    Purchase obligations
    
    
    5,504,800
    
    
    
    5,504,800
    
    
    
    
    
    
    
    
    
    
    
    Other long-term liabilities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
  Off-Balance Sheet Arrangements
  New Accounting Pronouncements
  Critical Accounting Policies
  Stock Compensation
  46




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Income Taxes
  47




---



##### Table of Contents



No Capital Cost Sales Revenue Recognition
  Technology Acquisition Costs Intangible Asset and Goodwill
   48




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49




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##### Table of Contents



ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  November 30, 2008
Expected Maturity Dates By Fiscal Year2009
    
    2010
    
    2011
    
    2012
    
    2013
    
    Thereafter
    
    Total
    
    Fair ValueInvestments:Marketable Securities and
Long-term Investments:Fixed Rate ($)
    
    
    19,992,545
    
    
    
    3,845,241
    
    
    
    
    
    
    
    8,992,469
    
    
    
    
    
    
    
    
    
    
    
    32,830,255
    
    
    
    32,823,806Average interest rate
    
    
    .53
    %
    
    
    4.72
    %
    
    
    N/A
    
    
    
    5.03
    %
    
    
    N/A
    
    
    
    N/A
    
    
    
    2.25
    %November 30, 2007
Expected Maturity Dates By Fiscal Year2008
    
    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
    %
  50




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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 MANAGEMENTS REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
     51




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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
     52




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53




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SOMANETICS CORPORATION
 BALANCE SHEETS
 November 30,2008
    
    
    2007ASSETSCURRENT ASSETS:Cash and cash equivalents (Note 2)
    
    $
    37,166,141
    
    
    $
    33,172,977Marketable securities
    
    
    19,992,545
    
    
    
    18,978,074Accounts receivable
    
    
    7,862,103
    
    
    
    7,486,571Inventory (Note 2)
    
    
    2,960,422
    
    
    
    1,998,284Prepaid expenses
    
    
    597,460
    
    
    
    560,885Accrued interest receivable
    
    
    16,667
    
    
    
    551,117Deferred tax asset  current (Note 5)
    
    
    164,615
    
    
    
    3,069,929Total current assets
    
    
    68,759,953
    
    
    
    65,817,837PROPERTY AND EQUIPMENT: (Note 2)Demonstration and no capital cost sales equipment at customers
    
    
    3,919,296
    
    
    
    3,386,287Machinery and equipment
    
    
    1,638,597
    
    
    
    1,531,387Furniture and fixtures
    
    
    504,485
    
    
    
    307,919Leasehold improvements
    
    
    197,450
    
    
    
    196,700Total
    
    
    6,259,828
    
    
    
    5,422,293Less accumulated depreciation and amortization
    
    
    (3,418,697
    )
    
    
    (2,931,596
    )Net property and equipment
    
    
    2,841,131
    
    
    
    2,490,697OTHER ASSETS:Long-term investments
    
    
    12,837,710
    
    
    
    33,653,099Deferred tax asset  non-current (Note 5)
    
    
    1,587,977
    
    
    
    3,004,755Intangible assets, net (Note 2)
    
    
    246,318
    
    
    
    3,097Goodwill (Note 2)
    
    
    1,679,713
    
    
    
    Other
    
    
    15,000
    
    
    
    15,000Total other assets
    
    
    16,366,718
    
    
    
    36,675,951TOTAL ASSETS
    
    $
    87,967,802
    
    
    $
    104,984,485LIABILITIES AND SHAREHOLDERS EQUITYCURRENT LIABILITIES:Accounts payable
    
    $
    1,271,058
    
    
    $
    1,118,003Accrued liabilities (Notes 4 and 6)
    
    
    1,848,672
    
    
    
    1,701,481Total current liabilities
    
    
    3,119,730
    
    
    
    2,819,484COMMITMENTS AND CONTINGENCIES (Note 6)SHAREHOLDERS EQUITY: (Note 3)Preferred shares; authorized, 1,000,000 shares of $.01 par
value; no shares issued or outstanding
    
    
    
    
    
    
    Common
shares; authorized, 20,000,000 shares of $.01 par value; issued and outstanding, 12,034,074 shares at November 30, 2008,
and 13,443,961 shares at November 30, 2007
    
    
    120,341
    
    
    
    134,440Additional paid-in capital
    
    
    91,330,305
    
    
    
    119,079,383Accumulated deficit
    
    
    (6,602,574
    )
    
    
    (17,048,822
    )Total shareholders equity
    
    
    84,848,072
    
    
    
    102,165,001TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
    
    $
    87,967,802
    
    
    $
    104,984,485
  54




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SOMANETICS CORPORATION
 STATEMENTS OF OPERATIONS
 For the Years Ended November 30,2008
    
    
    2007
    
    
    2006NET REVENUES (Notes 2 and 9)
    
    $
    47,455,617
    
    
    $
    38,585,832
    
    
    $
    28,700,600COST OF SALES
    
    
    6,249,256
    
    
    
    4,726,146
    
    
    
    3,565,588Gross margin
    
    
    41,206,361
    
    
    
    33,859,686
    
    
    
    25,135,012OPERATING EXPENSES:Research, development and engineering
(Note 2)
    
    
    1,259,227
    
    
    
    668,815
    
    
    
    1,582,521Selling, general and administrative (Note 2)
    
    
    26,166,120
    
    
    
    22,269,184
    
    
    
    16,484,567Total operating expenses
    
    
    27,425,347
    
    
    
    22,937,999
    
    
    
    18,067,088OPERATING INCOME
    
    
    13,781,014
    
    
    
    10,921,687
    
    
    
    7,067,924OTHER INCOME:Interest income
    
    
    2,629,967
    
    
    
    4,008,537
    
    
    
    2,582,033Total other income
    
    
    2,629,967
    
    
    
    4,008,537
    
    
    
    2,582,033INCOME BEFORE INCOME TAXES
    
    $
    16,410,981
    
    
    $
    14,930,224
    
    
    $
    9,649,957INCOME TAX (EXPENSE) BENEFIT (Note 5)
    
    
    (5,964,734
    )
    
    
    (5,247,943
    )
    
    
    750,000NET INCOME
    
    $
    10,446,247
    
    
    $
    9,682,281
    
    
    $
    10,399,957NET INCOME PER COMMON
SHARE  BASIC (Note 2)
    
    $
    .82
    
    
    $
    .73
    
    
    $
    .83NET INCOME PER COMMON
SHARE  DILUTED (Note 2)
    
    $
    .76
    
    
    $
    .67
    
    
    $
    .75WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 
BASIC (Note 2)
    
    
    12,671,452
    
    
    
    13,213,428
    
    
    
    12,463,075WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 
DILUTED (Note 2)
    
    
    13,671,730
    
    
    
    14,384,445
    
    
    
    13,824,467
  55




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SOMANETICS CORPORATION
 STATEMENTS OF SHAREHOLDERS EQUITY
 Additional
    
    
    
    
    
    
    TotalCommon
    
    
    Share
    
    
    Paid-In
    
    
    Accumulated
    
    
    Shareholders
    
    
    ComprehensiveShares
    
    
    Value
    
    
    Capital
    
    
    Deficit
    
    
    Equity
    
    
    IncomeBalance at December 1, 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
    )
    
    $
    102,165,001For cash, exercise of stock options
    
    
    319,969
    
    
    
    3,199
    
    
    
    1,332,129
    
    
    
    
    
    
    
    1,335,328Stock compensation expense
    
    
    
    
    
    
    
    
    
    
    1,338,590
    
    
    
    
    
    
    
    1,338,590Restricted share grant
    
    
    75,273
    
    
    
    753
    
    
    
    (753
    )
    
    
    
    
    
    
    Repurchase of common shares
    
    
    (1,805,129
    )
    
    
    (18,051
    )
    
    
    (31,431,369
    )
    
    
    
    
    
    
    (31,449,420
    )Income tax benefit from stock option exercises
    
    
    
    
    
    
    
    
    
    
    1,012,325
    
    
    
    
    
    
    
    1,012,325Net income and comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,446,247
    
    
    
    10,446,247
    
    
    $
    10,446,247Balance at November 30, 2008
    
    
    12,034,074
    
    
    $
    120,341
    
    
    $
    91,330,305
    
    
    $
    (6,602,574
    )
    
    $
    84,848,072
  56




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##### Table of Contents



SOMANETICS CORPORATION
 STATEMENTS OF CASH FLOWS
 For the Years Ended November 30,2008
    
    
    2007
    
    
    2006CASH FLOWS FROM OPERATING ACTIVITIES:Net income
    
    $
    10,446,247
    
    
    $
    9,682,281
    
    
    $
    10,399,957Adjustments to reconcile net income to net
cash provided by operations:Income tax expense (benefit)
    
    
    5,586,906
    
    
    
    5,076,276
    
    
    
    (750,000
    )Depreciation and amortization
    
    
    951,906
    
    
    
    806,034
    
    
    
    592,061Stock compensation expense
    
    
    1,338,590
    
    
    
    781,308
    
    
    
    304,248Excess tax benefits from stock option exercises
    
    
    (1,012,325
    )
    
    
    
    
    
    
    Changes in assets and liabilities net of effects from
purchase of ICU Data Systems, Inc.:Accounts receivable (increase)
    
    
    (375,532
    )
    
    
    (2,746,528
    )
    
    
    (1,208,303
    )Accrued interest income (increase) decrease
    
    
    534,450
    
    
    
    (199,451
    )
    
    
    (351,666
    )Inventory (increase)
    
    
    (1,606,952
    )
    
    
    (658,895
    )
    
    
    (1,943,049
    )Deferred income tax benefit (increase)
    
    
    (252,488
    )
    
    
    (400,960
    )
    
    
    Prepaid expenses (increase) decrease
    
    
    (36,575
    )
    
    
    (66,063
    )
    
    
    128,481Accounts payable increase
    
    
    153,055
    
    
    
    72,276
    
    
    
    332,931Accrued liabilities increase (decrease)
    
    
    147,191
    
    
    
    541,711
    
    
    
    (5,825
    )Accrued income tax expense (increase) decrease
    
    
    
    
    
    
    194,000
    
    
    
    (194,000
    )Net cash provided by operating activities
    
    
    15,874,473
    
    
    
    13,081,989
    
    
    
    7,304,835CASH FLOWS FROM INVESTING ACTIVITIES:Purchases of marketable securities and
long-term investments
    
    
    (35,021,241
    )
    
    
    (63,795,275
    )
    
    
    (47,835,897
    )Proceeds from maturities of marketable securities and
long-term investments
    
    
    54,822,160
    
    
    
    54,000,000
    
    
    
    5,000,000Payment for purchase of ICU Data Systems, Inc
    
    
    (1,926,031
    )
    
    
    
    
    
    
    Acquisition of property and equipment
    
    
    (654,430
    )
    
    
    (332,473
    )
    
    
    (554,993
    )Net cash provided by (used in) investing activities
    
    
    17,220,458
    
    
    
    (10,127,748
    )
    
    
    (43,390,890
    )CASH FLOWS FROM FINANCING ACTIVITIES:Proceeds from issuance of common shares
    
    
    
    
    
    
    
    
    
    
    51,232,774Repurchase of common shares
    
    
    (31,449,420
    )
    
    
    
    
    
    
    Excess tax benefits from stock option exercises
    
    
    1,012,325
    
    
    
    
    
    
    
    Proceeds from issuance of common shares due to
exercise of stock options
    
    
    1,335,328
    
    
    
    1,483,867
    
    
    
    439,913Net cash (used in) provided by financing activities
    
    
    (29,101,767
    )
    
    
    1,483,867
    
    
    
    51,672,687NET INCREASE IN CASH AND
CASH EQUIVALENTS
    
    
    3,993,164
    
    
    
    4,438,108
    
    
    
    15,586,632CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD
    
    
    33,172,977
    
    
    
    28,734,869
    
    
    
    13,148,237CASH AND CASH EQUIVALENTS,
END OF PERIOD
    
    $
    37,166,141
    
    
    $
    33,172,977
    
    
    $
    28,734,869Supplemental Disclosure of Non cash investing activities:Demonstration and no capital cost sales equipment capitalized
from inventory (Note 2)
    
    $
    644,814
    
    
    $
    833,069
    
    
    $
    828,692Supplemental Disclosure of Taxes paid:Federal and state income taxes (Note 5)
    
    $
    600,317
    
    
    $
    572,627
    
    
    $
    
  57




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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 30,2008
    
    
    2007Purchased components
    
    $
    2,141,050
    
    
    $
    1,702,878Finished goods
    
    
    587,808
    
    
    
    174,451Work in process
    
    
    231,564
    
    
    
    120,955Total
    
    $
    2,960,422
    
    
    $
    1,998,284
  Property and Equipment
 58




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##### Table of Contents



SOMANETICS CORPORATION
 NOTES TO FINANCIAL STATEMENTS  (Continued)
  Intangible Assets and Goodwill
 November 30,2008
    
    
    2007Patents and trademarks
    
    $
    111,733
    
    
    $
    111,733Less: accumulated amortization
    
    
    (111,733
    )
    
    
    (108,636
    )Total
    
    $
    
    
    
    $
    3,097
     Revenue Recognition
 59




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##### Table of Contents



SOMANETICS CORPORATION
 NOTES TO FINANCIAL STATEMENTS  (Continued)
  Research, Development and Engineering
 Net Income Per Common Share  basic and diluted
 2008
    
    2007
    
    2006Weighted average shares  basic
    
    
    12,671,452
    
    
    
    13,213,428
    
    
    
    12,463,075Add: effect of dilutive common
shares and warrants
    
    
    1,000,278
    
    
    
    1,171,017
    
    
    
    1,361,392Weighted average shares  diluted
    
    
    13,671,730
    
    
    
    14,384,445
    
    
    
    13,824,467
  Common Share Repurchase Program
 Accounting Pronouncements
 Use Of Estimates
 3. Stock Offerings and Common Shares
   60




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##### Table of Contents



SOMANETICS CORPORATION
 NOTES TO FINANCIAL STATEMENTS  (Continued)
   1991 Incentive Stock Option Plan
    
    
    14,6631997 Stock Option Plan
    
    
    1,076,3082005 Stock Incentive Plan
    
    
    1,043,727Options Granted Independent of Option Plans
    
    
    55,000Total shares reserved for future issuance
    
    
    2,189,698
 4. Accrued Liabilities
  November 30,2008
    
    
    2007Incentive Compensation
    
    $
    978,520
    
    
    $
    958,642Sales Commissions
    
    
    637,516
    
    
    
    548,046Taxes
    
    
    121,683
    
    
    
    Clinical Research
    
    
    51,671
    
    
    
    110,639Professional Fees
    
    
    39,500
    
    
    
    61,550Warranty
    
    
    19,440
    
    
    
    19,800401(k) Match
    
    
    342
    
    
    
    Royalty
    
    
    
    
    
    
    2,804Total
    
    $
    1,848,672
    
    
    $
    1,701,481
 5. Income Taxes
  61




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##### Table of Contents



SOMANETICS CORPORATION
 NOTES TO FINANCIAL STATEMENTS  (Continued)
  November 30,2008
    
    
    2007(in thousands)Net operating loss carryforwards
    
    $
    7,119
    
    
    $
    11,037Stock compensation expense
    
    
    885
    
    
    
    369Other
    
    
    85
    
    
    
    65Basis difference of fixed assets and intangibles
    
    
    (212
    )
    
    
    51Alternative minimum tax credit carryforward
    
    
    653
    
    
    
    401Research and general business tax credit carryforwards
    
    
    176
    
    
    
    176Subtotal
    
    
    8,706
    
    
    
    12,099Reduction for future stock option tax benefits valuation
    
    
    (6,953
    )
    
    
    (6,024
    )Deferred tax asset
    
    $
    1,753
    
    
    $
    6,075
  For the Fiscal Year Ended November 30,2008
    
    
    2007
    
    
    2006Taxes at U.S. statutory rate  34 percent
    
    $
    5,579,734
    
    
    $
    5,076,276
    
    
    $
    3,280,985State and local income taxes
    
    
    325,763
    
    
    
    122,347
    
    
    
    Nondeductible meals and entertainment
    
    
    59,237
    
    
    
    49,320
    
    
    
    37,628Change in valuation allowance
    
    
    
    
    
    
    
    
    
    
    (4,068,613
    )Income tax expense (benefit) from
continuing operations
    
    $
    5,964,734
    
    
    $
    5,247,943
    
    
    $
    (750,000
    )Effective tax rate
    
    
    36.3
    %
    
    
    35.1
    %
    
    
    (7.8
    )%
  For the Fiscal Year Ended November 30,2008
    
    
    2007
    
    
    2006Federal income tax expense  current
    
    $
    252,488
    
    
    $
    206,960
    
    
    $
    194,000Federal income tax expense (benefit)  deferred
    
    
    5,360,450
    
    
    
    4,891,042
    
    
    
    (944,000
    )State income tax expense  current
    
    
    325,763
    
    
    
    122,347
    
    
    
    State income tax expense  deferred
    
    
    26,033
    
    
    
    27,594
    
    
    
    Income tax expense (benefit) from
continuing operations
    
    $
    5,964,734
    
    
    $
    5,247,943
    
    
    $
    (750,000
    )
   62




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##### Table of Contents



SOMANETICS CORPORATION
 NOTES TO FINANCIAL STATEMENTS  (Continued)
    6. Commitments and Contingencies
   Year ending November 30,2009
    
    $
    172,7002010
    
    
    12,4002011
    
    
    Total
    
    $
    185,100
    63




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##### Table of Contents



SOMANETICS CORPORATION
 NOTES TO FINANCIAL STATEMENTS  (Continued)
    7. Stock Option Plans
     64




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##### Table of Contents



SOMANETICS CORPORATION
 NOTES TO FINANCIAL STATEMENTS  (Continued)
     2008
    
    
    2007
    
    
    2006Weighted
    
    
    
    
    
    
    Weighted
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    Average
    
    
    
    
    
    
    AverageCommon
    
    
    Exercise
    
    
    Common
    
    
    Exercise
    
    
    Common
    
    
    ExerciseShares
    
    
    Price
    
    
    Shares
    
    
    Price
    
    
    Shares
    
    
    PriceOptions outstanding
December 1,
    
    
    1,895,656
    
    
    $
    6.75
    
    
    
    2,071,990
    
    
    $
    6.01
    
    
    
    1,914,232
    
    
    $
    4.59Options granted
    
    
    253,000
    
    
    
    13.56
    
    
    
    96,000
    
    
    
    19.25
    
    
    
    239,000
    
    
    
    17.30Options exercised
    
    
    (319,969
    )
    
    
    4.17
    
    
    
    (271,334
    )
    
    
    5.47
    
    
    
    (79,742
    )
    
    
    5.52Options canceled
    
    
    (6,500
    )
    
    
    14.92
    
    
    
    (1,000
    )
    
    
    18.85
    
    
    
    (1,500
    )
    
    
    17.56Options outstanding
November 30,
    
    
    1,822,187
    
    
    
    8.12
    
    
    
    1,895,656
    
    
    
    6.75
    
    
    
    2,071,990
    
    
    
    6.01Options exercisable
November 30,
    
    
    1,352,587
    
    
    $
    5.51
    
    
    
    1,609,456
    
    
    $
    4.76
    
    
    
    1,832,990
    
    
    $
    4.53
  65




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##### Table of Contents



SOMANETICS CORPORATION
 NOTES TO FINANCIAL STATEMENTS  (Continued)
  Options outstanding
    
    
    Options exercisableWeighted
    
    
    Weighted
    
    
    
    
    
    
    Weighted
    
    
    WeightedAverage
    
    
    Average
    
    
    
    
    
    
    Average
    
    
    AverageRange of Exercise
    
    Options
    
    
    Exercise
    
    
    Remaining
    
    
    Options
    
    
    Exercise
    
    
    RemainingPrices
    
    Outstanding
    
    
    Price
    
    
    Life (years)
    
    
    Exercisable
    
    
    Price
    
    
    Life (years)$1.70 - $10.00
    
    
    1,067,438
    
    
    $
    2.92
    
    
    
    3.23
    
    
    
    1,067,438
    
    
    $
    2.92
    
    
    
    3.23$10.01 - $15.00
    
    
    366,253
    
    
    
    13.11
    
    
    
    7.99
    
    
    
    173,753
    
    
    
    13.67
    
    
    
    6.50$15.01 - $19.93
    
    
    388,496
    
    
    
    17.70
    
    
    
    8.08
    
    
    
    111,396
    
    
    
    17.69
    
    
    
    7.74Total
    
    
    1,822,187
    
    
    $
    8.12
    
    
    
    5.22
    
    
    
    1,352,587
    
    
    $
    5.51
    
    
    
    4.02
  8. Acquisitions
    66




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##### Table of Contents



SOMANETICS CORPORATION
 NOTES TO FINANCIAL STATEMENTS  (Continued)
  9. Major Customers and Foreign Sales
   10. Segment Information
  67




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##### Table of Contents



QUARTERLY INFORMATION (unaudited)
  QuarterFirst
    
    Second
    
    Third
    
    FourthYear Ended November 30, 2008Net revenues
    
    $
    8,693,274
    
    
    $
    12,740,063
    
    
    $
    12,367,988
    
    
    $
    13,654,292Gross margin
    
    
    7,676,450
    
    
    
    11,060,807
    
    
    
    10,650,130
    
    
    
    11,818,974Net income
    
    
    1,028,429
    
    
    
    3,052,252
    
    
    
    3,046,454
    
    
    
    3,319,112Net income per common
share  basic
    
    $
    0.08
    
    
    $
    0.23
    
    
    $
    0.25
    
    
    $
    0.28Net income per common
share  diluted
    
    $
    0.07
    
    
    $
    0.21
    
    
    $
    0.23
    
    
    $
    0.25Year 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
    
    
    $
    0.19
 68




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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
    69




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##### Table of Contents



ITEM 9B. OTHER INFORMATION
  70




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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
  71




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##### Table of Contents



ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
  72




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##### 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, 2008 and 2007Statements of Operations  For Each of the Three Years in the Period Ended November 30, 2008Statements of Shareholders Equity  For Each of the Three Years in the Period Ended November 30, 2008Statements of Cash Flows  For Each of the Three Years in the Period Ended November 30, 2008Notes to Financial Statements(2
    )
    
    Financial Statement SchedulesNone.(3
    )
    
    ExhibitsThe Exhibits to this report are as set forth in the Exhibit Index on pages 75 to
77 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.
 73




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##### Table of Contents



SIGNATURES
  Somanetics CorporationDate: February 9, 2009
    
    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 9, 2009Bruce J. Barrett
    
    (Principal Executive Officer)/s/ WILLIAM M. IACONA
    
    Vice President and Chief Financial Officer,
    
    February 10, 2009William M. Iacona
    
    Controller, and Treasurer
(Principal Financial Officer and Principal Accounting Officer)/s/ JAMES I. AUSMAN
    
    Director
    
    February 10, 2009James I. Ausman, M.D., Ph.D./s/ DANIEL S. FOLLIS
    
    Director
    
    February 11, 2009Daniel S. Follis/s/ ROBERT R. HENRY
    
    Director
    
    February 9, 2009Robert R. Henry/s/ JOHN P. JUMPER
    
    Director
    
    February 10, 2009John P. Jumper/s/ RICHARD R. SORENSEN
    
    Director
    
    February 9, 2009Richard R. Sorensen
 74




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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 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.
 75




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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 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.*10.22
    
    Somanetics Corporation 2009 Executive Officer Incentive
Compensation Plan, incorporated by reference to Exhibit 10.1 to the
Companys Current Report on Form 8-K, dated January 21, 2009 and
filed January 23, 2009.*10.23
    
    Amended and Restated Employment Agreement between Somanetics
Corporation and Bruce J. Barrett, dated as of June 17, 2008,
incorporated by reference to Exhibit 99.3 to the Companys Current
Report on Form 8-K, dated June 17, 2008 and filed June 23, 2008.*10.24
    
    Amended and Restated Employment Agreement between Somanetics
Corporation and Dominic J. Spadafore, dated as of June 17, 2008,
incorporated by reference to Exhibit 99.2 to the Companys Current
Report on Form 8-K, dated June 17, 2008 and filed June 23, 2008.*10.25
    
    Form of Amended and Restated Change in Control Agreement, between
Somanetics Corporation and executive officers, dated as of June 17,
2008, incorporated by reference to Exhibit 99.1 to the Companys
Current Report on Form 8-K, dated June 17, 2008 and filed June 23,
2008.*10.26
    
    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.*10.27
    
    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.*10.28
    
    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.*10.29
    
    Form of Incentive Stock Option Agreement, incorporated by reference
to Exhibit 10.33 to the Companys Annual Report on Form 10-K for
the fiscal year ended November 30, 2004.*10.30
    
    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.*10.31
    
    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.*10.32
    
    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.*10.33
    
    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.
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##### Table of Contents



EXHIBIT INDEX
 Exhibit
    
    Description*10.34
    
    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.*10.35
    
    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.*10.36
    
    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, 2006.10.37
    
    Contract Development Agreement, dated as of February 6, 2009 among
Somanetics Corporation, Shirley Research Corporation, Hugh F.
Stoddart, and Hugh A. Stoddart, incorporated by reference to
Exhibit 99.1 to the Companys Current Report on Form 8-K, dated
February 6, 2009 and filed February 10, 2009.10.38
    
    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, 1992.10.39
    
    Current Form of Somanetics Corporation Confidentiality Agreement
used for the Companys employees and agents, incorporated by
reference to Exhibit 10.3 to the Companys Quarterly Report on Form
10-Q for the quarter ended August 31, 1992.14.1
    
    Somanetics Corporation Code of Business Conduct and Ethics, as
re-adopted December 18, 2008.23.1
    
    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.
 77