UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended February 28, 2009
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission file number 0-19095
 SOMANETICS CORPORATION
  Michigan
(State or other jurisdiction of incorporation or organization)
    
    38-2394784
(I.R.S. Employer Identification No.)
 1653 East Maple Road
Troy, Michigan
48083-4208
 (248) 689-3050
 N/A
  þ o
  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
 12,046,662




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##### 



PART I FINANCIAL INFORMATION
 SOMANETICS CORPORATION
 BALANCE SHEETS
 February 28,
    
    
    November 30,2009
    
    
    2008(Unaudited)ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    23,946,800
    
    
    $
    37,166,141Marketable securities
    
    
    20,015,485
    
    
    
    19,992,545Accounts receivable
    
    
    7,187,642
    
    
    
    7,862,103Inventory
    
    
    3,200,353
    
    
    
    2,960,422Prepaid expenses
    
    
    529,492
    
    
    
    597,460Accrued interest receivable
    
    
    92,636
    
    
    
    16,667Deferred tax asset  current
    
    
    164,615
    
    
    
    164,615Total current assets
    
    
    55,137,023
    
    
    
    68,759,953PROPERTY AND EQUIPMENT (at cost):Demonstration and no capital cost sales equipment at customers
    
    
    4,037,213
    
    
    
    3,919,296Machinery and equipment
    
    
    1,737,499
    
    
    
    1,638,597Furniture and fixtures
    
    
    504,485
    
    
    
    504,485Leasehold improvements
    
    
    197,450
    
    
    
    197,450Total
    
    
    6,476,647
    
    
    
    6,259,828Less accumulated depreciation and amortization
    
    
    (3,631,745
    )
    
    
    (3,418,697
    )Net property and equipment
    
    
    2,844,902
    
    
    
    2,841,131OTHER ASSETS:Long-term investments
    
    
    27,634,325
    
    
    
    12,837,710Deferred tax asset  non-current
    
    
    1,587,977
    
    
    
    1,587,977Intangible assets, net
    
    
    243,239
    
    
    
    246,318Goodwill
    
    
    1,679,713
    
    
    
    1,679,713Other
    
    
    15,000
    
    
    
    15,000Total other assets
    
    
    31,160,254
    
    
    
    16,366,718TOTAL ASSETS
    
    $
    89,142,179
    
    
    $
    87,967,802LIABILITIES AND SHAREHOLDERS EQUITYCURRENT LIABILITIES:Accounts payable
    
    $
    1,070,770
    
    
    $
    1,271,058Accrued liabilities
    
    
    819,872
    
    
    
    1,848,672Total current liabilities
    
    
    1,890,642
    
    
    
    3,119,730COMMITMENTS AND CONTINGENCIESSHAREHOLDERS EQUITY: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, 12,042,662 shares at February 28, 2009,
and 12,034,074 shares at November 30, 2008
    
    
    120,427
    
    
    
    120,341Additional paid-in capital
    
    
    92,431,505
    
    
    
    91,330,305Accumulated deficit
    
    
    (5,300,395
    )
    
    
    (6,602,574
    )Total shareholders equity
    
    
    87,251,537
    
    
    
    84,848,072TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
    
    $
    89,142,179
    
    
    $
    87,967,802
  2




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##### 



SOMANETICS CORPORATION
 STATEMENTS OF OPERATIONS
(Unaudited)
 For the Three-MonthPeriods EndedFebruary 28,
    
    
    February 29,2009
    
    
    2008NET REVENUES
    
    $
    11,155,354
    
    
    $
    8,693,274COST OF SALES
    
    
    1,580,481
    
    
    
    1,016,824Gross Margin
    
    
    9,574,873
    
    
    
    7,676,450OPERATING EXPENSES:Research, development and engineering
    
    
    423,161
    
    
    
    330,436Selling, general and administrative
    
    
    7,314,699
    
    
    
    6,498,148Total operating expenses
    
    
    7,737,860
    
    
    
    6,828,584OPERATING INCOME
    
    
    1,837,013
    
    
    
    847,866OTHER INCOME:Interest income
    
    
    271,386
    
    
    
    934,418Total other income
    
    
    271,386
    
    
    
    934,418INCOME BEFORE INCOME TAXES
    
    
    2,108,399
    
    
    
    1,782,284INCOME TAX EXPENSE
    
    
    (806,220
    )
    
    
    (753,855
    )NET INCOME
    
    $
    1,302,179
    
    
    $
    1,028,429NET INCOME PER COMMON SHARE  BASIC
    
    $
    .11
    
    
    $
    .08NET INCOME PER COMMON SHARE  DILUTED
    
    $
    .10
    
    
    $
    .07WEIGHTED AVERAGE SHARES OUTSTANDING  BASIC
    
    
    12,038,368
    
    
    
    13,450,691WEIGHTED AVERAGE SHARES OUTSTANDING  DILUTED
    
    
    12,898,920
    
    
    
    14,759,732
  3




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##### 



SOMANETICS CORPORATION
 STATEMENTS OF CASH FLOWS
(Unaudited)
 For the Three-MonthPeriods EndedFebruary 28,
    
    
    February 29,2009
    
    
    2008CASH FLOWS FROM OPERATING ACTIVITIES:Net income
    
    $
    1,302,179
    
    
    $
    1,028,429Adjustments to reconcile net income to net cash provided by operations:Income tax expense
    
    
    737,516
    
    
    
    613,148Depreciation and amortization
    
    
    254,714
    
    
    
    218,948Stock compensation expense
    
    
    384,430
    
    
    
    238,437Changes in assets and liabilities:Accounts receivable decrease
    
    
    674,461
    
    
    
    1,965,926Accrued interest income (increase) decrease
    
    
    (75,969
    )
    
    
    192,818Inventory (increase)
    
    
    (391,424
    )
    
    
    (546,910
    )Deferred income tax benefit (increase)
    
    
    
    
    
    
    (7,488
    )Prepaid expenses decrease
    
    
    67,968
    
    
    
    32,839Accounts payable increase (decrease)
    
    
    (200,288
    )
    
    
    215,184Accrued liabilities (decrease)
    
    
    (1,028,800
    )
    
    
    (911,260
    )Accrued income tax expense (increase)
    
    
    (20,659
    )
    
    
    Net cash provided by operating activities
    
    
    1,704,128
    
    
    
    3,040,071CASH FLOWS FROM INVESTING ACTIVITIES:Purchases of marketable securities and long-term investments
    
    
    (15,023,401
    )
    
    
    Proceeds from maturities of marketable securities and
long-term investments
    
    
    203,846
    
    
    
    19,164,716Acquisition of property and equipment
    
    
    (103,914
    )
    
    
    (91,114
    )Net cash provided by (used in) investing activities
    
    
    (14,923,469
    )
    
    
    19,073,602CASH FLOWS FROM FINANCING ACTIVITIES:Proceeds from issuance of common shares due to exercise of stock options
    
    
    
    
    
    
    219,043Net cash provided by financing activities
    
    
    
    
    
    
    219,043NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
    
    
    (13,219,341
    )
    
    
    22,332,716CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
    
    
    37,166,141
    
    
    
    33,172,977CASH AND CASH EQUIVALENTS, END OF PERIOD
    
    $
    23,946,800
    
    
    $
    55,505,693Supplemental Disclosure of Non cash investing activities:Demonstration and no capital cost sales equipment capitalized
from inventory (Note 2)
    
    $
    151,493
    
    
    $
    107,889Supplemental Disclosure of Taxes paid:Federal and state income taxes (Note 3)
    
    $
    68,704
    
    
    $
    148,195
  4




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##### 



SOMANETICS CORPORATION
 Notes to Financial Statements
(Unaudited)
 February 28, 2009
 1. FINANCIAL STATEMENT PRESENTATION
   2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Marketable Securities and Long-Term Investments
 Inventory
 February 28,
    
    
    November 30,2009
    
    
    2008Purchased components
    
    $
    2,218,070
    
    
    $
    2,141,050Finished goods
    
    
    837,715
    
    
    
    587,808Work in process
    
    
    144,568
    
    
    
    231,564Total
    
    $
    3,200,353
    
    
    $
    2,960,422
 Property and Equipment
 Intangible Assets and Goodwill
 5




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##### 



SOMANETICS CORPORATION
 Notes
to Financial Statements  Continued
(Unaudited)
 February 28, 2009
 February 28,
    
    
    November 30,2009
    
    
    2008Technology acquisition costs
    
    $
    246,318
    
    
    $
    246,318Less: accumulated amortization
    
    
    (3,079
    )
    
    
    Total
    
    $
    243,239
    
    
    $
    246,318
  Stock Compensation
   Net Income Per Common Share  basic and diluted
 6




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##### 



SOMANETICS CORPORATION
 Notes
to Financial Statements  Continued
(Unaudited)
 February 28, 2009
 Three months ended
    
    
    Three months endedFebruary 28, 2009
    
    
    February 29, 2008Weighted average shares  basic
    
    
    12,038,368
    
    
    
    13,450,691Add: effect of dilutive common
shares
    
    
    860,552
    
    
    
    1,309,041Weighted average shares  diluted
    
    
    12,898,920
    
    
    
    14,759,732
  3. INCOME TAXES
     4. ACCRUED LIABILITIES
  7




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##### 



SOMANETICS CORPORATION
 Notes
to Financial Statements  Continued
(Unaudited)
 February 28, 2009
 February 28,2009
    
    

November 30,2008Incentive Compensation
    
    $
    325,382
    
    
    $
    978,520Sales Commissions
    
    
    179,760
    
    
    
    637,516Taxes
    
    
    142,343
    
    
    
    121,683Professional Fees
    
    
    89,353
    
    
    
    39,500Clinical Research
    
    
    64,554
    
    
    
    51,671Warranty
    
    
    18,480
    
    
    
    19,440401(k) Match
    
    
    
    
    
    
    342Total
    
    $
    819,872
    
    
    $
    1,848,672
 5. COMMITMENTS AND CONTINGENCIES
  6. SEGMENT INFORMATION
  8




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##### 



SOMANETICS CORPORATION
 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
 February 28, 2009
 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 our Annual Report on Form 10-K 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 our Annual Report on
Form 10-K.
 Overview
    Net Revenues and Cost of Sales
  9




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##### 



SOMANETICS CORPORATION
 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
 February 28, 2009
  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.
  Results of Operations
 Three Months Ended February 28, 2009 Compared to Three Months Ended February 29, 2008
 Net Revenues.
 
    
    an increase in U.S. sales of $1,301,442, or 17 percent, from $7,442,777 in the first
quarter of fiscal 2008 to $8,744,219 in the first quarter of fiscal 2009. This increase
was primarily due to an increase in sales of the disposable sensor of $1,218,930, or 18
percent, primarily as a result of a 13 percent increase in sensor unit
 10




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##### 



SOMANETICS CORPORATION
 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
 February 28, 2009
 sales. In addition,
sales of the INVOS System Monitor in the United States increased $102,188, or 13 percent,
primarily as a result of increased purchases by pediatric hospitals.
    
    an increase in international sales of $1,160,638, or 93 percent, from $1,250,497 in the
first quarter of fiscal 2008 to $2,411,135 in the first quarter of fiscal 2009. The
increase in international sales was primarily due to increased purchases of our INVOS
System monitor and disposable sensors by Covidien in Europe. In the first quarter of
fiscal 2009, international sales represented 22 percent of our net revenues, compared to 14
percent of our net revenues in the first quarter of fiscal 2008. Purchases by Covidien
accounted for 15 percent of net revenues in the first quarter of fiscal 2009.
   Three Months EndedProduct
    
    February 28, 2009
    
    February 29, 2008Sensors
    
    
    81
    %
    
    
    83
    %INVOS System Monitors
    
    
    19
    %
    
    
    17
    %Total
    
    
    100
    %
    
    
    100
    %
  Gross Margin.
 Research, Development and Engineering Expenses.
 Selling, General and Administrative Expenses.
 11




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##### 



SOMANETICS CORPORATION
 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
 February 28, 2009
 
    
    a $371,629 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 99 employees for the three months ended February 29, 2008 to an average of
115 employees for the three months ended February 28, 2009) and an increase in employee
insurance premiums;
    
    a $350,119 increase in travel, marketing and selling-related expenses as a result of our
increased sales personnel and increased sales and marketing activities, including trade
shows and sales training;
    
    a $145,993 increase in stock compensation expense due to stock compensation issued to
our officers, employees, directors and one of our consultants in fiscal 2007 and 2008;
    
    a $128,412 increase in recruiting and training, primarily as a result of an increase in
the number of employees, principally in sales and marketing;
    
    a $111,791 increase in office and administrative expenses, due to increased employees
and costs associated with terminating our CorRestore license; and
    
    a $58,121 increase in accrued incentive compensation expense due to our year-to-date
2009 financial performance, primarily increased sales and operating income in accordance
with the 2009 incentive compensation plans.
   Other Income.
 Income Taxes.
 Liquidity and Capital Resources
 General
   12




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##### 



SOMANETICS CORPORATION
 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
 February 28, 2009
  Cash Flows From Operating Activities
  
    
    $2,678,839 of income before income taxes and non-cash depreciation, amortization and
stock compensation expense; and
    
    a $674,461 decrease in accounts receivable, primarily as a result of lower first quarter
sales in fiscal 2009 than in the fourth quarter of fiscal 2008, partially offset by
increased international sales in the first quarter of 2009 which have longer payment terms,
and less timely collections.
  
    
    a $1,028,800 decrease in accrued liabilities, primarily as a result of the payment of
year-end 2008 accruals, including incentive compensation and sales commissions;
    
    a $391,424 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; and
    
    a $200,288 decrease in accounts payable, primarily as a result of timing of payments
made to vendors.We expect our working capital requirements to increase as sales increase.
  Cash Flows From Investing Activities
  Cash Flows From Financing Activities
  13




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SOMANETICS CORPORATION
 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
 February 28, 2009
 Contractual Obligations
  Off-Balance Sheet Arrangements
  Critical Accounting Policies
  Stock Compensation
    Income Taxes
  14




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##### 



SOMANETICS CORPORATION
 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
 February 28, 2009
   No Capital Cost Sales Revenue Recognition
  Technology Acquisition Costs Intangible Asset and Goodwill
    15




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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  February 28, 2009
Expected Maturity Dates By Fiscal Year
 2009
    
    2010
    
    2011
    
    2012
    
    2013
    
    Thereafter
    
    Total
    
    Fair ValueInvestments:Marketable Securities
and Long-term Investments:Fixed Rate ($)
    
    
    20,015,485
    
    
    
    3,641,395
    
    
    
    15,000,000
    
    
    
    8,992,930
    
    
    
    
    
    
    
    
    
    
    
    47,649,810
    
    
    
    47,859,564Average interest rate
    
    
    5.33
    %
    
    
    4.72
    %
    
    
    1.79
    %
    
    
    5.03
    %
    
    
    N/A
    
    
    
    N/A
    
    
    
    4.11
    %
  16




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ITEM 4. CONTROLS AND PROCEDURES
    17




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##### 



PART II OTHER INFORMATION
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  TotalNumber of
    
    ApproximateShares
    
    Dollar ValuePurchased
    
    of SharesTotal
    
    
    
    
    
    as Part of
    
    That May YetNumber of
    
    Average
    
    Publicly
    
    Be PurchasedShares
    
    Price Paid
    
    Announced Plans
    
    Under the PlansPeriod
    
    Purchased
    
    Per Share
    
    or Programs
    
    or ProgramsDecember 1-31, 2008
    
    
    0
    
    
    
    
    
    
    
    0
    
    
    
    13,550,580January 1-31, 2009
    
    
    0
    
    
    
    
    
    
    
    0
    
    
    
    13,550,580February 1-28, 2009
    
    
    0
    
    
    
    
    
    
    
    0
    
    
    
    13,550,580Total
    
    
    0
    
    
    
    N/A
    
    
    
    0
  ITEM 6. EXHIBITS
 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.
 18




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SIGNATURES
  Somanetics Corporation
(Registrant)Date: March 31, 2009
    By:
    /s/ William M. IaconaWilliam M. IaconaVice President and Chief Financial Officer,
Controller and Treasurer (Duly Authorized and
Principal Financial Officer) 19




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EXHIBIT INDEX
 Exhibit
    
    Description31.1
    
    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.
 20