<PAGE>

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

(Mark One)

[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934

     For the quarterly period ended MAY 31, 2007

     OR

[ ]  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
             (Exact name of registrant as specified in its charter)

<TABLE>
<S>                                                          <C>
            MICHIGAN                                              38-2394784
(State or other jurisdiction of                                (I.R.S. Employer
 incorporation or organization)                              Identification No.)
</TABLE>

                              1653 EAST MAPLE ROAD
                                 TROY, MICHIGAN
                                   48083-4208
                    (Address of principal executive offices)
                                   (Zip Code)

                                 (248) 689-3050
              (Registrant's telephone number, including area code)

                                       N/A
   (Former name, former address and former fiscal year, if changed since last
                                     report)

     Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

Yes [X] No [ ]

     Indicate by check mark whether the registrant is a large accelerated filer,
an accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check
one):

Large accelerated filer [ ]   Accelerated filer [X]   Non-accelerated filer [ ]

     Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act).

Yes [ ] No [X]

     Number of common shares outstanding at June 29, 2007: 13,178,961

<PAGE>

                          PART I FINANCIAL INFORMATION

                             SOMANETICS CORPORATION

                                 BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                            MAY 31,     NOVEMBER 30,
                                                                             2007           2006
                                                                         ------------   ------------
                                                                          (Unaudited)     (Audited)
<S>                                                                      <C>            <C>
ASSETS
CURRENT ASSETS:
   Cash and cash equivalents .........................................   $ 31,434,781   $ 28,734,869
   Marketable securities .............................................     26,974,744     20,918,134
   Accounts receivable ...............................................      5,349,216      4,740,043
   Inventory .........................................................      2,771,228      2,172,458
   Accrued interest receivable .......................................        425,153        351,666
   Prepaid expenses ..................................................        255,197        494,822
   Deferred tax asset - current ......................................      3,190,027      2,761,217
                                                                         ------------   ------------
      Total current assets ...........................................     70,400,346     60,173,209
                                                                         ------------   ------------
PROPERTY AND EQUIPMENT (at cost):
   Demonstration and no capital cost sales equipment at customers ....      3,060,197      2,650,939
   Machinery and equipment ...........................................      1,374,722      1,263,015
   Furniture and fixtures ............................................        301,483        300,037
   Leasehold improvements ............................................        197,575        195,565
                                                                         ------------   ------------
      Total ..........................................................      4,933,977      4,409,556
   Less accumulated depreciation and amortization ....................     (2,626,442)    (2,285,279)
                                                                         ------------   ------------
      Net property and equipment .....................................      2,307,535      2,124,277
                                                                         ------------   ------------
OTHER ASSETS:
   Long-term investments .............................................     17,970,387     21,917,764
   Deferred tax asset - non-current ..................................      5,733,960      8,182,783
   Intangible assets, net ............................................          6,553         10,009
   Other .............................................................         15,000         15,000
                                                                         ------------   ------------
      Total other assets .............................................     23,725,900     30,125,556
                                                                         ------------   ------------
TOTAL ASSETS .........................................................   $ 96,433,781   $ 92,423,042
                                                                         ============   ============

LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
   Accounts payable ..................................................   $    962,202   $  1,045,727
   Accrued liabilities ...............................................        702,647      1,159,770
                                                                         ------------   ------------
      Total current liabilities ......................................      1,664,849      2,205,497
                                                                         ------------   ------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' 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, 13,178,961 shares at May 31, 2007,
      and 13,163,627 shares at November 30, 2006 .....................        131,790        131,636
   Additional paid-in capital ........................................    117,278,237    116,817,012
   Accumulated deficit ...............................................    (22,641,095)   (26,731,103)
                                                                         ------------   ------------
      Total shareholders' equity .....................................     94,768,932     90,217,545
                                                                         ------------   ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ...........................   $ 96,433,781   $ 92,423,042
                                                                         ============   ============
</TABLE>

                        See notes to financial statements


                                        2

<PAGE>

                             SOMANETICS CORPORATION

                            STATEMENTS OF OPERATIONS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                     THREE MONTHS                 SIX MONTHS
                                                    ENDED MAY 31,               ENDED MAY 31,
                                              -------------------------   -------------------------
                                                  2007          2006          2007          2006
                                              -----------   -----------   -----------   -----------
<S>                                           <C>           <C>           <C>           <C>
NET REVENUES ..............................   $ 9,122,178   $ 7,394,857   $17,147,050   $13,148,571
COST OF SALES .............................     1,047,117       924,497     2,048,840     1,634,996
                                              -----------   -----------   -----------   -----------
   Gross Margin ...........................     8,075,061     6,470,360    15,098,210    11,513,575
                                              -----------   -----------   -----------   -----------
OPERATING EXPENSES:
   Research, development and engineering ..       164,421       141,011       277,787       319,077
   Selling, general and administrative ....     5,270,093     3,852,667    10,589,529     7,360,548
                                              -----------   -----------   -----------   -----------
      Total operating expenses ............     5,434,514     3,993,678    10,867,316     7,679,625
                                              -----------   -----------   -----------   -----------
OPERATING INCOME ..........................     2,640,547     2,476,682     4,230,894     3,833,950
                                              -----------   -----------   -----------   -----------
OTHER INCOME:
   Interest income ........................     1,005,598       817,943     1,966,086       958,080
                                              -----------   -----------   -----------   -----------
      Total other income ..................     1,005,598       817,943     1,966,086       958,080
                                              -----------   -----------   -----------   -----------
INCOME BEFORE INCOME TAXES ................     3,646,145     3,294,625     6,196,980     4,792,030
                                              -----------   -----------   -----------   -----------
INCOME TAX PROVISION ......................     1,239,689     1,120,173     2,106,973     1,629,290
                                              -----------   -----------   -----------   -----------
NET INCOME ................................   $ 2,406,456   $ 2,174,452   $ 4,090,007   $ 3,162,740
                                              -----------   -----------   -----------   -----------
NET INCOME PER COMMON SHARE - BASIC .......   $      0.18   $      0.17   $      0.31   $      0.27
                                              -----------   -----------   -----------   -----------
NET INCOME PER COMMON SHARE - DILUTED .....   $      0.17   $      0.15   $      0.28   $      0.24
                                              -----------   -----------   -----------   -----------
WEIGHTED AVERAGE SHARES
   OUTSTANDING - BASIC ....................    13,171,881    12,895,472    13,168,088    11,817,654
                                              ===========   ===========   ===========   ===========
WEIGHTED AVERAGE SHARES
   OUTSTANDING - DILUTED ..................    14,575,237    14,353,075    14,601,768    13,360,564
                                              ===========   ===========   ===========   ===========
</TABLE>

                        See notes to financial statements


                                        3

<PAGE>

                             SOMANETICS CORPORATION

                            STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                      FOR THE SIX-MONTH
                                                                                        PERIODS ENDED
                                                                                 ---------------------------
                                                                                    MAY 31,        MAY 31,
                                                                                     2007           2006
                                                                                 ------------   ------------
<S>                                                                              <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net income ................................................................   $  4,090,007   $  3,162,740
   Adjustments to reconcile net income to net cash provided by operations:
      Income tax provision ...................................................      2,106,973      1,629,290
      Depreciation and amortization ..........................................        382,798        263,387
      Stock compensation expense .............................................        361,714             --
      Changes in assets and liabilities:
         Accounts receivable (increase) ......................................       (609,173)      (598,432)
         Accrued interest income (increase) ..................................        (73,486)            --
         Inventory (increase) ................................................     (1,046,208)    (1,156,104)
         Deferred income tax benefit (increase) ..............................       (280,960)            --
         Prepaid expenses decrease ...........................................        239,625        459,886
         Accounts payable increase (decrease) ................................        (83,525)       335,265
         Accrued liabilities (decrease) ......................................       (457,123)      (579,608)
         Accrued income tax expense decrease .................................        194,000             --
                                                                                 ------------   ------------
      Net cash provided by operating activities ..............................      4,824,642      3,516,424
                                                                                 ------------   ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
   Purchases of marketable securities and long-term investments ..............    (25,109,233)   (48,206,996)
   Proceeds from maturities of marketable securities and
      long-term investments ..................................................     23,000,000             --
   Acquisition of property and equipment (net) ...............................       (115,163)      (461,299)
                                                                                 ------------   ------------
      Net cash (used in) investing activities ................................     (2,224,396)   (48,668,295)
                                                                                 ------------   ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from issuance of common shares ...................................             --     51,234,342
   Proceeds from issuance of common shares due to exercise of stock options ..         99,666         44,305
                                                                                 ------------   ------------
      Net cash provided by financing activities ..............................         99,666     51,278,647
                                                                                 ------------   ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS ....................................      2,699,912      6,126,776
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ...............................     28,734,869     13,148,237
                                                                                 ------------   ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD .....................................   $ 31,434,781   $ 19,275,013
                                                                                 ============   ============
Supplemental Disclosure of Non cash investing activities:
   Demonstration and no capital cost sales equipment capitalized
      from inventory (Note 2) ................................................   $    447,437   $    243,478
</TABLE>

                        See notes to financial statements


                                        4

<PAGE>

                             SOMANETICS CORPORATION

                          NOTES TO FINANCIAL STATEMENTS
                                   (UNAUDITED)

                                  MAY 31, 2007

1.   FINANCIAL STATEMENT PRESENTATION

          We prepared our unaudited interim financial statements pursuant to the
Securities and Exchange Commission's rules. These interim financial statements
do not include all of the information and notes normally included in our annual
financial statements prepared in accordance with generally accepted accounting
principles. We believe, however, that the disclosures are adequate to make the
information presented not misleading.

          The unaudited interim financial statements in this report reflect all
adjustments which are, in our opinion, necessary for a fair statement of the
results for the interim periods presented. All of these adjustments that are
material are of a normal recurring nature. Our operating results for the
six-month period ended May 31, 2007 do not necessarily indicate the results that
you should expect for the year ending November 30, 2007. You should read the
unaudited interim financial statements together with the financial statements
and related notes for the year ended November 30, 2006 included in our Annual
Report on Form 10-K for the fiscal year ended November 30, 2006.

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

          Marketable Securities and Long-Term Investments consist of Aaa-rated
United States government agency bonds, classified as held to maturity, maturing
approximately twelve months to four years from the date of acquisition, are
stated at an amortized cost of $44,945,131, and have a market value of
$44,881,060 at May 31, 2007.

          Inventory is stated at the lower of cost or market on a first-in,
first-out (FIFO) basis. Inventory consists of:

<TABLE>
<CAPTION>
                            MAY 31,     NOVEMBER
                             2007       30, 2006
                          ----------   -----------
<S>                       <C>          <C>
Purchased components...   $1,970,037   $1,456,059
Finished goods.........      566,147      610,016
Work in process........      235,044      106,383
                          ----------   ----------
   Total...............   $2,771,228   $2,172,458
                          ==========   ==========
</TABLE>

          Property and Equipment are stated at cost. Depreciation and
amortization are computed using the straight-line method over the estimated
useful lives of the assets, which range from two to five years. Depreciation
expense was $379,342 and $259,932 for the six-month periods ended May 31, 2007
and May 31, 2006, respectively. We offer to our United States customers a no
capital cost sales program whereby we ship the INVOS System monitor to the
customer at no charge. The INVOS System monitors that are shipped to our
customers are classified as no capital cost sales equipment and are depreciated
over five years to cost of goods sold. All other depreciation expense is
recorded as a selling, general and administrative expense. As of May 31, 2007,
we have capitalized $3,060,197 in costs for INVOS System monitors being used as
demonstration and no capital cost sales equipment, and these assets had a net
book value of $1,713,856. As of November 30, 2006, we have capitalized
$2,650,939 in costs for INVOS System monitors being used as demonstration and no
capital cost sales equipment, and these assets had a net book value of
$1,529,946. Property and equipment are reviewed for impairment whenever events
or changes in circumstances indicate that the net book value of the asset may
not be recovered.

          Intangible Assets consist of patents and trademarks. Patents and
trademarks are recorded at cost and are being amortized on the straight-line
method over 17 years. The carrying amount and accumulated amortization of these
patents and trademarks are as follows:


                                        5

<PAGE>

                             SOMANETICS CORPORATION

                    NOTES TO FINANCIAL STATEMENTS- CONTINUED
                                   (UNAUDITED)

                                  MAY 31, 2007

<TABLE>
<CAPTION>
                                     MAY 31,     NOVEMBER
                                       2007      30, 2006
                                    ---------   ---------
<S>                                 <C>         <C>
Patents and trademarks ..........   $ 111,733   $ 111,733
Less: accumulated amortization ..    (105,180)   (101,724)
                                    ---------   ---------
   Total ........................   $   6,553   $  10,009
                                    =========   =========
</TABLE>

          Amortization expense for the six months ended May 31, 2007 and May 31,
2006 was approximately $3,500. Amortization expense is expected to be
approximately $6,900 in fiscal 2007 and approximately $3,100 in fiscal 2008.

          Stock Compensation For the first two quarters of fiscal 2007, we have
recorded stock compensation expense of $361,714 as a result of stock options and
restricted common shares granted to our officers, employees, directors and one
of our consultants during fiscal 2006 and fiscal 2007. During the first six
months of fiscal 2007, we granted 16,000 stock options to one of our officers
and two of our employees. These 10-year options were granted under the 2005
Stock Incentive Plan, and were granted in April 2007 at an exercise price of
$18.85 (the closing sale price of the common shares as of the date of grant).
The weighted-average grant-date fair value of the options granted was $9.76. The
fair value of each option grant was estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions: expected volatility (the measure by which the stock price has
fluctuated or is expected to fluctuate during the period) 47.00 percent,
risk-free interest rate (approximate U.S. Treasury yield in effect at the time
of grant) 5.0 percent, expected lives of 6 years and a dividend yield of 0
percent.

          No stock options or restricted common shares were granted during the
first two quarters of fiscal 2006, and no stock options or restricted common
shares vested during the first two quarters of fiscal 2007 or during the first
two quarters of fiscal 2006. During the six months ended May 31, 2007, 15,334
stock options were exercised by our employees, a former director, and a
consultant for gross proceeds to us of $99,666. The intrinsic value of these
exercised stock options was $187,323. During the six months ended May 31, 2006,
7,333 stock options were exercised by our employees and a former director for
gross proceeds to us of $44,305. The intrinsic value of these exercised stock
options was $101,503.

          As of May 31, 2007, there was $3,055,262 of total unrecognized
compensation cost related to nonvested share-based compensation awards granted
under the 2005 Plan. This cost is expected to be recognized over a weighted
average period of 4 years. In addition, as of May 31, 2007, the aggregate
intrinsic value of stock options outstanding was $25,327,856, and the aggregate
intrinsic value of stock options exercisable was $25,083,653.

          No modifications were made to any share awards that required an
accounting charge, and no cash was paid for share-based liabilities during the
first two quarters of fiscal 2007 or during the first two quarters of fiscal
2006.

          On April 19, 2007, our shareholders approved an amendment to the
Somanetics Corporation 2005 Stock Incentive Plan to increase the number of
common shares reserved for issuance under the 2005 Plan by 600,000 shares, from
600,000 to 1,200,000 shares, subject to shareholder approval at the 2007 Annual
Meeting of Shareholders.

          Net Income Per Common Share - basic and diluted is computed using the
weighted average number of common shares outstanding during each period.
Weighted average shares outstanding - diluted includes the potential dilution
that could occur for common shares issuable under stock options or warrants. The
difference between weighted average shares - diluted and weighted average shares
- basic is calculated as follows:


                                        6

<PAGE>

                             SOMANETICS CORPORATION

                    NOTES TO FINANCIAL STATEMENTS- CONTINUED
                                   (UNAUDITED)

                                  MAY 31, 2007

<TABLE>
<CAPTION>
                                              2007
                                    -----------------------
                                       Three
                                      Months     Six Months
                                    ----------   ----------
<S>                                 <C>          <C>
Weighted average shares - basic     13,171,881   13,168,088
Add: effect of dilutive common
   shares                            1,403,356    1,433,680
                                    ----------   ----------
Weighted average shares - diluted   14,575,237   14,601,768
</TABLE>

<TABLE>
<CAPTION>
                                              2006
                                    -----------------------
                                       Three
                                      Months     Six Months
                                    ----------   ----------
<S>                                 <C>          <C>
Weighted average shares - basic     12,895,472   11,817,654
Add: effect of dilutive common
   shares and warrant                1,457,603    1,542,910
                                    ----------   ----------
Weighted average shares - diluted   14,353,075   13,360,564
</TABLE>

          For the three and six months ended May 31, 2007 there were 16,000
stock options outstanding that were excluded from the computation of net income
per common share - diluted, and for the three and six months ended May 31, 2006
there were 500 stock options outstanding that were excluded from the computation
of net income per common share - diluted, as the exercise price of these options
exceeded the average price per share of our common shares. In addition, at May
31, 2006, there were 2,100,000 warrants outstanding that were excluded from the
computation, as the warrants were contingent on achieving specified future sales
targets that we did not expect to achieve. These warrants expired unexercised in
November 2006. As of May 31, 2007 we had outstanding 2,072,656 stock options to
purchase common shares, and as of May 31, 2006 we had outstanding 4,006,899
warrants and options to purchase common shares.

3.   INCOME TAXES

          During fiscal 2004, we adjusted our deferred tax asset valuation
allowance resulting in the recognition of a deferred tax asset of $6,700,000
related to the expected future benefits of our net operating loss carryforwards,
in accordance with Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes." During fiscal 2005, we further adjusted our
deferred tax asset valuation allowance resulting in the recognition of an
additional net deferred tax asset of $3,300,000, and during fiscal 2006 we
further adjusted our deferred tax asset valuation allowance resulting in
recognition of an additional net deferred tax asset of $750,000.

          The effect of recognizing this asset on our balance sheet, and
associated tax benefit on our statement of operations, is to increase our net
income for fiscal 2006 to $10,399,957, or $0.75 per diluted common share, to
increase our net income for fiscal 2005 to $7,751,087, or $0.66 per diluted
common share, and to increase our net income for fiscal 2004 to $8,706,576, or
$0.77 per diluted common share. Given the assumptions inherent in our financial
plans, it is possible to calculate a different value for our deferred tax asset
by changing one or more of the variables in our assessment. However, we believe
that our evaluation of our financial plans was reasonable, and that the
judgments and assumptions that we made at the time of developing the plan were
appropriate.

          We have performed the required assessment of positive and negative
evidence regarding realization of our deferred tax assets in accordance with
SFAS No. 109, including our past operating results, the existence of cumulative
losses over our history up to the most recent four fiscal years, and our
forecast for future net income. Our assessment of our deferred tax assets, and
the reversal of part of our valuation allowance, included assuming that our net
revenues and pre-tax income will grow in future years consistent with the growth
guidance given for fiscal 2007 and making allowance for the uncertainties
surrounding, among other things, our future rate of growth in net revenues, the
rate of adoption of our products in the marketplace, and the potential for
competition to enter the marketplace.


                                        7

<PAGE>

                             SOMANETICS CORPORATION

                    NOTES TO FINANCIAL STATEMENTS- CONTINUED
                                   (UNAUDITED)

                                  MAY 31, 2007

          In reversing a portion of our valuation allowance, in fiscal years
2006, 2005 and 2004, we concluded that it was more likely than not that
approximately $10,944,000 of such assets would be realized as of November 30,
2006. As of May 31, 2007, we have concluded that it is more likely than not that
approximately $8,924,000 of such assets will be realized.

          During the first six months of fiscal 2007 and fiscal 2006, we
recognized income tax expense at an estimated effective tax rate of 34% on our
statement of operations.

4.   ACCRUED LIABILITIES

          Accrued liabilities consist of the following:

<TABLE>
<CAPTION>
                             MAY 31,    NOVEMBER
                              2007      30, 2006
                            --------   ----------
<S>                         <C>        <C>
Incentive Compensation ..   $347,737   $  495,014
Sales Commissions .......    295,674      277,521
Professional Fees .......     38,531       22,053
Warranty ................     17,440       19,900
Royalty .................      3,265       11,473
Taxes ...................         --      228,085
Clinical Research .......         --       60,005
401(k) Match ............         --       45,719
                            --------   ----------
   Total ................   $702,647   $1,159,770
                            ========   ==========
</TABLE>

5.   COMMITMENTS AND CONTINGENCIES

          We may become subject to products liability claims by patients or
physicians, and may become a defendant in products liability or malpractice
litigation. We have obtained products liability insurance and an umbrella
policy. We might not be able to maintain such insurance or such insurance might
not be sufficient to protect us against products liability.

6.   SEGMENT INFORMATION

          We operate our business in one reportable segment, the development,
manufacture and marketing of medical devices. Each of our two product lines have
similar characteristics, customers, distribution and marketing strategies, and
are subject to similar regulatory requirements. In addition, in making operating
and strategic decisions, our management evaluates net revenues based on the
worldwide net revenues of each major product line, and profitability on an
enterprise-wide basis due to shared costs. Approximately 100 percent of our net
revenues in the first two quarters of fiscal 2007 were derived from our INVOS
System product line, compared to 99 percent of our net revenues in the first two
quarters of fiscal 2006.


                                        8

<PAGE>

                             SOMANETICS CORPORATION

                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                       CONDITION AND RESULTS OF OPERATIONS

                                  MAY 31, 2007

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
Repot on Form 10-K.

     OVERVIEW

          We develop, manufacture and market the INVOS System, a non-invasive
patient monitoring system that continuously measures changes in the blood oxygen
levels in the brain and elsewhere in the body in somatic, or skeletal muscle,
tissue in patients with or at risk for restricted blood flow. We plan to launch
the INVOS System into the neonatal ICU in 2007, after completing market research
of a smaller SomaSensor. We are currently sponsoring a clinical trial evaluating
the use of the INVOS System on diabetic patients over age 50. If results of this
trial are positive, we intend to target more actively the sale of the INVOS
System for use in diabetic patients undergoing major general surgeries,
consistent with FDA requirements. We expect to begin this marketing in 2009.

          In November 2005, we received 510(k) clearance from the FDA to market
our INVOS System to monitor changes in somatic tissue blood oxygen saturation in
regions of the body other than the brain in patients with or at risk for
restricted blood flow. Our four-channel cerebral and somatic INVOS System
monitor, which we launched in the second quarter of 2006, can display
information from four SomaSensors, which allows for the simultaneous monitoring
of changes in blood oxygen saturation in the brain and, in patients with or at
risk for restricted blood flow, in somatic tissue.

          We also develop and market the CorRestore System for use in cardiac
repair and reconstruction. In September 2004, the European Economic Community
changed its regulations, limiting approval authority for animal tissue implant
products sold in Europe to some independent registration agencies that do not
include our registrar. Sales of CorRestore Systems represented less than one
percent of our net revenues for the first six months of fiscal 2007.

     NET REVENUES AND COST OF SALES

          We derive our revenues from sales of INVOS Systems and CorRestore
Systems to hospitals in the United States through our direct sales team and
independent sales representative firms. Outside the United States, we have
distribution agreements with independent distributors for the INVOS System,
including Tyco Healthcare in Europe, Canada, the Middle East and Africa, and
Edwards Lifesciences Ltd. in Japan. Our cost of sales represent the cost of
producing monitors and disposable SomaSensors. Revenues from outside the United
States contributed 16 percent to our first six months of fiscal 2007 net
revenues. As a percentage of net revenues, the gross margin from our
international sales is typically lower than the gross margin from our U.S.
sales, reflecting the difference between the prices we receive from distributors
and from direct customers.

          We offer to our customers in the United States a no capital cost sales
program whereby we ship the INVOS System monitor to the customer at no charge.
Under this program, we do not recognize any revenue upon the shipment of the
monitor. We recognize SomaSensor revenue when we receive purchase orders and
ship the product to the customer. At the time of shipment of the monitor, we
capitalize the monitor as an asset and depreciate this asset over five years,
and this depreciation is included in cost of goods sold.


                                        9

<PAGE>

                             SOMANETICS CORPORATION

                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                       CONDITION AND RESULTS OF OPERATIONS

                                  MAY 31, 2007

     OPERATING EXPENSES

          Selling, general and administrative expenses generally consist of:

     -    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.

          We have increased the size of our direct sales team and expect to
increase the size of our direct sales team in fiscal 2007. In addition we are
evaluating placing salespersons and clinical specialists in Europe to support
Tyco Healthcare. We also expect our clinical research expenses to increase in
fiscal 2007 as a result of sponsoring a clinical trial evaluating the use of the
INVOS System on diabetic patients over age 50. As a result, we expect selling,
general and administrative expenses to increase in fiscal 2007.

          Research, development and engineering expenses consist of:

     -    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 MAY 31, 2007 COMPARED TO THREE MONTHS ENDED MAY 31, 2006

          NET REVENUES. Our net revenues increased $1,727,321, or 23 percent,
from $7,394,857 in the three-month period ended May 31, 2006 to $9,122,178 in
the three-month period ended May 31, 2007. The increase in net revenues is
primarily attributable to:

     -    an increase in U.S. sales of $1,895,397, or 32 percent, from
          $5,845,638 in the second quarter of fiscal 2006 to $7,741,035 in the
          second quarter of fiscal 2007. The increase in U.S. sales was
          primarily due to an increase in sales of the disposable SomaSensor of
          $1,421,960, or 30 percent, primarily as a result of a 24 percent
          increase in SomaSensor unit sales. In addition, sales of the INVOS
          System monitor in the United States increased $504,287, or 51 percent,
          primarily as a result of increased purchases by pediatric hospitals;
          and

     -    a decrease in international sales of $168,076, or 11 percent, from
          $1,549,219 in the second quarter of fiscal 2006 to $1,381,143 in the
          second quarter of fiscal 2007. The decrease in international sales was
          primarily due to decreased purchases of our INVOS System monitor by
          Tyco Healthcare in Europe, as a result of purchases made in the second
          quarter of fiscal 2006 in connection with the launch of our
          four-channel cerebral and somatic INVOS System monitor, partially for
          evaluation and demonstration purposes. This decrease in INVOS System
          monitor purchases was partially offset by increased purchases of the
          disposable SomaSensor by Tyco Healthcare. In the second quarter of
          fiscal 2007, international sales represented 15 percent of our net
          revenues, compared to 21 percent of our net revenues in the second
          quarter of fiscal 2006. Purchases by Tyco Healthcare accounted for 11
          percent of net revenues in the second quarter of fiscal 2007, compared
          to 16 percent in the second quarter of fiscal 2006.


                                       10

<PAGE>

                             SOMANETICS CORPORATION

                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                       CONDITION AND RESULTS OF OPERATIONS

                                  MAY 31, 2007

          We sold 62,570 SomaSensors in the United States and 20,690
internationally in the second quarter of fiscal 2007. We placed 121 INVOS System
monitors in the United States and 95 internationally in the second quarter of
fiscal 2007, and our installed base of INVOS System monitors in the United
States was 1,745, in 633 hospitals, as of May 31, 2007.

          Sales of our products as a percentage of net revenues were as follows:

<TABLE>
<CAPTION>
                           THREE MONTHS
                          ENDED MAY 31,
                          -------------
PRODUCT                    2007   2006
-------                    ----   ----
<S>                       <C>     <C>
SomaSensors ............     74%    70%
INVOS System Monitors ..     26%    29%
                            ---    ---
   Total INVOS System ..    100%    99%
CorRestore Systems .....     --      1%
                            ---    ---
   Total ...............    100%   100%
                            ===    ===
</TABLE>

          GROSS MARGIN. Gross margin as a percentage of net revenues was 89
percent for the three months ended May 31, 2007 and 87 percent for the three
months ended May 31, 2006. The increase in our gross margin percentage is
primarily attributable to a five percent increase in the average selling price
of SomaSensors in the United States and increased sales of the INVOS System
monitors to pediatric hospitals in the United States. The increase in our
average selling prices in the United States is attributable to increased sales
of our pediatric SomaSensor, which sells for a higher price than the adult
SomaSensor. In addition, we realized increased sales in the United States which
have a higher gross margin than sales to our international distributors,
partially as a result of stocking orders for our latest model INVOS System by
Tyco Healthcare in the second quarter of 2006.

          RESEARCH, DEVELOPMENT AND ENGINEERING EXPENSES. Our research,
development and engineering expenses increased $23,410, or 17 percent, from
$141,011 in the second quarter of fiscal 2006 to $164,421 in the second quarter
of fiscal 2007. The increase is primarily attributable to an increase in
development costs associated with our smaller disposable SomaSensor. We expect
our research, development and engineering expenses to increase in fiscal 2007,
primarily as a result of development costs associated with advances to the
design and performance features of the INVOS System, including the disposable
SomaSensor, and the hiring of additional research and development personnel.

          SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $1,417,426, or 37 percent, from $3,852,667 for
the three months ended May 31, 2006 to $5,270,093 for the three months ended May
31, 2007, primarily due to:

     -    a $761,000 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 56 employees for the three
          months ended May 31, 2006 to an average of 87 employees for the three
          months ended May 31, 2007);

     -    a $353,069 increase in employee sales commissions as a result of
          increased sales and hiring additional sales employees;

     -    a $234,632 increase in travel, marketing and selling-related expenses
          as a result of our increased sales personnel and increased sales and
          marketing activities, primarily sales training, trade shows and
          advertising;

     -    a $183,459 increase in stock compensation expense due to stock
          compensation issued to directors, officers, employees and a consultant
          in the third quarter of 2006; and

     -    a $171,873 increase in accrued incentive compensation expense due to
          our year-to-date 2007 financial performance, primarily increased sales
          and operating income in accordance with the 2007 incentive
          compensation plans.


                                       11

<PAGE>

                             SOMANETICS CORPORATION

                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                       CONDITION AND RESULTS OF OPERATIONS

                                  MAY 31, 2007

These increases were partially offset by a $281,204 decrease in commissions paid
to our independent sales representative firms as a result of fewer independent
sales representative firms in the second quarter of 2007.

          We expect our selling, general and administrative expenses to increase
in fiscal 2007, primarily as a result of our hiring additional sales personnel
in fiscal 2007, increased employee sales commissions payable as a result of
increased sales, increased clinical research expense, increased stock
compensation expenses, and increased sales and marketing expenses.

          OTHER INCOME. During the second quarter of fiscal 2007, interest
income increased to $1,005,598, from $817,943 in the second quarter of 2006,
primarily due to our increased cash, cash equivalents, marketable securities and
long-term investment balances, and increased interest rates.

          INCOME TAX PROVISION. During the second quarter of fiscal 2007 and
2006, we recognized income tax expense at an estimated effective tax rate of 34
percent on our statement of operations, and we expect this to continue for
future periods.

     SIX MONTHS ENDED MAY 31, 2007 COMPARED TO SIX MONTHS ENDED MAY 31, 2006

          NET REVENUES. Our net revenues increased $3,998,479, or 30 percent,
from $13,148,571 in the six-month period ended May 31, 2006 to $17,147,050 in
the six-month period ended May 31, 2007. The increase in net revenues is
primarily attributable to:

     -    an increase in U.S. sales of $3,702,086, or 35 percent, from
          $10,681,269 in the first six months of fiscal 2006 to $14,383,355 in
          the first six months of fiscal 2007. The increase in U.S. sales was
          primarily due to an increase in sales of the disposable SomaSensor of
          $2,474,469, or 28 percent, primarily as a result of a 22 percent
          increase in SomaSensor unit sales. In addition, sales of the INVOS
          System monitor in the United States increased $1,331,612, or 83
          percent, primarily as a result of increased purchases by pediatric
          hospitals; and

     -    an increase in international sales of $296,392, or 12 percent, from
          $2,467,303 in the first six months of fiscal 2006 to $2,763,695 in the
          first six months of fiscal 2007. The increase in international sales
          was primarily due to increased purchases of the disposable SomaSensor
          by Tyco Healthcare in Europe, partially offset by decreased purchases
          of our INVOS System monitor. The decrease in monitor purchases is a
          result of purchases made in the second quarter of fiscal 2006 in
          connection with the launch of our four-channel cerebral and somatic
          INVOS System monitor, partially for evaluation and demonstration
          purposes. In the first six months of fiscal 2007, international sales
          represented 16 percent of our net revenues, compared to 19 percent of
          our net revenues in the first six months of fiscal 2006. Purchases by
          Tyco Healthcare accounted for 13 percent of net revenues in the first
          six months of fiscal 2007, compared to 14 percent in the first six
          months of fiscal 2006.

     We sold 115,250 SomaSensors in the United States and 49,960 internationally
in the first six months of fiscal 2007. We placed 248 INVOS System monitors in
the United States and 162 internationally in the first six months of fiscal
2007.


                                       12

<PAGE>

                             SOMANETICS CORPORATION

                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                       CONDITION AND RESULTS OF OPERATIONS

                                  MAY 31, 2007

          Sales of our products as a percentage of net revenues were as follows:

<TABLE>
<CAPTION>
                               SIX MONTHS
                             ENDED MAY 31,
                             -------------
PRODUCT                       2007   2006
-------                       ----   ----
<S>                          <C>     <C>
SomaSensors ..............     74%    74%
INVOS System Monitors ....     26%    25%
                              ---    ---
    Total INVOS System ...    100%    99%
CorRestore Systems .......     --      1%
                              ---    ---
    Total ................    100%   100%
                              ===    ===
</TABLE>

          GROSS MARGIN. Gross margin as a percentage of net revenues was 88
percent for the six months ended May 31, 2007 and 88 percent for the six months
ended May 31, 2006. We realized a five percent increase in the average selling
price of SomaSensors in the United States and increased sales of the INVOS
System monitors to pediatric hospitals in the United States. The increase in our
average selling prices in the United States is attributable to increased sales
of our pediatric SomaSensor, which sells for a higher price than the adult
SomaSensor. In addition, we realized increased sales in the United States which
have a higher gross margin than sales to our international distributors.

          RESEARCH, DEVELOPMENT AND ENGINEERING EXPENSES. Our research,
development and engineering expenses decreased $41,290, or 13 percent, from
$319,077 in the first two quarters of fiscal 2006 to $277,787 in the first two
quarters of fiscal 2007. The decrease is primarily attributable to an $88,768
decrease in development costs associated with our four-channel cerebral and
somatic INVOS System monitor, which was launched in the second quarter of fiscal
2006, partially offset by a $25,214 increase in development costs associated
with our smaller disposable SomaSensor.

          SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $3,228,981, or 44 percent, from $7,360,548 for
the six months ended May 31, 2006 to $10,589,529 for the six months ended May
31, 2007, primarily due to:

     -    a $1,563,873 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 54 employees
          for the six months ended May 31, 2006 to an average of 83 employees
          for the six months ended May 31, 2007);

     -    a $712,601 increase in employee sales commissions as a result of
          increased sales and hiring additional sales employees;

     -    a $568,781 increase in travel, marketing and selling-related expenses
          as a result of our increased sales personnel and increased sales and
          marketing activities, primarily sales training and advertising;

     -    a $361,714 increase in stock compensation expense due to stock
          compensation issued to directors, officers, employees and a consultant
          in the third quarter of 2006;

     -    a $134,373 increase in accrued incentive compensation expense due to
          our year-to-date 2007 financial performance, primarily increased sales
          and operating income in accordance with the 2007 incentive
          compensation plans;

     -    a $116,832 increase in state tax expense attributable to payments made
          for estimated 2007 income and franchise taxes; and

     -    a $94,289 increase in general corporate insurance expense, primarily
          due to increased coverage amounts and increased premium rates.

These increases were partially offset by a $436,130 decrease in commissions paid
to our independent sales representative firms as a result of fewer independent
sales representative firms in the first two quarters of 2007.


                                       13

<PAGE>

                             SOMANETICS CORPORATION

                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                       CONDITION AND RESULTS OF OPERATIONS

                                  MAY 31, 2007

          OTHER INCOME. During the first six months of fiscal 2007, interest
income increased to $1,966,086, from $958,080 in the first six months of 2006,
primarily due to our increased cash, cash equivalents, marketable securities and
long-term investment balances as a result of the proceeds from our public
offering of common shares that closed in the second quarter of fiscal 2006 and
cash provided by operating activities, and increased interest rates.

          INCOME TAX PROVISION. During the first six months of fiscal 2007 and
2006, we recognized income tax expense at an estimated effective tax rate of 34
percent on our statement of operations, and we expect this to continue for
future periods.

LIQUIDITY AND CAPITAL RESOURCES

     GENERAL

          Our principal sources of operating funds have been the proceeds from
sales of our common shares and cash provided by operating activities.

          As of May 31, 2007, we did not have any outstanding or available debt
financing arrangements, we had working capital of $68.7 million and our primary
sources of liquidity were $31.4 million of cash and cash equivalents, $27.0
million of marketable securities and $18.0 million of long-term investments.
Marketable securities and long-term investments consist of Aaa-rated United
States Government agency bonds, and cash and cash equivalents are currently
invested in bank savings accounts and money market accounts, pending their
ultimate use.

          We believe that cash, cash equivalents, marketable securities and
long-term investments on hand at May 31, 2007 will be adequate to satisfy our
operating and capital requirements for more than the next twelve months.

     CASH FLOWS FROM OPERATING ACTIVITIES

          Net cash provided by operations during the first six months of fiscal
2007 and 2006 was $4,824,642 and $3,516,424, respectively. In the first six
months of fiscal 2007, cash was provided primarily by:

     -    $6,941,492 of net income before income taxes and non-cash
          depreciation, amortization and stock compensation expense;

     -    a $239,625 decrease in prepaid expenses, primarily due to the
          amortization of prepaid insurance payments made in fiscal 2006; and

     -    a $194,000 decrease in accrued income tax expense as a result of
          payments made in the first six months of fiscal 2007.

Cash provided by operations in the first six months of fiscal 2007 was partially
offset by:

     -    a $1,046,208 increase in inventories, primarily due to the acquisition
          of components associated with our SomaSensors and our INVOS System
          monitor due to anticipated sales; inventories on our balance sheet
          increased less because we capitalized INVOS System monitors to
          property and equipment that are being used as demonstration units and
          no capital cost sales equipment, as described below;

     -    a $609,173 increase in accounts receivable, primarily as a result of
          higher second quarter sales in fiscal 2007 than in the fourth quarter
          of fiscal 2006, partially offset by more timely collections;

     -    a $457,123 decrease in accrued liabilities, primarily as a result of
          the payment of year-end 2006 accruals, including incentive
          compensation, sales commissions, income taxes, clinical research
          expenses, and 401(k)


                                       14

<PAGE>

                             SOMANETICS CORPORATION

                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                       CONDITION AND RESULTS OF OPERATIONS

                                  MAY 31, 2007

          matching contributions, partially offset by 2007 accrued incentive
          compensation and sales commissions; and

     -    a $280,960 increase in deferred income tax benefits as a result of
          payments made for estimated alternative minimum tax that we expect
          will result in future tax credits when we use our net operating loss
          carryforwards.

          We expect our working capital requirements to increase as sales
increase.

          The increase in inventories described above is greater than shown on
our balance sheet because it includes INVOS System monitors that we capitalized
because they are being used as demonstration units and no capital cost sales
equipment. We capitalized $447,437 of costs from inventory for INVOS System
monitors being used as demonstration units and no capital cost sales equipment
at customers during the first six months of fiscal 2007, compared to $243,478 in
the first six months of fiscal 2006. As of May 31, 2007, we have capitalized
$3,060,197 in costs for INVOS System monitors being used as demonstration and no
capital cost sales equipment, and these assets have a net book value of
$1,713,856. We depreciate these assets over five years.

     CASH FLOWS FROM INVESTING ACTIVITIES

          Net cash used in investing activities in the first six months of
fiscal 2007 and 2006 was $2,224,396 and $48,668,295, respectively. In the first
six months of fiscal 2007, these expenditures were primarily for investments in
marketable securities and long-term investments of $25,109,233, partially offset
by maturities of marketable securities and long-term investments of $23,000,000.

     CASH FLOWS FROM FINANCING ACTIVITIES

          Net cash provided by financing activities in the first six months of
fiscal 2007 and 2006 was $99,666 and $51,278,647, respectively. During the first
six months of fiscal 2007, we issued 15,334 common shares as a result of the
exercise of stock options by our employees, a former director and a consultant,
for proceeds of $99,666.

CONTRACTUAL OBLIGATIONS

          As of May 31, 2007, there have been no material changes outside the
ordinary course of business in the contractual obligations disclosed in our
Annual Report on Form 10-K for the fiscal year ended November 30, 2006 under the
caption "Contractual Obligations."

OFF-BALANCE SHEET ARRANGEMENTS

          We do not have any off-balance sheet arrangements or financing
activities.

CRITICAL ACCOUNTING POLICIES

          We believe our most significant accounting policies relate to our
accounting treatment of stock compensation of employees, our accounting
treatment for income taxes, and our revenue recognition associated with our no
capital cost sales program.

     STOCK COMPENSATION

          For the first two quarters of fiscal 2007, we have recorded stock
compensation expense of $361,714 as a result of stock options and restricted
common shares granted to our officers, employees, directors and one of our
consultants during fiscal 2006 and fiscal 2007. During the first two quarters of
fiscal 2007, we granted 16,000 stock


                                       15

<PAGE>

                             SOMANETICS CORPORATION

                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                       CONDITION AND RESULTS OF OPERATIONS

                                  MAY 31, 2007

options to one of our officers and two of our employees, and no stock options or
restricted common shares were granted during the first two quarters of fiscal
2006.

          As of May 31, 2007, there was $3,055,262 of total unrecognized
compensation cost related to nonvested share-based compensation awards granted
under the 2005 Plan. This cost is expected to be recognized over a weighted
average period of 4 years. No modifications were made to any share awards that
required an accounting charge, and no cash was paid for share-based liabilities
during the first two quarters of fiscal 2007 or during the first two quarters of
fiscal 2006.

          The fair value of our stock option grants have been estimated on the
date of grant using the Black-Scholes option-pricing model with assumptions
regarding volatility (the measure by which the stock price has fluctuated or is
expected to fluctuate during the period), risk-free interest rate, expected
lives and dividend yields. The fair value of the restricted common shares was
estimated based on the market value of the common shares on the date of
issuance. For the stock options granted during the first six months of fiscal
2007, the assumptions were: volatility 47.00%, risk-free interest rate 5.0%,
expected lives of 6 years, and a dividend yield of 0%. Different assumptions
could significantly change the calculated grant date fair value, and, therefore,
the amount of stock compensation expense we recognize over the vesting period of
the awards. We believe, however, that our estimates are appropriate.

     INCOME TAXES

          We have performed the required assessment of positive and negative
evidence regarding realization of our deferred tax assets in accordance with
SFAS No. 109, including our past operating results, the existence of cumulative
losses over our history up to the most recent four fiscal years, and our
forecast for future net income. Our assessment of our deferred tax assets, and
the reversal of part of our valuation allowance, included assuming that our net
revenues and pre-tax income will grow in future years consistent with the growth
guidance given for fiscal 2007 and making allowance for the uncertainties
surrounding, among other things, our future rate of growth in net revenues, the
rate of adoption of our products in the marketplace, and the potential for
competition to enter the marketplace. In reversing a portion of our valuation
allowance, in fiscal years 2006, 2005 and 2004, we concluded that it was more
likely than not that approximately $10,944,000 of such assets would be realized
as of November 30, 2006. As of May 31, 2007, we have concluded that it is more
likely than not that approximately $8,924,000 of such assets will be realized.

          During fiscal 2004, we adjusted our deferred tax asset valuation
allowance resulting in the recognition of a deferred tax asset of $6,700,000
related to the expected future benefits of our net operating loss carryforwards,
in accordance with Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes." During fiscal 2005, we further adjusted our
deferred tax asset valuation allowance resulting in the recognition of an
additional net deferred tax asset of $3,300,000, and during fiscal 2006 we
further adjusted our deferred tax asset valuation allowance resulting in
recognition of an additional net deferred tax asset of $750,000.

          The effect of recognizing this asset on our balance sheet, and
associated tax benefit on our statement of operations, is to increase our net
income for fiscal 2006 to $10,399,957, or $0.75 per diluted common share, to
increase our net income for fiscal 2005 to $7,751,087, or $0.66 per diluted
common share, and to increase our net income for fiscal 2004 to $8,706,576, or
$0.77 per diluted common share. Given the assumptions inherent in our financial
plans, it is possible to calculate a different value for our deferred tax asset
by changing one or more of the variables in our assessment. However, we believe
that our evaluation of our financial plans was reasonable, and that the
judgments and assumptions that we made at the time of developing the plan were
appropriate.


                                       16

<PAGE>

                             SOMANETICS CORPORATION

                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                       CONDITION AND RESULTS OF OPERATIONS

                                  MAY 31, 2007

     NO CAPITAL COST SALES REVENUE RECOGNITION

          We offer to our customers in the United States a no capital cost sales
program whereby we ship the INVOS System monitor to the customer at no charge.
Under this program, we do not recognize any revenue upon the shipment of the
INVOS System monitor. We recognize SomaSensor revenue when we receive purchase
orders and ship the product to the customer. At the time of shipment of the
monitor, we capitalize the INVOS System monitor as an asset and depreciate this
asset over five years. We believe this is consistent with our stated revenue
recognition policy, which is compliant with Staff Accounting Bulletin No. 104
and Emerging Issues Task Force No. 00-21, "Revenue Arrangements with Multiple
Deliverables."


                                       17

<PAGE>

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

          The table below provides information about our financial instruments
that are sensitive to changes in interest rates, consisting of investments in
United States government agency bonds. For these financial instruments, the
table presents principal cash flows and related weighted average interest rates
by expected maturity dates. Weighted average fixed rates are based on the
contract rates. The actual cash flows of all instruments are denominated in U.S.
dollars. We invest our cash on hand not needed in current operations in United
States government agency bonds with varying maturity dates with the intention of
holding them until maturity.

                                  MAY 31, 2007
                     EXPECTED MATURITY DATES BY FISCAL YEAR

<TABLE>
<CAPTION>
                                     2007        2008      2009   2010      2011      THEREAFTER      TOTAL     FAIR VALUE
                                  ---------   ----------   ----   ----   ----------   ----------   ----------   ----------
<S>                               <C>         <C>          <C>    <C>    <C>          <C>          <C>          <C>
INVESTMENTS:
Marketable Securities and Long-term Investments:
   Fixed Rate ($) .............   7,989,641   26,955,490     --     --   10,000,000        --      44,945,131   44,881,060
      Average interest rate ...        5.19%        5.25%   N/A    N/A         5.50%      N/A            5.29%
</TABLE>

          During the first quarter of fiscal 2007, one of our bonds matured for
approximately $5,000,000 and one of our bonds that was due to mature in 2009 was
called for approximately $5,000,000. We reinvested the proceeds into new bonds
with maturity dates in fiscal 2008. During the second quarter of fiscal 2007,
two of our bonds matured for a total of approximately $8,000,000 and one of our
bonds that was due to mature in 2009 was called for approximately $5,000,000. We
reinvested the proceeds, along with an additional $2,000,000, into new bonds
with maturity dates in fiscal 2008 and 2011.


                                       18

<PAGE>

ITEM 4. CONTROLS AND PROCEDURES

          Our management has evaluated, with the participation of our principal
executive and principal financial officers, the effectiveness of our disclosure
controls and procedures as of May 31, 2007 and any change in our internal
control over financial reporting that occurred during our second fiscal quarter
ended May 31, 2007 that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting. Based on their
evaluation, our principal executive and principal financial officers have
concluded that these controls and procedures are effective as of May 31, 2007.
There was no change in our internal control over financial reporting identified
in connection with such evaluation that occurred during our second fiscal
quarter ended May 31, 2007 that has materially affected, or is reasonably likely
to materially affect, our internal control over financial reporting.

          Disclosure controls and procedures are our controls and other
procedures that are designed to ensure that information required to be disclosed
by us in the reports that we file or submit under the Exchange Act is recorded,
processed, summarized and reported, within the time periods specified in the
Securities and Exchange Commission's rules and forms. Disclosure controls and
procedures include, without limitation, controls and procedures designed to
ensure that information required to be disclosed by us in the reports that we
file or submit under the Exchange Act is accumulated and communicated to our
management, including our principal executive and principal financial officers,
as appropriate to allow timely decisions regarding required disclosure.

          Internal control over financial reporting is a process designed by, or
under the supervision of, our principal executive and principal financial
officers, and effected by our board of directors, management and other
personnel, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles and
includes those policies and procedures that: (1) pertain to the maintenance of
records that in reasonable detail accurately and fairly reflect our transactions
and dispositions of assets, (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that our receipts
and expenditures are being made only in accordance with authorizations of our
management and directors, and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use or disposition
of our assets that could have a material effect on the financial statements.


                                       19

<PAGE>

                            PART II OTHER INFORMATION

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

          Our Annual Meeting of Shareholders was held on April 19, 2007. At the
Annual Meeting, Bruce J. Barrett was elected as a director and the terms of
office of Dr. James I. Ausman, Richard R. Sorensen, Daniel S. Follis, and Robert
R. Henry as directors continued after the meeting. 11,217,385 votes were cast
for Mr. Barrett's election and 494,116 votes were withheld from Mr. Barrett's
election. There were no abstentions or broker non-votes in connection with the
election of the director at the Annual Meeting.

          In addition, at the Annual Meeting of Shareholders, the shareholders
approved an amendment to the Somanetics Corporation 2005 Stock Incentive Plan to
increase the number of common shares reserved for issuance under the plan by
600,000 shares, from 600,000 to 1,200,000 shares. 5,270,336 votes were cast in
favor of this proposal, 1,957,293 votes were cast against this proposal, and
37,234 votes abstained on this proposal. There were 4,446,638 broker non-votes
in connection with the amendment to the 2005 Stock Incentive Plan at the Annual
Meeting.


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<PAGE>

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.


                                       21

<PAGE>

                                   SIGNATURES

          Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

                                        Somanetics Corporation
                                        (Registrant)


Date: June 29, 2007                     By: /s/ William M. Iacona
                                            ------------------------------------
                                            William M. Iacona
                                            Vice President and Chief Financial
                                            Officer, Controller and Treasurer
                                            (Duly Authorized and Principal
                                            Financial Officer)


                                       22

<PAGE>

                                  EXHIBIT INDEX

<TABLE>
<CAPTION>
Exhibit                                Description
-------   ----------------------------------------------------------------------
<S>       <C>
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.
</TABLE>


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