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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 29, 2008
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission file number 0-19095
 SOMANETICS CORPORATION
  Michigan
    
    38-2394784(State or other jurisdiction of incorporation or organization)
    
    (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
    
    Smaller reporting company o(Do not check if a smaller reporting company)
  o þ
 13,634,186




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TABLE OF CONTENTS  PART I FINANCIAL INFORMATIONITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKITEM 4. CONTROLS AND PROCEDURESPART II OTHER INFORMATIONITEM 6. EXHIBITSSIGNATURESEXHIBIT INDEXCertification of Chief Executive Officer Pursuant to Section 302Certification of Chief Financial Officer Pursuant to Section 302Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906    Table of Contents  
 PART I FINANCIAL INFORMATION
 SOMANETICS CORPORATION
 BALANCE SHEETS
 February 29,
    
    
    November 30,2008
    
    
    2007(Unaudited)
    
    
    (Audited)ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    55,505,693
    
    
    $
    33,172,977Marketable securities
    
    
    7,986,779
    
    
    
    18,978,074Accounts receivable
    
    
    5,520,645
    
    
    
    7,486,571Inventory
    
    
    2,437,305
    
    
    
    1,998,284Prepaid expenses
    
    
    528,046
    
    
    
    560,885Accrued interest receivable
    
    
    358,299
    
    
    
    551,117Deferred tax asset  current
    
    
    2,596,024
    
    
    
    3,069,929Total current assets
    
    
    74,932,791
    
    
    
    65,817,837PROPERTY AND EQUIPMENT (at cost):Demonstration and no capital cost sales equipment at customers
    
    
    3,477,844
    
    
    
    3,386,287Machinery and equipment
    
    
    1,362,890
    
    
    
    1,531,387Furniture and fixtures
    
    
    318,859
    
    
    
    307,919Leasehold improvements
    
    
    197,450
    
    
    
    196,700Total
    
    
    5,357,043
    
    
    
    5,422,293Less accumulated depreciation and amortization
    
    
    (2,884,564
    )
    
    
    (2,931,596
    )Net property and equipment
    
    
    2,472,479
    
    
    
    2,490,697OTHER ASSETS:Long-term investments
    
    
    25,479,678
    
    
    
    33,653,099Deferred tax asset  non-current
    
    
    2,873,000
    
    
    
    3,004,755Intangible assets, net
    
    
    1,369
    
    
    
    3,097Other
    
    
    15,000
    
    
    
    15,000Total other assets
    
    
    28,369,047
    
    
    
    36,675,951TOTAL ASSETS
    
    $
    105,774,317
    
    
    $
    104,984,485LIABILITIES AND SHAREHOLDERS EQUITYCURRENT LIABILITIES:Accounts payable
    
    $
    1,333,187
    
    
    $
    1,118,003Accrued liabilities
    
    
    790,221
    
    
    
    1,701,481Total current liabilities
    
    
    2,123,408
    
    
    
    2,819,484COMMITMENTS 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, 13,503,984 shares at February 29, 2008,
and 13,443,961 shares at November 30, 2007
    
    
    135,040
    
    
    
    134,440Additional paid-in capital
    
    
    119,536,262
    
    
    
    119,079,383Accumulated deficit
    
    
    (16,020,393
    )
    
    
    (17,048,822
    )Total shareholders equity
    
    
    103,650,909
    
    
    
    102,165,001TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
    
    $
    105,774,317
    
    
    $
    104,984,485
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SOMANETICS CORPORATION
 STATEMENTS OF OPERATIONS
(Unaudited)
 For the Three-MonthPeriods EndedFebruary 29,
    
    
    February 28,2008
    
    
    2007NET REVENUES
    
    $
    8,693,274
    
    
    $
    8,024,872COST OF SALES
    
    
    1,016,824
    
    
    
    1,001,723Gross Margin
    
    
    7,676,450
    
    
    
    7,023,149OPERATING EXPENSES:Research, development and engineering
    
    
    330,436
    
    
    
    113,366Selling, general and administrative
    
    
    6,498,148
    
    
    
    5,319,436Total operating expenses
    
    
    6,828,584
    
    
    
    5,432,802OPERATING INCOME
    
    
    847,866
    
    
    
    1,590,347OTHER INCOME:Interest income
    
    
    934,418
    
    
    
    960,488Total other income
    
    
    934,418
    
    
    
    960,488INCOME BEFORE INCOME TAXES
    
    
    1,782,284
    
    
    
    2,550,835INCOME TAX EXPENSE
    
    
    (753,855
    )
    
    
    (867,284
    )NET INCOME
    
    $
    1,028,429
    
    
    $
    1,683,551NET INCOME PER COMMON SHARE  BASIC
    
    $
    .08
    
    
    $
    .13NET INCOME PER COMMON SHARE  DILUTED
    
    $
    .07
    
    
    $
    .12WEIGHTED AVERAGE SHARES OUTSTANDING  BASIC
    
    
    13,450,691
    
    
    
    13,164,210WEIGHTED AVERAGE SHARES OUTSTANDING  DILUTED
    
    
    14,759,732
    
    
    
    14,636,974
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SOMANETICS CORPORATION
 STATEMENTS OF CASH FLOWS
(Unaudited)
 For the Three-MonthPeriods EndedFebruary 29,
    
    
    February 28,2008
    
    
    2007CASH FLOWS FROM OPERATING ACTIVITIES:Net income
    
    $
    1,028,429
    
    
    $
    1,683,551Adjustments to reconcile net income to net cash provided by operations:Income tax expense
    
    
    613,148
    
    
    
    867,284Depreciation and amortization
    
    
    218,948
    
    
    
    183,356Stock compensation expense
    
    
    238,437
    
    
    
    178,255Changes in assets and liabilities:Accounts receivable (increase) decrease
    
    
    1,965,926
    
    
    
    (826,996
    )Accrued interest income decrease
    
    
    192,818
    
    
    
    5,680Inventory (increase)
    
    
    (546,910
    )
    
    
    (627,283
    )Deferred income tax benefit (increase)
    
    
    (7,488
    )
    
    
    Prepaid expenses decrease
    
    
    32,839
    
    
    
    119,906Accounts payable increase (decrease)
    
    
    215,184
    
    
    
    (55,288
    )Accrued liabilities (decrease)
    
    
    (911,260
    )
    
    
    (637,128
    )Accrued income tax expense (increase)
    
    
    
    
    
    
    (21,960
    )Net cash provided by operating activities
    
    
    3,040,071
    
    
    
    869,377CASH FLOWS FROM INVESTING ACTIVITIES:Purchases of marketable securities and long-term investments
    
    
    
    
    
    
    (10,072,373
    )Proceeds from maturities of marketable securities and
long-term investments
    
    
    19,164,716
    
    
    
    10,000,000Acquisition of property and equipment
    
    
    (91,114
    )
    
    
    (34,449
    )Net cash provided by (used in) investing activities
    
    
    19,073,602
    
    
    
    (106,822
    )CASH FLOWS FROM FINANCING ACTIVITIES:Proceeds from issuance of common shares due to exercise of stock options
    
    
    219,043
    
    
    
    20,325Net cash provided by financing activities
    
    
    219,043
    
    
    
    20,325NET INCREASE IN CASH AND CASH EQUIVALENTS
    
    
    22,332,716
    
    
    
    782,880CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
    
    
    33,172,977
    
    
    
    28,734,869CASH AND CASH EQUIVALENTS, END OF PERIOD
    
    $
    55,505,693
    
    
    $
    29,517,749Supplemental Disclosure of Non cash investing activities:Demonstration and no capital cost sales equipment capitalized
from inventory (Note 2)
    
    $
    107,889
    
    
    $
    191,363Supplemental Disclosure of Taxes paid:Federal and state income taxes (Note 3)
    
    $
    148,195
    
    
    $
    205,407
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SOMANETICS CORPORATION
 Notes to Financial Statements
(Unaudited)
 February 29, 2008
 1. FINANCIAL STATEMENT PRESENTATION
   2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Marketable Securities and Long-Term Investments
 Inventory
 February 29,
    
    
    November 30,2008
    
    
    2007Purchased components
    
    $
    1,849,792
    
    
    $
    1,702,878Finished goods
    
    
    441,222
    
    
    
    174,451Work in process
    
    
    146,291
    
    
    
    120,955Total
    
    $
    2,437,305
    
    
    $
    1,998,284
 Property and Equipment
 Intangible Assets
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SOMANETICS CORPORATION
 Notes to Financial Statements  Continued
(Unaudited)
 February 29, 2008
 February 29,
    
    
    November 30,2008
    
    
    2007Patents and trademarks
    
    $
    111,733
    
    
    $
    111,733Less: accumulated amortization
    
    
    (110,364
    )
    
    
    (108,636
    )Total
    
    $
    1,369
    
    
    $
    3,097
  Stock Compensation
   Net Income Per Common Share  basic and diluted
 February 29, 2008
    
    February 28, 2007Weighted average shares  basic
    
    
    13,450,691
    
    
    
    13,164,210Add: effect of dilutive common
shares
    
    
    1,309,041
    
    
    
    1,472,764Weighted average shares  diluted
    
    
    14,759,732
    
    
    
    14,636,974
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SOMANETICS CORPORATION
 Notes to Financial Statements  Continued
(Unaudited)
 February 29, 2008
 Accounting Pronouncements
 3. INCOME TAXES
     4. ACCRUED LIABILITIES
  February 29,
    
    
    November 30,2008
    
    
    2007Incentive Compensation
    
    $
    266,505
    
    
    $
    958,642Professional Fees
    
    
    255,713
    
    
    
    61,550Sales Commissions
    
    
    187,476
    
    
    
    548,046Clinical Research
    
    
    60,639
    
    
    
    110,639Warranty
    
    
    17,920
    
    
    
    19,800Royalty
    
    
    1,968
    
    
    
    2,804Total
    
    $
    790,221
    
    
    $
    1,701,481
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SOMANETICS CORPORATION
 Notes to Financial Statements  Continued
(Unaudited)
 February 29, 2008
 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 29, 2008
 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
   Operating Expenses
  
    
    salaries, wages and related expenses of our employees and consultants;
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SOMANETICS CORPORATION
 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
 February 29, 2008
 
 
    
    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 29, 2008 Compared to Three Months Ended February 28, 2007
 Net Revenues.
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SOMANETICS CORPORATION
 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
 February 29, 2008
 Three Months Ended,Product
    
    February 29, 2008
    
    February 28, 2007SomaSensors
    
    
    83
    %
    
    
    74
    %INVOS System Monitors
    
    
    17
    %
    
    
    26
    %Total
    
    
    100
    %
    
    
    100
    %
 Gross Margin.
 Research, Development and Engineering Expenses.
 Selling, General and Administrative Expenses.
 
    
    a $519,483 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
82 employees for the three months ended February 28, 2007 to an average of 99 employees for
the three months ended February 29, 2008) and an increase in salaries of existing
employees;
    
    a $310,333 increase in professional service fees, primarily due to increased auditing,
tax, and legal fees; and
    
    a $283,943 increase in travel, marketing and selling-related expenses as a result of our
increased sales personnel and increased sales and marketing activities, including
advertising, product sponsorship and sales training.
  Other Income.
 Income Taxes.
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SOMANETICS CORPORATION
 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
 February 29, 2008
 Liquidity and Capital Resources
 General
    Cash Flows From Operating Activities
  
    
    $2,098,962 of net income before income taxes and non-cash depreciation, amortization and
stock compensation expense;
    
    a $1,965,926 decrease in accounts receivable, primarily as a result of lower first
quarter sales in fiscal 2008 than in the fourth quarter of fiscal 2007, and the timing of
more of the sales in the fourth quarter of fiscal 2007 towards the end of the quarter;
    
    a $215,184 increase in accounts payable, primarily as a result of increased inventory
and operating expenses, partially offset by the timing of payments made to vendors;
    
    a $192,818 decrease in accrued interest income, primarily due to our decreased
investment balances and decreased interest rates; and
    
    a $32,839 decrease in prepaid expenses, primarily due to the amortization of prepaid
insurance payments paid in fiscal 2007, partially offset by prepaid costs during the first
quarter associated with the construction of a new trade show booth;
  
    
    a $911,260 decrease in accrued liabilities, primarily as a result of the payment of
year-end 2007 accruals, including incentive compensation, sales commissions, and clinical
research expenses, partially offset by increased accrued professional fees, primarily
auditing, tax, and legal fees;
    
    a $546,910 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.
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SOMANETICS CORPORATION
 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
 February 29, 2008
  Cash Flows From Investing Activities
  Cash Flows From Financing Activities
  Contractual Obligations
  Off-Balance Sheet Arrangements
  New Accounting Pronouncements
  Critical Accounting Policies
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SOMANETICS CORPORATION
 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
 February 29, 2008
 Stock Compensation
    Income Taxes
    No Capital Cost Sales Revenue Recognition
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SOMANETICS CORPORATION
 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
 February 29, 2008
  15




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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  February 29, 2008
Expected Maturity Dates By Fiscal Year
 2008
    
    2009
    
    2010
    
    2011
    
    2012
    
    Thereafter
    
    Total
    
    Fair ValueInvestments:Marketable Securities and
     Long-term Investments:Fixed Rate ($)
    
    
    7,986,779
    
    
    
    
    
    
    
    4,488,592
    
    
    
    3,000,000
    
    
    
    17,991,086
    
    
    
    
    
    
    
    33,466,457
    
    
    
    33,959,636Average interest rate
    
    
    5.26
    %
    
    
    N/A
    
    
    
    4.72
    %
    
    
    5.00
    %
    
    
    5.12
    %
    
    
    N/A
    
    
    
    5.09
    %
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ITEM 4. CONTROLS AND PROCEDURES
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PART II OTHER INFORMATION
 
 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: April 2, 2008
    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