SONNEN Corp - FORM 10-K - April 24, 2013

Attached files

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EXCEL - IDEA: XBRL DOCUMENT - SONNEN Corp	Financial_Report.xls
EX-31.2 - CERTIFICATION - SONNEN Corp	exhibit312.htm
EX-31.1 - CERTIFICATION - SONNEN Corp	exhibit311.htm
EX-32.2 - CERTIFICATION - SONNEN Corp	exhibit322.htm
EX-32.1 - CERTIFICATION - SONNEN Corp	exhibit321.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

þ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended June 30, 2012.

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: 000-52803

SONNEN CORPORATION

(Exact name of registrant as specified in its charter)

Nevada

98-0514037

(State or other jurisdiction of

(I.R.S. Employer

incorporation or organization)

Identification No.)

2665 S. Bayshore Drive, Suite 450, Miami, Florida 33133

(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code: (305) 529-4888

Securities registered under Section 12(b) of the Act: none.

Securities registered under Section 12(g) of the Act: common stock (title of class), $0.0001 par value.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes o No þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes o No þ

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 o No þ

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every

Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter)

during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes o No þ

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not

contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements

incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller

reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule

12b-2 of the Exchange Act. Smaller reporting company þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes þ No o

The aggregate market value of the registrant’s common stock, $0.0001 par value (the only class of voting stock), held by non-

affiliates (26,893,000 shares) was $1,075,720 based on the average of the bid and ask price ($0.04) for the common stock on

March 19, 2013.

At April 23, 2013, the number of shares outstanding of the registrant’s common stock, $0.0001 par value (the only class of voting

stock), was 67,893,000.

TABLE OF CONTENTS

PART I

Item1.

Business

Item 1A.

Risk Factors

Item 1B.

Unresolved Staff Comments

Item 2.

Properties

Item 3.

Legal Proceedings

Item 4.

Mine Safety Disclosures

PART II

Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of

Equity Securities

Item 6.

Selected Financial Data

Item 7.

Management's Discussion and Analysis of Financial Condition and Results of Operations

Item 7A.

Quantitative and Qualitative Disclosures about Market Risk

Item 8.

Financial Statements and Supplementary Data

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Item 9A.

Controls and Procedures

Item 9B.

Other Information

PART III

Item 10.

Directors, Executive Officers, and Corporate Governance

Item 11.

Executive Compensation

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder

Matters

Item 13.

Certain Relationships and Related Transactions, and Director Independence

Item 14.

Principal Accountant Fees and Services

PART IV

Item 15.

Exhibits, Financial Statement Schedules

Signatures

PART I

ITEM 1.

BUSINESS

As used herein the terms “Sonnen,” “we,” “our,” and “us” refer to Sonnen Corporation, and its

subsidiary, Sonnen One, Inc., unless context indicates otherwise.

Corporate History

Sonnen was incorporated in the State of Nevada on November 16, 2006. We are a development stage

company that has not generated revenue since inception.

Our initial operations focused on the provision of a website for basic computer maintenance and

troubleshooting assistance. Our business plan was to develop a bridge that would allow customers to

contact computer technicians directly for assistance with basic computer needs. We were unable to realize

our objectives and discontinued these activities prior to the year ended June 30, 2009. Subsequently, we

initiated a search to identify other businesses for development, merger or acquisition.

On July 27, 2009, Sonnen entered into a licensing agreement with PT Group, Limited (“PT Group”) for

the development and marketing of proprietary technology related to improving catalysts for use in fuel-

cells utilizing a unique catalytic process in exchange for shares of our common stock and meeting certain

financial obligations. Development activities began almost immediately financed by Sonnen to meet

obligations. However, on February 6, 2010, PT Group notified Sonnen of purported breaches of the

licensing agreement including a breach of confidentiality, insufficient funding for research and

development activities, and failure to provide direct access to our patent attorneys. On receipt of the

notice of breach Sonnen’s own research determined that PT Group was not the rightful owner of the

licensed technology and had no right to grant it a license to develop or market the intended products.

Accordingly, on March 8, 2010, Sonnen filed a civil complaint against PT Group and Paul Leonard, one

of its principals, in connection with the licensing agreement, that sought money damages, the return of

shares, injunctive relief and attorney’s fees for acts of fraud, misrepresentation of prior research and

development efforts, and failure to provide sufficient technical information on which to prepare patents to

secure the technology.

Since we do not believe that PT Group is the rightful owner of the proprietary technology purportedly

licensed to us, Sonnen has recorded an impairment of its investment in the licensing agreement and has

suspended efforts to develop fuel cell technology pending the outcome of Sonnen’s civil complaint.

While further development efforts related to the technology purportedly licensed to us from PT Group is

unlikely, Sonnen’s plan of operation for the coming year is to investigate alternative technologies aimed

at improving catalysts for the utilization of fuel-cells and related catalysis fields while awaiting the

outcome of its civil complaint.

Our office is located at 2665 S. Bayshore Drive, Suite 450, Miami, Florida 33133, and our telephone

number is (305) 529-4888. Our registered agent is Eastbiz.com, Inc., located at 5348 Vegas Drive, Las

Vegas, Nevada, 89108.

Sonnen is quoted on OTC Link under the symbol “SONP.”

Business

Sonnen’s plan of operation over the next twelve months is to prosecute its civil complaint against PT

Group and certain of the principals thereof and to consider alternative technologies for merger or

acquisition that might create value for its shareholders. We intend to focus our efforts on identifying

projects that might improve catalysts for the efficient utilization of fuel-cells and related catalysis fields.

Towards this end, management has evaluated several different technology-based research projects that

might fit with Sonnen’s defined mission to wean the global economy off hydrocarbon-based energy

sources. Nonetheless, as of the date of this report Sonnen has not entered into any agreement or

commitment beyond those that remain dedicated to reaching some resolution of its dispute with PT

Group.

Fuel Cell Technologies

Sonnen’s intended business was to develop technology licensed from PT Group for initial application to

advances in fuel cells that would produce high power efficiencies at a cost lower than conventional fuel

cells. Fuel cells convert fuel into electricity and heat without combustion, or noise, more efficiently than

the internal combustion engine, using a variety of hydrocarbon fuel sources (gasoline, natural gas or

diesel) as well as hydrogen. The licensed technology was thought to have the potential to significantly

expand the operational parameters of fuel cells in general.

Most fuel cells use expensive rare earth or noble metals in their construction. These materials activate

well with pure hydrogen, but become corrupted in the presence of catalyst pollutants common to

hydrocarbon fuels. Expensive and bulky fuel reformers, scrubbers and complex pressurized systems,

which greatly increase the footprint and capital costs of a fuel cell system, must be employed before fuel

cells can utilize existing fossil fuel streams. The extra size, additional equipment and bulk make most fuel

cells too large and too expensive for transport, small stationary power and other applications.

The mass commercialization of existing fuel cells also relies on the development and implementation of a

hydrogen delivery infrastructure since the storage, compression, and safe delivery of hydrogen is a

primary inhibitor to commercialization. However, the cost associated with developing and building new

infrastructure to address this problem is thought of as prohibitive. Furthermore, all current fuel cell

technologies suffer from significant levels of degradation of materials over time. Electrical efficiencies

are high in early stages of use however degradation over relatively short periods of time requires

expensive replacement.

Sonnen had intended to produce a fuel cell based on a simple design that embodied materials with higher

efficiencies to simplify the manufacturing process and overcome the obstacles to mass commercialization.

Until such time as the complaint against PT Group is resolved Sonnen will look to the development of

like technologies with the potential to met energy needs through pioneering and innovative methods.

Competition

The fuel cell industry is highly fragmented by competing technologies employed by many companies

seeking to develop the standard for the industry. The industry’s competitors include public companies

focused on developing fuel cell technologies as well as a number of electronics manufacturers,

automotive manufacturers and conglomerates such as General Electric. While fuel cell research and

development has been ongoing for some time, in most cases fuel cell technology has not been able to

supplant existing technology due to higher fabrication costs and performance issues, and consequently up

to this point the industry in general has yielded little revenue.

Since the filing of a civil complaint against PT Group we have suspended research and development

activities related to fuel cells and cannot be certain at this time as to whether such activities will continue.

We can be certain however that whatever technology we ultimately pursue, we are certain to be involved

in intense competition with other business entities, many of which will have a competitive edge over us

by virtue of their stronger financial resources and prior business experience.

Marketability

When or if Sonnen develops a fuel cell or other alternative product for commercial application, the

success of that product will be based on market acceptance in its many forms. Factors that might

encourage market acceptance include cost, efficiency, convenience and application. Since Sonnen has not

yet developed a product for commercial distribution and may never do so, any more specific approach to

marketability at this time, cannot be certain.

Patents, Trademarks, Licenses, Franchises, Concessions,

Royalty Agreements and Labour Contracts

We have no patents, trademarks, licenses, franchises, concessions, or labour contracts and have suspended

the preparation of multiple patents that were to be submitted to the US Patent Office in connection with

the technology purportedly licensed from PT Group.

Governmental and Environmental Regulation

Our prospective operations will be subject to a variety of national, federal, state and local laws, rules and

regulations relating to, among other things, worker safety and the use, storage, discharge and disposal of

environmentally sensitive materials. We are in full compliance with the Resource Conservation Recovery

Act (“RCRA”), the key legislation dealing with hazardous waste generation, management and disposal.

Nonetheless, under some of the laws regulating the use, storage, discharge and disposal of

environmentally sensitive materials, an owner or lessee of real estate may be liable for the costs of

removal or remediation of certain hazardous or toxic substances located on or in, or emanating from, such

property, as well as related costs of investigation and property damage. Laws of this nature often impose

liability without regard to whether the owner or lessee knew of, or was responsible for, the presence of

hazardous or toxic substances. We do not generate dangerous waste products and are not aware of any

waste management concerns in connection with our operations. We believe that we are in compliance in

all material respects with all laws, rules, regulations and requirements that affect our business. Further, we

believe that compliance with such laws, rules, regulations and requirements does not impose a material

impediment on our ability to conduct business.

Climate Change Legislation and Greenhouse Gas Regulation

A majority of the climate change related studies over the past couple decades have indicated that

emissions of certain gases contribute to warming of the Earth’s atmosphere. In response to these studies,

many nations have agreed to limit emissions of “greenhouse gases” or “GHGs” pursuant to the United

Nations Framework Convention on Climate Change, and the “Kyoto Protocol.” Although the United

States did not adopt the Kyoto Protocol, several states have adopted legislation and regulations to reduce

emissions of greenhouse gases.

The United States Supreme Court ruled, in Massachusetts, et al. v. EPA, that the EPA abused its

discretion under the Clean Air Act by refusing to regulate carbon dioxide emissions from mobile sources.

As a result of the Supreme Court decision the EPA issued a finding that serves as the foundation under

the Clean Air Act to issue other rules that would result in federal greenhouse gas regulations and

emissions limits under the Clean Air Act, even without Congressional action. Finally, acts of Congress,

the decisions of lower courts, large numbers of states, and foreign governments could widely affect

climate change regulation. Greenhouse gas legislation and regulation could have a material adverse effect

on our business, financial condition, and results of operations.

Employees

We have no employees though our chief executive officer, chief financial officer, and principal

accounting officer serve pursuant to consulting agreements at the discretion of Sonnen’s board of

directors. We use consultants, attorneys, and accountants as necessary in addition to professional

engineers to assist in the development of our business.

Reports to Security Holders

Sonnen’s annual report contains audited financial statements. We are not required to deliver an annual

report to security holders and will not automatically deliver a copy of the annual report to our security

holders unless a request is made for such delivery. We file all of our required reports and other

information with the Securities and Exchange Commission (the “Commission”). Since the requisite filing

deadline for this annual report, Sonnen has been delinquent in fulfilling its periodic reporting obligations

pursuant to the Securities and Exchange Act of 1934, as amended, and is currently in the process of

complying with its reporting obligations. The public may read and copy any materials that are filed by

Sonnen with the Commission at the Commission’s Public Reference Room at 100 F Street, N.E.,

Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference

Room by calling the Commission at 1-800-SEC-0330. The statements and forms filed by us with the

Commission have also been filed electronically and are available for viewing or copy on the Commission

maintained Internet site that contains reports, proxy and information statements, and other information

regarding issuers that file electronically with the Commission. The internet address for this site can be

found at www.sec.gov.

ITEM 1A.

RISK FACTORS

Not required of smaller reporting companies.

ITEM 1B.

UNRESOLVED STAFF COMMENTS

Not required of smaller reporting companies.

ITEM 2.

PROPERTIES

Sonnen currently maintains its corporate offices at 2665 S. Bayshore Drive, Suite 450, Miami, Florida

33133 in office space provided by one of our directors at no charge to us. Sonnen does not believe that it

will need to procure additional office at any time in the near future to carry out the plan of operation

described herein.

ITEM 3.

LEGAL PROCEEDINGS

On March 8, 2010, Sonnen filed a complaint in the Circuit Court of the 11^th Judicial Court In and For

Miami-Dade County, Florida against Paul R. Leonard and PT Group in connection with a breach of the

licensing agreement dated July 27, 2009. The complaint seeks: (i) money damages for fraud that stem

from reliance on PT Group's claim of ownership over certain proprietary information, PT Group’s

misrepresentation of efforts credited to prior research and development and PT Group’s failure to provide

sufficient technical information on which to prepare patents to secure the technology, (ii) the return of

Sonnen shares issued to PT Group as compensation for the rights licensed, (iii) injunctive relief sought to

prohibit Mr. Leonard’s use of confidential information to which he is not entitled, and (iv) reasonable

attorney’s fees. Mr. Leonard responded to the complaint in an answer dated November 19, 2012 asserting

that had no knowledge of the subject matter of the suit. Sonnen has been unable to serve PT Group to

date. Should the relief sought be adjudicated, Sonnen expects to succeed on the merits of its claims.

ITEM 4.

MINE SAFETY DISCLOSURES

Not applicable.

PART II

ITEM 5.

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED

STOCKHOLDER MATTERS, AND BUSINESS ISSUER PURCHASES OF

EQUITY SECURITIES

Sonnen’s common stock is quoted on OTC Link, a service maintained by OTC Markets Group, LLC.

under the symbol “SONP”. Trading has been limited and sporadic and the quotations set forth below are

not necessarily indicative of actual market conditions. Further, these prices reflect inter-dealer prices

without retail mark-up, mark-down, or commission, and may not necessarily reflect actual transactions.

The following table sets forth for the periods indicated the high and low bid prices for the common stock

as reported for each quarterly period.

High and Low Bid Prices Since Quotation on OTC Link

Year

Quarter Ended

High

Low

2012

June 30

$0.04

March 31

$0.04

2011

December 31

$0.05

$0.04

September 30

$0.08

$0.05

June 30

$0.08

March 31

$0.20

$0.15

2010

December 31

$0.15

September 30

$0.22

$0.15

Capital Stock

The following is a summary of the material terms of the Sonnen’s capital stock. This summary is subject

to and qualified by our articles of incorporation and bylaws.

Common Stock

As of June 30, 2012 there were fifty-six shareholders of record holding a total of 67,893,000 shares of

fully paid and non-assessable common stock of the 250,000,000 shares of common stock, par value

$0.0001, authorized. The board of directors believes that the number of beneficial owners is greater than

the number of record holders because a portion of our outstanding common stock is held in broker “street

names” for the benefit of individual investors. The holders of the common stock are entitled to one vote

for each share held of record on all matters submitted to a vote of stockholders. Holders of the common

stock have no pre-emptive rights and no right to convert their common stock into any other securities.

There are no redemption or sinking fund provisions applicable to the common stock.

Preferred Stock

As of June 30, 2012 there were no shares issued and outstanding of the 50,000,000 shares of preferred

stock authorized. The par value of the preferred stock is $0.0001 per share. Preferred stock may have such

rights, preferences and designations and may be issued in such series as determined by Sonnen’s Board.

Dividends

Sonnen has not declared any cash dividends since inception and does not anticipate paying any dividends

in the near future. The payment of dividends is within the discretion of the Board subject to earnings,

capital requirements, financial condition, and other relevant factors. Otherwise, outside of applicable

state law, there are no restrictions that currently limit Sonnen’s ability to pay dividends.

Securities Authorized For Issuance under Equity Compensation Plans

Sonnen adopted The Sonnen (formerly “Simple Tech) 2009 Stock Option Plan on August 31, 2009 in an

effort to promote the interests of Sonnen by providing eligible persons with the opportunity to acquire or

increase a proprietary interest in Sonnen with the facility to grant up to five million (5,000,000) non-

statutory stock options as an incentive for eligible persons to continue their employment or service.

Warrants

As of June 30, 2012 there were no warrants issued and outstanding.

Stock Options

As of June 30, 2012 there were 1,950,000 options outstanding, of which 1,549,920 were exercisable as of

August 31, 2012, all of which have since been rescinded by the mutual agreement of Sonnen and the

respective grantees.

Convertible Securities

Sonnen had no other securities convertible into shares of its common stock as of June 30, 2012 or as the

date of the filing of this annual report.

Transfer Agent and Registrar

Our transfer agent is Island Capital Management, LLC, d/b/a Island Stock Transfer, located at 100 Second

Avenue South, Suite 300, St. Petersburg, Florida, 33701. Their phone number is (727) 289-0010.

Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities

None.

Purchases of Equity Securities made by the Issuer and Affiliated Purchasers

Sonnen has not repurchased any shares of its common stock during the fiscal year ended June 30, 2012 or

as of the date of the filing of this annual report.

ITEM 6.

SELECTED FINANCIAL DATA

Not applicable.

ITEM 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATION

This Management’s Discussion and Analysis of Financial Condition and Results of Operations and other

parts of this current report contain forward-looking statements that involve risks and uncertainties.

Forward-looking statements can also be identified by words such as “anticipates,” “expects,” “believes,”

“plans,” “predicts,” and similar terms. Forward-looking statements are not guarantees of future

performance and our actual results may differ significantly from the results discussed in the forward-

looking statements. Factors that might cause such differences include but are not limited to those

discussed in the subsection entitled Forward-Looking Statements and Factors That May Affect Future

Results and Financial Condition below. The following discussion should be read in conjunction with our

financial statements and notes thereto included in this current report. Our fiscal year end is June 30.

Plan of Operation

Our plan of operation over the next twelve months is to prosecute Sonnen’s civil complaint against PT

Group and certain of the principals thereof and to consider alternative technologies for merger or

acquisition that might create value for its shareholders. Meanwhile, we have suspended our development

plan for the technology licensed from PT Group. While awaiting resolution of the uncertainties

surrounding the licensing agreement, Sonnen intends to identify, acquire and develop alternative

innovative technologies that it might advance to commercial applications. Management understands that

new technologies must meet several critical milestones in advance of commercialization. Milestones

include cost effectiveness, energy efficiencies, convenience of use and practicability. Any products that

we should develop will have to be able to effectively compete with today’s accepted technologies by

optimizing low-cost manufacturing processes, ensuring enhanced energy efficiencies, and providing a

reliable product with the flexibility to rely on alternative fuel sources.

Sonnen’s business development strategy is prone to significant risks and uncertainties which could have

an immediate impact on its efforts to generate a positive net cash flow and could deter the development of

advanced energy enhanced technology. Historically, Sonnen has not generated sufficient cash flow to

sustain operations and has had to rely on debt or equity financing to remain in business. Therefore, we

cannot offer that future expectations that any technology Sonnen might develop will be commercially

developed or that it will be sufficient to generate the revenue required for its operations. Should we be

unable to generate cash flow, Sonnen may be forced to seek additional debt or equity financing as

alternatives to the cessation of operations. The success of such measures can in no way be assured.

We have not generated any revenue since inception.

Results of Operations

During the year ended June 30, 2012, our operations were focused on maintaining our civil complaint

against Paul R. Leonard and PT Group in connection with breaches of a licensing agreement and

considering alternative technologies for merger or acquisition that might create value for Sonnen’s

shareholders.

Net Losses

For the period from inception (November 16, 2006) until June 30, 2012, Sonnen incurred net losses of

$4,340,677. Net losses for the twelve months ended June 30, 2012 were $619,683 as compared to net

losses of $1,206,315 for the twelve months ended June 30, 2011. The decrease in net losses over the

comparative annual periods can be primarily attributed to a decrease in general and administrative

expenses in the twelve months ended June 30, 2012.

We expect to continue to realize nets losses as general and administrative expenses accrue and

management considers alternative technologies to succeed that technology subject to litigation.

Operating Expenses

For the period from inception until June 30, 2012, Sonnen incurred operating expenses of $3,659,026.

Operating expenses for the twelve months ended June 30, 2012 were $657,715 as compared to

$1,180,932 for the twelve months ended June 30, 2011. The decrease in operating expenses over the

comparative periods can be primarily attributed to a decrease in general and administrative expenses to

$291 from $7,940, a decrease in professional fees to $37,089 from $102,508, a decrease in compensation

and related taxes or benefits to $403,059 from $860,504, a decrease in depreciation to zero from $618, a

decrease in research and development costs to zero from $107, offset by a slight increase in transfer fees

to $1,278 from $1,255 and an increase in consulting and professional fees related parties to $216,000

from $208,000.

We expect that operating expenses will continue to decrease as Sonnen’s operations are minimized in

response to ongoing litigation with PT Group and the suspension of our research and development

operations.

Income Tax Expense (Benefit)

Sonnen may have a prospective income tax benefit resulting from a net operating loss carry-forward and

start up costs that will offset any future operating profit.

Capital Expenditures

Sonnen has not spent any significant amounts on capital expenditures for the period from inception to

June 30, 2012 and does not expect to do so in the near future.

Liquidity and Capital Resources

Sonnen has been in the development stage since inception, and has experienced significant changes in

liquidity, capital resources, and stockholders’ equity.

Sonnen had current and total assets of $27 consisting of cash as of June 30, 2012.

Sonnen had current and total liabilities of $1,089,281, consisting of accounts payable, accounts payable to

related parties, accrued payroll, notes payable to related parties, notes payable and loans from a

shareholder as of June 30, 2012.

Sonnen had a stockholders’ deficit of $1,089,254 and a working capital deficit of $1,089,254 at June 30,

2012.

For the period from inception until June 30, 2012, net cash used in development stage activities was

$843,841. Net cash used in development stage activities for the twelve month period ending June 30,

2012 was $132 as compared to $40,781 for the twelve months ended June 30, 2011. Net cash used in

development stage activities in the current twelve month period can be attributed primarily to a number of

items that are book expense items which do not affect the total amount relative to actual cash used

including stock option expenses. Actual cash items used in the current twelve month period, that are not

income statement related items, include pre-paid expenses, accounts payable, accounts payable to related

parties, and accrued interest. We expect net cash used in development stage activities until such time as

net losses transition to net income.

For the period from inception until June 30, 2012, net cash used in investing activities was $1,853. Net

cash used in investing activities for the twelve months ended June 30, 2012 and June 30, 2011, was zero.

We expect net cash used in investing activities on a return to research and development activities.

For the period from inception until June 30, 2012, net cash provided by financing activities was $845,721.

Net cash provided by financing activities for the twelve months ended June 30, 2012 was zero as

compared to $40,100 for the twelve months ended June 30, 2011. Net cash flow provided by financing

activities in the prior period is attributable to proceeds from notes payable to related and non-related

parties offset by repayments on notes payable to a related party. We expect net cash from financing

activities as Sonnen seeks new rounds of financing to finance litigation costs, regulatory compliance and

daily operations.

Our current assets are insufficient to meet our current obligations or to satisfy our cash needs over the

next twelve months and as such Sonnen will require additional debt or equity financing. We had no

commitments or arrangements for financing at June 30, 2012 though we are pursuing a number of

prospective sources that include shareholder loans, the sale of equity, the procurement of long term debt

or the settlement of additional debt for equity. We face certain financial obstacles to attracting new

financing due to our historical and current record of net losses and working capital deficits. Therefore,

despite our efforts we can provide no assurance that we will be able to obtain the financing required to

meet our stated objectives or even to continue as a going concern.

Sonnen does not expect to pay cash dividends in the foreseeable future.

Sonnen has a defined stock option plan and contractual commitments with all of its officers and directors.

Sonnen has no current plans for any significant purchase or sale of any plant or equipment.

Sonnen has no current plans to make any changes in the number of employees.

Off Balance Sheet Arrangements

As of June 30, 2012, Sonnen had no off-balance sheet arrangements that have or are reasonably likely to

have a current or future effect on our financial condition, changes in financial condition, revenues or

expenses, results of operations, liquidity, capital expenditures, or capital resources that are material to

stockholders.

Going Concern

Sonnen’s auditors have expressed an opinion as to its ability to continue as a going concern as a result of

continuing net operating losses. Our ability to continue as a going concern is dependent on realizing

funding from inside or outside sources. Management’s plan to address Sonnen’s ability to continue as a

going concern includes: (i) obtaining funding from the private placement of debt or equity; and (ii)

converting debt to equity. Management believes that it will be able to obtain funding to enable Sonnen to

remain a going concern through the methods discussed above, though there can be no assurances that

such methods will prove successful.

Forward Looking Statements and Factors That May Affect Future Results and Financial Condition

The statements contained in the section titled “Results of Operations” and “Description of Business”,

with the exception of historical facts, are forward looking statements. A safe-harbor provision is not

applicable to the forward looking statements made in this current report. Forward looking statements

reflect our current expectations and beliefs regarding our future results of operations, performance, and

achievements. These statements are subject to risks and uncertainties and are based upon assumptions and

beliefs that may or may not materialize. These statements include, but are not limited to, statements

concerning:

 our anticipated financial performance;

 uncertainties related to the research and development of the licensed technology;

 our ability to generate revenues through sales to fund future operations;

 our ability to raise additional capital to fund cash requirements for future operations;

 the volatility of the stock market; and

 general economic conditions.

We wish to caution readers that our operating results are subject to various risks and uncertainties that

could cause our actual results to differ materially from those discussed or anticipated. We also wish to

advise readers not to place any undue reliance on the forward looking statements contained in this report,

which reflect our beliefs and expectations only as of the date of this report. We assume no obligation to

update or revise these forward looking statements to reflect new events or circumstances or any changes

in our beliefs or expectations, other that is required by law.

Recent Accounting Pronouncements

Please see Note 1 to our financial statements for recent accounting pronouncements.

ITEM 7A.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET

RISK

Not required.

ITEM 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Our audited consolidated financial statements for the years ended June 30, 2012 and 2011 are attached

hereto as F-1 through F-20.

SONNEN CORPORATION

(A Development Stage Company)

June 30, 2012 and June 30, 2011

INDEX

Page

Report of Independent Registered Public Accounting Firm

F-2

Consolidated Balance Sheets

F-3

Consolidated Statements of Operations

F-4

Consolidated Statement of Stockholders’ Equity (Deficit)

F-5

Consolidated Statements of Cash Flows

F-6

Notes to Consolidated Financial Statements

F-7

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and

Stockholders of Sonnen Corporation

We have audited the accompanying consolidated balance sheets of Sonnen Corporation and Subsidiary

as of June 30, 2012 and 2011 and the related statements of operations, stockholders’ equity, and cash

flows for the years then ended and for the period from November 16, 2006 (inception) to June 30, 2012.

Sonnen Corporation’s management is responsible for these financial statements. Our responsibility is to

express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight

Board (United States). Those standards require that we plan and perform the audit to obtain reasonable

assurance about whether the financial statements are free of material misstatement. The company is not

required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

Our audits included consideration of internal control over financial reporting as a basis for designing audit

procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on

the effectiveness of the company’s internal control over financial reporting. Accordingly, we express no

such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and

disclosures in the financial statements, assessing the accounting principles used and significant estimates

made by management, as well as evaluating the overall financial statement presentation. We believe that

our audits provide a reasonable basis for our opinion

In our opinion, the financial statements referred to above present fairly, in all material respects, the

financial position of Sonnen Corporation and Subsidiary as of June 30, 2012 and 2011, and the results of

its operations and its cash flows for the years then ended and for the period from November 16, 2006

(inception) to June 30, 2012 in conformity with accounting principles generally accepted in the United

States of America.

The accompanying financial statements have been prepared assuming that the Company will continue as

a going concern. As discussed in Note 1 to the financial statements, the Company’s significant operating

losses raise substantial doubt about its ability to continue as a going concern. Management’s plans

regarding the resolution of this issue are also discussed in Note 1. The financial statements do not

include any adjustments that might result from the outcome of this uncertainty.

/s/ MartinelliMick PLLC

MartinelliMick PLLC

Spokane, Washington

April 23, 2013

F-1

SONNEN CORPORATION AND SUBSIDIARY

(A DEVELOPMENT STAGE ENTERPRISE)

CONSOLIDATED BALANCE SHEETS

June 30,

2012

2011

ASSETS

CURRENT ASSETS

Cash and cash equivalents

27 $

159

Prepaid expenses (Note 2)

1,099

Total Current Assets

27 $

1,258

LIABILITIES AND STOCKHOLDERS' DEFICIT

CURRENT LIABILITIES

Accounts payable

128,096 $

131,505

Accounts payable - related parties

567,192

319,379

Accrued payroll

13,283

Notes payable - related parties (including accrued

interest of $577 - June 30, 2012 and $93 - June 30, 2011)

12,271

11,693

Notes payable (including accrued interest of $28,784

- June 30, 2012 and $16,479 - June 30, 2011)

180,067

167,763

Loans from shareholder (including accrued interest of $28,173

- June 30, 2012 and $15,604 - June 30, 2011)

188,372

166,264

Total Current Liabilities

1,089,281

809,887

COMMITMENTS AND CONTINGENCIES (Note 10)

STOCKHOLDERS' DEFICIT (Note 7)

Preferred stock, $0.0001 par value, 50,000,000 shares

authorized, none issued and outstanding

Common stock, par value $0.0001, 250,000,000 shares

authorized, 67,893,000 issued and outstanding

6,789

Paid-in capital

3,244,634

2,841,575

Accumulated deficit during the development stage

(4,340,677)

(3,656,993)

Total Stockholders' Deficit

(1,089,254)

(808,629)

Total Liabilities and Stockholders' Deficit

27 $

1,258

See accompanying notes to consolidated financial statements

F-2

SONNEN CORPORATION AND SUBSIDIARY

(A DEVELOPMENT STAGE ENTERPRISE)

CONSOLIDATED STATEMENTS OF OPERATIONS

Cumulative

amounts from

development stage

activities

(November 16,

For the years ended

2006

June 30,

through

2012

2011

June 30, 2012)

REVENUES

- $

GENERAL & ADMINISTRATIVE EXPENSES

General and administrative

291

7,940

96,344

Professional fees

37,089

102,508

389,565

Consulting fees

179,727

Consulting and professional fees - related parties

216,000

208,000

714,250

Stock based compensation

101,000

Compensation and related taxes and benefits

403,059

860,504

1,998,850

Transfer fees

1,278

1,255

10,582

Depreciation

618

1,044

Research & development

107

167,666

Total General & Administrative Expenses

657,715

1,180,932

3,659,026

Loss before other income (expense)

(657,715)

(1,180,932)

(3,659,026)

Interest income/ (expense)

(25,968)

(24,574)

(57,290)

Loss on foreign currency exchange

(1,551)

Loss on disposal of assets

(809)

Impairment loss on asset

(672,000)

Other income

50,000

Loss before provision for income taxes

(683,684)

(1,206,315)

(4,340,677)

Provision for income taxes

NET LOSS

(619,684) $ (1,206,315) $

(4,340,677)

NET LOSS PER SHARE - BASIC AND DILUTED

(0.01) $

(0.02)

WEIGHTED AVERAGE NUMBER OF COMMON

SHARES OUTSTANDING - BASIC AND DILUTED

67,893,000

See accompanying notes to consolidated financial statements

F-3

SONNEN CORPORATION AND SUBSIDIARY

(A DEVELOPMENT STAGE ENTERPRISE)

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT

Deficit

Accumulated

Additional

During the

Total

Common Stock

Paid-in

Development

Stockholders'

Amount

Capital

Stage

Equity (Deficit)

Inception, November 16, 2006

- $

Common stock issued to founders

(November 16, 2006, at $0.0001 per share)

50,000,000

5,000

(4,500)

500

Private placement closed June 28, 2007, at

$0.05 per share

13,808,000

1,381

67,659

69,040

Net (loss) for the year of inception

(6,039)

Balance, June 30, 2007

63,808,000

6,381

63,159

(6,309)

63,501

Net loss for the year

(49,738)

Balance, June 30, 2008

63,808,000

6,381

63,159

(55,777)

13,763

Net (loss) for the year

(14,245)

Balance, June 30, 2009

63,808,000

6,381

63,159

(70,022)

(482)

Shares issued for license agreement at $0.20 per share

3,360,000

336

671,664

672,000

Shares issued September 30, 2009 for cash

at $0.80 per share

625,000

499,938

500,000

Share issued January 18, 2010 for services

performed at $0.75 per share

100,000

100,990

101,000

Stock options expense

645,321

Net (loss) for the year

(2,380,655)

Balance, June 30, 2010

67,893,000

6,789

1,981,071

(2,450,678)

(462,817)

Stock options expense

860,504

Net (loss) for the year

(1,206,315)

Balance, June 30, 2011

67,893,000

6,789

2,841,575

(3,656,993)

(808,629)

Stock options expense

403,059

Net (loss) for the year

(683,684)

(619,684)

Balance, June 30, 2012

67,893,000 $

6,789 $

3,244,634 $

(4,340,677) $

(1,025,254)

See accompanying notes to consolidated financial statements

F-4

SONNEN CORPORATION AND SUBSIDIARY

(A DEVELOPMENT STAGE ENTERPRISE)

CONSOLIDATED STATEMENTS OF CASH FLOWS

Cumulative

amounts from

development stage

activities

For the years ended

(November 16,

June 30,

2006 through

2012

2011

June 30, 2012)

CASH FLOWS FROM DEVELOPMENT STAGE ACTIVITIES

Net (loss) from development stage activities

(619,684) $

(1,206,315) $

(4,276,677)

Adjustments to reconcile net loss to net

cash provided (used) by development stage activities:

Depreciation

618

1,044

Stock options vested

403,059

860,504

1,908,884

Stock issued for services

101,000

Loss on disposal of assets

809

Impairment loss on asset

672,000

Changes in operating assets and liabilities:

Increase in prepaid expenses

1,099

7,233

Increase in accounts payable

6,168

35,014

175,034

Increase in accounts payable - related parties

247,812

237,249

503,191

Increase in accrued liabilities

13,283

Increase in accrued interest

25,415

24,107

57,592

Total adjustments

683,552

1,165,534

3,432,836

NET CASH USED BY DEVELOPMENT STAGE ACTIVITIES

(132)

(40,781)

(843,841)

CASH FLOWS FROM INVESTING ACTIVITIES

Purchase of property and equipment

(1,853)

NET CASH USED BY INVESTING ACTIVITIES

(1,853)

CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from notes payable, net

37,000

280,660

Proceeds from notes payable - related parties

7,100

45,600

Repayments from notes payable - related party

(4,000)

(50,079)

Proceeds from sale of common stock, net of offering costs

569,540

NET CASH PROVIDED BY FINANCING ACTIVITIES

40,100

845,721

NET INCREASE/ (DECREASE) IN CASH AND CASH

EQUIVALENTS

(132)

(681)

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD

159

840

CASH AND CASH EQUIVALENTS, END OF PERIOD

27 $

159 $

Supplemental Disclosures:

Cash paid for income taxes

- $

Cash paid for interest

- $

Non-cash Disclosures:

Payments made by parties on behalf of the Company:

Increase in notes payable

9,137 $

- $

9,137

Increase in notes payable - shareholder

438 $

- $

438

Increase in notes payable - related parties

- $

21,079

Decrease in accounts payable - related parties

(9,575) $

- $

(20,654)

Increase in prepaid expenses

- $

(10,000)

To apply balance owed to a related party to accounts receivable:

Decrease in accounts receivable - related party

- $

40,000

Repayments of note payable - related party

- $

(40,000)

Stock issued for licensing agreement rights

- $

672,000

See accompanying notes to consolidated financial statements

F-5

SONNEN CORPORATION AND SUBSIDIARY

(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended June 30, 2012 and 2011

NOTE 1 – NATURE OF OPERATIONS, BASIS OF PRESENTATION AND SUMMARY

OF SIGNIFICANT ACCOUNTING POLICIES

HISTORY, NATURE OF OPERATIONS AND BASIS OF PRESENTATION

Sonnen Corporation was incorporated in the state of Nevada on November 16, 2006 as “Simple Tech,

Inc.” Sonnen Corporation and its wholly-owned subsidiary, Sonnen One, Inc., are referred to herein as the

“Company,” “We,” “Us,” “Our”, is in the development stage as defined under FASB ASC 915-10,

"Development Stage Entities". By June 2009, the Company had been unable to realize its original

business objective. In July 2009, the Company entered into a licensing agreement to research, develop

and market products that rely upon a novel process for energy generation consisting of specific materials

and proprietary material combinations.

On November 3, 2009, the Company amended its articles of incorporation to change its name from

“Simple Tech, Inc.” to “Sonnen Corporation” and to decrease the number of its authorized common stock

from one billion five hundred million (1,500,000,000) shares (par value $0.0001) to two hundred fifty

million (250,000,000) shares (par value $0.0001) without affecting the number of issued and outstanding

shares. The Company’s subsidiary changed its name from “Sonnen Corporation” to “Sonnen One, Inc.”

The Company’s year-end is June 30.

On November 9, 2009, the Company formed a Scientific Advisory Board to support it with research,

development, and commercialization efforts through advice, counsel, and direct participation utilizing the

industry expertise and professional and academic backgrounds of its Scientific Advisory Board members

pursuant to a licensing agreement entered into on July 27, 2009 (Note 3). The Scientific Advisory Board

had been disbanded as of June 30, 2012.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Development Stage Enterprise

At June 30, 2012, the Company’s business operations had not developed and it is highly dependent upon

procuring additional funding and therefore is considered a development stage enterprise.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of Sonnen Corporation and

Sonnen One, Inc., its wholly-owned subsidiary. All material intercompany accounts and transactions

between the companies for the periods presented have been eliminated in consolidation.

F-6

SONNEN CORPORATION AND SUBSIDIARY

(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended June 30, 2012 and 2011

NOTE 1 – NATURE OF OPERATIONS, BASIS OF PRESENTATION AND SUMMARY

OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

Going Concern

The accompanying consolidated financial statements have been prepared assuming that the Company will

continue as a going concern. The Company has a cumulative net loss for the period from inception

(November 16, 2006) through June 30, 2012 of $4,340,677, a working capital deficit of $1,089,254 and

for the year ended June 30, 2012 negative cash flows from development stage activities of $132. These

conditions raise substantial doubt about the Company's ability to continue as a going concern. The

Company's continuation as a going concern is dependent on its ability to meet its obligations, to obtain

additional debt and/or equity financing as may be required and ultimately to attain profitability. The

consolidated financial statements do not include any adjustments that might result from the outcome of

this uncertainty.

Cash Equivalents

We consider all highly liquid investments with the original maturities of three months or less to be cash

equivalents.

Income Taxes

The Company accounts for income taxes under the liability method required by ASC 740, “Income

Taxes”, which requires the recognition of deferred tax liabilities and assets for the expected future tax

consequences of events that have been included in the financial statements or tax returns Under this

method, deferred income taxes are recognized for the tax consequences in future years of differences

between the tax bases of assets and liabilities and their financial reporting amounts at each period end

based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are

expected to affect taxable income. Valuation allowances are established, when necessary, to reduce

deferred tax assets to the amount expected to be realized. The provision for income taxes represents the

tax payable for the period and the change during the period in deferred tax assets and liabilities. Tax

returns are subject to examination by taxing authorities and returns for fiscal years 2008 – 2011 are still

open.

Earnings (loss) Per Common Share

The Company computes net loss per share in accordance with FASB ASC 260-10, "Earnings per Share".

FASB ASC 260 requires presentation of both basic and diluted earnings per share (EPS) on the face of

the statement of operations. Basic EPS is computed by dividing net loss available to common

stockholders (numerator) by the weighted average number of shares outstanding (denominator)

during the period. Diluted EPS gives effect to all potentially dilutive common shares outstanding during

the period. Diluted EPS excludes all potentially dilutive shares if their effect is anti-dilutive. The only

potentially dilutive common shares outstanding are stock options from inception (Note 9).

F-7

SONNEN CORPORATION AND SUBSIDIARY

(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended June 30, 2012 and 2011

NOTE 1 – NATURE OF OPERATIONS, BASIS OF PRESENTATION AND SUMMARY

OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

Reclassifications

Certain amounts in the June 30, 2011 financial statements have been reclassified to conform to the June

30, 2012 presentation. These reclassifications had no effect upon net income, accumulated deficits, or

losses per share as previously stated.

Fair Value of Financial Instruments

In January 2008, the Company adopted FASB ASC 820, Fair Value Measurements and Disclosures

(“ASC 820”) (Formerly referenced as SFAS No. 157, Fair Value Measurements), to value its financial

assets and liabilities. The adoption of ASC 820 did not have a significant impact on the Company’s

results of operations, financial position or cash flows. ASC 820 defines fair value, establishes a

framework for measuring fair value under GAAP and expands disclosures about fair value

measurements. ASC 820 defines fair value as the exchange price that would be paid by an external party

for an asset or liability (exit price).

ASC 820 also establishes a fair value hierarchy which requires an entity to maximize the use of

observable inputs and minimize the use of unobservable inputs when measuring fair value. Three levels

of inputs may be used to measure fair value:

Level 1 – Active market provides unadjusted quoted prices for identical assets or liabilities that the

company has the ability to access;

Level 2 – Quoted prices for similar assets or liabilities in active markets or quoted prices for identical

or similar assets or liabilities in inactive markets. Level 2 inputs include those other than quoted

prices that are observable for the asset or liability and that are derived principally from, or

corroborated by, observable market data by correlation of other means. If the asset or liability has a

specified term the Level 2 input must be observable for substantially the full term of the asset or

liability; and

Level 3 – Inputs to the valuation methodology are unobservable and significant to the fair value

measurement.

Fair value estimates discussed herein are based upon certain market assumptions and pertinent

information available to management as of June 30, 2012. The Company uses the market approach to

measure fair value for its Level 1 financial assets and liabilities. The market approach uses prices and

other relevant information generated by market transactions involving identical or comparable assets or

liabilities.

F-8

SONNEN CORPORATION AND SUBSIDIARY

(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended June 30, 2012 and 2011

NOTE 1 – NATURE OF OPERATIONS, BASIS OF PRESENTATION AND SUMMARY

OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

Fair Value of Financial Instruments - continued

The respective carrying value of certain on-balance-sheet financial instruments approximated their fair

values. These financial instruments which include cash, accounts payable, and notes payable are valued

using Level 1 inputs and are immediately available without market risk to principal. Fair values were

assumed to approximate carrying values for these financial instruments since they are short term in nature

and their carrying amounts approximate fair values or they are receivable or payable on demand. The

carrying value of note payable to stockholder approximates its fair value because the interest rates

associated with the instrument approximates current interest rates charged on similar current

borrowings. The Company does not have other financial assets that would be characterized as Level 2 or

Level 3 assets.

FASB ASC 480-10, disclosures about fair value of financial instruments, defines the fair value of a

financial instrument as the amount at which the instrument could be exchanged in a current transaction

between willing parties. The carrying values of the Company’s financial instruments consist of cash and

accounts payable at fair market value.

Use of Estimates in the Preparation of Financial Statements

The preparation of financial statements in conformity with accounting principles generally accepted in the

United States of America requires management to make estimates and assumptions that affect the

reported amounts of assets, the disclosure of contingent assets and liabilities at the date of the financial

statements and the reported amounts of revenues and expenses during the reporting periods. Actual

results could differ from those estimates and assumptions.

Dividends

The Company has not adopted any policy regarding payment of dividends. No dividends have been

paid during the periods shown.

Foreign Currency Translation

The financial statements are presented in United States dollars. In accordance with Statement of

Financial Accounting Standards ASC Topic 820, “Foreign Currency Translation”, since the functional

currency of the Company is U.S. dollars; the foreign currency financial statements of the Company’s

subsidiaries are re-measured into U.S. dollars. Monetary assets and liabilities are re-measured using the

foreign exchange rate that prevailed at the balance sheet date. Revenue and expenses are translated at

weighted average rates of exchange during the year and stockholders’ equity accounts and furniture and

equipment are translated by using historical exchange rates. Any re-measurement gain or loss incurred is

reported in the income statement.

F-9

SONNEN CORPORATION AND SUBSIDIARY

(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended June 30, 2012 and 2011

NOTE 1 – NATURE OF OPERATIONS, BASIS OF PRESENTATION AND SUMMARY

OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

General Accounting Policy for Contingencies

Certain conditions may exist which may result in a loss to the Company, but which will only be resolved

when one or more future events occur or fail to occur. The Company’s management and its legal counsel

assess such contingent liabilities, and such assessment inherently involves an exercise of judgment. In

assessing loss contingencies related to legal proceedings that are pending against the Company, or

unasserted claims that may result in such proceedings, the Company’s legal counsel evaluates the

perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the

amount of relief sought or expected to be sought therein.

If the assessment of a contingency indicates that it is probable that a material loss has been incurred and

the amount of the liability can be estimated, the estimated liability would be accrued in the Company’s

financial statements. If the assessment indicates that a potentially material loss contingency is not

probable but is reasonably possible, or is probable but cannot be estimated, the nature of the contingent

liability, together with an estimate of the range of possible loss if determinable and material, would be

disclosed.

Loss contingencies considered remote are generally not disclosed unless they arise from guarantees, in

which case the guarantees would be disclosed.

As of June 30, 2012 and 2011, the Company’s management believes that there are no outstanding legal

proceedings which would have a material adverse effect on the financial position of the Company (see

Notes 3 and 10).

F-10

SONNEN CORPORATION AND SUBSIDIARY

(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended June 30, 2012 and 2011

NOTE 1 – NATURE OF OPERATIONS, BASIS OF PRESENTATION AND SUMMARY

OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

Recently Issued Accounting Standards

The Company has reviewed all recently issued accounting standards and unless discussed below, the

Company has deemed that it expects no effect from the standard.

In May 2011, the FASB issued ASU No. 2011-04 which relates to fair value measurement (FASB ASC

Topic 820), which amends current guidance to achieve common fair value measurement and disclosure

requirements in U.S. GAAP and International Financial Reporting Standards. The amendments generally

represent clarification of FASB ASC Topic 820, but also include instances where a particular principle or

requirement for measuring fair value or disclosing information about fair value measurements has

changed. The guidance also expands the disclosures for fair value measurements that are estimated using

significant unobservable (Level 3) inputs. This guidance is effective during interim and annual periods

beginning after December 15, 2011 and is to be applied prospectively. The adoption of this standard will

not materially impact the Company's financial statement statements.

In June 2011, the FASB issued Accounting Standards Update No. 2011-5, Presentation of Comprehensive

Income. This standard requires presentation of the items of net income and other comprehensive income

in one continuous statement, referred to as the statement of comprehensive income, or in two separate, but

consecutive, statements of net income and other comprehensive income. The new requirements are

effective for fiscal years beginning after December 15, 2011. Early adoption is permitted and full

retrospective application is required. The Company does not expect a significant impact on the

Company's financial positions as a result of adoption of these new requirements.

NOTE 2 – PREPAID EXPENSES

Prepaid expenses comprise of none at June 30, 2012 and of the following at June 30, 2011:

2011

Hayes and Boone, LLP

Prepayment retainer for legal fees

1,099

Total

1,099

F-11

SONNEN CORPORATION AND SUBSIDIARY

(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended June 30, 2012 and 2011

NOTE 3 – LICENSING AGREEMENT

The Company entered into a licensing agreement (the “Agreement”) with PT Group, Limited (“PT

Group”), an unrelated entity, on July 27, 2009, that grants the Company an exclusive, non-transferable

license to use PT Group’s intellectual property of a certain technology and licensed products to be used in

achieving the Company’s business objectives. The terms of the agreement would have continued until the

expiry of protections afforded for the intellectual property, provided that the Company was not in breach

or default of any of the terms or conditions contained in the Agreement. During the term of the licensing

agreement, the PT Group retained sole and beneficial propriety of the intellectual property including any

improvements made to any licensed products or future products, regardless of the source.

In exchange for use of the license, the PT Group was issued common shares equal to 5% of the issued and

outstanding common shares, 3,360,000 shares of the Company at a value of $0.20 per share on the

execution date, which was estimated to be $672,000. Additionally, upon the Company cumulatively

raising $50 million in equity financing, the Company guaranteed that PT Group would own no less than

2.5% of the issued and outstanding shares of its common shares.

Breach of Contract Claim

On February 6, 2010, PT Group notified the Company of a purported breach of contract terms, including

a breach of confidentiality, insufficient funding for research and development activities and failure to

provide direct access to our patent attorneys. The license agreement allowed for a ninety day period in

which to cure purported breaches. During the quarter ended March 31, 2010, the Company learned that

PT Group was not the rightful owner of the license and had no rights to grant the license to the Company.

Since PT Group has not remedied the breach in accordance with the Agreement, the Company filed a

legal complaint. The Company has been unable to serve PT Group as of June 30, 2012. (Note 10)

As a result of this discovery, the Company impaired the entire $672,000 book value of the license

agreement.

F-12

SONNEN CORPORATION AND SUBSIDIARY

(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended June 30, 2012 and 2011

NOTE 4 – INCOME TAXES

The net operating loss carry-forward and permanent differences are the components of deferred tax

assets for income tax purposes as of June 30, 2012. Approximately $1,753,026 was reduced to zero after

considering the valuation allowance of $1,753,026, since there is no assurance of future taxable income.

The net operating loss carry-forward as of June 30, 2012 expires as follows:

Expiring Year

Amount

2027

6,039

2028

48,195

2029

14,245

2030

1,058,324

2031

345,598

2032

280,625

Total

1,753,026

These loss carryovers could be limited under the Internal Revenue Code should a significant change in

ownership occur.

The following is an analysis of deferred tax assets as of June 30, 2011:

Deferred Tax Assets

Valuation Allowance

Balance

Deferred tax assets at June 30, 2011 $

500,616 $

(500,616) $

Additions for the year

95,412

(95,412)

Deferred tax assets at June 30, 2012 $

596,028 $

(596,028) $

The following is reconciliation from the expected statutory federal income tax rate to the Company’s

actual income tax rate for the years ended June 30:

2012

2011

Expected income tax (benefit) at Federal statutory tax rate –34%

$ (232,452) $ (410,147)

Permanent differences

137,040

292,644

Valuation allowance

95,412

117,503

Income tax expense

- $

We currently have three years of tax returns that are subject to examination, based on their filing dates

by taxing authorities. We currently have no uncertainty of the tax positions that we have taken and

believe that we can defend them to any tax jurisdiction.

F-13

SONNEN CORPORATION AND SUBSIDIARY

(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended June 30, 2012 and 2011

NOTE 5 – NOTES PAYABLE

On January 5, 2010, the Company received an advance on an interest bearing promissory note of

$100,000 from an unrelated entity. The note is due and payable on January 11, 2011, and bears an interest

rate of 8% per annum. Accrued interest on this note was $20,156 and $12,022 as of June 30, 2012 and

June 30, 2011, respectively. Subsequent to June 30, 2012, this note was extended to December 12, 2014.

On August 29, 2009, the Company received an advance on an interest bearing promissory note of $10,000

from an unrelated third party. The note was due and payable on February 28, 2010, and bears an interest

rate of 1% per month. On November 17, 2009, we made a principal payment of $5,000. On March 1,

2010, the Company executed a new note to reflect new terms for $5,000 to the same unrelated third party.

The new note is due and payable on March 1, 2011, and bears an interest rate of 8% per annum. Accrued

interest on this note was $1,512 and $1,105 as of June 30, 2012 and June 30, 2011, respectively.

Subsequent to June 30, 2012, this note was extended to January 3, 2015.

On June 10, 2010, the Company received an advance on an interest bearing promissory note of $5,983 for

a payment made on behalf of the Company from an unrelated entity. The note is due and payable on June

10, 2011, and bears an interest rate of 8% per annum. On June 18, 2010, the Company received another

advance on an interest bearing promissory note of $10,000 in cash from the same unrelated entity. The

note is due and payable on June 18, 2011, and bears an interest rate of 8% per annum. On June 30, 2010,

the Company received an advance on an interest bearing promissory note of $5,300 for a payment made

on behalf of the Company from the same unrelated entity. The note is due and payable on June 30, 2011,

and bears an interest rate of 8% per annum. Accrued interest on these notes was $3,510 and $1,780 as of

June 30, 2012 and June 30, 2011, respectively Subsequent to June 30, 2012, each of these notes were

extended to January 3, 2015.

On September 20, 2010, the Company received an advance on an interest bearing promissory note of

$25,000 from an unrelated entity. The note is due and payable on September 20, 2011, and bears an

interest rate of 8% per annum. Accrued interest on this note was $3,606 and $1,572 as of June 30, 2012

and June 30, 2011, respectively Subsequent to June 30, 2012, this note was extended to January 3, 2015.

F-14

SONNEN CORPORATION AND SUBSIDIARY

(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended June 30, 2012 and 2011

NOTE 6 – LOANS FROM SHAREHOLDERS

On February 14, 2012, the Company received two advances on interest bearing promissory notes for an

aggregate total of $9,137 for three payments made on behalf of the Company from a shareholder. The

notes are payable on demand, and the Company has not received a demand as of June 30, 2012, and bears

an interest rate of 8% per annum. Interest of $278 for the year ended June 30, 2012 has been accrued and

is outstanding as of June 30, 2012.

On February 17, 2010, the Company received an advance on an interest bearing promissory note of

$93,660 in cash and a payment made on behalf of the Company of $5,000 for a total of $98,660 from an

unrelated shareholder. The note is due and payable on February 17, 2011, and bears an interest rate of 8%

per annum. On May 6, 2010, the Company received another advance on an interest bearing promissory

note of $35,000 in cash and a payment made on behalf of the Company of $5,000 for a total of $40,000

from the same shareholder. The note is due and payable on May 6, 2011, and bears an interest rate of 8%

per annum. On July 8, 2010, the Company received another advance on an interest bearing promissory

note of $12,000 from the same shareholder. The note is due and payable on July 8, 2011, and bears an

interest rate of 8% per annum. Subsequent to June 30, 2012, each of these notes was extended to January

3, 2015. On June 15, 2012, the Company received an advance on an interest bearing promissory notes for

a payment made on behalf of the Company from the same shareholder as above. The note is payable on

demand, and the Company has not received a demand as of June 30, 2012, and bears an interest rate of

8% per annum. Accrued interest on these notes was $27,859 and $15,604 as of June 30, 2012 and June

30, 2011, respectively

NOTE 7 – STOCKHOLDERS' EQUITY

Common Shares – Authorized

The Company has 250,000,000 common shares authorized at a par value of $0.0001 per share and

50,000,000 shares of preferred stock, par value $0.0001 per share. All common stock shares have equal

voting rights, are non-assessable and have one vote per share. Voting rights are not cumulative and,

therefore, the holders of more than 50% of the common stock could, if they choose to do so, elect all the

directors of the Company. As of June 30, 2012 and 2011, there are no classes of preferred stock

designated and none are outstanding. As of June 30, 2012 and 2011, there are 67,893,000 shares issued

and outstanding.

Common Stock Issuances and Warrants Granted

For the years ended June 30, 2012 and 2011 there were no share issuances.

F-15

SONNEN CORPORATION AND SUBSIDIARY

(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended June 30, 2012 and 2011

NOTE 8 – STOCK – BASED COMPENSATION

On August 31, 2009, the Company adopted the Company’s 2009, Stock Option Plan (the “Plan”) in an

effort to promote the interests of the Company by providing eligible persons and companies with the

opportunity to acquire or increase a proprietary interest in the Company through the grant of up to five

million (5,000,000) non-statutory stock options (the “Options”) as an incentive for the eligible persons to

continue their employment or service.

On August 31, 2009, the Company authorized the grant of an aggregate of one million eight hundred

thousand (1,800,000) Options with an exercise price of $1.00 per share pursuant to the Plan. This block of

Options vest over a three year period through August 31, 2012, in equal increments of one-third of

potentially exercisable Options each year or in full if involuntarily terminated.

During the year ended June 30, 2012, there have been no additional grants of stock options under the

plan. A summary of the Options granted to employees and others under the Plan and changes since

inception of the Plan is presented below:

Weighted

Average

Number of

Exercise

Aggregate

Options

Price

Intrinsic Value

Balance at July 1, 2010

2,000,000 $

1.03 $

2,038,908

Options Granted

Options Exercised

Options Forfeited or Expired

(50,000) $

1.25

(62,844)

Balance at June 30, 2011

1,950,000 $

1.01 $

1,976,064

Exercisable at June 30, 2011

1,149,960 $

1.01 $

1,170,027

Weighted average fair value of Options

granted through June 30, 2011

1.01

Weighted

Average

Number of

Exercise

Aggregate

Options

Price

Intrinsic Value

Balance at July 1, 2011

1,950,000 $

1.01 $

1,976,064

Options Granted

Options Exercised

Options Forfeited or Expired

Balance at June 30, 2012

1,950,000 $

1.01 $

1,976,064

Exercisable at June 30, 2012

1,549,920 $

1.01 $

1,572,985

Weighted average fair value of Options

granted through June 30, 2012

1.01

F-16

SONNEN CORPORATION AND SUBSIDIARY

(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended June 30, 2012 and 2011

NOTE 8 – STOCK – BASED COMPENSATION - CONTINUED

The following table summarizes information about stock Options under the Plan that were outstanding at

June 30, 2012:

Outstanding Options

Weighted

Average

Number

Remaining

Weighted

Outstanding

Contractual

Average

Exercise

at June 30,

Life in

Exercise

Intrinsic

Price

2012

Years

Price

Value

1.00

1,800,000

7.25 $

1.00 $ 1,813,493

1.25

150,000

7.45 $

1.25 $

162,572

1,950,000

7.35 $

1.01 $ 1,976,064

Options Exercisable

Number

Weighted

Exercisable

Average

Aggregate

Exercise

at June 30,

Exercise

Intrinsic

Price

2012

Price

Value

1.00

1,399,920 $

1.00 $

1,410,413

1.25

150,000 $

1.25 $

162,572

1,549,920 $

1.01 $

1,572,985

During the years ended June 30, 2012 and 2011, the Company recorded $403,059 and $860,504,

respectively, in stock-based compensation which is included in salaries, payroll taxes, and expenses on

the statements of operations.

At June 30, 2012 there was $67,180 of total unrecognized compensation cost related to stock options

granted under the Plan. That cost is expected to be recognized pro-rata according to the vesting schedules

through August 1, 2012.

F-17

SONNEN CORPORATION AND SUBSIDIARY

(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended June 30, 2012 and 2011

NOTE 9 – RELATED PARTY TRANSACTIONS

Notes payable – related parties

On April 29, 2010, the Company received an advance on a non-interest bearing promissory note of

$8,500 from a related entity. The note is due and payable on demand. On July 15, 2010, the Company

repaid $4,000 of the balance of this note. The remaining balance of $4,500 is outstanding as of June 30,

2012 for which the Company has not yet received a demand.

On May 2, 2011, the Company received an advance on an interest bearing promissory note of $7,100

from a related entity. The note is due and payable on June 2, 2012, and bears an interest rate of 8% per

annum. Interest of $577 and $93 for the years ended June 30, 2012 and 2011, respectively, has been

accrued and is outstanding. Subsequent to June 30, 2012, this note was extended to January 3, 2015.

Consulting Agreements

On October 1, 2009, the Company entered into a consulting agreement with Prosper Financial, Inc., a

company owned by the spouse of the Company’s President and Chief Executive Officer and 37% owner

of the Company. The agreement calls for monthly payments of $2,500 for consulting services rendered

and $1,200 per month in rental payments for the use of Prosper Financial, Inc.’s office space. The

agreement extended through October 31, 2010, and was extended after that on a month to month basis for

the consulting services. As of June 30, 2012 and 2011, this related party had a balance due of $ 58,064

and $26,064, respectively, and is reflected in accounts payable – related parties.

On August 1, 2009, the Company entered into a consulting agreement with a director and officer that calls

for monthly compensation of $7,500 and extended through December 31, 2009, after which became a

month to month basis. As of June 30, 2012 and 2011, this related party had a balance due of $191,519 and

$101,706, respectively, which is reflected in accounts payable – related parties.

On July 1, 2009, the Company entered into a consulting agreement with a shareholder, director and

officer of the Company that calls for an annual base fee of $96,000 and extends through June 30, 2010,

after which was continued on a month to month basis. As of June 30, 2012, this related party had a total

balance due of $246,969, comprised of $233,350 due for consulting fees, and $13,619 for business

expenses, all of which is reflected in accounts payable – related parties. As of June 30, 2011, this related

party had a total balance due of $150,969, comprised of $137,350 due for consulting fees, and $13,619 for

business expenses, all of which is reflected in accounts payable – related parties.

On October 1, 2009, the Company entered into a consulting agreement with the former Head of Research

that calls for monthly compensation of $6,000 and extends through December 31, 2009, this contract was

not renewed or extended. As of June 30, 2012 and 2011, this related party had a balance due of $1,840,

which is reflected in accounts payable – related parties.

F-18

SONNEN CORPORATION AND SUBSIDIARY

(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended June 30, 2012 and 2011

NOTE 9 – RELATED PARTY TRANSACTIONS - CONTINUED

Consulting Agreements – continued

On October 1, 2009, the Company entered into an agreement with a consultant to provide bookkeeping

services, the monthly compensation is $5,000 and extended through October 1, 2010, in addition, the

consultant shall be entitled to 100,000 incentive stock options upon signing, and extended through

October 1, 2010. On April 1, 2010, we entered into a new agreement with the same consultant, the

monthly compensation was amended to be $2,500 per month, all other terms remained the same, and

extended through April 1, 2011, this contract was not renewed or extended. As of June 30, 2012 and

2011, this related party had a balance due of $55,000 and $25,000, respectively, which is reflected in

accounts payable – related parties.

On December 1, 2009, the Company entered into a consulting agreement with the son of our President to

provide business consulting services that calls for monthly compensation of $2,000 and extends through

November 30, 2010, this contract was not renewed or extended. As of June 30, 2012 and 2011, this

related party had a balance due of $9,000, which is reflected in accounts payable – related parties.

NOTE 10 – COMMITMENTS AND CONTINGENCIES

Contingencies

On February 6, 2010, PT Group notified the Company of a purported breach of contract terms including a

breach of confidentiality, insufficient funding for research and development activities and failure to

provide direct access to our patent attorneys. The licensing agreement allows for a ninety day period in

which to cure purported breaches. The Company’s management and board of directors have reason to

believe that PT Group may not be the rightful owner of the intellectual property licensed under the

licensing agreement. (Note 3)

On March 8, 2010, the Company filed a complaint in the Circuit Court of the 11^th Judicial Court In and

For Miami-Dade County, Florida against Paul R. Leonard and PT Group in connection with a breach of

the licensing agreement dated July 27, 2009. The complaint seeks: (i) damages for fraud that stem from

reliance on PT Group's claim of ownership over certain proprietary information, (ii) the return of

Company shares issued to PT Group as compensation for the rights licensed, (iii) injunctive relief sought

to prohibit Mr. Leonard’s use of confidential information to which he is not entitled, and (iv) reasonable

attorney’s fees. Mr. Leonard responded to the complaint in an answer dated November 19, 2012 asserting

that had no knowledge of the subject matter of the suit. The Company has been unable to serve PT Group

to date. Should the relief sought be adjudicated, Sonnen expects to succeed on the merits of its claims.

F-19

SONNEN CORPORATION AND SUBSIDIARY

(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended June 30, 2012 and 2011

NOTE 11– SUBSEQUENT EVENTS

In accordance with Accounting Standards Codification (ASC) topic 855-10 “Subsequent Events”, the

Company has evaluated subsequent events through the date which the financial statements were available

to be issued. The Company has determined that there were no such events that warrant disclosure or

recognition in the financial statements, other than these below:

Note payables extensions

Subsequent to year end, all of the Company’s notes payable’s due dates were extended as discussed above

in Note 6, 7 and 10.

Stock options

On December 31, 2012, all outstanding vested options had expired in accordance with the terms of their

respective stock option agreements or rescinded by mutual agreement between the Company and the

respective holders.

F-20

ITEM 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON

ACCOUNTING AND FINANCIAL DISCLOSURE

There have not been any changes in or disagreements with accountants on accounting and financial

disclosure or any other matter.

ITEM 9A.

CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

In connection with the preparation of this annual report, an evaluation was carried out by Sonnen’s

management, with the participation of the chief executive officer and the chief financial officer, of the

effectiveness of Sonnen’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the

Securities Exchange Act of 1934 (“Exchange Act”)) as of June 30, 2012. Disclosure controls and

procedures are designed to ensure that information required to be disclosed in reports filed or submitted

under the Exchange Act is recorded, processed, summarized, and reported within the time periods

specified in the Commission’s rules and forms, and that such information is accumulated and

communicated to management, including the chief executive officer and the chief financial officer, to

allow timely decisions regarding required disclosures.

Based on that evaluation, Sonnen’s management concluded, as of the end of the period covered by this

report, that Sonnen’s disclosure controls and procedures were not effective in recording, processing,

summarizing, and reporting information required to be disclosed, within the time periods specified in the

Commission’s rules and forms, and such information was not accumulated and communicated to

management, including the chief executive officer and the chief financial officer, to allow timely

decisions regarding required disclosures.

Management’s Report on Internal Control over Financial Reporting

The management of Sonnen is responsible for establishing and maintaining adequate internal control over

financial reporting. Sonnen’s internal control over financial reporting is a process, under the supervision

of the chief executive officer and the chief financial officer, designed to provide reasonable assurance

regarding the reliability of financial reporting and the preparation of Sonnen’s financial statements for

external purposes in accordance with United States generally accepted accounting principles (GAAP).

Internal control over financial reporting includes those policies and procedures that:

 Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the

transactions and dispositions of Sonnen’s assets;

 Provide reasonable assurance that transactions are recorded as necessary to permit preparation of

the financial statements in accordance with generally accepted accounting principles, and that

receipts and expenditures are being made only in accordance with authorizations of management

and the board of directors; and

 Provide reasonable assurance regarding prevention or timely detection of unauthorized

acquisition, use, or disposition of Sonnen’s assets that could have a material effect on the

financial statements.

Due to its inherent limitations, internal control over financial reporting may not prevent or detect

misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk

that controls may become inadequate because of changes in conditions or that the degree of compliance

with the policies or procedures may deteriorate.

Sonnen’s management conducted an assessment of the effectiveness of our internal control over financial

reporting as of June 30, 2012, based on criteria established in Internal Control – Integrated Framework

issued by the Committee of Sponsoring Organizations of the Treadway Commission, which assessment

identified material weaknesses in internal control over financial reporting. A material weakness is a

control deficiency, or a combination of deficiencies in internal control over financial reporting that creates

a reasonable possibility that a material misstatement in annual or interim financial statements will not be

prevented or detected on a timely basis. Since the assessment of the effectiveness of our internal control

over financial reporting did identify material weaknesses, management considers its internal control over

financial reporting to be ineffective.

Sonnen identified the following material weakness:

Lack of Appropriate Independent Oversight. The board of directors was not providing an appropriate

level of oversight of Sonnen’s consolidated financial reporting and procedures for internal control over

financial reporting as of June 30, 2012 since there no independent directors who might provide an

appropriate level of oversight including challenging management’s accounting for and reporting of

transactions. Our lack of appropriate independent oversight over the period was a material weakness due

to the interested nature of those individuals who comprise our board of directors. Our lack of appropriate

independent oversight has been a material weakness since the annual period ended June 30, 2009 through

the annual period of this report. While this control deficiency did not result in any audit adjustments to

our 2012 or 2011 interim or annual financial statements, it could have resulted in material misstatements

that might have been prevented or detected by independent oversight. Accordingly we determined that

this control deficiency as of June 30, 2012 constituted a material weakness.

Sufficiency of Accounting Resources. Sonnen has no dedicated accounting personnel to prepare its

financial statements, including the consolidation of Sonnen and its subsidiaries in a timely manner

contemporaneously with the periods reported. Rather, Sonnen relies on independent engagements to

compile accounting information. The insufficiency of our accounting resources has been a material

weakness since the annual period ended June 30, 2009 through the annual period of this report. This

control deficiency did result in any audit adjustments to our 2012 financial statements and resulted in

certain delays in the consolidation of Sonnen and its subsidiaries for periodic reporting purposes.

Accordingly, we determined that this control deficiency as of June 30, 2012 constituted a material

weakness.

Remediation Initiatives

Since the end of the reporting period management has determined to appoint additional directors to

Sonnen’s board of directors and to engage an independent accountant on a consistent basis to ensure its

capability to remain current in its periodic reporting obligations. The appointment of independent

directors and the engagement of an accountant on an ongoing basis remain subject to Sonnen’s ability to

secure sufficient financial resources to complete these objectives.

This annual report does not include an attestation report of our independent registered public accounting

firm regarding internal control over financial reporting. We were not required to have, nor have we,

engaged our independent registered public accounting firm to perform an audit of internal control over

financial reporting pursuant to the rules of the Commission that permit us to provide only management’s

report in this annual report.

Changes in Internal Controls over Financial Reporting

During the period ended June 30, 2012, there has been no change in internal control over financial

reporting that has materially affected, or is reasonably likely to materially affect our internal control over

financial reporting.

Subsequent to the period and to the date of this filing, there has been no change in internal control over

financial reporting that has materially affected, or is reasonably likely to materially affect our internal

control over financial reporting.

ITEM 9B.

OTHER INFORMATION

None.

PART III

ITEM 10.

DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE

Directors and Executive Officers

The following table sets forth the name, age and position of each director and executive officer of the

Sonnen:

Name

Age

Year Appointed Position(s) and Office(s)

Robert Miller

2009

President, chief executive officer and

director.

Costas Takkas

2009

Chief financial officer, principal

accounting officer and director

Business Experience

The following is a brief account of the business experience of our directors, executive officers, and other

significant employees, including their background occupations and employment over the past five years.

We also provide the responsibilities and qualifications of our executive officers and other significant

employees and the qualifications of our directors. Except as otherwise noted, none of the following

referenced organizations are affiliates of Sonnen.

Robert Miller was appointed as a member of the board of directors on June 16, 2009, and as president and

chief executive officer on July 27, 2009.

Background:

From 2007 until the present Mr. Miller has been a director (and was an early investor) of Lifespan

Biosciences Inc., a company commercializing proprietary antibodies, providing immune histochemistry

services and developing localization databases. Since 2009 he has served as an officer and director of

Sonnen Corporation, a company involved in the research and development of a novel process for energy

generation consisting of specific materials and proprietary material combinations. (Mr. Miller is

the beneficial owner of more than five percent of Sonnen’s common stock.) From 2002 to present, Mr.

Miller has been a consultant to Prosper Financial, Inc., a management company that provides financial

and corporate consulting services to start-up companies. Between 1998 and 2000 he was a director and

financier of Zmax Corporation, a "y2k" company. From 1997 to 2002 Mr. Miller was the president of

Stamford International whose principal subsidiary, Nanovation Technologies Inc., was a developer of

nano-sized fiber-optic products and he served as director of Nanovation between 1998 and 2001. In 1992

Mr. Miller was the founder and president of Crystallex International Corporation and he served as the

company’s Chairman between 1992 and 1996. Between 1988 and 1992 he was the principal financier and

consultant to Asiamerica Equities Inc., a NASDAQ listed merchant bank.

Officer and Director Responsibilities and Qualifications:

Mr. Miller is responsible for the overall management of Sonnen and is involved in many of its day-to-day

operations. He is Sonnen’s primary leader, communicator and fundraiser.

Mr. Miller has worked as officer and director of many early-stage companies for almost three decades and

has participated as the principal investor in over 50 business ventures. He has founded corporations, listed

numerous companies on the NASDAQ and the Toronto Stock Exchange, worked full-time with and as a

consultant to numerous startups.

Other Public Company Directorships in the Last Five Years:

Mr. Miller has been a director of Abakan, Inc. since 2009.

Costas Takkas was appointed as a member of the board of directors on July 27, 2009, and as chief

financial officer and principal accounting officer on July 27, 2009.

Background:

Mr. Takkas brings to Sonnen over 25 years of financial experience and expertise. He has acted as a

director and officer of numerous development-stage public companies involved with projects in the

technology, mining, construction, gaming, drug development and medical equipment industries. Mr.

Takkas is a member of the Institute of Chartered Accountants in England & Wales (ACA).

Officer and Director Responsibilities and Qualifications:

Mr. Costas is responsible for those functions typically associated with a chief financial officer and is

involved in the day to day operation of Sonnen.

Mr. Costas graduated with a B.Sc. (Honors) in Physics and an Associate Royal College of Science

(ARCS) from the Imperial College of Science and Technology, University of London in 1978.

Other Public Company Directorships in the Last Five Years:

None.

Term of Office

Our directors are appointed for one year terms to hold office until the next annual meeting of our

shareholders or until removed from office in accordance with our bylaws. Our executive officers are

appointed by our board of directors and hold office pursuant to employment agreements or until removed

by the board.

Family Relationships

There are no family relationships between or among the directors or executive officers.

Involvement in Certain Legal Proceedings

During the past ten years there are no events that occurred related to an involvement in legal proceedings

that are material to an evaluation of the ability or integrity of any of the Company’s directors, persons

nominated to become directors or executive officers.

Compliance with Section 16(A) of the Exchange Act

Based solely upon a review of Forms 3, 4 and 5 furnished to Sonnen, we are not aware of any persons

who, during the period ended June 30, 2011, failed to file, on a timely basis, reports required by Section

16(a) of the Securities Exchange Act of 1934.

Code of Ethics

Sonnen has not adopted a Code of Ethics within the meaning of Item 406(b) of Regulation S-K of the

Securities Exchange Act of 1934. The Code of Ethics applies to directors and senior officers, such as the

principal executive officer, principal financial officer, controller, and persons performing similar

functions. Sonnen expects to adopt a Code of Ethics in the near future.

Board of Directors Committees

The board of directors has not established an audit committee. An audit committee typically reviews, acts

on and reports to the board of directors with respect to various auditing and accounting matters, including

the recommendations and performance of independent auditors, the scope of the annual audits, fees to be

paid to the independent auditors, and internal accounting and financial control policies and procedures.

Certain stock exchanges currently require companies to adopt a formal written charter that establishes an

audit committee that specifies the scope of an audit committee’s responsibilities and the means by which

it carries out those responsibilities. In order to be listed on any of these exchanges, the Sonnen will be

required to establish an audit committee. The board of directors has not established a compensation

committee. We intend to establish both an audit and compensation committee at such time as sufficient

independent directors join our board of directors.

Director Compensation

Directors currently are reimbursed for out-of-pocket costs incurred in attending meetings but are not

compensated for their service as directors. Sonnen may compensate directors in the future.

ITEM 11.

EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

Since an employment agreement dated January 1, 2010, was terminated by mutual agreement on May 15,

2010, Sonnen has compensated its chief executive officer pursuant to a consulting agreement dated

August 1, 2009. The consulting agreement accrues a consulting fee of $7,500 on a month to month basis

which has not been paid to Sonnen’s chief executive officer since 2010. He expects to continue to serve

on this basis until such time as Sonnen is able to normalize operations upon which he expects to enter into

a new employment agreement that will include a salary, stock options and other compensatory elements.

Our board of directors does not believe that operating without an employment agreement with its chief

executive officer is appropriate for a development stage company though the consulting agreement will

likely remain in place until future financings include sufficient funding to ensure adequate compensation

for Sonnen’s officers.

Sonnen has a consulting agreement with its chief financial officer dated July 1, 2009 pursuant to which a

consulting fee of $8,000 accrues on a month to month basis. He expects to continue to serve on this basis

until such time as Sonnen is able to normalize operations upon which he expects to enter into an

employment agreement that will include a salary, stock options and other compensatory elements. Our

board of directors does not believe that operating without an employment agreement with its chief

executive officer is appropriate for a development stage company though the consulting agreement will

likely remain in place until future financings include sufficient funding to ensure adequate compensation

for Sonnen’s officers.

Executive compensation paid or accrued to our chief executive officer for the year ended June 30, 2012,

was $90,000 for the year ended June 30, 2011, was $90,000 and for the year ended June 30, 2010, was

$617,310. The decrease in executive compensation over the comparative periods can be attributed to the

suspension of research and development activities in the second half of 2010.

Executive compensation paid or accrued to our chief financial officer for the year ended June 30, 2012,

was $96,000 for the year ended June 30, 2011, was $96,000 and for the year ended June 30, 2010, was

$611,538. The decrease in executive compensation over the comparative periods can be attributed to the

suspension of research and development activities in the second half of 2010.

Tables

The following table provides summary information for the fiscal years ended June 30, 2012, 2011, and

2010 concerning cash and non-cash compensation paid or accrued by Sonnen to or on behalf of (i) the

chief executive officer and (ii) any other employee to receive compensation in excess of $100,000.

Executive’s Summary Compensation Table

Name and

Year

Salary

Bonus

Stock

Option

Non-Equity

Change in

All Other

Total

Principal

($)

Awards

Incentive Plan Pension Value

Compensation

($)

Position

($)

Compensation

and

($)

Nonqualified

Deferred

Compensation

($)

Robert Miller:

2012

90,000

CEO, and

2011

90,000

director

2010

31,500¹

503,754³

82,056²

617,310

Costas Takkas: 2012

96,000

former CFO,

2011

96,000

PAO and

2010

503,754⁴

107,784⁵

611,538

director⁶

(1) Robert Miller’s employment agreement was terminated effective May 15, 2010.

(2) Prosper Financial, Inc., an entity related to Robert Miller, was paid for consulting services and the use of office space.

(3) Robert Miller was the beneficial owner of 500,000 options held by Prosper Financial, Inc. which have since been cancelled.

(4) Costas Takkas was the direct owner of 500,000 options which have since been cancelled.

(5) Costas Takkas was paid for consulting services amounting to $96,000 and reimbursed for medical expenses of $11,784.

2009 Stock Option Plan

Our board of directors adopted and approved our 2009 Stock option Plan (“Plan”) on August 31, 2009,

which provides for the granting and issuance of up to 5 million shares of our common stock. As of June

30, 2011, we had options to purchase 1,950,000 shares of common stock outstanding of which

1,800,000 had an exercise prices of $1.00, and 200,000 had an exercise price of $1.25, all of which vest

over three years in equal increments. At June 30, 2012, 3,050,000 options remained available for future

grant.

Our board of directors administers our Plan, however, they may delegate this authority to a committee

formed to perform the administration function of the Plan. The board of directors or a committee of the

board has the authority to construe and interpret provisions of the Plan as well as to determine the terms

of an award. Our board of directors may amend or modify Plan at any time. However, no amendment or

modification shall adversely affect the rights and obligations with respect to outstanding awards unless

the holder consents to that amendment or modification.

The Plan permits us to grant non-statutory stock options to our employees, directors and consultants.

The options issued under this Plan are intended to be non-statutory stock options exempt from Code

Section 409A. The duration of a stock option granted under our Plan cannot exceed ten years. The

exercise price of an incentive stock option cannot be less than 100% of the fair market value of the

common stock on the date of grant.

The Plan administrator determines the term of stock options granted under our Plan, up to a maximum

of ten years, except in the case of certain events, as described below. Unless the terms of an optionee's

stock option agreement provide otherwise, if an optionee's relationship with us ceases for any reason

other than disability or death, the optionee may exercise any vested options for a period of ninety days

following the cessation of service. If an optionee's service relationship with us ceases due to disability or

death the optionee or a beneficiary may exercise any vested options for a period of 12 months in the

event of disability or death.

Unless the Plan administrator provides otherwise, options generally are not transferable except by will,

the laws of descent and distribution, or pursuant to a domestic relations order. An optionee may

designate a beneficiary, however, who may exercise the option following the optionee's death.

Long Term Incentive Plan Awards

Sonnen has no long-term incentive plans.

Termination of Employment and Change in Control Arrangements

Sonnen has no agreement that provides for payment to any executive officer at, following, or in

connection with resignation, retirement or other termination, or a change in control, or a change in our

executive officers’ responsibilities following a change in control.

The following table provides summary information for the fiscal year ended June 30, 2012 concerning

unexercised options, stock that has not vested, and equity incentive plan awards by Sonnen to or on behalf

of (i) the chief executive officer and (ii) any other employee to receive compensation in excess of

$100,000:

Outstanding Equity Awards at Fiscal Year-End

Option awards

Stock awards

Equity

incentive

Equity

plan

incentive

awards:

plan awards:

plan

Market

number of

market or

awards:

Number value of

unearned

payout value

Number of

number of

of shares

shares,

of unearned

securities

or units

units or

shares, units

underlying

of stock

other

or other

unexercised

Option

that have

that

rights that

options

unearned

exercise

Option

not

have not

(#)

options

price

expiration

vested

Name

exercisable unexercisable

(#)

($)

date

(#)

($)

Robert

Miller₁

333,334

500,000

166,666

1.00

August

31, 2019

Costas

Takkas

333,334

500,000

166,666

1.00

August

31, 2019

(1) Robert Miller is the indirect beneficial owner of 500,000 options held by Prosper Financial, Inc.

The following table provides summary information for the year ended June 30, 2012 concerning cash and

non-cash compensation paid or accrued by Sonnen to or on behalf of its directors.

Name

Fees earned

Stock

Option

Non-equity

Non-qualified

All other

Total

or paid in

awards

Awards

incentive plan

deferred

compensation

cash

compensation

Robert

Miller

Costas

Takkas

ITEM 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND

MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The following table sets forth certain information concerning the ownership of Sonnen’s 67,893,000

shares of common stock issued and outstanding as of April 23, 2013 with respect to: (i) all directors; (ii)

each person known by us to be the beneficial owner of more than five percent of our common stock; and

(iii) our directors and executive officers as a group.

Title of Class Name and Address of Beneficial Amount and nature

Percent of Class

Ownership

of Beneficial

Ownership¹

Common

Robert Miller

Stock

4801 Alhambra Circle

25,000,000²

37%

Coral Gables, Florida 33146

Costas Takkas

Common

105 Marbel Drive

Stock

P.O. Box 1436 GT

16,000,000³

23%

Grand Cayman, Cayman Islands

British West Indies

Common

All Executive Officers and

Stock

Directors as a Group

41,000,000

60%

(1) Beneficial ownership is determined in accordance with Commission rules and generally includes voting or

investment power with respect to securities. Shares of common stock subject to options, warrants and convertible

preferred stock currently exercisable or convertible, or exercisable or convertible within sixty (60) days, would be

counted as outstanding for computing the percentage of the person holding such options or warrants but not

counted as outstanding for computing the percentage of any other person.

(2) Robert Miller is a indirect beneficial owner of 25,000,000 shares held by Ms. Maria Maz, to whom Mr. Miller is

married and 500,000 options held by Prosper Financial, Inc., an entity owned by Ms. Maz, that vest in equal

increments over three years to purchase shares of common stock at $1.00 per share on or before August 31, 2019.

(3) Costas Takkas was granted 500,000 options that vest in equal increments over three years to purchase shares of

common stock at $1.00 per share on or before August 31, 2019.

ITEM 13.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND

DIRECTOR INDEPENDENCE

None of our directors or executive officers, nor any proposed nominee for election as a director, nor any

person who beneficially owns, directly or indirectly, shares carrying more than 5% of the voting rights

attached to all of our outstanding shares, nor any members of the immediate family (including spouse,

parents, children, siblings, and in-laws) of any of the foregoing persons has any material interest, direct or

indirect, in any transaction in the period covered by this report or in any presently proposed transaction

which, in either case, has or will materially affect us.

Director Independence

Our common stock is listed on the OTC Link inter-dealer quotation system, which does not have director

independence requirements. For purposes of determining director independence, we have applied the

definitions set out in NASDAQ Rule 4200(a)(15). Under NASDAQ Rule 4200(a)(15), a director is not

considered to be independent if he or she is also an executive officer or employee of the corporation.

Accordingly, we had no independent directors as of June 30, 2012.

ITEM 14.

PRINCIPAL ACCOUNTANT FEES AND SERVICES

Matinelli Mick PLLC (“Martinelli”) has provided audits of our annual financial statements and a review

of our quarterly financial statements for the periods ended June 30, 2012 and June 30, 2011 respectively.

The following is an aggregate of fees billed during each of the last fiscal years for professional services

rendered by our principal accountants.

Martinelli Mick Fees and Services

2011

Audit fees

Audit-related fees

Tax fees

All other fees

Total fees paid or accrued to our principal accountants

Audit Committee Pre-Approval

Sonnen did not have a standing audit committee at the time its respective auditors were engaged.

Therefore, all services provided to Sonnen by Martinelli, as detailed above, were pre-approved by

Sonnen’s board of directors. Martinelli performed all work only with their permanent full time

employees.

PART IV

ITEM 15.

EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) Financial Statements

The following documents are filed under “Item 8. Financial Statements and Supplementary Data,” pages

F-1 through F-21, and are included as part of this Form 10-K:

Financial Statements of Sonnen for the years ended June 30, 2012 and 2011:

Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheets

Consolidated Statements of Loss

Consolidated Statements of Changes in Stockholders’ Equity (Deficit)

Consolidated Statements of Cash Flows

Notes to Consolidated Financial Statements

(b) Exhibits

The exhibits required to be attached by Item 601 of Regulation S-K are listed in the Index to Exhibits on

page 27 of this Form 10-K, and are incorporated herein by this reference.

(c) Financial Statement Schedules

We are not filing any financial statement schedules as part of this Form 10-K because such schedules are

either not applicable or the required information is included in the financial statements or notes thereto.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

Sonnen Corporation

Date

/s/ Robert Miller

April 23, 2013

By: Robert Miller

Its: President, Chief Executive Officer and Director

/s/ Costas Takkas

April 23, 2013

By: Costas Takkas

Its: Chief Financial Officer, Principal Accounting Officer and Director

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by

the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Date

/s/ Robert Miller

April 23, 2013

Robert Miller

President, Chief Executive Officer and Director

/s/ Costas Takkas

April 23, 2013

Costas Takkas

Chief Financial Officer, Principal Accounting Officer and Director

INDEX TO EXHIBITS

Exhibit

Description

3.1.1*

Articles of Incorporation, incorporated by reference to the Company’s Form SB-2 filed with the

Commission on August 6, 2007.

3.1.2*

Amendment to the Articles of Incorporation, incorporated by reference to the Company’s Definitive

14C filed with the Commission on October 14, 2009.

3.2*

Bylaws, incorporated by reference to the Company’s Form SB-2 filed with the Commission on August

6, 2007.

10.1*

Licensing Agreement between the Company, the Company’s wholly owned subsidiary, and P.T. Group,

Ltd., dated July 27, 2009, incorporated by reference to the Company’s Form 10-K filed with the

Commission on August 3, 2009.

10.2*

Consulting Agreement between the Company and Costas Takkas, dated July 27, 2009, incorporated by

reference to the Company’s Form 10-K filed with the Commission on August 3, 2009.

10.3*

Employment Agreement between the Company and Paul Leonard dated July 27, 2009, incorporated by

reference to the Company’s Form 10-K filed with the Commission on August 3, 2009.

10.4*

Employment Agreement between the Company and David Greenbaum dated August 1, 2009,

incorporated by reference to the Company’s Form 10-Q filed with the Commission on November 23,

2009.

10.5*

Consulting Agreement between the Company and Carol Laws dated August 1, 2009, incorporated by

reference to the Company’s Form 10-Q filed with the Commission on November 23, 2009.

10.6*

Consulting Agreement between the Company and Backend Technologies, LLC dated August 5, 2009,

incorporated by reference to the Company’s Form 10-Q filed with the Commission on November 23,

2009.

10.7*

Employment Agreement between the Company and Robert H. Miller dated January 1, 2010,

incorporated by reference to the Company’ Form 10-Q filed with the Commission on November 23,

2010.

21*

Subsidiaries of the Company, incorporated by reference to the Company’s Form 10-K filed with the

Commission on August 3, 2009.

31.1

Certification of the Chief Executive Officer pursuant to Rule 13a-14 of the Exchange Act as adopted

pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (attached).

31.2

Certification of the Chief Financial Officer pursuant to Rule 13a-14 of the Exchange Act as adopted

pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (attached).

32.1

Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002 (attached).

32.2

Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002 (attached).

101. INS

XBRL Instance Document^†

101. PRE

XBRL Taxonomy Extension Presentation Linkbase^†

101. LAB

XBRL Taxonomy Extension Label Linkbase^†

101. DEF

XBRL Taxonomy Extension Label Linkbase^†

101. CAL

XBRL Taxonomy Extension Label Linkbase^†

101. SCH

XBRL Taxonomy Extension Schema^†

Incorporated by reference to previous filings of Allied.

^†

Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed “furnished” and

not “filed” or part of a registration statement or prospectus for purposes of Section 11 or 12 of the

Securities Act of 1933, or deemed “furnished” and not “filed” for purposes of Section 18 of the

Securities and Exchange Act of 1934, and otherwise is not subject to liability under these

sections.

SONNEN Corp - FORM 10-K - April 24, 2013

Attached files

SONNEN Corp Reports