UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549  FORM 10-Q  (Mark One) þQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period endedSeptember 30, 2010.  oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period fromto.  Commission file number:000-52803  SONNEN CORPORATION (Exact name of registrant as specified in its charter)  Nevada
(State or other jurisdiction of
incorporation or organization)
     98-0514037
(I.R.S. Employer
Identification No.)
  2665 S. Bayshore Drive, Suite 450, Miami, Florida  33133 (Address of principal executive offices)    (Zip Code)  (305) 529-4888 (Registrants telephone number, including area code)  2829 Bird Avenue, Suite 12, Miami, Florida  33133 (Former name, former address and former fiscal year, if changed since last report)  Indicate by check markwhether theregistrant(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. YesþNoo  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).YesoNoo  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.  Large accelerated fileroAccelerated fileroNon-accelerated fileroSmaller reporting companyþ  Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YesoNoþ  Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date. Thenumber of shares outstanding of the issuers common stock, $0.0001 par value (the only class of voting stock), at November 12, 2010, was 67,893,000.


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TABLE OF CONTENTSPART I  FINANCIAL INFORMATIONItem 1.    Financial Statements...................................................................................................... 3Consolidated Balance Sheets as of September 30, 2010 (unaudited) and June 30, 2010 4Unaudited Consolidated Statements of Operations for the three months endedSeptember 30, 2010 and 2009, and cumulative amounts from development stageactivities (November 16, 2006 through September 30, 2010)....................................................... 5Unaudited Consolidated Statements of Cash Flows for the three months endedSeptember 30, 2010 and 2009, and cumulative amounts from development stageactivities (November 16, 2006 through September 30, 2010)....................................................... 6Notes to Unaudited Consolidated Financial Statements................................................. 7Item 2.    Managements Discussion and Analysis of Financial Condition and Results ofOperations..................................................................................................................... 15Item 3.    Quantitative and Qualitative Disclosures about Market Risk.......................................... 20Item 4.    Controls and Procedures................................................................................................ 20PART II  OTHER INFORMATIONItem 1.    Legal Proceedings.......................................................................................................... 21Item 1A.                Risk Factors.......................................................................................................... 21Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds........................................ 25Item 3.    Defaults upon Senior Securities..................................................................................... 25Item 4.    (Removed and Reserved).............................................................................................. 25Item 5.    Other Information.......................................................................................................... 25Item 6.    Exhibits......................................................................................................................... 25Signatures..................................................................................................................................... 26Index to Exhibits.......................................................................................................................... 27


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PART I  FINANCIAL INFORMATION  ITEM 1.          FINANCIAL STATEMENTS.  As used herein, the terms Company, we, our, and us, refer to Sonnen Corporation, a Nevada corporation, unless otherwise indicated.In the opinion of management, the accompanying unaudited financial statements included in this Form 10-Q reflect all adjustments (consisting only of normal recurring accruals) necessary for a fair presentation of the results of operations for the periods presented.  The results of operations for the periods presented are not necessarily indicative of the results to be expected for the full year.  3


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SONNEN CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED BALANCE SHEETSSeptember 30,
     
     June 30,2010
     
     2010(unaudited)ASSETSCURRENT ASSETSCash and cash equivalents
     
     
     
     $            280
     
     $          840Prepaid expenses (Note 5)
     
     
     
     10,959
     
     8,332Total Current Assets
     
     
     
     
     11,239
     
     9,172OTHER ASSETSOffice furniture and equipment, net (Note 4)
     
     
     1,273
     
     1,427Total Other Assets
     
     
     
     
     1,273
     
     1,427Total Assets
     
     
     
     
     $       12,511
     
     $    10,599LIABILITIES AND STOCKHOLDERS' (DEFICIT)CURRENT LIABILITIESAccounts payable
     
     
     
     
     $       87,712
     
     $         96,490Accounts payable - related parties
     
     
     118,164
     
     82,130Accrued payroll
     
     
     
     
     13,283
     
     13,283Accrued liabilities - related parties
     
     
     4,500
     
     8,500Notes payable (including accrued interest of $13,766)
     315,709
     
     273,012Total Current Liabilities
     
     
     
     539,367
     
     473,415COMMITMENTS AND CONTINGENCIES (Note 10)
     
     -
     
     -STOCKHOLDERS' (DEFICIT)Preferred stock, $0.0001 par value, 50,000,000 sharesauthorized, none issued and outstanding
     
     
     -
     
     -Common stock, par value $0.0001, 250,000,000 sharesauthorized, 67,893,000 issued and outstanding
     
     6,789
     
     6,789Paid-in capital
     
     
     
     
     2,131,102
     
     1,981,071Accumulated deficit during the development stage
     
     (2,664,748)
     
     (2,450,678)Total Stockholders' (Deficit)
     
     
     
     (526,856)
     
     (462,817)Total Liabilities and Stockholders' (Deficit)
     
     
     $       12,511
     
     $     10,599
  The accompanying notes are an integral part of these consolidated financial statements.
 
  4


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SONNEN CORPORATION & SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)Cumulativeamounts fromdevelopment stageactivitiesFor the three months ended
     
     (November 16, 2006 throughSeptember 30,
     
     September 30,2010
     
     2009
     
     2010)REVENUES
     
     
     
     
     $              -
     
     $               -
     
     $                   -GENERAL & ADMINISTRATIVE EXPENSESOrganization costs
     
     
     
     
     -
     
     -
     
     640General and administrative
     
     
     
     
     1,199
     
     13,947
     
     88,672Professional fees
     
     
     
     
     10,643
     
     48,435
     
     260,611Consulting fees
     
     
     
     
     -
     
     83,927
     
     280,727Consulting and professional fees - related parties
     
     46,000
     
     -
     
     336,250Compensation and related taxes and benefits
     
     
     150,030
     
     -
     
     885,317Transfer fees
     
     
     
     
     300
     
     3,396
     
     8,349Depreciation
     
     
     
     
     154
     
     -
     
     580Research & development
     
     
     
     
     35
     
     51,374
     
     167,595Total General & Administrative Expenses
     
     
     
     208,362
     
     201,079
     
     2,028,742Loss before other income (expense)
     
     
     
     (208,362)
     
     (201,079)
     
     (2,028,742)Interest income/ (expense)
     
     
     
     
     (5,708)
     
     -
     
     (12,455)Loss on foreign currency exchange
     
     
     
     -
     
     -
     
     (1,551)Impairment loss on asset
     
     
     
     
     -
     
     -
     
     (672,000)Other income
     
     
     
     
     -
     
     -
     
     50,000Loss before provision for income taxes
     
     
     
     (214,070)
     
     (201,079)
     
     (2,664,748)Provision for income taxes
     
     
     
     
     -
     
     -
     
     -NET LOSS
     
     
     
     
     $  (214,070)
     
     $   (201,079)
     
     $   (2,664,748)NET LOSS PER SHARE - BASIC AND DILUTED
     
     
     *
     
     *WEIGHTED AVERAGE NUMBER OFCOMMON SHARES OUTSTANDING
- BASIC AND DILUTED
     
     
     67,893,000
     
     65,107,457* =  less than $(.01) per share
    The accompanying notes are an integral part of these consolidated financial statements
   5


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SONNEN CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)Cumulativeamounts fromdevelopmentstage activitiesFor the three months ended
     
     (November 16, 2006 throughSeptember 30,
     
     September 30,2010
     
     2009
     
     2010)CASH FLOWS FROM DEVELOPMENT STAGE ACTIVITIESNet (loss) from development stage activities
     $
     (214,070)
     $
     (201,079)
     $
     (2,664,748)Adjustments to reconcile net loss to net cash provided (used) bydevelopment stage activities:Depreciation
     
     
     
     154
     
     -
     
     580Stock options vested
     
     
     150,030
     
     -
     
     795,351Stock issued for services
     
     -
     
     -
     
     101,000Impairment loss on asset
     
     -
     
     -
     
     672,000Changes in operating assets and liabilities:Increase in accounts receivable - related party
     
     -
     
     (259,296)
     
     -Increase in prepaid expenses
     
     (2,627)
     
     (165,000)
     
     (10,959)Increase in accounts payable
     
     (8,777)
     
     58,369
     
     125,075Increase in accounts payable - related parties
     
     36,033
     
     24,000
     
     118,163Increase in accrued liabilities
     
     -
     
     24,000
     
     13,283Increase in accrued interest
     
     5,696
     
     -
     
     13,766Total adjustments
     
     
     180,510
     
     (317,927)
     
     1,828,260NET CASH USED BY DEVELOPMENT STAGE ACTIVITIES
     
     (33,560)
     
     (519,006)
     
     (836,488)CASH FLOWS FROM INVESTING ACTIVITIESPurchase of property and equipment
     
     -
     
     -
     
     (1,853)NET CASH USED BY INVESTING ACTIVITIES
     
     -
     
     -
     
     (1,853)CASH FLOWS FROM FINANCING ACTIVITIESProceeds from notes payable, net
     
     37,000
     
     10,000
     
     280,660Proceeds from notes payable - related parties
     
     -
     
     -
     
     38,500Repayments from notes payable - related party
     
     (4,000)
     
     -
     
     (50,079)Proceeds from sale of common stock, net of offering costs
     
     -
     
     500,000
     
     569,540NET CASH PROVIDED BY FINANCING ACTIVITIES
     
     33,000
     
     510,000
     
     838,621NET INCREASE IN CASH AND CASH EQUIVALENTS
     
     (560)
     
     (9,006)
     
     280CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
     
     840
     
     9,000
     
     -CASH AND CASH EQUIVALENTS, END OF PERIOD
     $
     280
     $
     (6)
     $
     280Supplemental Disclosures:Cash paid for income taxes
     $
     -
     $
     -
     $
     -Cash paid for interest
     
     $
     -
     $
     -
     $
     -Non-cash Disclosures:Payments made by related party on behalf of the Company:Increase in notes payable - related parties
     $
     -
     $
     -
     $
     21,079Decrease in accounts payable - related parties
     $
     -
     $
     -
     $
     (11,079)Increase in prepaid expenses
     $
     -
     $
     -
     $
     (10,000)To apply balance owed to a related party to accounts receivable:Decrease in accounts receivable - related party
     $
     -
     $
     -
     $
     40,000Repayments of note payable - related party
     $
     -
     $
     -
     $
     (40,000)Stock issued for licensing agreement rights
     $
     -
     $
     672,000
     $
     672,000
   The accompanying notes are an integral part of these consolidated financial statements *6*


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SONNEN CORPORATION AND SUBSIDIARY

(Formerly known as Simple Tech Inc and Subsidiary)

(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

For the nine months ended September 30, 2010 and 2009

NOTE 1  BUSINESS  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. 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.  On November 9, 2009, the Company formed a Scientific Advisory Board to support the Company with its 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 its current business plan.  NOTE 2  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation  In the opinion of management, the accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles (GAAP) for interim financial information and with the instructions to Form 10-Q.  Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the Companys financial position as of September 30, 2010, and the results of its operations and cash flows for the three months ended September 30, 2010, have been made.  Operating results for the three months ended September 30, 2010 are not necessarily indicative of the results that may be expected for the year ended June 30, 2011.  These consolidated financial statements should be read in conjunction with the financial statements and notes for the year ended June 30, 2010, thereto contained in the Companys Form 10-K.  Development Stage Enterprise At September 30, 2010, the Companys business operations had not fully developed and the Company is highly dependent upon funding and therefore is considered a development stage enterprise.   7


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SONNEN CORPORATION AND SUBSIDIARY

(Formerly known as Simple Tech Inc and Subsidiary)

(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

For the nine months ended September 30, 2010 and 2009



NOTE 2  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  continued  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.  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.  Recent Accounting Pronouncements  In April 2010, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2010-13, Effect of Denominating the Exercise Price of a Share-Based Payment Award in the Currency of the Market in Which the Underlying Equity Security Trades (ASU 2010-13). ASU 2010-13 addresses the classification of a share-based payment award with an exercise price denominated in the currency of a market in which the underlying equity security trades. FASB Accounting Standards Codification (ASC) Topic 718 was amended to clarify that a share-based payment award with an exercise price denominated in the currency of a market in which a substantial portion of the entitys equity securities trade shall not be considered to contain a market, performance or service condition. Therefore, such an award is not to be classified as a liability if it otherwise qualifies for equity classification. The amendments in ASU 2010-13are effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2010, with early application permitted. We do not anticipate that the adoption of this guidance will have a material impact on our financial position and results of operations.  In February 2010, the FASB issued ASU No. 2010-09, Amendments to Certain Recognition and Disclosure Requirements (ASU 2010-09), which amends ASC Topic 855, Subsequent Events. The amendments to ASC Topic 855 do not change existing requirements to evaluate subsequent events, but: (i) defines a SEC Filer, which we are; (ii) removes the definition of a Public Entity; and (iii) for SEC Filers, reverses the requirement to disclose the date through which subsequent events have been evaluated. ASU 2010-09 was effective for us upon issuance. This guidance did not have a material impact on our financial position and results of operations.       8


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SONNEN CORPORATION AND SUBSIDIARY

(Formerly known as Simple Tech Inc and Subsidiary)

(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

For the nine months ended September 30, 2010 and 2009



NOTE 2  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  continued  Recent Accounting Pronouncements - continued  In January 2010, the FASB issued ASU No. 2010-06, Improving Disclosures about Fair Value Measurements (ASU 2010-06). ASU 2010-06 requires new disclosures for (i) transfers of assets and liabilities in and out of levels one and two fair value measurements, including a description of the reasons for such transfers and (ii) additional information in the reconciliation for fair value measurements using significant unobservable inputs (level three). This guidance also clarifies existing disclosure requirements including (i) the level of disaggregation used when providing fair value measurement disclosures for each class of assets and liabilities and (ii) the requirement to provide disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements for level two and three assets and liabilities. ASU 2010-06 is effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about activity in the roll forward for level three fair value measurements, which is effective for fiscal years beginning after December 15, 2010. The adoption of this guidance has not had a material impact on our financial position and results of operations.   NOTE 3  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 September 30, 2010 of $2,664,748, a working capital deficit of $528,128 and negative cash flows from development stage activities of $33,560. 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.   NOTE 4 - PROPERTY AND EQUIPMENT  Property and equipment consists of the following at September 30, 2010:  Computer equipment and software
     $
     1,853Less: Accumulated depreciation
     
     (580)Total property and equipment, net
     $
     1,273
  In the period ended December 31, 2009, the Company purchased two laptop computers and a scanner for our offices that will be depreciated over three years on a straight line basis. Depreciation expense for the three months ended September 30, 2010 and 2009 was $154 and $0, respectively.    9


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SONNEN CORPORATION AND SUBSIDIARY (Formerly known as Simple Tech Inc and Subsidiary) (A DEVELOPMENT STAGE ENTERPRISE) NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) For the nine months ended September 30, 2010 and 2009
 NOTE 5  PREPAID EXPENSES  Prepaid expenses consist of the following at September 30:  2010Hall, Lamb and Hall
     Prepayment retainer for legal fees
     $
     4,875BehlerMick PS
     Prepayment retainer for Accounting fees
     
     4,985Haynes and Boone, LLP
     Prepayment retainer for legal fees
     
     1,099Total
     $
     10,959
  2009Ely Zborovsky
     Prepayment retainer for legal fees
     $
     15,000W.L. Macdonald Law Corporation
     Prepayment retainer for legal fees
     
     5,000Haynes and Boone, LLP
     Prepayment retainer for legal fees
     
     25,000Backend Technology
     Prepayment retainer for Consulting fees
     
     120,000Total
     $
     165,000
    NOTE 6  NOTES PAYABLE  On July 8, 2010, the Company received an advance on an interest bearing promissory note of $12,000 from an unrelated entity. The note is due and payable on July 8, 2011, and bears an interest rate of 8% per annum. Interest of $224 for the three months ended September 30, 2010 has been accrued.  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. Interest of $56 for the three months ended September 30, 2010 has been accrued.   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 September 30, 2010, there are no classes of preferred stock designated and none are outstanding. As of September 30, 2010 and 2009, there are 67,893,000 and 67,793,000 shares issued and outstanding, respectively.  Common Stock Issuances and Warrants Granted  For the three months ended September 30, 2010 there were no share issuances. 10


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SONNEN CORPORATION AND SUBSIDIARY

(Formerly known as Simple Tech Inc and Subsidiary)

(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

For the nine months ended September 30, 2010 and 2009



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, 2013, in equal increments of one-third of potentially exercisable Options each year or in full if involuntarily terminated.  On November 9, 2009, the Company authorized the grant of an additional one hundred thousand (100,000) Options with an exercise price of $1.25 per share pursuant to the Plan. This bock of Options vest over a two year period through November 9, 2010, in equal increments of one-half of potentially exercisable Options each year or in full if involuntarily terminated.  On January 1, 2010, the Company authorized the grant of an additional one hundred thousand (100,000) Options with an exercise price of $1.25 per share pursuant to the Plan. This block of Options vest over a two year period through January 1, 2010, in equal increments of 33.33% immediately upon signing of the agreement, and 33.33% will vest on the anniversary date of January 1, 2011, and the remaining 33.34% on the anniversary date of January 1, 2012, or in full if involuntarily terminated.  The value of employee and non-employee stock Options granted since the Plans inception in August 2009 is estimated in blocks using the Black-Scholes model at the grant date, with the following assumptions:  Aug. 31, 2009
     Nov. 9, 2009
     Jan. 1, 2010Volatility
     188.00%
     188.00%
     188.00%Expected dividends
     $ 0.00
     $ 0.00
     $ 0.00Expected term in years
     10
     10
     10Risk-free rate
     3.40%
     3.49%
     3.84%
  The volatility assumption is based upon comparable development stage companies in our standard industrial classification code. The risk-free interest rate assumption is based upon U.S. Treasury Bond interest rates appropriate for the terms of the Companys granted Options. The dividend yield assumption is based on the Companys history and expectation of dividend payments.          11


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SONNEN CORPORATION AND SUBSIDIARY (Formerly known as Simple Tech Inc and Subsidiary) (A DEVELOPMENT STAGE ENTERPRISE) NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) For the nine months ended September 30, 2010 and 2009
 NOTE 8  STOCK  BASED COMPENSATION - continued  A summary of the Options granted to employees and others under the Plan and changes since inception of the Plan is presented below:  Number of Options
     
     Weighted Average Exercise Price
     
     Aggregate Intrinsic ValueBalance at July 1, 2009
     -
     $
     -
     $
     -Options Granted
     2,000,000
     
     1.03
     
     2,038,908Options Exercised
     -
     
     1.00
     
     -Options Forfeited or Expired
     -
     
     1.00
     
     -Balance at June 30, 2010
     2,000,000
     $
     1.03
     $
     2,038,908Exercisable at June 30, 2010
     150,000
     $
     1.07
     $
     162,571Weighted average fair value of Options
granted through June 30, 2010
     
     $
     1.02
   Number of Options
     
     Weighted Average Exercise Price
     
     Aggregate Intrinsic ValueBalance at July 1, 2010
     2,000,000
     $
     1.03
     $
     2,038,908Options Granted
     -
     
     1.00
     
     -Options Exercised
     -
     
     1.00
     
     -Options Forfeited or Expired
     200,000
     
     1.00
     
     201,499Balance at September 30, 2010
     1,800,000
     $
     1.02
     $
     1,837,409Exercisable at September 30, 2010
     683,280
     $
     1.02
     $
     699,848Weighted average fair value of Options
granted through September 30, 2010
     
     $
     1.02
             12


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SONNEN CORPORATION AND SUBSIDIARY (Formerly known as Simple Tech Inc and Subsidiary) (A DEVELOPMENT STAGE ENTERPRISE) NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) For the nine months ended September 30, 2010 and 2009
 NOTE 8  STOCK  BASED COMPENSATION - continued  The following table summarizes information about Options under the Plan that were outstanding at September 30, 2010:  Outstanding Options
     Options ExercisableExercise Price
     
     Number Outstanding at Sept. 30, 2010
     
     Weighted Average Remaining Contractual Life in Years
     
     Weighted Average Exercise Price
     
     Intrinsic Value
     Number Exercisable at Sept. 30, 2010
     
     Weighted Average Exercise Price
     
     Aggregate Intrinsic Value$
     1.00
     
     1,600,000
     
     10.00
     $
     1.00
     $
     1,611,993
     533,280
     $
     1.00
     $
     537,277$
     1.25
     
     200,000
     
     10.00
     $
     1.25
     $
     225,416
     150,000
     $
     1.08
     $
     162,5711,800,000
     
     10.00
     $
     1.02
     $
     1,837,409
     683,280
     $
     1.02
     $
     699,848
   The total value of all employee and non-employee stock Options granted from the inception of the plan was $1,837,409.  During the three months ended September 30, 2010, the Company recorded $150,030 and $-0-, respectively, in stock-based compensation which is included in salaries, payroll taxes, and expenses on the statements of operations.  At September 30, 2010 there was $1,042,058 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 January 1, 2012.   NOTE 9  RELATED PARTY TRANSACTIONS  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 extends through October 31, 2010. As of September 30, 2010, this related party had a balance due of $2,944, 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 extends through December 31, 2009. As of September 30, 2010, this related party had a balance due of $34,206, which is reflected in accounts payable  related parties.  13


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SONNEN CORPORATION AND SUBSIDIARY

(Formerly known as Simple Tech Inc and Subsidiary)

(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

For the nine months ended September 30, 2010 and 2009



NOTE 9  RELATED PARTY TRANSACTIONS - continued  Consulting Agreements  continued  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. As of September 30, 2010, this related party had a balance due of $65,350, which is reflected in accounts payable  related parties.  On October 1, 2009, the Company entered into a consulting agreement with the Head of Research that calls for monthly compensation of $6,000 and extends through December 31, 2009. As of September 30, 2010, this related party had a balance due of $1,840, and is reflected in accounts payable  related parties.   NOTE 10  COMMITMENTS AND CONTINGENCIES  Breach of Contract Claim  OnFebruary 6, 2010, PT Group notified the Company of a purported breach of contract items 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 this licensing agreement.  On March 8, 2010, the Company filed a complaint in the Circuit Court of the 11th 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. The Company expects to succeed on the merits of its claims.  As a result of this discovery, the Company impaired the entire $672,000 book value of the license agreement.   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.


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Item 2.MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.  ThisManagements Discussion and Analysis of Financial Condition andResults of Operationsand other parts of this quarterly 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 entitledForward-Looking Statements and Factors That May Affect Future Results and Financial Conditionbelow. The following discussion should be read in conjunction with our condensed consolidated financial statements and related notes included in this report. Information presented herein is based on the three month period ended September 30, 2010. Our fiscal year-end is June 30.  Discussion and Analysis of the Companys Plan of Operation  The Companys plan of operation for the coming year is to resumeresearch and development into improving catalysts for the utilization of fuel-cells and related catalysis fields such as emission abatement and ceramic technologies.We have not generated any revenue since inception.  Business Strategy  The Companys plan of operation begins with the resumption of intensive research and development activities during which time we will take steps to develop and lay the ground work to develop or acquire a portfolio of proprietary technology that can be commercialized over the near term.  Research and Development  The Company has suspended its development plan for the fuel cell technology licensed fromPT Group, Limited (PT Group). While awaiting resolution of the uncertainties surrounding the licensing agreement, the Company 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. We believe that our products will 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. Our anticipated time frame for meeting these objectives and initiating the commercialization of new technologies is three years. Marketing  In the event a commercially viable product or products is ready to be manufactured, we intend to implement a public awareness campaign to educate consumers, industry leaders and government representatives alike as to the benefits of our technology for a variety of applications. We expect to conduct such a campaign with the benefit of press releases, contributions to scientific publications, meetings with environmental groups and general advertising within mass media markets. We anticipate a response that will include extensive media coverage, scientific community scrutiny, and support from the environmental lobby. 15


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Manufacturing  We intend to manufacture future products at a pilot plant to be constructed for the purpose of meeting initial orders for fuel cells or like applications and proving our manufacturing processes. When proven we would expect to enter into a series of joint ventures to expand manufacturing facilities and to sublicense specific applications for any given technology to targeted industries. Our facilities and those of our joint venture partners and sublicenses will manufacture end user products that incorporate our fuel cells or like products.  Financing  The Company intends to raise funds to meet its operational requirements through a combination of (i) private placements of equity to accredited investors, (ii) issuance of debt instruments to accredited investors, (iii) by government grant, and/or (iv) sub-license agreements.  Revenues  We expect to realize revenue from the direct sale of products derived from any technology we might develop, from revenues accrued from joint venture relationships and from royalties.  Business Strategy Risks   The Company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 anticipated development of advanced energy enhanced technology. Historically, the Company 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 the Company 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, the Company 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.  Results of Operations  Net Losses  For the period from inception (November 16, 2006) until September 30, 2010, the Company incurred net losses of $2,664,748. Net losses for the three months ended September 30, 2010, were $214,070 as compared to $201,079 for the three months ended September 30, 2009. The increase in net losses over the comparative periods can be attributed to an increase in general and administrative expenses.  We will continue to operate at a loss through fiscal 2011 and due to the suspension of our research and development operations cannot determine whether we will ever generate revenues from operations.       16


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General and Administrative Expenses  For the period from inception (November 16, 2006) until September 30, 2010, the Company incurred general and administrative expenses of $2,028,742. General and administrative expenses for the three months ended September 30, 2010, were $208,362 as compared to $201,079 for the three months ended September 30, 2009. The increase in general and administrative expenses over the comparative periods is primarily attributable to an increase in compensation and related taxes and benefits. General and administrative expenses include professional fees, consulting fees, compensation, and research and development expenses. We expect general and administrative expenses to decrease in the near term as a reflection of the termination of various consulting agreements. Over the long term operating expenses are expected to increase as the Company acts to develop new technologies.  Income Tax Expense (Benefit)  The Company has a prospective income tax benefit resulting from a net operating loss carry-forward and start up costs that will offset any future operating profit.  Impact of Inflation  The Company believes that inflation has not had a material affect on operations for the period from November 16, 2006 (inception) to September 30, 2010.  Capital Expenditures  The Company has not spent significant amounts of capital for the period from November 16, 2006 (inception) to September 30, 2010.  Liquidity and Capital Resources  The Company had a working capital deficit of $528,128, current assets of $11,239 and total assets of $12,511 at September 30, 2010. The Company had current and total liabilities of $539,367 at September 30, 2010 that consisted of accounts payable, notes payable, accrued payroll and accrued liabilities.  The Companys shareholder deficit was $526,856 as of September 30, 2010.  For the period from inception (November 16, 2006) until September 30, 2010, the Companys cash flow used in development stage activities was $836,488. Cash flows used in development stage activities for the three months ended September 30, 2010, were $33,560 as compared to $519,006 for the three months ended September 30, 2009. The decrease in cash flow used in development stage activities over the comparative periods can be primarily attributed to a gain from adjustments to cash provided by stock options vested in the current period and an elimination of changes to assets from accounts receivables in the current period. The Company expects that cash flow used in operating activities will remain steady in the near term.  For the period from inception until September 30, 2010, the Companys cash flow used in investing activities was $1,853. Cash flows used in investing activities for the three months ended September 30, 2010 and 2009 was $0. The Company expects that cash flow used in investing activities will increase in future periods.   17


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For the period from inception until September 30, 2010, the Companys cash flow provided by financing activities was $838,621. Cash flows provided by financing activities for the three months ended September 30, 2010 were $33,000 as compared to $510,000 for the three months ended September 30, 2009. The Company expects that cash flow provided by financing activities will increase over the near term as it looks to resume research and development activities in connection with the development of new technologies.  The Companys current assets are insufficient to conduct its plan of operation over the next twelve (12) months. We will have to realize at least $500,000 in debt or equity financing over the next twelve months to fund our continued operations.  The Company has no current commitments or arrangements with respect to, or immediate sources of this funding. Furthermore, no assurances can be given that such funding is available. The Companys shareholders are the most likely source of new funding in the form of loans or equity placements though none have made any commitment for future investment and the Company has no such agreement formal or otherwise. The Companys inability to obtain funding will have a material adverse affect on its ability to remain a technology development company and effect its plan of operation.  Cash dividends are not expected to be paid in the foreseeable future.  The Company had no lines of credit or other bank financing arrangements as of September 30, 2010.  Commitments for future capital expenditures were not material as of September 30, 2010.  The Company had no contractual commitment with any of its officers or directors as of September 30, 2010.  The Company had no current plans for the purchase or sale of any plant or equipment as of September 30, 2010.  The Company has no plans to make any changes in the number of employees as of September 30, 2010.  Off Balance Sheet Arrangements  As of September 30, 2010, the Company 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 is material to stockholders.  Going Concern Our auditor has included an explanatory paragraph in its report as to the Companys ability to continue as a going concern as a result of net losses of $2,380,655 as of June 30, 2010, which losses have increased to 2,664,748 as of September 30, 2010. The Companys ability to continue as a going concern is subject to the ability of the Company to realize a profit and /or obtain funding from outside sources.  Managements plan to address the Companys ability to continue as a going concern includes: (i) obtaining funding from the private placement of debt or equity; (ii) realizing revenues from the commercialization of new technologies; and (iii) obtaining loans and grants from financial or government institutions.  Management believes that it will be able to obtain funding to allow the Company to remain a going concern through the methods discussed above, though there can be no assurances that such methods will prove successful.  18


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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 may not be 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 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 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 including the factors set forth in the section entitled Risk Factorsincluded elsewhere in this report. We 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 than as required by law.  Stock-Based CompensationWe have adopted Accounting Standards Codification, ASC 718, formerly SFAS No. 123R,Share-Based Payments, which addresses the accounting for stock-based payment transactions in which an enterprise receives employee services in exchange for (a) equity instruments of the enterprise or (b) liabilities that are based on the fair value of the enterprises equity instruments or that may be settled by the issuance of such equity instruments. We account for equity instruments issued in exchange for the receipt of goods or services from other than employees in accordance with ASC 505. Costs are measured at the estimated fair market value of the consideration received or the estimated fair value of the equity instruments issued, whichever is more reliably measurable based on the Black-Scholes model. The value of equity instruments issued for consideration other than employee services is determined on the earliest of a performance commitment or completion of performance by the provider of goods or services.  Recent Accounting Pronouncements  Please see Note 2 to the accompanying financial statements for recent accounting pronouncements that may affect us.    19


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Critical Accounting Policies  In the notes to the audited consolidated financial statements the Company for the years ended June 30, 2010 and 2009, included in the Companys Form 10-K filed with the Securities and Exchange Commission, the Company discussed those accounting policies that are considered to be significant in determining the results of operations and financial position. The Companys management believes that their accounting principles conform to accounting principles generally accepted in the United States of America.  The preparation of financial statements requires management to make significant estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. By their nature, these judgments are subject to an inherent degree of uncertainty. On an on-going basis, we evaluate our estimates, including those related to bad debts, inventories, intangible assets, warranty obligations, product liability, revenue, and income taxes. We base our estimates on historical experience and other facts and circumstances that are believed to be reasonable, and the results form the basis for making judgments about the carrying value of assets and liabilities. The actual results may differ from these estimates under different assumptions or conditions.  ITEM 3.          QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.  Not required.  ITEM 4.          CONTROLS AND PROCEDURES.  Evaluation of Disclosure Controls and Procedures  In connection with the preparation of this report on Form 10-Q, an evaluation was carried out by management, with the participation of the chief executive officer and the chief financial officer, of the effectiveness of the Companys disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (Exchange Act)). 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, the Companys management concluded, as of the end of the period covered by this report, that the Companys disclosure controls and procedures were 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 that such information was accumulated and communicated to management, including the chief executive officer and the chief financial officer, to allow timely decisions regarding required disclosures.  Changes in Internal Control over Financial Reporting  There have been no changes in internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) during the three months ended September 30, 2010, that materially affected, or are reasonably likely to materially affect, the Companys internal control over financial reporting.   20


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PART II  OTHER INFORMATION  ITEM 1.          LEGAL PROCEEDINGS.  On March 8, 2010, the Company filed a complaint in the Circuit Court of the 11th 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. The Company expects to succeed on the merits of its claims.  ITEM 1A.       RISK FACTORS.  The Companys operations and securities are subject to a number of risks. Below we have identified and discussed the material risks that we are likely to face. Should any of the following risks occur, they will adversely affect our operations, business, financial condition and/or operating results as well as the future trading price and/or the value of our securities.  Risks Related to the Companys Business  We have a history of significant operating losses and such losses may continue in the future.  Since November 16, 2006, our expenses have resulted in continuing losses and an accumulated deficit of $2,664,748 at September 30, 2010. We expect operating losses to diminish in the near term until such time as we resume research and development efforts.  Further we expect losses to continue over the long term until such time, if ever, that we are able to build our business to the point of commercializing a technology. Our only expectation of future profitability is dependent upon this result and there is no assurance that even in the event we are able to commercialize a technology that revenue from sales related to that success will be sufficient to satisfy operating costs and produce a profit.  We need to continue as a going concern if our business is to succeed.  Our independent accountants report on our audited financial statements for the period ended June 30, 2010, includes an explanatory paragraph that notates that there are a number of factors that raise substantial doubt as to our ability to continue as a going concern. Such factors identified in the report include our ability to meet our obligations, to obtain additional financing as may be required, and ultimately to attain profitability. If we are not able to continue as a going concern, it is likely that the Company will cease operations and our shareholders will lose their investments.            21
  21


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Risks Related to the Development of Technologies  General economic conditions will affect the Companys operations.  Changes in the general domestic and international climate may adversely affect the Companys financial performance. Factors that may contribute to a change in the general economic climate include industrial disputes, interest rates, inflation, international currency fluctuations and political and social reform. Further, the delayed revival of the global economy is not conducive to rapid growth, particularly of technology companies though we believe that as the world becomes more environmentally conscious, that governments are under increasing pressure to develop environmentally cleaner alternatives for generating electricity. Fuel cell technology is generally seen as a promising alternative. Despite this shift to environmental consciousness there is no assurance that governments will elect to develop cleaner energy alternatives such as fuel cell technology.  Environmental laws and other governmental legislation may affect our business.  Should the technology we decide to develop not comply with applicable environmental laws or if the Company is exposed to liability claims, its business and financial results could be seriously harmed. Any imposition of liability that is not covered by insurance or is in excess of insurance coverage could have a material adverse effect on our business, results of operations and financial condition. Furthermore, changes in legislation and government policy could also negatively impact us. The Company is currently unaware of any introduced or proposed bills, or policy, that may cause any specific changes to its operations. However, no assurance can be given that we will be able to obtain any necessary license required in the future, or that future changes in laws or government policies affecting any technology we might develop, or products we might market, will not impose additional regulatory requirements on the Company, intensify competition in the fuel cell technology industry or otherwise have a material adverse effect on our business, financial condition and results of operations.  There are significant commercialization risks related to technological businesses.  The industry in which we operate is characterized by the continual search for technological advances that deliver improved reliability, lower emission levels and reduced cost. Our growth and future financial performance will depend on the Companys ability to enhance the licensed technology for the purpose of developing and introducing products that keep pace with technological developments and evolving industry requirements. Should we be unable to keep pace with outside technological developments such failure will have a material adverse effect on its business. The research and development required to commercialize products requires significant investment and innovation to keep pace with technological developments. Should the Company fail to anticipate or respond adequately to technological developments, or if the Company experiences significant delays in product development, its products may become obsolete. Should the Companys products not keep pace with technological developments or fail to gain widespread market acceptance there is a significant likelihood that we may not be able to sustain our business.  We face competition.  We may face competition from both conventional electricity generating technology and fuel cell technology companies, including competitors which may have greater research and development, management, financial, technical, manufacturing, marketing, sales, and other resources than those currently available to us. There can be no assurance that we will be able to compete successfully against our current and future competitors. 22


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We may face liability claims on our future products.  Although we intend to implement exhaustive testing programs to identify potential material defects in technology we might develop, any undetected defects could harm our reputation, diminish our customer base, shrink revenues and expose us to product liability claims.  We may rely upon patents and other intellectual property  We may rely on a combination of patent applications, trade secrets, trademarks, copyrights and licenses, together with non-disclosure and confidentiality agreements, to establish and protect proprietary rights to technologies we may decide to develop. Should we be unable to adequately protect intellectual property rights or become subject to a claim of infringement, our business may be materially adversely affected. We expect to prepare patent applications in accordance with our worldwide intellectual property strategy on acquiring new technologies. However, we cannot be certain that any patents will be issued with respect to future patents pending or future patent applications. Further, we do not know whether any future patents will be upheld as valid, proven enforceable against alleged infringers or be effective in preventing the development of competitive patents. The Company believes that it has implemented a sophisticated internal intellectual property management system to promote effective identification and protection of its inventions and know-how in connection with the technologies it may develop in the future.  We will rely upon co-development partners.  We expect to derive a large portion of our future revenues from entering into co-development partnership agreements though we have not yet entered into any such agreements. Should we be unable to negotiate co-development partnership agreements on favorable terms or at all, such failure will negatively impact our results of operations.  We will rely upon manufacturing joint venture agreements.  Our plan of operation contemplates entering into manufacturing joint venture agreements with one or more external parties to manufacture products based on proprietary technology. Should we be unable to secure manufacturing joint venture agreements on favorable terms or at all, such failure will negatively impact our ability to manufacture our anticipated products.  We may not be able to effectively manage our growth.  We expect considerable future growth in our business. However, to achieve this growth in an efficient and timely manner, we will have to maintain strict controls over our internal management, technical, accounting, marketing, and research and development departments. We believe that we have retained sufficient quality personnel to manage our anticipated future growth and have adequate reporting and control systems in place. Should we be unable to successfully manage our anticipated future growth by adherence to these strictures, costs may increase, growth could be impaired and our ability to keep pace with technological advances may be impaired which failures could result in a loss of future customers.  We rely on key personnel.  Our success depends to a large degree on the continued services of its senior management and key personnel. We believe that responsible management processes, an emphasis on people management, and restraint of trade clauses within employment contracts reduce the likelihood of such personnel becoming competitors. Nonetheless, the loss of services provided by senior management, particularly to a competitor, could disrupt operations and harm our business.  23


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Risks Related to the Companys Stock  Capital funding requirements may result in dilution to existing shareholders.  We must realize significant capital funding over the next three years to acquire and develop proprietary technologies. We intend to raise this capital through equity offerings, debt placements or joint ventures. Should we secure a commitment to provide us with capital such commitment may obligate us to issue shares of our common stock, warrants or create other rights to acquire our common stock. New issuances of our common stock will result in a dilution of our existing shareholders interests.  The market for our stock is limited and our future stock price may be volatile.  The market for our common stock on the Over the Counter Bulletin Board is limited to sporadic trading which may result in future volatility in the market price of our stock. Due to these factors our shareholders may face extraordinary difficulties in selling the Companys shares in an orderly and timely manner.  We do not pay cash dividends.  The Company does not pay cash dividends. We have not paid any cash dividends since inception and have no intention of paying any cash dividends in the foreseeable future. Any future dividends would be at the discretion of our board of directors and would depend on, among other things, future earnings, our operating and financial condition, our capital requirements, and general business conditions. Therefore, shareholders should not expect any type of cash flow from their investment.  FINRA sales practice requirements may limit a stockholders ability to buy and sell our stock.  The Financial Industry Regulatory Authority (FINRA) has adopted rules that relate to the application of the Commissions penny stock rules in trading our securities and require that a broker/dealer have reasonable grounds for believing that the investment is suitable for that customer, prior to recommending the investment. Prior to recommending speculative, low priced securities to their non-institutional customers, broker/dealers must make reasonable efforts to obtain information about the customers financial status, tax status, investment objectives and other information. Under interpretations of these rules, the FINRA believes that there is a high probability that speculative, low priced securities will not be suitable for at least some customers. The FINRA requirements make it more difficult for broker/dealers to recommend that their customers buy our common stock, which may have the effect of reducing the level of trading activity and liquidity of our common stock. Further, many brokers charge higher transactional fees for penny stock transactions. As a result, fewer broker/dealers may be willing to make a market in our common stock, reducing a shareholders ability to resell shares of our common stock.  We incur significant expenses as a result of the Sarbanes-Oxley Act of 2002, which expenses may continue to negatively impact our financial performance.  We incur significant legal, accounting and other expenses as a result of the Sarbanes-Oxley Act of 2002, as well as related rules implemented by the Commission, which control the corporate governance practices of public companies. Compliance with these laws, rules and regulations, including compliance with Section 404 of the Sarbanes-Oxley Act of 2002, as discussed in the following risk factor, has substantially increased our expenses, including legal and accounting costs, and made some activities more time-consuming and costly. 24


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Our internal controls over financial reporting are not considered effective which conclusion may result in a loss of investor confidence in our reports and in turn have an adverse effect on our stock price.  Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 we are required to furnish a report by our management on our internal controls over financial reporting. Such report must contain, among other matters, an assessment of the effectiveness of our internal controls over financial reporting as of the end of the year, including a statement as to whether or not our internal controls over financial reporting are effective. This assessment must include disclosure of any material weaknesses in our internal controls over financial reporting identified by management. Since we are unable to assert that our internal controls are effective, our investors may lose confidence in the accuracy and completeness of our financial reports, which in turn could cause our stock price to decline.  The Companys shareholders may face significant restrictions on their stock.  Our common stock is and will be subject to the penny stock rules adopted under section 15(g) of the Exchange Act. The penny stock rules apply to companies whose common stock is not listed on the NASDAQ Stock Market or other national securities exchange and trades at less than $5.00 per share or that have tangible net worth of less than $5,000,000 ($2,000,000 if the company has been operating for three or more years). These rules require, among other things, that brokers who trade penny stock to persons other than established customers complete certain documentation, make suitability inquiries of investors and provide investors with certain information concerning trading in the security, including a risk disclosure document and quote information under certain circumstances. Many brokers have decided not to trade penny stocks because of the requirements of the penny stock rules and, as a result, the number of broker-dealers willing to act as market makers in such securities is limited. If the Company remains subject to the penny stock rules for any significant period, it could have an adverse effect on the market, if any, for our securities. If the Companys securities are subject to the penny stock rules, investors will find it more difficult to dispose of our securities.  ITEM 2.          UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.  None.  ITEM 3.          DEFAULTS ON SENIOR SECURITIES.  None.  ITEM 4.          (REMOVED AND RESERVED)  Removed and reserved.  ITEM 5.          OTHER INFORMATION.  None.  ITEM 6.          EXHIBITS.  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‐Q, and are incorporated herein by this reference.
  25


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SIGNATURES  Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.  Sonnen Corporation
RegistrantNovember 15, 2010
Date
     
     /s/ Robert Miller
Robert Miller
Chief Executive Officer and DirectorNovember 15, 2010
Date
     
     /s/ Costas Takkas
Costas Takkas
Chief Financial Officer, Principal Accounting Officer and Director
    26


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EXHIBITS  Exhibit       Description  3.1(i)*              Articles of Incorporation, incorporated by reference to the Companys Form SB-2 filed with the Commission on August 6, 2007. 3.1(ii)*             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(i)*               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(ii)*              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(iii)*             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(iv)*             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(v)*              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(vi)*             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(vii)*            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(i)                
Certification of the Chief Executive Officer pursuant to Rule 13a-14 of the Securities and Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31(ii)               
Certification of the Chief Financial Officer pursuant to Rule 13a-14 of the Securities and Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32(i)                
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. 32(ii)               
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.  *          Incorporated by reference from previous filings of the Company 27


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