UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549


_______________




FORM
10-Q


_______________




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




For
the quarterly period ended September 30, 2008




o
            TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934





For the transition period from
______to______.




SONASOFT
CORP.


(Exact
name of registrant as specified in Charter)




CALIFORNIA
            
            000-52176
            
            51-0439372(State
      or other jurisdiction of
              incorporation
      or organization)
            
            (Commission
      File No.)
            
            (IRS
      Employee Identification No.)





6489
Camden Avenue, Suite 105, San Jose, CA 95120


(Address
of Principal Executive Offices)


_______________




(408)
927-6200


(Issuer
Telephone number)


_______________




(Former
Name or Former Address if Changed Since Last Report)




Check
whether the issuer (1) has filed all reports required to be filed by Section 13
or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter
period that the issuer was required to file such reports), and (2)has been
subject to such filing requirements for the past 90 days. Yes x Noo




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




Large
      Accelerated Filer o
            Accelerated
      Filer o
            Non-Accelerated
      Filer o
            Smaller
      Reporting Company x





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





State the
number of shares outstanding of each of the issuer’s classes of common equity,
as of as of November 14, 2008:  34,697,144 shares of common stock.














SONASOFT
CORP.





FORM
10-Q




September
30, 2008




INDEX




PART
I-- FINANCIAL INFORMATION




Item
      1.
            Financial
      StatementsItem
      2.
            Management’s
      Discussion and Analysis of Financial ConditionItem
      3
            Quantitative
      and Qualitative Disclosures About Market RiskItem
      4T.
            Control
      and Procedures




PART
II-- OTHER INFORMATION




Item
      1
            Legal
      ProceedingsItem
      1A
            Risk
      FactorsItem
      2.
            Unregistered
      Sales of Equity Securities and Use of ProceedsItem
      3.
            Defaults
      Upon Senior SecuritiesItem
      4.
            Submission
      of Matters to a Vote of Security HoldersItem
      5.
            Other
      InformationItem
      6.
            Exhibits
      and Reports on Form 8-K




SIGNATURE













Item
1. Financial Information




SONASOFT
CORPORATION
 
 
 
 
 CONTENTS
 
 
 PAGE
              1
              BALANCE
      SHEET AS OF SEPTEMBER 30, 2008 (UNAUDITED) AND DECEMBER 31,
      2007PAGE
              2
              STATEMENTS
      OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2008 AND
      2007 (UNAUDITED)PAGE
              3
              STATEMENT
      OF CHANGES IN STOCKHOLDERS’ DEFICIENCY FOR THE NINE MONTHS ENDED SEPTEMBER
      30, 2008 (UNAUDITED)PAGE
              4
              STATEMENTS
      OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008 AND
      2007(UNAUDITED)PAGES
              5 -
      13
              NOTES
      TO UNAUDITED FINANCIAL STATEMENTS













SONASOFT,
      INC.BALANCE
      SHEETSASSETSAs
      of September 30,
              
              As
      of December 31,2008
              
              
              2007(Unaudited)Current
      AssetsCash
              
              $
              348,283
              
              
              $
              938,934Accounts
      Receivable, net
              
              
              80,635
              
              
              
              111,305Other
      Current Assets
              
              
              4,419
              
              
              
              5,658Total
      Current Assets
              
              
              433,337
              
              
              
              1,055,897Fixed
      Assets, net
              
              
              79,406
              
              
              
              86,137Deposit
              
              
              6,000
              
              
              
              6,000Intangible
      assets, net
              
              
              2,638
              
              
              
              2,638Total
      Other Assets
              
              
              8,638
              
              
              
              8,638Total
      Assets
              
              $
              521,381
              
              
              $
              1,150,672LIABILITIES AND
      STOCKHOLDERS' DEFICIENCYCurrent
      LiabilitiesAccounts
      payable
              
              $
              119,119
              
              
              $
              84,581Accrued
      expenses - related party
              
              
              941,254
              
              
              
              973,767Accrued
      expenses -non related party
              
              
              489,889
              
              
              
              483,389Royalty
      payable
              
              
              140,308
              
              
              
              111,988Convertible
      notes payable - related party
              
              
              117,062
              
              
              
              72,972Total
      Liabilities
              
              
              1,807,632
              
              
              
              1,726,697Commitments
      and Contingencies
              
              
              -
              
              
              
              -Stockholders'
      DeficiencyCommon
      stock, no par value; 100,000,000 shares authorized,34,697,144
      and 32,252,477 shares issued and outstanding, respectively
              
              
              7,227,227
              
              
              
              6,306,171Stock
      Subscription Receivable
              
              
              (111
              )
              
              
              (30,601
              )Accumulated
      deficit
              
              
              (8,513,367
              )
              
              
              (6,851,595
              )Total
      Stockholders' Deficiency
              
              
              (1,286,251
              )
              
              
              (576,025
              )Total
      Liabilities and Stockholders' Deficiency
              
              $
              521,381
              
              
              $
              1,150,672


1
   SONASOFT,
      INC.STATEMENT
      OF OPERATIONS(Unaudited)For
      the three Months Ended September 30,
                
                
                For
      the nine Months Ended September 30,2008
                
                
                2007
                
                
                2008
                
                
                2007Revenue
                
                $
                109,050
                
                
                $
                131,303
                
                
                $
                567,963
                
                
                $
                474,273Operating
      ExpensesSelling
      expenses
                
                
                179,199
                
                
                
                186,078
                
                
                
                512,897
                
                
                
                569,182Office
      salaries and payroll expenses
                
                
                170,065
                
                
                
                154,660
                
                
                
                468,585
                
                
                
                471,644Consulting
      fees
                
                
                13,900
                
                
                
                61,679
                
                
                
                141,214
                
                
                
                161,490Marketing
      and advertising
                
                
                17,787
                
                
                
                35,601
                
                
                
                79,823
                
                
                
                106,934Rent
                
                
                39,204
                
                
                
                24,000
                
                
                
                116,090
                
                
                
                62,126Legal
      and professional fees
                
                
                24,781
                
                
                
                29,315
                
                
                
                188,164
                
                
                
                44,205General
      and administrative
                
                
                125,822
                
                
                
                162,448
                
                
                
                383,191
                
                
                
                437,116Research
      and Development
                
                
                128,171
                
                
                
                117,535
                
                
                
                328,008
                
                
                
                321,423Total
      Operating Expenses
                
                
                698,929
                
                
                
                771,316
                
                
                
                2,217,972
                
                
                
                2,174,120Net
      loss from Operations
                
                
                (589,879
                )
                
                
                (640,013
                )
                
                
                (1,650,009
                )
                
                
                (1,699,847
                )Other
      Income (Expense)Interest
      Income
                
                
                3,208
                
                
                
                10,723
                
                
                
                16,557
                
                
                
                27,680Other
      Income
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                100Other
      Expense
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (105
                )Royalty
      Expense
                
                
                (4,318
                )
                
                
                (6,565
                )
                
                
                (28,320
                )
                
                
                (23,714
                )Total
      Other Income (Expense)
                
                
                (1,110
                )
                
                
                4,158
                
                
                
                (11,763
                )
                
                
                3,961Loss
      from Operations before Provision for Income Taxes
                
                
                (590,989
                )
                
                
                (635,855
                )
                
                
                (1,661,772
                )
                
                
                (1,695,886
                )Provision
      for Income Taxes
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Net
      Loss
                
                $
                (590,989
                )
                
                $
                (635,855
                )
                
                $
                (1,661,772
                )
                
                $
                (1,695,886
                )Loss
      per Common Share - Basic and Diluted
                
                $
                (0.02
                )
                
                $
                (0.02
                )
                
                $
                (0.05
                )
                
                $
                (0.06
                )Weighted
      average number of shares outstandingduring
      the period - Basic and Diluted
                
                
                34,697,144
                
                
                
                32,229,061
                
                
                
                32,479,312
                
                
                
                30,211,159
 
  2
   SONASOFT,
      INC.STATEMENT
      OF CHANGES IN STOCKHOLDERS' DEFICIENCYFOR THE NINE
      MONTHS ENDED SEPTEMBER 30, 2008(UNAUDITED)StockCommon
      Stock
                
                
                
                
                
                Paid
      In
                
                
                Subscription
                
                
                AccumulatedShares
                
                
                Par
                
                
                Capital
                
                
                Receivable
                
                
                Deficit
                
                
                TotalBalance,
      December 31, 2007
                
                
                32,252,477
                
                
                $
                -
                
                
                $
                6,306,171
                
                
                $
                (30,601
                )
                
                $
                (6,851,595
                )
                
                $
                (576,025
                )Stock
      subscription receivable
                
                
                33
                
                
                
                -
                
                
                
                10
                
                
                
                (10
                )
                
                
                -
                
                
                
                -Stock
      subscription set off
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                30,500
                
                
                
                -
                
                
                
                30,500Stock
      options issued to employees
                
                
                -
                
                
                
                -
                
                
                
                187,656
                
                
                
                -
                
                
                
                -
                
                
                
                187,656Stock
      issued for services
                
                
                459,110
                
                
                
                -
                
                
                
                137,733
                
                
                
                -
                
                
                
                -
                
                
                
                137,733Stock
      issued for cash
                
                
                1,985,524
                
                
                
                -
                
                
                
                595,657
                
                
                
                -
                
                
                
                -
                
                
                
                595,657Net
      Loss
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (1,661,772
                )
                
                
                (1,661,772
                )Balance, September
      30, 2008
                
                
                34,697,144
                
                
                $
                -
                
                
                $
                7,227,227
                
                
                $
                (111
                )
                
                $
                (8,513,367
                )
                
                $
                (1,286,251
                )
 
   3
   SONASOFT,
      INC.STATEMENT
      OF CASH FLOWS(Unaudited)For
      the Nine Months Ended September 30,2008
                
                
                2007Cash
      Flows From Operating Activities:Net
      Loss
                
                $
                (1,661,772
                )
                
                $
                (1,695,886
                )Adjustments
      to reconcile net loss to net cash used in operationsIssuances
      of shares for services rendered
                
                
                137,733
                
                
                
                39,360Options
      issued to employee
                
                
                187,656
                
                
                
                187,947Depreciation
                
                
                18,344
                
                
                
                14,787Changes
      in operating assets and liabilities:Accounts
      Receivable
                
                
                30,670
                
                
                
                133,961Current
      Assets
                
                
                1,239
                
                
                
                (283
                )Accrued
      Expenses
                
                
                6,500
                
                
                
                119,352Accrued
      Expenses - related party
                
                
                (32,513
                )
                
                
                1,000Royalty
      Payable
                
                
                28,320
                
                
                
                23,714Accounts
      Payable
                
                
                34,538
                
                
                
                5,445Net
      Cash Used In Operating Activities
                
                
                (1,249,285
                )
                
                
                (1,170,603
                )Cash
      Flows From Investing Activities:Purchase
      of Assets
                
                
                (11,613
                )
                
                
                (29,195
                )Net
      Cash Used In Investing Activities
                
                
                (11,613
                )
                
                
                (29,195
                )Cash
      Flows From Financing Activities:Proceeds
      from loans payable
                
                
                44,090
                
                
                
                0Common
      Stock issued for cash
                
                
                626,157
                
                
                
                1,512,572Net
      Cash Provided by Financing Activities
                
                
                670,247
                
                
                
                1,512,572Net
      Increase (Decrease) in Cash
                
                
                (590,651
                )
                
                
                312,774Cash
      at Beginning of Period
                
                
                938,934
                
                
                
                1,053,756Cash
      at End of Period
                
                $
                348,283
                
                
                $
                1,366,530Supplemental
      disclosure of cash flow information:Cash
      paid for interest
                
                $
                -
                
                
                $
                -Cash
      paid for taxes
                
                $
                -
                
                
                $
                -
 
 
 4
 SONASOFT CORPORATION
 SEPTEMBER 30, 2008
 NOTES TO
FINANCIAL STATEMENTS
 (UNAUDITED)
   NOTE
1                 SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES AND ORGANIZATION
 
 (A)
Organization
  SONASOFT CORPORATION,
Inc.  (The "Company") was incorporated under the laws of the State ofCaliforniaon December 18, 2002. The Company
develops software that automates the disk-to-disk backup and recovery process
for Microsoft Exchange, SQL and Windows Servers with integrated data protection,
high availability and disaster recovery solutions.
  The unaudited financial statements of
the Company have been prepared in accordance withU.S.generally accepted accounting
principles for interim financial information. Accordingly, they do not include
all the information and footnotes required by accounting principles generally
accepted in theUnitedStateofAmericafor annual financial statements.
However, the information included in these interim financial statements reflects
all adjustments (consisting solely of normal recurring adjustments) which are,
in the opinion of management, necessary for the fair presentation of the
financial position and the results of operations. Results shown for interim
periods are not necessarily indicative of the results to be obtained for a full
year.
 
 (B) Use of
Estimates
  In preparing financial statements in
conformity with generally accepted accounting principles, management is required
to make estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements and revenues and expenses during the reported
period. Actual results could differ from those estimates.
  (C) Cash and
Cash Equivalents
  For purposes of the cash flow
statements, the Company considers all highly liquid investments with original
maturities of three months or less at the time of purchase to be cash
equivalents.The Company at times has cash in banks
in excess of FDIC insurance limits and places its temporary cash investments
with high credit quality financial institutions.AtSeptember30, 2008, the Company had approximately
$310,722in cash balances at financial
institutions which were in excess of the FDIC insured limits.In October of 2008, the FDIC
increased the insurance limits on deposits to $250,000 per
depositor.
  (D) Loss Per
Share
  Basic and diluted net loss per common
share is computed based upon the weighted average common shares outstanding as
defined by Financial Accounting Standards No. 128, “Earnings per
Share.”As ofSeptember30, 2008and 2007, therewere 6,590,000and 6,160,000common share equivalents outstanding,
respectively. Common stocks equivalents have been excluded from the diluted net
loss per share as the amounts are anti-diluted.
  (E) Research
and Development Costs
  The Company expenses all research and
development costs as incurred for which there is no alternative future use.
These costs also include expensing of employee compensation and employee stock
based compensation.
  (F) Income
Taxes
  The Company accounts for income taxes
under the Statement of Financial Accounting Standards Board Statement of
Financial Accounting Standard NO. 109, “Accounting for Income Taxes” (“Statement
109”).  Under Statement 109, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statements carrying amounts of existing assets and liabilities and
their respective tax bases.
   5
  SONASOFT CORPORATION
 SEPTEMBER 30, 2008
 NOTES TO
FINANCIAL STATEMENTS
 (UNAUDITED)
  Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled.  Under Statement 109, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date
  (G) Revenue
Recognition
  Revenue is recognized when earned in
accordance with applicable accounting standard, including SOP 97-2, as amended.
Revenue from software arrangements with end users is recognized upon final
delivery of the software, provided that collection is probable and no
significant obligations remain. Maintenance arrangement revenue is deferred and
recognized over the service period.
  (H) Property
& Equipment
  We record our property and equipment at
cost and depreciate these assets on a straight-line basis to their estimated
residual values over their estimated useful lives of 3 to 7
years.
  (I)
Stock-Based Compensation
  The Company accounts for its stock-based
compensation under the provisions of SFAS No.123(R)“Accounting for
Stock Based Compensation.”Under SFAS No. 123(R),
the Company is permitted to record expenses for stock options and other employee
compensation plans based on their fair value at the date of grant. Any such
compensation cost is charged to expense on a straight-line basis over the
periods the options vest. If the options had cashless exercise provisions, the
Company utilized variable accounting.
  Common stock, stock options and common
stock warrants issued to other than employees or directors are recorded on the
basis of their fair value, as required by SFAS No. 123(R), which is
measured as of the date required by EITF Issue 96-18,“Accounting for
Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling, Goods or Services.” In accordance with EITF 96-18,
the stock options or common stock warrants are valued using the Black-Scholes
model on the basis of the market price of the underlying common stock on the
“valuation date,” which for options and warrants related to contracts that have
substantial disincentives to non-performance is the date of the contract, and
for all other contracts is the vesting date. Expense related to the options and
warrants is recognized on a straight-line basis over the shorter of the period
over which services are to be received or the vesting period. Where expense must
be recognized prior to a valuation date, the expense is computed under the
Black-Scholes model on the basis of the market price of the underlying common
stock at the end of the period, and any subsequent changes in the market price
of the underlying common stock up through the valuation date is reflected in the
expense recorded in the subsequent period in which that change
occurs.
  (J) Fair
Value of Financial Instruments
  The carrying amounts of the Company’s
financial instruments including accounts receivable, accounts payable and
accrued expenses approximate their fair value due to the relatively short period
to maturity for these instruments.
  (K) Business
Segments
  The Company operates in one segment and
thereforesegmentinformation is not
presented.
  (L)
Advertising Costs
  Advertising costs are expensed as
incurred and include the costs of public relations activities. These costs are
included in marketing and advertising expenses andtotaled $79,823 and $106,934 in the nine months
ended September 30, 2008 and September 30, 2007,
respectively.
   6
  SONASOFT CORPORATION
 SEPTEMBER 30, 2008
 NOTES TO
FINANCIAL STATEMENTS
 (UNAUDITED)
  (M)
Identifiable Intangible Assets
  As of September 30, 2008, $2,638 of
costs related to filing patent applications has been capitalized. When patents
are approved, the costs are amortized over the life of the
patent.  All costs for patents not approved will be expensed at that
time of denial.
  (N)
Long-Lived Assets
  Long-lived assets and certain
identifiable intangible assets related to those assets are periodically reviewed
for impairment whenever circumstances and situations change such that there is
an indication that the carrying amounts may not be recoverable. If the
non-discounted future cash flows of the enterprise are less than their carrying
amount, their carrying amounts are reduced to fair value and an impairment loss
is recognized. There was no impairment recorded in 2008 and
2007.
  (O) Recent
Accounting Pronouncements
  In December 2007, the Financial
Accounting Standards Board (FASB) issued SFAS No. 160, “Noncontrolling
Interests in Consolidated Financial Statements – an amendment of ARB No.
51”.  This
statement improves the relevance, comparability, and transparency of the
financial information that a reporting entity provides in its consolidated
financial statements by establishing accounting and reporting standards that
require; the ownership interests in subsidiaries held by parties other than the
parent and the amount of consolidated net income attributable to the parent and
to the noncontrolling interest be clearly identified and presented on the face
of the consolidated statement of income, changes in a parent’s ownership
interest while the parent retains its controlling financial interest in its
subsidiary be accounted for consistently, when a subsidiary is deconsolidated,
any retained noncontrolling equity investment in the former subsidiary be
initially measured at fair value, entities provide sufficient disclosures that
clearly identify and distinguish between the interests of the parent and the
interests of the noncontrolling owners.  SFAS No. 160 affects those
entities that have an outstanding noncontrolling interest in one or more
subsidiaries or that deconsolidate a subsidiary.  SFAS No. 160 is
effective for fiscal years, and interim periods within those fiscal years,
beginning on or after December 15, 2008. Early adoption is prohibited. The
adoption of this statement is not expected to have a material effect on the
Company's financial statements.
  In June 2008, the FASB issued SFAS
No. 161, “Disclosures about Derivative Instruments and Hedging Activities,
an amendment of FASB Statement No. 133” (SFAS 161). This statement is
intended to improve transparency in financial reporting by requiring enhanced
disclosures of an entity’s derivative instruments and hedging activities and
their effects on the entity’s financial position, financial performance, and
cash flows. SFAS 161 applies to all derivative instruments within the scope of
SFAS 133, “Accounting for Derivative Instruments and Hedging Activities” (SFAS
133) as well as related hedged items, bifurcated derivatives, and nonderivative
instruments that are designated and qualify as hedging instruments. Entities
with instruments subject to SFAS 161 must provide more robust qualitative
disclosures and expanded quantitative disclosures. SFAS 161 is effective
prospectively for financial statements issued for fiscal years and interim
periods beginning after November 15, 2008, with early application
permitted.
 
 In May
2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
Accounting Principles.” SFAS No. 162 identifies the sources of accounting
principles and provides entities with a framework for selecting the principles
used in preparation of financial statements that are presented in conformity
with GAAP. The current GAAP hierarchy has been criticized because it is directed
to the auditor rather than the entity, it is complex, and it ranks FASB
Statements of Financial Accounting Concepts, which are subject to the same level
of due process as FASB Statements of Financial Accounting Standards, below
industry practices that are widely recognized as generally accepted but that are
not subject to due process. The Board believes the GAAP hierarchy should be
directed to entities because it is the entity (not its auditors) that is
responsible for selecting accounting principles for financial statements that
are presented in conformity with GAAP. SFAS 162 is effective 60 days following
the SEC’s approval of PCAOB Auditing Standard No. 6, Evaluating Consistency
of Financial Statements (AS/6). The adoption of FASB 162 is not expected to have
a material impact on the Company’s financial position.
   7
  SONASOFT CORPORATION
 SEPTEMBER 30, 2008
 NOTES TO
FINANCIAL STATEMENTS
 (UNAUDITED)
 In May
2008, the FASB issued SFAS No. 163, “Accounting for Financial Guarantee
Insurance Contracts-an interpretation of FASB Statement No. 60.” Diversity
exists in practice in accounting for financial guarantee insurance contracts by
insurance enterprises under FASB Statement No. 60, Accounting and Reporting by
Insurance Enterprises. This results in inconsistencies in the recognition and
measurement of claim liabilities. This Statement requires that an insurance
enterprise recognize a claim liability prior to an event of default (insured
event) when there is evidence that credit deterioration has occurred in an
insured financial obligation. This Statement requires expanded disclosures about
financial guarantee insurance contracts. The accounting and disclosure
requirements of the Statement will improve the quality of information provided
to users of financial statements.  SFAS 163 is effective for financial
statements issued for fiscal years beginning after December 15, 2008, and
interim periods within those fiscal years. The adoption of FASB 163 is not
expected to have a material impact on the Company’s financial
position.
 
 NOTE
2                 GOING
CONCERN
  As reflected in the accompanying
financial statements, the Company hasa net loss of $1,661,772a working capital deficiency of
$1,374,295and a stockholders’ deficiency of
$1,286,251atSeptember30, 2008.  For thenine monthsendedSeptember30, 2008, the Company used cash of
$1,249,285in operations. This raises substantial
doubtabout its ability to
continue as a going concern.  The ability of the Company to continue
as a going concern is dependent on the Company’s ability to raise additional
capital and implement its business plan.  The financial statements do
not include any adjustments that might be necessary if the Company is unable to
continue as a going concern.
  Management believes that actions
presently being taken to obtain additional funding and to implement its
strategic sales plan provide the opportunity for the Company to continue as a
going concern.
  NOTE
3                  ACCOUNTS
RECEIVABLE
  Accounts receivable at September
30, 2008 consisted of the following:
  2008Trade and other
      receivables
              
              $
              80,635Less: Allowance for doubtful
      accounts
              
              
              -$
              80,635
  The bad debt expense for the nine months
ended September 30, 2008 was $0.
  NOTE
4                  PROPERTY AND
EQUIPMENT
  Property and equipment at September 30,
2008 consisted of the following:
 
 2008Office
      equipment
              
              $
              13,815Office
      furniture
              
              
              8,370Leasehold
      improvements
              
              
              35,473Computer
      equipment
              
              
              101,875Less: Accumulated
      depreciation
              
              
              80,127$
              79,406
  Depreciation expense for theninemonths endedSeptember30, 2008 was $18,344.
   
 8
  SONASOFT CORPORATION
 SEPTEMBER 30, 2008
 NOTES TO
FINANCIAL STATEMENTS
 (UNAUDITED)
 
 NOTE
5                  STOCKHOLDERS’
EQUITY
  (A) Common
Stock Issued for Cash
 During the nine months ended September
30, 2008, the Company issued 1,985,557 shares of common stock for cash for
$595,667.
   (B) Common
Stock Issued for Services
 
 During the nine months ended September
30, 2008, the Company issued 459,110 of common stock for services provided by
consultants for services; these shares were valued at a recent cash offer price
of $137,733.
 
 (C) Stock
Subscription Receivable
 
 During the quarter ended September 30,
2008, the company offset $30,500 in stock subscription receivable from related
parties against accrued remuneration payable to the same related
parties.  As a result, the Company has $111 in stock subscription
receivable as of September 30, 2008.
  (D)
Amended Articles of Incorporation
    NOTE
6                 STOCK OPTION
PLAN
  Effective January 1, 2006, transactions
under the Company’s 2003 Plan (as defined below) were accounted for in
accordance with the recognition and measurement provisions of SFAS no. 123
(revised), “Share-Based Payment”, which replaces SFAS No. 123, “Accounting for
Stock-Based Compensation”, and supersedes APB Opinion No. 25, “Accounting for
Stock Issued to Employees”, and related interpretations.  SFAS No.
123(R) requires compensation costs related to share-based payment transactions,
including employee stock options, to be recognized in the financial
statements.  In addition, the Company adheres to the guidance set
forth within SEC Staff Accounting Bulletin No. 107, which provides the views of
the staff of the SEC regarding the interaction between SFAS No. 123(R) and
certain SEC rules and regulations and provides interpretations with respect to
the valuation of share-based payments for public companies.
  In adopting SFAS No. 123(R), the Company
applied the modified prospective approach to transition.  Under the
modified prospective approach, the provisions of SFAS No. 123(R) are applied to
new awards and to awards modified, repurchased, or cancelled after the effective
date.  Additionally, compensation costs for the portion of awards for
which the requisite service has not been rendered that are outstanding as of the
effective date are recognized as the requisite services are rendered on or after
such date.  The compensation costs for that portion of awards are
based on the grant-date fair value of those awards as calculated for either
recognition of pro-forma disclosures under SFAS No. 123.
  As a result of the adoption of SFAS No.
123(R), the Company’s results for the nine months ended September 30, 2008
includes share-based compensation expense totaling$187,656, which has been included in
salaries expense.  No income tax benefit has been recognized in the
income statements for share-based compensation arrangements as the Company has
provided a 100% valuation allowance on its net deferred tax
asset.
  Stock option compensation expense for
the nine months ended September 30, 2008 is the estimated fair value of options
granted, amortized on a straight line basis over the requisite service period
for the entire portion of the award.During the quarters ended June 30, 2008
and September 30, 2008, the Company did not grant any stock option
awards.
 
  9
 
 SONASOFT CORPORATION
 SEPTEMBER 30, 2008
 NOTES TO
FINANCIAL STATEMENTS
 (UNAUDITED)
 Black-Scholes
Valuation
  The fair value of options at the date of
grant is estimated using the Black Scholes option pricing model.  The
assumptions made in calculating the fair values of options are as
follows:
  For the quarter
      ended
                September 30,
                2008Expected term (in
      years)
              3Expected
      volatility
              25% to
  78%Rick-free interest
      rate
              1.79% to
    3.05%
 
 Plan Information
  In February 2003, the 2003 Incentive and
Non-Statutory Stock Option Plan was approved and adopted by the Board of
Directors.  The 2003 Plan became effective upon the approval of the
holders of the Company’s stock at the Company’s annual stockholders meeting held
on September 4, 2003.  Under the 2003 Plan, the Company may grant
stock options to its employees, officers, and other key persons employed or
retained by the Company and any non-employee director, consultant, vendor or
other individual having a business relationship with the
Company.  Options are granted at various times and usually vest over a
thirty-nine (36) month period.   As of September 30, 2008 and 2007,
the Company had total options pursuant to the 2003 Plan of 6,590,000 and
6,160,000, respectively.
  A summary of the status of Company’s
fixed stock option plan as of September 30, 2008, and the changes during the
quarter then ended is presented below:
 
 Fixed options
  Qty
              
              
              Weighted
                Average
                Exercise
    PriceOutstanding at December
      31,2007
              
              
              6,160,000
              
              
              $
              0.17Issued
              
              
              785,000
              
              
              $
              0.00Exercised
              
              
              (105,000
              )
              
              $
              (0.00
              )Cancelled
              
              
              (250,000
              )
              
              $
              (0.00
              )Outstanding at September 30,
      2008
              
              
              6,590,000
              
              
              $
              0.17Exercisable at September
      30,2008
              
              
              5,239,560
 
   10
  SONASOFT CORPORATION
 SEPTEMBER 30, 2008
 NOTES TO
FINANCIAL STATEMENTS
 (UNAUDITED)
 Exercise
    Price
              Number
                Outstanding
                September 30,
      2008
              Weighted
                Average
                remaining
                Contractual
      Life
              Weighted
                Average
                Exercise Price
              Number
                Exercisable at
                September 30,
      2008
              Weighted
                Average
                Exercise
    Price.01-.10
              3,115,000
              *
              0.07
              3,115,000
              0.07.11-.20
              845,000
              *
              0.20
              829,855
              0.20.21-.30
              2,630,000
              *
              0.30
              1,294,705
              0.306,590,000
              
              
              5,239,560
 
 Exercise
    Price
              Number
                Outstanding
                September 30,
      2007
              Weighted
                Average
                remaining
                Contractual
      Life
              Weighted
                Average
                Exercise Price
              Number
                Exercisable at
                September 30,
      2007
              Weighted
                Average
                Exercise
    Price.01-.10
              3,115,000
              *
              0.07
              3,115,000
              0.07.11-.20
              845,000
              *
              0.20
              616,943
              0.20.21-.30
              2,200,000
              *
              0.30
              660,138
              0.306,160,000
              
              
              4,392,081
 
 *           The Company amended their Plan to read
that the contractual life would cease upon 60 days after the date that Buyer
ceases providing continuous services to the Seller.
 
 
 NOTE
7                  COMMITMENTS
AND CONTINGENCIES
  (A)
Employment Agreement
  The company has entered into an
employment agreement with its Chief Executive Officer through the year 2013 at
an annual minimum salary of $150,000 per year, with additional fringe benefits
as determined by the Board of Directors.  In the event of termination
of the agreement by the company, the company is required to pay a severance
payment equivalent to 60 months of salary at the rate, and with the benefits, in
effect at the date of termination.
  The company has also entered into
similar agreements each extending through the year 2011 with four other
employees/managers at an average annual salary of $120,000.  In the
event of termination of the agreement by the company, the company is required to
pay a severance payment equivalent to 12 months of salary at the rate, and with
the benefits, in effect at the date of termination.  The total
commitment as of September 30, 2008 under the employment agreements are
summarized below:
  2008
              
              $
              262,5002009
              
              $
              600,0002010
              
              $
              600,0002011
              
              $
              600,0002012
              
              $
              150,0002012
              
              $
              150,000$
              1,762,500
  
 11
  SONASOFT CORPORATION
 SEPTEMBER 30, 2008
 NOTES TO
FINANCIAL STATEMENTS
 (UNAUDITED)
   (B) Product
Development/Royalty Agreement
  In November 2007, the Company entered
into a product development agreement with a software development company
(developer).  Under the terms of the agreement, the developer will be
entitled to a royalty based on 10% of net sales of the product developed until
such time as two hundred percent (200%) of the actual project cost has been
cumulatively received by the developer.  After such time, the
developer would receive 5% of net sales of the product developed until such time
as an additional three hundred percent (300%) of the actual project cost has
been cumulatively received by the developer, resulting in a total payment to the
developer of five hundred percent (500%) of the actual project
cost.  At a point in time in the future that five hundred percent
(500%) of the actual project cost has been received by the developer, no further
royalties shall be owed.  The Company owes no liability to the
developer in respect to the product developed until the release of the product
whichis estimated to be in4thquarterof 2009.
  (C) Royalty
Agreement
  During the year 2003 the company entered
into royalty agreements with investors.  The maximum liability under
the agreement will be $1,500,000.  The maximum amount due to investors
in each year will be 5% of revenue up to a total of $1,500,000.  Such
premium is payable only if management of the Company reasonably determines that
the company is profitable.  Accordingly, in accordance with the signed
royalty agreements, the Company is accruing the royalty premium at 5% of
revenue.  As ofSeptember30, 2008,$140,308 hasbeen accrued.
  (D) Lease
Agreement
  The company has entered into a lease
agreement for an office building with a related party for a term of 3 years
ending on April 30, 2010. The annual rent payable under lease is $152,250 plus
annual increases of a minimum of 3% and expenses related to the common areas.
The follow summarizes obligations under the lease as of September 30,
2008:
  2008
              
              $
              39,2042009
              
              
              159,9522010
              
              
              53,840Total
              
              $
              252,996
   (E)
Employment Related Lawsuit
  In 2006, an ex-employee filed a lawsuit
against the Company for wrongful termination.  The Company has accrued
a tentative settlement with the ex-employee for the payment of $152,500 in cash
and an additional $25,000 worth of the Company stock as of December 31,
2007.  As of September 30, 2008, the tentative settlement with
ex-employee was not finalized or agreed upon by both parties.
  NOTE
8                  RELATED
PARTY TRANSACTIONS
  On January 4, 2007, the company entered
into an addendum to the lease agreement for their office space with the owner
who is a Director of the Company.  In consideration for the unpaid
amounts of rent and leasehold improvements, the Company issued a convertible
note payable.  On April 3, 2008, the Company entered into an addendum
to the lease agreement for their office with the owner who is a Director which
stated that all amounts of unpaid rent and leasehold improvements could only be
made in cash.  (See Note 9).
    12
  SONASOFT CORPORATION
 SEPTEMBER 30, 2008
 NOTES TO
FINANCIAL STATEMENTS
 (UNAUDITED)
    NOTE
9                 CONVERTIBLE
NOTE PAYABLE – RELATED PARTY
  In 2007, the Company entered into a
convertible note agreement with its landlord who is also a
director.  The note is convertible into common stock at $0.30 per
share at the election of the note holder.  The value of the conversion
option is equal to recent cash offering prices and no beneficial conversion was
recognized in accordance with EITF 98-5 and EITF 00-19.  On April 3,
2008, the Company entered into an addendum to the lease agreement for their
office space with the owner who is a Director which stated that all amounts of
unpaid rent and leasehold improvements could only be made in cash. (See
Note 8).
  NOTE 10    SUBSEQUENT EVENTS












13






ITEM
2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS





Forward-Looking
Statements





The
following discussion may contain certain forward-looking statements. Such
statements are not covered by the safe harbor provisions. These statements
include the plans and objectives of management for future growth of the Company,
including plans and objectives related to the consummation of acquisitions and
future private and public issuances of the Company's equity and debt securities.
The forward-looking statements included herein are based on current expectations
that involve numerous risks and uncertainties. Assumptions relating to the
foregoing involve judgments with respect to, among other things, future
economic, competitive and market conditions and future business decisions, all
of which are difficult or impossible to predict accurately and many of which are
beyond the control of the Company. Although the Company believes that the
assumptions underlying the forward-looking statements are reasonable, any of the
assumptions could be inaccurate and, therefore, there can be no assurance that
the forward-looking statements included in this report will prove to be
accurate. In light of the significant uncertainties inherent in the
forward-looking statements included herein, the inclusion of such information
should not be regarded as a representation by the Company or any other person
that the objectives and plans of the Company will be achieved.





The words
“we,” “us” and “our” refer to the Company. The words or phrases “would be,”
“will allow,” “intends to,” “will likely result,” “are expected to,” “will
continue,” “is anticipated,” “estimate,” “project,” or similar expressions are
intended to identify “forward-looking statements.” Actual results could differ
materially from those projected in the forward looking statements as a result of
a number of risks and uncertainties, including but not limited to: (a) limited
amount of resources devoted to achieving our business plan; (b) our failure to
implement our business plan within the time period we originally planned to
accomplish; (c) our strategies for dealing with negative cash flow; and (d)
other risks that are discussed in this report or included in our previous
filings with the Securities and Exchange Commission.




Results of
Operations




Nine Months ended
September 30, 2008 (unaudited) Compared to Nine Months ended September
30, 2007 (Unaudited)




The
following tables set forth key components of our results of operations for the
periods indicated for Sonasoft Corp.






14






September
      30
            
            
            September
      302008
            
            
            2007(unaudited)
            
            
            (unaudited)Revenue
            
            $
            567,963
            
            
            $
            474,273Selling
      Expenses
            
            
            (512,897
            )
            
            
            (569,182
            )General
      and administrative
            
            
            (1,377,067
            )
            
            
            (1,283,515
            )Research
      and development
            
            
            (328,008
            )
            
            
            (321,423
            )Total
      operating expenses
            
            
            (2,217,972
            )
            
            
            (2,174,120
            )Net Loss
      from Operations
            
            
            (1,650,009
            )
            
            
            (1,699,847
            )Interest
      expensesOther
      Expense
            
            
            (11,763
            )
            
            
            3,961Loss
      from Operations before Provision for income
      taxes
            
            
            (1,661,772
            )
            
            
            (1,695,886
            )Provision
      for Income taxes
            
            
            -
            
            
            
            -Net
      Loss
            
            $
            (1,661,772
            )
            
            $
            (1,695,886
            )Earnings
      per share – Basic and Diluted
            
            $
            (0.05
            )
            
            $
            (0.06
            )Weighted
      average shares outstanding – Basic and Diluted
            
            
            32,479,312
            
            
            
            30,211,159




Net
Revenue:




Net
revenue increased $93,690 or 20%, from $474,273 in the nine months ended
September 30, 2007 to $567,963 in the nine months ended September 30, 2008. The
product is being successfully implemented at customers’ sites and the increase
in revenue is reflected in that.




Selling
Expenses:




Selling
expenses decreased $56,285, or 10% from $569,182 in the nine months ended
September 30, 2007 to $512,897 in the nine months ended September 30, 2008,
primarily due to cost control measures that were put in place in January 2008.
For purposes of the comparisons of the nine months ended September 30, 2008 and
2007, certain expenses that were previously classified as selling were
reclassified to general and administrative in nature.






15






General
and Administrative Expenses:




General
and administrative expenses increased $93,552 or 7% from $1,283,515 in the nine
months ended September 30, 2007 to $1,377,067 in the nine months ended September
30, 2008. The increase of these expenses was primarily spending related to
hiring additional support staff and other related expenses.




Research
and Development:




Research
and development increased $6,585 or 2% from $321,423 in the nine months ended
September 30, 2007 to $328,008 in the nine months ended September 30, 2008,
and consist primarily of salaries and related expenses of personnel engaged in
research and development activities. The Company has ramped up its product
development activities at Integra Micro Ltd, Bangalore.




Income
from Operations:




Operating loss decreased $49,838 or 3%
from $1,699,847 in the nine months ended September 30, 2007 to
$1,650,009 in the nine months ended September 30, 2008, primarily due to
increase in revenue.




Other Income
(Expenses):




Other
expenses increased by $15,724 from $3,961 in the nine months ended September 30,
2007 to ($11,763) in the nine months ended September 30, 2008. This was mainly
due to a decrease in interest income and an increase in royalty
expense.




Income
Taxes:




In lieu
of the losses in the past and current years, there is no tax
liability.




Net
Loss:




Net loss was $1,661,772 in the nine
months ended September 30, 2008, compared to $1,695,886 in the nine months ended
September 30, 2007, decrease of $34,114, or 2%, mainly due to increase in
revenue during tne nine month period.




LIQUIDITY
AND CAPITAL RESOURCES




Net cash
used in operating activities was $1,249,285 for the nine months ended September
30, 2008, compared to $1,170,603 for the nine months ended September 30, 2007,
an increase of $78,682 or 7%. This was mainly due to the:




Decrease
of accounts receivable by $30,670 for the nine months ended September 30, 2008
as compared to a decrease in accounts receivable by $133,961 for the nine months
ended September 30, 2007.





An
increase in the issuance of shares for services by $137,733 for the nine months
ended September 30, 2008 as compared to an increase of $39,360 for the nine
months ended September 30, 2007.





An
increase of accounts payable and accruals by $36,845 for the nine months ended
September 30, 2008 as compared to increase in accounts payales and accruals by
$149,511 for the nine months ended September 30, 2007.




Net cash
used in investing activities was $11,613 for the nine months ended September 30,
2008, compared to $29,195 for the nine months ended September 30,
2007.




Net cash
provided by financing activities was $670,247 in the nine months ended September
30, 2008, compared to $1,512,572 in the nine months ended September 30,
2007.  $626,157 and $1,512,572 were raised from issue of shares
during the nine months ended September 30, 2008 and 2007
respectively.





The company has reorganized their
cost structure and it expects to drastically reduce its use of cash by 30% to
40% from the current level of $400,000 per quarter. The company is in immediate
need of cash to meet operating cost and support growth. In view of this,
the company is actively working on raising capital during the 4thquarter of 2008. The company is hopeful
to raise capital, but their inability to raise capital will adversely
affect the company’s ability to continue to operate.




SUBSEQUENT
EVENT




Effective October 29, 2008 Mr. Garrett
Rajkovich has resigned from  the Company’s Board of Director, however
Mr. Rajkovich remains with the company as an advisor on the Board of
Advisors.





16







Off-Balance Sheet
Arrangements




We do not
have any off-balance sheet arrangements, financings, or other relationships with
unconsolidated entities or other persons, also known as “special purpose
entities” (SPEs).





Item
3.     Quantitative and Qualitative Disclosures About Market
Risk





The
Company is subject to certain market risks, including changes in interest rates.
 The Company does not undertake any specific actions to limit those
exposures.




Item
4T.  Controls and Procedures





a)  
Evaluation of Disclosure
Controls. Nand (Andy) Khanna, our Chief Executive Officer, President and
Director and Paresh Mehta, our Chief Financial and Accounting Officer evaluated
the effectiveness of our disclosure controls and procedures as of the end of our
third fiscal quarter 2008 pursuant to Rule 13a-15(b) of the Securities and
Exchange Act. Disclosure controls and procedures are controls and other
procedures that are designed to ensure that information required to be disclosed
by us in the reports that we file or submit under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in the
SEC’s rules and forms. Disclosure controls and procedures include, without
limitation, controls and procedures designed to ensure that information required
to be disclosed by us in the reports that we file under the Exchange Act is
accumulated and communicated to our management, as appropriate to allow timely
decisions regarding required disclosure. Based on their evaluation, the Chief
Executive Officer and Chief Financial and Accounting Officer concluded that our
disclosure controls and procedures were effective as of September 30,
2008.





It should
be noted that any system of controls, however well designed and operated, can
provide only reasonable, and not absolute, assurance that the objectives of the
system are met. In addition, the design of any control system is based in part
upon certain assumptions about the likelihood of future events. Because of these
and other inherent limitations of control systems, there can be no assurance
that any design will succeed in achieving its stated goals under all potential
future conditions





(b)
  Changes in internal
control over financial reporting. There have been no changes in our
internal control over financial reporting that occurred during the last fiscal
quarter that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting. Our management team will
continue to evaluate our internal control over financial reporting in 2008 as we
implement our Sarbanes Oxley Act testing.









17









PART
II - OTHER INFORMATION




Item
1. Legal Proceedings.




The
Company is currently involved in litigation with a former employee over the
amount of and the nature of compensation provided upon such employee’s departure
from the Company. The Company filed a response to the former employee’s
complaint denying all allegations.  The amount in controversy includes
(i) $29,000, if plaintiff prevails (ii) attorney’s fees, if plaintiff prevails,
(iii) statutory penalties of up to $10,000 if plaintiff prevails, and (iv)
exemplary and treble damages if the plaintiff prevails on the claims in his
complaint that provide for such damages.





Item
1A. Risk Factors.




None.




Item
2. Unregistered Sales of Equity Securities and Use of Proceeds




None.




Item
3. Defaults Upon Senior Securities.




None




Item
4. Submission of Matters to a Vote of Security Holders.




None.




Item
5. Other Information.




None




Item
6. Exhibits and Reports of Form 8-K.




(a)           Exhibits




31.1 Certifications
pursuant to Section 302 of Sarbanes Oxley Act of 2002




32.1 Certifications
pursuant to Section 906 of Sarbanes Oxley Act of 2002




(b)           Reports
of Form 8-K




On
October 31, 2008 we filed an 8-K disclosing the departure of Garrett Rajkovich
from the Company’s Board of Directors as of October 29, 2008.











18









SIGNATURES




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




SONASOFT
      CORP.Date:
      November 14, 2008
            By:
            /s/
      NAND (ANDY) KHANNANAND
      (ANDY) KHANNAChief
      Executive Officer,
              President
      and Director