SONNEN Corp - FORM 10-K - April 24, 2013
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
þ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 2012.
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
___ to
.
Commission file number: 000-52803
SONNEN CORPORATION
(Exact name of registrant as specified in its charter)
Nevada
98-0514037
(State or other jurisdiction of
(I.R.S. Employer
incorporation or organization)
Identification No.)
2665 S. Bayshore Drive, Suite 450, Miami, Florida 33133
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (305) 529-4888
Securities registered under Section 12(b) of the Act: none.
Securities registered under Section 12(g) of the Act: common stock (title of class), $0.0001 par value.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes o No þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes o No þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90 days. Yes o No þ
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter)
during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes o No þ
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not
contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule
12b-2 of the Exchange Act. Smaller reporting company þ
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes þ No o
The aggregate market value of the registrant’s common stock, $0.0001 par value (the only class of voting stock), held by non-
affiliates (26,893,000 shares) was $1,075,720 based on the average of the bid and ask price ($0.04) for the common stock on
March 19, 2013.
At April 23, 2013, the number of shares outstanding of the registrant’s common stock, $0.0001 par value (the only class of voting
stock), was 67,893,000.
1
TABLE OF CONTENTS
PART I
Business
3
Risk Factors
6
Unresolved Staff Comments
6
Properties
6
Legal Proceedings
7
Mine Safety Disclosures
7
PART II
Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of
8
Equity Securities
Selected Financial Data
9
Management's Discussion and Analysis of Financial Condition and Results of Operations
10
Quantitative and Qualitative Disclosures about Market Risk
13
Financial Statements and Supplementary Data
13
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
14
Controls and Procedures
14
Other Information
16
PART III
Directors, Executive Officers, and Corporate Governance
17
Executive Compensation
19
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
23
Matters
Certain Relationships and Related Transactions, and Director Independence
23
Principal Accountant Fees and Services
24
PART IV
Exhibits, Financial Statement Schedules
25
26
2
PART I
ITEM 1.
As used herein the terms “Sonnen,” “we,” “our,” and “us” refer to Sonnen Corporation, and its
subsidiary, Sonnen One, Inc., unless context indicates otherwise.
Corporate History
Sonnen was incorporated in the State of Nevada on November 16, 2006. We are a development stage
company that has not generated revenue since inception.
Our initial operations focused on the provision of a website for basic computer maintenance and
troubleshooting assistance. Our business plan was to develop a bridge that would allow customers to
contact computer technicians directly for assistance with basic computer needs. We were unable to realize
our objectives and discontinued these activities prior to the year ended June 30, 2009. Subsequently, we
initiated a search to identify other businesses for development, merger or acquisition.
On July 27, 2009, Sonnen entered into a licensing agreement with PT Group, Limited (“PT Group”) for
the development and marketing of proprietary technology related to improving catalysts for use in fuel-
cells utilizing a unique catalytic process in exchange for shares of our common stock and meeting certain
financial obligations. Development activities began almost immediately financed by Sonnen to meet
obligations. However, on February 6, 2010, PT Group notified Sonnen of purported breaches of the
licensing agreement including a breach of confidentiality, insufficient funding for research and
development activities, and failure to provide direct access to our patent attorneys. On receipt of the
notice of breach Sonnen’s own research determined that PT Group was not the rightful owner of the
licensed technology and had no right to grant it a license to develop or market the intended products.
Accordingly, on March 8, 2010, Sonnen filed a civil complaint against PT Group and Paul Leonard, one
of its principals, in connection with the licensing agreement, that sought money damages, the return of
shares, injunctive relief and attorney’s fees for acts of fraud, misrepresentation of prior research and
development efforts, and failure to provide sufficient technical information on which to prepare patents to
secure the technology.
Since we do not believe that PT Group is the rightful owner of the proprietary technology purportedly
licensed to us, Sonnen has recorded an impairment of its investment in the licensing agreement and has
suspended efforts to develop fuel cell technology pending the outcome of Sonnen’s civil complaint.
While further development efforts related to the technology purportedly licensed to us from PT Group is
unlikely, Sonnen’s plan of operation for the coming year is to investigate alternative technologies aimed
at improving catalysts for the utilization of fuel-cells and related catalysis fields while awaiting the
outcome of its civil complaint.
Our office is located at 2665 S. Bayshore Drive, Suite 450, Miami, Florida 33133, and our telephone
number is (305) 529-4888. Our registered agent is Eastbiz.com, Inc., located at 5348 Vegas Drive, Las
Vegas, Nevada, 89108.
Sonnen is quoted on OTC Link under the symbol “SONP.”
3
Business
Sonnen’s plan of operation over the next twelve months is to prosecute its civil complaint against PT
Group and certain of the principals thereof and to consider alternative technologies for merger or
acquisition that might create value for its shareholders. We intend to focus our efforts on identifying
projects that might improve catalysts for the efficient utilization of fuel-cells and related catalysis fields.
Towards this end, management has evaluated several different technology-based research projects that
might fit with Sonnen’s defined mission to wean the global economy off hydrocarbon-based energy
sources. Nonetheless, as of the date of this report Sonnen has not entered into any agreement or
commitment beyond those that remain dedicated to reaching some resolution of its dispute with PT
Group.
Fuel Cell Technologies
Sonnen’s intended business was to develop technology licensed from PT Group for initial application to
advances in fuel cells that would produce high power efficiencies at a cost lower than conventional fuel
cells. Fuel cells convert fuel into electricity and heat without combustion, or noise, more efficiently than
the internal combustion engine, using a variety of hydrocarbon fuel sources (gasoline, natural gas or
diesel) as well as hydrogen. The licensed technology was thought to have the potential to significantly
expand the operational parameters of fuel cells in general.
Most fuel cells use expensive rare earth or noble metals in their construction. These materials activate
well with pure hydrogen, but become corrupted in the presence of catalyst pollutants common to
hydrocarbon fuels. Expensive and bulky fuel reformers, scrubbers and complex pressurized systems,
which greatly increase the footprint and capital costs of a fuel cell system, must be employed before fuel
cells can utilize existing fossil fuel streams. The extra size, additional equipment and bulk make most fuel
cells too large and too expensive for transport, small stationary power and other applications.
The mass commercialization of existing fuel cells also relies on the development and implementation of a
hydrogen delivery infrastructure since the storage, compression, and safe delivery of hydrogen is a
primary inhibitor to commercialization. However, the cost associated with developing and building new
infrastructure to address this problem is thought of as prohibitive. Furthermore, all current fuel cell
technologies suffer from significant levels of degradation of materials over time. Electrical efficiencies
are high in early stages of use however degradation over relatively short periods of time requires
expensive replacement.
Sonnen had intended to produce a fuel cell based on a simple design that embodied materials with higher
efficiencies to simplify the manufacturing process and overcome the obstacles to mass commercialization.
Until such time as the complaint against PT Group is resolved Sonnen will look to the development of
like technologies with the potential to met energy needs through pioneering and innovative methods.
Competition
The fuel cell industry is highly fragmented by competing technologies employed by many companies
seeking to develop the standard for the industry. The industry’s competitors include public companies
focused on developing fuel cell technologies as well as a number of electronics manufacturers,
automotive manufacturers and conglomerates such as General Electric. While fuel cell research and
development has been ongoing for some time, in most cases fuel cell technology has not been able to
supplant existing technology due to higher fabrication costs and performance issues, and consequently up
to this point the industry in general has yielded little revenue.
4
Since the filing of a civil complaint against PT Group we have suspended research and development
activities related to fuel cells and cannot be certain at this time as to whether such activities will continue.
We can be certain however that whatever technology we ultimately pursue, we are certain to be involved
in intense competition with other business entities, many of which will have a competitive edge over us
by virtue of their stronger financial resources and prior business experience.
Marketability
When or if Sonnen develops a fuel cell or other alternative product for commercial application, the
success of that product will be based on market acceptance in its many forms. Factors that might
encourage market acceptance include cost, efficiency, convenience and application. Since Sonnen has not
yet developed a product for commercial distribution and may never do so, any more specific approach to
marketability at this time, cannot be certain.
Patents, Trademarks, Licenses, Franchises, Concessions,
Royalty Agreements and Labour Contracts
We have no patents, trademarks, licenses, franchises, concessions, or labour contracts and have suspended
the preparation of multiple patents that were to be submitted to the US Patent Office in connection with
the technology purportedly licensed from PT Group.
Governmental and Environmental Regulation
Our prospective operations will be subject to a variety of national, federal, state and local laws, rules and
regulations relating to, among other things, worker safety and the use, storage, discharge and disposal of
environmentally sensitive materials. We are in full compliance with the Resource Conservation Recovery
Act (“RCRA”), the key legislation dealing with hazardous waste generation, management and disposal.
Nonetheless, under some of the laws regulating the use, storage, discharge and disposal of
environmentally sensitive materials, an owner or lessee of real estate may be liable for the costs of
removal or remediation of certain hazardous or toxic substances located on or in, or emanating from, such
property, as well as related costs of investigation and property damage. Laws of this nature often impose
liability without regard to whether the owner or lessee knew of, or was responsible for, the presence of
hazardous or toxic substances. We do not generate dangerous waste products and are not aware of any
waste management concerns in connection with our operations. We believe that we are in compliance in
all material respects with all laws, rules, regulations and requirements that affect our business. Further, we
believe that compliance with such laws, rules, regulations and requirements does not impose a material
impediment on our ability to conduct business.
Climate Change Legislation and Greenhouse Gas Regulation
A majority of the climate change related studies over the past couple decades have indicated that
emissions of certain gases contribute to warming of the Earth’s atmosphere. In response to these studies,
many nations have agreed to limit emissions of “greenhouse gases” or “GHGs” pursuant to the United
Nations Framework Convention on Climate Change, and the “Kyoto Protocol.” Although the United
States did not adopt the Kyoto Protocol, several states have adopted legislation and regulations to reduce
emissions of greenhouse gases.
5
The United States Supreme Court ruled, in Massachusetts, et al. v. EPA, that the EPA abused its
discretion under the Clean Air Act by refusing to regulate carbon dioxide emissions from mobile sources.
As a result of the Supreme Court decision the EPA issued a finding that serves as the foundation under
the Clean Air Act to issue other rules that would result in federal greenhouse gas regulations and
emissions limits under the Clean Air Act, even without Congressional action. Finally, acts of Congress,
the decisions of lower courts, large numbers of states, and foreign governments could widely affect
climate change regulation. Greenhouse gas legislation and regulation could have a material adverse effect
on our business, financial condition, and results of operations.
Employees
We have no employees though our chief executive officer, chief financial officer, and principal
accounting officer serve pursuant to consulting agreements at the discretion of Sonnen’s board of
directors. We use consultants, attorneys, and accountants as necessary in addition to professional
engineers to assist in the development of our business.
Reports to Security Holders
Sonnen’s annual report contains audited financial statements. We are not required to deliver an annual
report to security holders and will not automatically deliver a copy of the annual report to our security
holders unless a request is made for such delivery. We file all of our required reports and other
information with the Securities and Exchange Commission (the “Commission”). Since the requisite filing
deadline for this annual report, Sonnen has been delinquent in fulfilling its periodic reporting obligations
pursuant to the Securities and Exchange Act of 1934, as amended, and is currently in the process of
complying with its reporting obligations. The public may read and copy any materials that are filed by
Sonnen with the Commission at the Commission’s Public Reference Room at 100 F Street, N.E.,
Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference
Room by calling the Commission at 1-800-SEC-0330. The statements and forms filed by us with the
Commission have also been filed electronically and are available for viewing or copy on the Commission
maintained Internet site that contains reports, proxy and information statements, and other information
regarding issuers that file electronically with the Commission. The internet address for this site can be
found at www.sec.gov.
ITEM 1A.
RISK FACTORS
Not required of smaller reporting companies.
ITEM 1B.
UNRESOLVED STAFF COMMENTS
Not required of smaller reporting companies.
ITEM 2.
Sonnen currently maintains its corporate offices at 2665 S. Bayshore Drive, Suite 450, Miami, Florida
33133 in office space provided by one of our directors at no charge to us. Sonnen does not believe that it
will need to procure additional office at any time in the near future to carry out the plan of operation
described herein.
6
ITEM 3.
LEGAL PROCEEDINGS
On March 8, 2010, Sonnen 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) money damages for fraud that stem
from reliance on PT Group's claim of ownership over certain proprietary information, PT Group’s
misrepresentation of efforts credited to prior research and development and PT Group’s failure to provide
sufficient technical information on which to prepare patents to secure the technology, (ii) the return of
Sonnen shares issued to PT Group as compensation for the rights licensed, (iii) injunctive relief sought to
prohibit Mr. Leonard’s use of confidential information to which he is not entitled, and (iv) reasonable
attorney’s fees. Mr. Leonard responded to the complaint in an answer dated November 19, 2012 asserting
that had no knowledge of the subject matter of the suit. Sonnen has been unable to serve PT Group to
date. Should the relief sought be adjudicated, Sonnen expects to succeed on the merits of its claims.
ITEM 4.
MINE SAFETY DISCLOSURES
Not applicable.
7
PART II
ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED
STOCKHOLDER MATTERS, AND BUSINESS ISSUER PURCHASES OF
EQUITY SECURITIES
Sonnen’s common stock is quoted on OTC Link, a service maintained by OTC Markets Group, LLC.
under the symbol “SONP”. Trading has been limited and sporadic and the quotations set forth below are
not necessarily indicative of actual market conditions. Further, these prices reflect inter-dealer prices
without retail mark-up, mark-down, or commission, and may not necessarily reflect actual transactions.
The following table sets forth for the periods indicated the high and low bid prices for the common stock
as reported for each quarterly period.
High and Low Bid Prices Since Quotation on OTC Link
Year
Quarter Ended
High
Low
2012
June 30
$0.04
$0.04
March 31
$0.04
$0.04
2011
December 31
$0.05
$0.04
September 30
$0.08
$0.05
June 30
$0.08
$0.08
March 31
$0.20
$0.15
2010
December 31
$0.15
$0.15
September 30
$0.22
$0.15
Capital Stock
The following is a summary of the material terms of the Sonnen’s capital stock. This summary is subject
to and qualified by our articles of incorporation and bylaws.
Common Stock
As of June 30, 2012 there were fifty-six shareholders of record holding a total of 67,893,000 shares of
fully paid and non-assessable common stock of the 250,000,000 shares of common stock, par value
$0.0001, authorized. The board of directors believes that the number of beneficial owners is greater than
the number of record holders because a portion of our outstanding common stock is held in broker “street
names” for the benefit of individual investors. The holders of the common stock are entitled to one vote
for each share held of record on all matters submitted to a vote of stockholders. Holders of the common
stock have no pre-emptive rights and no right to convert their common stock into any other securities.
There are no redemption or sinking fund provisions applicable to the common stock.
Preferred Stock
As of June 30, 2012 there were no shares issued and outstanding of the 50,000,000 shares of preferred
stock authorized. The par value of the preferred stock is $0.0001 per share. Preferred stock may have such
rights, preferences and designations and may be issued in such series as determined by Sonnen’s Board.
Dividends
8
Sonnen has not declared any cash dividends since inception and does not anticipate paying any dividends
in the near future. The payment of dividends is within the discretion of the Board subject to earnings,
capital requirements, financial condition, and other relevant factors. Otherwise, outside of applicable
state law, there are no restrictions that currently limit Sonnen’s ability to pay dividends.
Securities Authorized For Issuance under Equity Compensation Plans
Sonnen adopted The Sonnen (formerly “Simple Tech) 2009 Stock Option Plan on August 31, 2009 in an
effort to promote the interests of Sonnen by providing eligible persons with the opportunity to acquire or
increase a proprietary interest in Sonnen with the facility to grant up to five million (5,000,000) non-
statutory stock options as an incentive for eligible persons to continue their employment or service.
Warrants
As of June 30, 2012 there were no warrants issued and outstanding.
Stock Options
As of June 30, 2012 there were 1,950,000 options outstanding, of which 1,549,920 were exercisable as of
August 31, 2012, all of which have since been rescinded by the mutual agreement of Sonnen and the
respective grantees.
Convertible Securities
Sonnen had no other securities convertible into shares of its common stock as of June 30, 2012 or as the
date of the filing of this annual report.
Transfer Agent and Registrar
Our transfer agent is Island Capital Management, LLC, d/b/a Island Stock Transfer, located at 100 Second
Avenue South, Suite 300, St. Petersburg, Florida, 33701. Their phone number is (727) 289-0010.
Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities
None.
Purchases of Equity Securities made by the Issuer and Affiliated Purchasers
Sonnen has not repurchased any shares of its common stock during the fiscal year ended June 30, 2012 or
as of the date of the filing of this annual report.
ITEM 6.
SELECTED FINANCIAL DATA
Not applicable.
9
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
This Management’s Discussion and Analysis of Financial Condition and Results of Operations and other
parts of this current report contain forward-looking statements that involve risks and uncertainties.
Forward-looking statements can also be identified by words such as “anticipates,” “expects,” “believes,”
“plans,” “predicts,” and similar terms. Forward-looking statements are not guarantees of future
performance and our actual results may differ significantly from the results discussed in the forward-
looking statements. Factors that might cause such differences include but are not limited to those
discussed in the subsection entitled Forward-Looking Statements and Factors That May Affect Future
Results and Financial Condition below. The following discussion should be read in conjunction with our
financial statements and notes thereto included in this current report. Our fiscal year end is June 30.
Plan of Operation
Our plan of operation over the next twelve months is to prosecute Sonnen’s civil complaint against PT
Group and certain of the principals thereof and to consider alternative technologies for merger or
acquisition that might create value for its shareholders. Meanwhile, we have suspended our development
plan for the technology licensed from PT Group. While awaiting resolution of the uncertainties
surrounding the licensing agreement, Sonnen intends to identify, acquire and develop alternative
innovative technologies that it might advance to commercial applications. Management understands that
new technologies must meet several critical milestones in advance of commercialization. Milestones
include cost effectiveness, energy efficiencies, convenience of use and practicability. Any products that
we should develop will have to be able to effectively compete with today’s accepted technologies by
optimizing low-cost manufacturing processes, ensuring enhanced energy efficiencies, and providing a
reliable product with the flexibility to rely on alternative fuel sources.
Sonnen’s business development strategy is prone to significant risks and uncertainties which could have
an immediate impact on its efforts to generate a positive net cash flow and could deter the development of
advanced energy enhanced technology. Historically, Sonnen has not generated sufficient cash flow to
sustain operations and has had to rely on debt or equity financing to remain in business. Therefore, we
cannot offer that future expectations that any technology Sonnen might develop will be commercially
developed or that it will be sufficient to generate the revenue required for its operations. Should we be
unable to generate cash flow, Sonnen may be forced to seek additional debt or equity financing as
alternatives to the cessation of operations. The success of such measures can in no way be assured.
We have not generated any revenue since inception.
Results of Operations
During the year ended June 30, 2012, our operations were focused on maintaining our civil complaint
against Paul R. Leonard and PT Group in connection with breaches of a licensing agreement and
considering alternative technologies for merger or acquisition that might create value for Sonnen’s
shareholders.
10
Net Losses
For the period from inception (November 16, 2006) until June 30, 2012, Sonnen incurred net losses of
$4,340,677. Net losses for the twelve months ended June 30, 2012 were $619,683 as compared to net
losses of $1,206,315 for the twelve months ended June 30, 2011. The decrease in net losses over the
comparative annual periods can be primarily attributed to a decrease in general and administrative
expenses in the twelve months ended June 30, 2012.
We expect to continue to realize nets losses as general and administrative expenses accrue and
management considers alternative technologies to succeed that technology subject to litigation.
Operating Expenses
For the period from inception until June 30, 2012, Sonnen incurred operating expenses of $3,659,026.
Operating expenses for the twelve months ended June 30, 2012 were $657,715 as compared to
$1,180,932 for the twelve months ended June 30, 2011. The decrease in operating expenses over the
comparative periods can be primarily attributed to a decrease in general and administrative expenses to
$291 from $7,940, a decrease in professional fees to $37,089 from $102,508, a decrease in compensation
and related taxes or benefits to $403,059 from $860,504, a decrease in depreciation to zero from $618, a
decrease in research and development costs to zero from $107, offset by a slight increase in transfer fees
to $1,278 from $1,255 and an increase in consulting and professional fees related parties to $216,000
from $208,000.
We expect that operating expenses will continue to decrease as Sonnen’s operations are minimized in
response to ongoing litigation with PT Group and the suspension of our research and development
operations.
Income Tax Expense (Benefit)
Sonnen may have a prospective income tax benefit resulting from a net operating loss carry-forward and
start up costs that will offset any future operating profit.
Capital Expenditures
Sonnen has not spent any significant amounts on capital expenditures for the period from inception to
June 30, 2012 and does not expect to do so in the near future.
Liquidity and Capital Resources
Sonnen has been in the development stage since inception, and has experienced significant changes in
liquidity, capital resources, and stockholders’ equity.
Sonnen had current and total assets of $27 consisting of cash as of June 30, 2012.
Sonnen had current and total liabilities of $1,089,281, consisting of accounts payable, accounts payable to
related parties, accrued payroll, notes payable to related parties, notes payable and loans from a
shareholder as of June 30, 2012.
Sonnen had a stockholders’ deficit of $1,089,254 and a working capital deficit of $1,089,254 at June 30,
2012.
11
For the period from inception until June 30, 2012, net cash used in development stage activities was
$843,841. Net cash used in development stage activities for the twelve month period ending June 30,
2012 was $132 as compared to $40,781 for the twelve months ended June 30, 2011. Net cash used in
development stage activities in the current twelve month period can be attributed primarily to a number of
items that are book expense items which do not affect the total amount relative to actual cash used
including stock option expenses. Actual cash items used in the current twelve month period, that are not
income statement related items, include pre-paid expenses, accounts payable, accounts payable to related
parties, and accrued interest. We expect net cash used in development stage activities until such time as
net losses transition to net income.
For the period from inception until June 30, 2012, net cash used in investing activities was $1,853. Net
cash used in investing activities for the twelve months ended June 30, 2012 and June 30, 2011, was zero.
We expect net cash used in investing activities on a return to research and development activities.
For the period from inception until June 30, 2012, net cash provided by financing activities was $845,721.
Net cash provided by financing activities for the twelve months ended June 30, 2012 was zero as
compared to $40,100 for the twelve months ended June 30, 2011. Net cash flow provided by financing
activities in the prior period is attributable to proceeds from notes payable to related and non-related
parties offset by repayments on notes payable to a related party. We expect net cash from financing
activities as Sonnen seeks new rounds of financing to finance litigation costs, regulatory compliance and
daily operations.
Our current assets are insufficient to meet our current obligations or to satisfy our cash needs over the
next twelve months and as such Sonnen will require additional debt or equity financing. We had no
commitments or arrangements for financing at June 30, 2012 though we are pursuing a number of
prospective sources that include shareholder loans, the sale of equity, the procurement of long term debt
or the settlement of additional debt for equity. We face certain financial obstacles to attracting new
financing due to our historical and current record of net losses and working capital deficits. Therefore,
despite our efforts we can provide no assurance that we will be able to obtain the financing required to
meet our stated objectives or even to continue as a going concern.
Sonnen does not expect to pay cash dividends in the foreseeable future.
Sonnen has a defined stock option plan and contractual commitments with all of its officers and directors.
Sonnen has no current plans for any significant purchase or sale of any plant or equipment.
Sonnen has no current plans to make any changes in the number of employees.
Off Balance Sheet Arrangements
As of June 30, 2012, Sonnen had no off-balance sheet arrangements that have or are reasonably likely to
have a current or future effect on our financial condition, changes in financial condition, revenues or
expenses, results of operations, liquidity, capital expenditures, or capital resources that are material to
stockholders.
12
Going Concern
Sonnen’s auditors have expressed an opinion as to its ability to continue as a going concern as a result of
continuing net operating losses. Our ability to continue as a going concern is dependent on realizing
funding from inside or outside sources. Management’s plan to address Sonnen’s ability to continue as a
going concern includes: (i) obtaining funding from the private placement of debt or equity; and (ii)
converting debt to equity. Management believes that it will be able to obtain funding to enable Sonnen to
remain a going concern through the methods discussed above, though there can be no assurances that
such methods will prove successful.
Forward Looking Statements and Factors That May Affect Future Results and Financial Condition
The statements contained in the section titled “Results of Operations” and “Description of Business”,
with the exception of historical facts, are forward looking statements. A safe-harbor provision is not
applicable to the forward looking statements made in this current report. Forward looking statements
reflect our current expectations and beliefs regarding our future results of operations, performance, and
achievements. These statements are subject to risks and uncertainties and are based upon assumptions and
beliefs that may or may not materialize. These statements include, but are not limited to, statements
concerning:
our anticipated financial performance;
uncertainties related to the research and development of the licensed technology;
our ability to generate revenues through sales to fund future operations;
our ability to raise additional capital to fund cash requirements for future operations;
the volatility of the stock market; and
general economic conditions.
We wish to caution readers that our operating results are subject to various risks and uncertainties that
could cause our actual results to differ materially from those discussed or anticipated. We also wish to
advise readers not to place any undue reliance on the forward looking statements contained in this report,
which reflect our beliefs and expectations only as of the date of this report. We assume no obligation to
update or revise these forward looking statements to reflect new events or circumstances or any changes
in our beliefs or expectations, other that is required by law.
Recent Accounting Pronouncements
Please see Note 1 to our financial statements for recent accounting pronouncements.
ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
Not required.
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Our audited consolidated financial statements for the years ended June 30, 2012 and 2011 are attached
hereto as F-1 through F-20.
13
SONNEN CORPORATION
(A Development Stage Company)
June 30, 2012 and June 30, 2011
INDEX
Page
Report of Independent Registered Public Accounting Firm
F-2
Consolidated Balance Sheets
F-3
Consolidated Statements of Operations
F-4
Consolidated Statement of Stockholders’ Equity (Deficit)
F-5
Consolidated Statements of Cash Flows
F-6
Notes to Consolidated Financial Statements
F-7
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Stockholders of Sonnen Corporation
We have audited the accompanying consolidated balance sheets of Sonnen Corporation and Subsidiary
as of June 30, 2012 and 2011 and the related statements of operations, stockholders’ equity, and cash
flows for the years then ended and for the period from November 16, 2006 (inception) to June 30, 2012.
Sonnen Corporation’s management is responsible for these financial statements. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement. The company is not
required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.
Our audits included consideration of internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on
the effectiveness of the company’s internal control over financial reporting. Accordingly, we express no
such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion
.
In our opinion, the financial statements referred to above present fairly, in all material respects, the
financial position of Sonnen Corporation and Subsidiary as of June 30, 2012 and 2011, and the results of
its operations and its cash flows for the years then ended and for the period from November 16, 2006
(inception) to June 30, 2012 in conformity with accounting principles generally accepted in the United
States of America.
The accompanying financial statements have been prepared assuming that the Company will continue as
a going concern. As discussed in Note 1 to the financial statements, the Company’s significant operating
losses raise substantial doubt about its ability to continue as a going concern. Management’s plans
regarding the resolution of this issue are also discussed in Note 1. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
/s/ MartinelliMick PLLC
MartinelliMick PLLC
Spokane, Washington
April 23, 2013
F-1
SONNEN CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED BALANCE SHEETS
June 30,
June 30,
2012
2011
ASSETS
CURRENT ASSETS
Cash and cash equivalents
$
27 $
159
Prepaid expenses (Note 2)
-
1,099
Total Current Assets
$
27 $
1,258
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable
$
128,096 $
131,505
Accounts payable - related parties
567,192
319,379
Accrued payroll
13,283
13,283
Notes payable - related parties (including accrued
interest of $577 - June 30, 2012 and $93 - June 30, 2011)
12,271
11,693
Notes payable (including accrued interest of $28,784
- June 30, 2012 and $16,479 - June 30, 2011)
180,067
167,763
Loans from shareholder (including accrued interest of $28,173
- June 30, 2012 and $15,604 - June 30, 2011)
188,372
166,264
Total Current Liabilities
1,089,281
809,887
COMMITMENTS AND CONTINGENCIES (Note 10)
-
-
STOCKHOLDERS' DEFICIT (Note 7)
Preferred stock, $0.0001 par value, 50,000,000 shares
authorized, none issued and outstanding
-
-
Common stock, par value $0.0001, 250,000,000 shares
authorized, 67,893,000 issued and outstanding
6,789
6,789
Paid-in capital
3,244,634
2,841,575
Accumulated deficit during the development stage
(4,340,677)
(3,656,993)
Total Stockholders' Deficit
(1,089,254)
(808,629)
Total Liabilities and Stockholders' Deficit
$
27 $
1,258
See accompanying notes to consolidated financial statements
F-2
SONNEN CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF OPERATIONS
Cumulative
amounts from
development stage
activities
(November 16,
For the years ended
2006
June 30,
through
2012
2011
June 30, 2012)
REVENUES
$
- $
- $
-
GENERAL & ADMINISTRATIVE EXPENSES
General and administrative
291
7,940
96,344
Professional fees
37,089
102,508
389,565
Consulting fees
-
-
179,727
Consulting and professional fees - related parties
216,000
208,000
714,250
Stock based compensation
-
-
101,000
Compensation and related taxes and benefits
403,059
860,504
1,998,850
Transfer fees
1,278
1,255
10,582
Depreciation
-
618
1,044
Research & development
-
107
167,666
Total General & Administrative Expenses
657,715
1,180,932
3,659,026
Loss before other income (expense)
(657,715)
(1,180,932)
(3,659,026)
Interest income/ (expense)
(25,968)
(24,574)
(57,290)
Loss on foreign currency exchange
-
-
(1,551)
Loss on disposal of assets
-
(809)
(809)
Impairment loss on asset
-
-
(672,000)
Other income
-
-
50,000
Loss before provision for income taxes
(683,684)
(1,206,315)
(4,340,677)
Provision for income taxes
-
-
-
NET LOSS
$
(619,684) $ (1,206,315) $
(4,340,677)
NET LOSS PER SHARE - BASIC AND DILUTED
$
(0.01) $
(0.02)
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING - BASIC AND DILUTED
67,893,000
67,893,000
See accompanying notes to consolidated financial statements
F-3
SONNEN CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
Deficit
Accumulated
Additional
During the
Total
Common Stock
Paid-in
Development
Stockholders'
Shares
Amount
Capital
Stage
Equity (Deficit)
Inception, November 16, 2006
- $
- $
- $
- $
-
Common stock issued to founders
(November 16, 2006, at $0.0001 per share)
50,000,000
5,000
(4,500)
-
500
Private placement closed June 28, 2007, at
$0.05 per share
13,808,000
1,381
67,659
-
69,040
Net (loss) for the year of inception
-
-
-
(6,039)
(6,039)
Balance, June 30, 2007
63,808,000
6,381
63,159
(6,309)
63,501
Net loss for the year
-
-
-
(49,738)
(49,738)
Balance, June 30, 2008
63,808,000
6,381
63,159
(55,777)
13,763
Net (loss) for the year
-
-
-
(14,245)
(14,245)
Balance, June 30, 2009
63,808,000
6,381
63,159
(70,022)
(482)
Shares issued for license agreement at $0.20 per share
3,360,000
336
671,664
-
672,000
Shares issued September 30, 2009 for cash
at $0.80 per share
625,000
63
499,938
-
500,000
Share issued January 18, 2010 for services
performed at $0.75 per share
100,000
10
100,990
-
101,000
Stock options expense
-
-
645,321
-
645,321
Net (loss) for the year
-
-
-
(2,380,655)
(2,380,655)
Balance, June 30, 2010
67,893,000
6,789
1,981,071
(2,450,678)
(462,817)
Stock options expense
-
-
860,504
-
860,504
Net (loss) for the year
-
-
-
(1,206,315)
(1,206,315)
Balance, June 30, 2011
67,893,000
6,789
2,841,575
(3,656,993)
(808,629)
Stock options expense
-
-
403,059
-
403,059
Net (loss) for the year
-
-
-
(683,684)
(619,684)
Balance, June 30, 2012
67,893,000 $
6,789 $
3,244,634 $
(4,340,677) $
(1,025,254)
See accompanying notes to consolidated financial statements
F-4
SONNEN CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Cumulative
amounts from
development stage
activities
For the years ended
(November 16,
June 30,
2006 through
2012
2011
June 30, 2012)
CASH FLOWS FROM DEVELOPMENT STAGE ACTIVITIES
Net (loss) from development stage activities
$
(619,684) $
(1,206,315) $
(4,276,677)
Adjustments to reconcile net loss to net
cash provided (used) by development stage activities:
Depreciation
-
618
1,044
Stock options vested
403,059
860,504
1,908,884
Stock issued for services
-
-
101,000
Loss on disposal of assets
-
809
809
Impairment loss on asset
-
-
672,000
Changes in operating assets and liabilities:
Increase in prepaid expenses
1,099
7,233
-
Increase in accounts payable
6,168
35,014
175,034
Increase in accounts payable - related parties
247,812
237,249
503,191
Increase in accrued liabilities
-
-
13,283
Increase in accrued interest
25,415
24,107
57,592
Total adjustments
683,552
1,165,534
3,432,836
NET CASH USED BY DEVELOPMENT STAGE ACTIVITIES
(132)
(40,781)
(843,841)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment
-
-
(1,853)
NET CASH USED BY INVESTING ACTIVITIES
-
-
(1,853)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable, net
-
37,000
280,660
Proceeds from notes payable - related parties
-
7,100
45,600
Repayments from notes payable - related party
-
(4,000)
(50,079)
Proceeds from sale of common stock, net of offering costs
-
-
569,540
NET CASH PROVIDED BY FINANCING ACTIVITIES
-
40,100
845,721
NET INCREASE/ (DECREASE) IN CASH AND CASH
EQUIVALENTS
(132)
(681)
27
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
159
840
-
CASH AND CASH EQUIVALENTS, END OF PERIOD
$
27 $
159 $
27
Supplemental Disclosures:
Cash paid for income taxes
$
- $
- $
-
Cash paid for interest
$
- $
- $
-
Non-cash Disclosures:
Payments made by parties on behalf of the Company:
Increase in notes payable
$
9,137 $
- $
9,137
Increase in notes payable - shareholder
$
438 $
- $
438
Increase in notes payable - related parties
$
- $
- $
21,079
Decrease in accounts payable - related parties
$
(9,575) $
- $
(20,654)
Increase in prepaid expenses
$
- $
- $
(10,000)
To apply balance owed to a related party to accounts receivable:
Decrease in accounts receivable - related party
$
- $
- $
40,000
Repayments of note payable - related party
$
- $
- $
(40,000)
Stock issued for licensing agreement rights
$
- $
- $
672,000
See accompanying notes to consolidated financial statements
F-5
SONNEN CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended June 30, 2012 and 2011
NOTE 1 – NATURE OF OPERATIONS, BASIS OF PRESENTATION AND SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
HISTORY, NATURE OF OPERATIONS AND BASIS OF PRESENTATION
Sonnen Corporation was incorporated in the state of Nevada on November 16, 2006 as “Simple Tech,
Inc.” Sonnen Corporation and its wholly-owned subsidiary, Sonnen One, Inc., are referred to herein as the
“Company,” “We,” “Us,” “Our”, is in the development stage as defined under FASB ASC 915-10,
"Development Stage Entities". By June 2009, the Company had been unable to realize its original
business objective. In July 2009, the Company entered into a licensing agreement to research, develop
and market products that rely upon a novel process for energy generation consisting of specific materials
and proprietary material combinations.
On November 3, 2009, the Company amended its articles of incorporation to change its name from
“Simple Tech, Inc.” to “Sonnen Corporation” and to decrease the number of its authorized common stock
from one billion five hundred million (1,500,000,000) shares (par value $0.0001) to two hundred fifty
million (250,000,000) shares (par value $0.0001) without affecting the number of issued and outstanding
shares. The Company’s subsidiary changed its name from “Sonnen Corporation” to “Sonnen One, Inc.”
The Company’s year-end is June 30.
On November 9, 2009, the Company formed a Scientific Advisory Board to support it with research,
development, and commercialization efforts through advice, counsel, and direct participation utilizing the
industry expertise and professional and academic backgrounds of its Scientific Advisory Board members
pursuant to a licensing agreement entered into on July 27, 2009 (Note 3). The Scientific Advisory Board
had been disbanded as of June 30, 2012.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Development Stage Enterprise
At June 30, 2012, the Company’s business operations had not developed and it is highly dependent upon
procuring additional funding and therefore is considered a development stage enterprise.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of Sonnen Corporation and
Sonnen One, Inc., its wholly-owned subsidiary. All material intercompany accounts and transactions
between the companies for the periods presented have been eliminated in consolidation.
F-6
SONNEN CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended June 30, 2012 and 2011
NOTE 1 – NATURE OF OPERATIONS, BASIS OF PRESENTATION AND SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will
continue as a going concern. The Company has a cumulative net loss for the period from inception
(November 16, 2006) through June 30, 2012 of $4,340,677, a working capital deficit of $1,089,254 and
for the year ended June 30, 2012 negative cash flows from development stage activities of $132. These
conditions raise substantial doubt about the Company's ability to continue as a going concern. The
Company's continuation as a going concern is dependent on its ability to meet its obligations, to obtain
additional debt and/or equity financing as may be required and ultimately to attain profitability. The
consolidated financial statements do not include any adjustments that might result from the outcome of
this uncertainty.
Cash Equivalents
We consider all highly liquid investments with the original maturities of three months or less to be cash
equivalents.
Income Taxes
The Company accounts for income taxes under the liability method required by ASC 740, “Income
Taxes”, which requires the recognition of deferred tax liabilities and assets for the expected future tax
consequences of events that have been included in the financial statements or tax returns Under this
method, deferred income taxes are recognized for the tax consequences in future years of differences
between the tax bases of assets and liabilities and their financial reporting amounts at each period end
based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are
expected to affect taxable income. Valuation allowances are established, when necessary, to reduce
deferred tax assets to the amount expected to be realized. The provision for income taxes represents the
tax payable for the period and the change during the period in deferred tax assets and liabilities. Tax
returns are subject to examination by taxing authorities and returns for fiscal years 2008 – 2011 are still
open.
Earnings (loss) Per Common Share
The Company computes net loss per share in accordance with FASB ASC 260-10, "Earnings per Share".
FASB ASC 260 requires presentation of both basic and diluted earnings per share (EPS) on the face of
the statement of operations. Basic EPS is computed by dividing net loss available to common
stockholders (numerator) by the weighted average number of shares outstanding (denominator)
during the period. Diluted EPS gives effect to all potentially dilutive common shares outstanding during
the period. Diluted EPS excludes all potentially dilutive shares if their effect is anti-dilutive. The only
potentially dilutive common shares outstanding are stock options from inception (Note 9).
F-7
SONNEN CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended June 30, 2012 and 2011
NOTE 1 – NATURE OF OPERATIONS, BASIS OF PRESENTATION AND SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
Reclassifications
Certain amounts in the June 30, 2011 financial statements have been reclassified to conform to the June
30, 2012 presentation. These reclassifications had no effect upon net income, accumulated deficits, or
losses per share as previously stated.
Fair Value of Financial Instruments
In January 2008, the Company adopted FASB ASC 820, Fair Value Measurements and Disclosures
(“ASC 820”) (Formerly referenced as SFAS No. 157, Fair Value Measurements), to value its financial
assets and liabilities. The adoption of ASC 820 did not have a significant impact on the Company’s
results of operations, financial position or cash flows. ASC 820 defines fair value, establishes a
framework for measuring fair value under GAAP and expands disclosures about fair value
measurements. ASC 820 defines fair value as the exchange price that would be paid by an external party
for an asset or liability (exit price).
ASC 820 also establishes a fair value hierarchy which requires an entity to maximize the use of
observable inputs and minimize the use of unobservable inputs when measuring fair value. Three levels
of inputs may be used to measure fair value:
·
Level 1 – Active market provides unadjusted quoted prices for identical assets or liabilities that the
company has the ability to access;
·
Level 2 – Quoted prices for similar assets or liabilities in active markets or quoted prices for identical
or similar assets or liabilities in inactive markets. Level 2 inputs include those other than quoted
prices that are observable for the asset or liability and that are derived principally from, or
corroborated by, observable market data by correlation of other means. If the asset or liability has a
specified term the Level 2 input must be observable for substantially the full term of the asset or
liability; and
·
Level 3 – Inputs to the valuation methodology are unobservable and significant to the fair value
measurement.
Fair value estimates discussed herein are based upon certain market assumptions and pertinent
information available to management as of June 30, 2012. The Company uses the market approach to
measure fair value for its Level 1 financial assets and liabilities. The market approach uses prices and
other relevant information generated by market transactions involving identical or comparable assets or
liabilities.
F-8
SONNEN CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended June 30, 2012 and 2011
NOTE 1 – NATURE OF OPERATIONS, BASIS OF PRESENTATION AND SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
Fair Value of Financial Instruments - continued
The respective carrying value of certain on-balance-sheet financial instruments approximated their fair
values. These financial instruments which include cash, accounts payable, and notes payable are valued
using Level 1 inputs and are immediately available without market risk to principal. Fair values were
assumed to approximate carrying values for these financial instruments since they are short term in nature
and their carrying amounts approximate fair values or they are receivable or payable on demand. The
carrying value of note payable to stockholder approximates its fair value because the interest rates
associated with the instrument approximates current interest rates charged on similar current
borrowings. The Company does not have other financial assets that would be characterized as Level 2 or
Level 3 assets.
FASB ASC 480-10, disclosures about fair value of financial instruments, defines the fair value of a
financial instrument as the amount at which the instrument could be exchanged in a current transaction
between willing parties. The carrying values of the Company’s financial instruments consist of cash and
accounts payable at fair market value.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with accounting principles generally accepted in the
United States of America requires management to make estimates and assumptions that affect the
reported amounts of assets, the disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reporting periods. Actual
results could differ from those estimates and assumptions.
Dividends
The Company has not adopted any policy regarding payment of dividends. No dividends have been
paid during the periods shown.
Foreign Currency Translation
The financial statements are presented in United States dollars. In accordance with Statement of
Financial Accounting Standards ASC Topic 820, “Foreign Currency Translation”, since the functional
currency of the Company is U.S. dollars; the foreign currency financial statements of the Company’s
subsidiaries are re-measured into U.S. dollars. Monetary assets and liabilities are re-measured using the
foreign exchange rate that prevailed at the balance sheet date. Revenue and expenses are translated at
weighted average rates of exchange during the year and stockholders’ equity accounts and furniture and
equipment are translated by using historical exchange rates. Any re-measurement gain or loss incurred is
reported in the income statement.
F-9
SONNEN CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended June 30, 2012 and 2011
NOTE 1 – NATURE OF OPERATIONS, BASIS OF PRESENTATION AND SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
General Accounting Policy for Contingencies
Certain conditions may exist which may result in a loss to the Company, but which will only be resolved
when one or more future events occur or fail to occur. The Company’s management and its legal counsel
assess such contingent liabilities, and such assessment inherently involves an exercise of judgment. In
assessing loss contingencies related to legal proceedings that are pending against the Company, or
unasserted claims that may result in such proceedings, the Company’s legal counsel evaluates the
perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the
amount of relief sought or expected to be sought therein.
If the assessment of a contingency indicates that it is probable that a material loss has been incurred and
the amount of the liability can be estimated, the estimated liability would be accrued in the Company’s
financial statements. If the assessment indicates that a potentially material loss contingency is not
probable but is reasonably possible, or is probable but cannot be estimated, the nature of the contingent
liability, together with an estimate of the range of possible loss if determinable and material, would be
disclosed.
Loss contingencies considered remote are generally not disclosed unless they arise from guarantees, in
which case the guarantees would be disclosed.
As of June 30, 2012 and 2011, the Company’s management believes that there are no outstanding legal
proceedings which would have a material adverse effect on the financial position of the Company (see
Notes 3 and 10).
F-10
SONNEN CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended June 30, 2012 and 2011
NOTE 1 – NATURE OF OPERATIONS, BASIS OF PRESENTATION AND SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
Recently Issued Accounting Standards
The Company has reviewed all recently issued accounting standards and unless discussed below, the
Company has deemed that it expects no effect from the standard.
In May 2011, the FASB issued ASU No. 2011-04 which relates to fair value measurement (FASB ASC
Topic 820), which amends current guidance to achieve common fair value measurement and disclosure
requirements in U.S. GAAP and International Financial Reporting Standards. The amendments generally
represent clarification of FASB ASC Topic 820, but also include instances where a particular principle or
requirement for measuring fair value or disclosing information about fair value measurements has
changed. The guidance also expands the disclosures for fair value measurements that are estimated using
significant unobservable (Level 3) inputs. This guidance is effective during interim and annual periods
beginning after December 15, 2011 and is to be applied prospectively. The adoption of this standard will
not materially impact the Company's financial statement statements.
In June 2011, the FASB issued Accounting Standards Update No. 2011-5, Presentation of Comprehensive
Income. This standard requires presentation of the items of net income and other comprehensive income
in one continuous statement, referred to as the statement of comprehensive income, or in two separate, but
consecutive, statements of net income and other comprehensive income. The new requirements are
effective for fiscal years beginning after December 15, 2011. Early adoption is permitted and full
retrospective application is required. The Company does not expect a significant impact on the
Company's financial positions as a result of adoption of these new requirements.
NOTE 2 – PREPAID EXPENSES
Prepaid expenses comprise of none at June 30, 2012 and of the following at June 30, 2011:
2011
Hayes and Boone, LLP
Prepayment retainer for legal fees
$
1,099
Total
$
1,099
F-11
SONNEN CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended June 30, 2012 and 2011
NOTE 3 – LICENSING AGREEMENT
The Company entered into a licensing agreement (the “Agreement”) with PT Group, Limited (“PT
Group”), an unrelated entity, on July 27, 2009, that grants the Company an exclusive, non-transferable
license to use PT Group’s intellectual property of a certain technology and licensed products to be used in
achieving the Company’s business objectives. The terms of the agreement would have continued until the
expiry of protections afforded for the intellectual property, provided that the Company was not in breach
or default of any of the terms or conditions contained in the Agreement. During the term of the licensing
agreement, the PT Group retained sole and beneficial propriety of the intellectual property including any
improvements made to any licensed products or future products, regardless of the source.
In exchange for use of the license, the PT Group was issued common shares equal to 5% of the issued and
outstanding common shares, 3,360,000 shares of the Company at a value of $0.20 per share on the
execution date, which was estimated to be $672,000. Additionally, upon the Company cumulatively
raising $50 million in equity financing, the Company guaranteed that PT Group would own no less than
2.5% of the issued and outstanding shares of its common shares.
Breach of Contract Claim
On February 6, 2010, PT Group notified the Company of a purported breach of contract terms, including
a breach of confidentiality, insufficient funding for research and development activities and failure to
provide direct access to our patent attorneys. The license agreement allowed for a ninety day period in
which to cure purported breaches. During the quarter ended March 31, 2010, the Company learned that
PT Group was not the rightful owner of the license and had no rights to grant the license to the Company.
Since PT Group has not remedied the breach in accordance with the Agreement, the Company filed a
legal complaint. The Company has been unable to serve PT Group as of June 30, 2012. (Note 10)
As a result of this discovery, the Company impaired the entire $672,000 book value of the license
agreement.
F-12
SONNEN CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended June 30, 2012 and 2011
NOTE 4 – INCOME TAXES
The net operating loss carry-forward and permanent differences are the components of deferred tax
assets for income tax purposes as of June 30, 2012. Approximately $1,753,026 was reduced to zero after
considering the valuation allowance of $1,753,026, since there is no assurance of future taxable income.
The net operating loss carry-forward as of June 30, 2012 expires as follows:
Expiring Year
Amount
2027
$
6,039
2028
48,195
2029
14,245
2030
1,058,324
2031
345,598
2032
280,625
Total
$
1,753,026
These loss carryovers could be limited under the Internal Revenue Code should a significant change in
ownership occur.
The following is an analysis of deferred tax assets as of June 30, 2011:
Deferred Tax Assets
Valuation Allowance
Balance
Deferred tax assets at June 30, 2011 $
500,616 $
(500,616) $
-
Additions for the year
95,412
(95,412)
-
Deferred tax assets at June 30, 2012 $
596,028 $
(596,028) $
-
The following is reconciliation from the expected statutory federal income tax rate to the Company’s
actual income tax rate for the years ended June 30:
2012
2011
Expected income tax (benefit) at Federal statutory tax rate –34%
$ (232,452) $ (410,147)
Permanent differences
137,040
292,644
Valuation allowance
95,412
117,503
Income tax expense
$
- $
-
We currently have three years of tax returns that are subject to examination, based on their filing dates
by taxing authorities. We currently have no uncertainty of the tax positions that we have taken and
believe that we can defend them to any tax jurisdiction.
F-13
SONNEN CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended June 30, 2012 and 2011
NOTE 5 – NOTES PAYABLE
On January 5, 2010, the Company received an advance on an interest bearing promissory note of
$100,000 from an unrelated entity. The note is due and payable on January 11, 2011, and bears an interest
rate of 8% per annum. Accrued interest on this note was $20,156 and $12,022 as of June 30, 2012 and
June 30, 2011, respectively. Subsequent to June 30, 2012, this note was extended to December 12, 2014.
On August 29, 2009, the Company received an advance on an interest bearing promissory note of $10,000
from an unrelated third party. The note was due and payable on February 28, 2010, and bears an interest
rate of 1% per month. On November 17, 2009, we made a principal payment of $5,000. On March 1,
2010, the Company executed a new note to reflect new terms for $5,000 to the same unrelated third party.
The new note is due and payable on March 1, 2011, and bears an interest rate of 8% per annum. Accrued
interest on this note was $1,512 and $1,105 as of June 30, 2012 and June 30, 2011, respectively.
Subsequent to June 30, 2012, this note was extended to January 3, 2015.
On June 10, 2010, the Company received an advance on an interest bearing promissory note of $5,983 for
a payment made on behalf of the Company from an unrelated entity. The note is due and payable on June
10, 2011, and bears an interest rate of 8% per annum. On June 18, 2010, the Company received another
advance on an interest bearing promissory note of $10,000 in cash from the same unrelated entity. The
note is due and payable on June 18, 2011, and bears an interest rate of 8% per annum. On June 30, 2010,
the Company received an advance on an interest bearing promissory note of $5,300 for a payment made
on behalf of the Company from the same unrelated entity. The note is due and payable on June 30, 2011,
and bears an interest rate of 8% per annum. Accrued interest on these notes was $3,510 and $1,780 as of
June 30, 2012 and June 30, 2011, respectively Subsequent to June 30, 2012, each of these notes were
extended to January 3, 2015.
On September 20, 2010, the Company received an advance on an interest bearing promissory note of
$25,000 from an unrelated entity. The note is due and payable on September 20, 2011, and bears an
interest rate of 8% per annum. Accrued interest on this note was $3,606 and $1,572 as of June 30, 2012
and June 30, 2011, respectively Subsequent to June 30, 2012, this note was extended to January 3, 2015.
F-14
SONNEN CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended June 30, 2012 and 2011
NOTE 6 – LOANS FROM SHAREHOLDERS
On February 14, 2012, the Company received two advances on interest bearing promissory notes for an
aggregate total of $9,137 for three payments made on behalf of the Company from a shareholder. The
notes are payable on demand, and the Company has not received a demand as of June 30, 2012, and bears
an interest rate of 8% per annum. Interest of $278 for the year ended June 30, 2012 has been accrued and
is outstanding as of June 30, 2012.
On February 17, 2010, the Company received an advance on an interest bearing promissory note of
$93,660 in cash and a payment made on behalf of the Company of $5,000 for a total of $98,660 from an
unrelated shareholder. The note is due and payable on February 17, 2011, and bears an interest rate of 8%
per annum. On May 6, 2010, the Company received another advance on an interest bearing promissory
note of $35,000 in cash and a payment made on behalf of the Company of $5,000 for a total of $40,000
from the same shareholder. The note is due and payable on May 6, 2011, and bears an interest rate of 8%
per annum. On July 8, 2010, the Company received another advance on an interest bearing promissory
note of $12,000 from the same shareholder. The note is due and payable on July 8, 2011, and bears an
interest rate of 8% per annum. Subsequent to June 30, 2012, each of these notes was extended to January
3, 2015. On June 15, 2012, the Company received an advance on an interest bearing promissory notes for
a payment made on behalf of the Company from the same shareholder as above. The note is payable on
demand, and the Company has not received a demand as of June 30, 2012, and bears an interest rate of
8% per annum. Accrued interest on these notes was $27,859 and $15,604 as of June 30, 2012 and June
30, 2011, respectively
NOTE 7 – STOCKHOLDERS' EQUITY
Common Shares – Authorized
The Company has 250,000,000 common shares authorized at a par value of $0.0001 per share and
50,000,000 shares of preferred stock, par value $0.0001 per share. All common stock shares have equal
voting rights, are non-assessable and have one vote per share. Voting rights are not cumulative and,
therefore, the holders of more than 50% of the common stock could, if they choose to do so, elect all the
directors of the Company. As of June 30, 2012 and 2011, there are no classes of preferred stock
designated and none are outstanding. As of June 30, 2012 and 2011, there are 67,893,000 shares issued
and outstanding.
Common Stock Issuances and Warrants Granted
For the years ended June 30, 2012 and 2011 there were no share issuances.
F-15
SONNEN CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended June 30, 2012 and 2011
NOTE 8 – STOCK – BASED COMPENSATION
On August 31, 2009, the Company adopted the Company’s 2009, Stock Option Plan (the “Plan”) in an
effort to promote the interests of the Company by providing eligible persons and companies with the
opportunity to acquire or increase a proprietary interest in the Company through the grant of up to five
million (5,000,000) non-statutory stock options (the “Options”) as an incentive for the eligible persons to
continue their employment or service.
On August 31, 2009, the Company authorized the grant of an aggregate of one million eight hundred
thousand (1,800,000) Options with an exercise price of $1.00 per share pursuant to the Plan. This block of
Options vest over a three year period through August 31, 2012, in equal increments of one-third of
potentially exercisable Options each year or in full if involuntarily terminated.
During the year ended June 30, 2012, there have been no additional grants of stock options under the
plan. A summary of the Options granted to employees and others under the Plan and changes since
inception of the Plan is presented below:
Weighted
Average
Number of
Exercise
Aggregate
Options
Price
Intrinsic Value
Balance at July 1, 2010
2,000,000 $
1.03 $
2,038,908
Options Granted
-
-
-
Options Exercised
-
-
-
Options Forfeited or Expired
(50,000) $
1.25
(62,844)
Balance at June 30, 2011
1,950,000 $
1.01 $
1,976,064
Exercisable at June 30, 2011
1,149,960 $
1.01 $
1,170,027
Weighted average fair value of Options
granted through June 30, 2011
$
1.01
Weighted
Average
Number of
Exercise
Aggregate
Options
Price
Intrinsic Value
Balance at July 1, 2011
1,950,000 $
1.01 $
1,976,064
Options Granted
-
-
-
Options Exercised
-
-
-
Options Forfeited or Expired
-
-
-
Balance at June 30, 2012
1,950,000 $
1.01 $
1,976,064
Exercisable at June 30, 2012
1,549,920 $
1.01 $
1,572,985
Weighted average fair value of Options
granted through June 30, 2012
$
1.01
F-16
SONNEN CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended June 30, 2012 and 2011
NOTE 8 – STOCK – BASED COMPENSATION - CONTINUED
The following table summarizes information about stock Options under the Plan that were outstanding at
June 30, 2012:
Outstanding Options
Weighted
Average
Number
Remaining
Weighted
Outstanding
Contractual
Average
Exercise
at June 30,
Life in
Exercise
Intrinsic
Price
2012
Years
Price
Value
$
1.00
1,800,000
7.25 $
1.00 $ 1,813,493
$
1.25
150,000
7.45 $
1.25 $
162,572
1,950,000
7.35 $
1.01 $ 1,976,064
Options Exercisable
Number
Weighted
Exercisable
Average
Aggregate
Exercise
at June 30,
Exercise
Intrinsic
Price
2012
Price
Value
$
1.00
1,399,920 $
1.00 $
1,410,413
$
1.25
150,000 $
1.25 $
162,572
1,549,920 $
1.01 $
1,572,985
During the years ended June 30, 2012 and 2011, the Company recorded $403,059 and $860,504,
respectively, in stock-based compensation which is included in salaries, payroll taxes, and expenses on
the statements of operations.
At June 30, 2012 there was $67,180 of total unrecognized compensation cost related to stock options
granted under the Plan. That cost is expected to be recognized pro-rata according to the vesting schedules
through August 1, 2012.
F-17
SONNEN CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended June 30, 2012 and 2011
NOTE 9 – RELATED PARTY TRANSACTIONS
Notes payable – related parties
On April 29, 2010, the Company received an advance on a non-interest bearing promissory note of
$8,500 from a related entity. The note is due and payable on demand. On July 15, 2010, the Company
repaid $4,000 of the balance of this note. The remaining balance of $4,500 is outstanding as of June 30,
2012 for which the Company has not yet received a demand.
On May 2, 2011, the Company received an advance on an interest bearing promissory note of $7,100
from a related entity. The note is due and payable on June 2, 2012, and bears an interest rate of 8% per
annum. Interest of $577 and $93 for the years ended June 30, 2012 and 2011, respectively, has been
accrued and is outstanding. Subsequent to June 30, 2012, this note was extended to January 3, 2015.
Consulting Agreements
On October 1, 2009, the Company entered into a consulting agreement with Prosper Financial, Inc., a
company owned by the spouse of the Company’s President and Chief Executive Officer and 37% owner
of the Company. The agreement calls for monthly payments of $2,500 for consulting services rendered
and $1,200 per month in rental payments for the use of Prosper Financial, Inc.’s office space. The
agreement extended through October 31, 2010, and was extended after that on a month to month basis for
the consulting services. As of June 30, 2012 and 2011, this related party had a balance due of $ 58,064
and $26,064, respectively, and is reflected in accounts payable – related parties.
On August 1, 2009, the Company entered into a consulting agreement with a director and officer that calls
for monthly compensation of $7,500 and extended through December 31, 2009, after which became a
month to month basis. As of June 30, 2012 and 2011, this related party had a balance due of $191,519 and
$101,706, respectively, which is reflected in accounts payable – related parties.
On July 1, 2009, the Company entered into a consulting agreement with a shareholder, director and
officer of the Company that calls for an annual base fee of $96,000 and extends through June 30, 2010,
after which was continued on a month to month basis. As of June 30, 2012, this related party had a total
balance due of $246,969, comprised of $233,350 due for consulting fees, and $13,619 for business
expenses, all of which is reflected in accounts payable – related parties. As of June 30, 2011, this related
party had a total balance due of $150,969, comprised of $137,350 due for consulting fees, and $13,619 for
business expenses, all of which is reflected in accounts payable – related parties.
On October 1, 2009, the Company entered into a consulting agreement with the former Head of Research
that calls for monthly compensation of $6,000 and extends through December 31, 2009, this contract was
not renewed or extended. As of June 30, 2012 and 2011, this related party had a balance due of $1,840,
which is reflected in accounts payable – related parties.
F-18
SONNEN CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended June 30, 2012 and 2011
NOTE 9 – RELATED PARTY TRANSACTIONS - CONTINUED
Consulting Agreements – continued
On October 1, 2009, the Company entered into an agreement with a consultant to provide bookkeeping
services, the monthly compensation is $5,000 and extended through October 1, 2010, in addition, the
consultant shall be entitled to 100,000 incentive stock options upon signing, and extended through
October 1, 2010. On April 1, 2010, we entered into a new agreement with the same consultant, the
monthly compensation was amended to be $2,500 per month, all other terms remained the same, and
extended through April 1, 2011, this contract was not renewed or extended. As of June 30, 2012 and
2011, this related party had a balance due of $55,000 and $25,000, respectively, which is reflected in
accounts payable – related parties.
On December 1, 2009, the Company entered into a consulting agreement with the son of our President to
provide business consulting services that calls for monthly compensation of $2,000 and extends through
November 30, 2010, this contract was not renewed or extended. As of June 30, 2012 and 2011, this
related party had a balance due of $9,000, which is reflected in accounts payable – related parties.
NOTE 10 – COMMITMENTS AND CONTINGENCIES
Contingencies
On February 6, 2010, PT Group notified the Company of a purported breach of contract terms including a
breach of confidentiality, insufficient funding for research and development activities and failure to
provide direct access to our patent attorneys. The licensing agreement allows for a ninety day period in
which to cure purported breaches. The Company’s management and board of directors have reason to
believe that PT Group may not be the rightful owner of the intellectual property licensed under the
licensing agreement. (Note 3)
On March 8, 2010, the Company filed a complaint in the Circuit Court of the 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. Mr. Leonard responded to the complaint in an answer dated November 19, 2012 asserting
that had no knowledge of the subject matter of the suit. The Company has been unable to serve PT Group
to date. Should the relief sought be adjudicated, Sonnen expects to succeed on the merits of its claims.
F-19
SONNEN CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended June 30, 2012 and 2011
NOTE 11– SUBSEQUENT EVENTS
In accordance with Accounting Standards Codification (ASC) topic 855-10 “Subsequent Events”, the
Company has evaluated subsequent events through the date which the financial statements were available
to be issued. The Company has determined that there were no such events that warrant disclosure or
recognition in the financial statements, other than these below:
Note payables extensions
Subsequent to year end, all of the Company’s notes payable’s due dates were extended as discussed above
in Note 6, 7 and 10.
Stock options
On December 31, 2012, all outstanding vested options had expired in accordance with the terms of their
respective stock option agreements or rescinded by mutual agreement between the Company and the
respective holders.
F-20
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
There have not been any changes in or disagreements with accountants on accounting and financial
disclosure or any other matter.
ITEM 9A.
CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
In connection with the preparation of this annual report, an evaluation was carried out by Sonnen’s
management, with the participation of the chief executive officer and the chief financial officer, of the
effectiveness of Sonnen’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the
Securities Exchange Act of 1934 (“Exchange Act”)) as of June 30, 2012. Disclosure controls and
procedures are designed to ensure that information required to be disclosed in reports filed or submitted
under the Exchange Act is recorded, processed, summarized, and reported within the time periods
specified in the Commission’s rules and forms, and that such information is accumulated and
communicated to management, including the chief executive officer and the chief financial officer, to
allow timely decisions regarding required disclosures.
Based on that evaluation, Sonnen’s management concluded, as of the end of the period covered by this
report, that Sonnen’s disclosure controls and procedures were not effective in recording, processing,
summarizing, and reporting information required to be disclosed, within the time periods specified in the
Commission’s rules and forms, and such information was not accumulated and communicated to
management, including the chief executive officer and the chief financial officer, to allow timely
decisions regarding required disclosures.
Management’s Report on Internal Control over Financial Reporting
The management of Sonnen is responsible for establishing and maintaining adequate internal control over
financial reporting. Sonnen’s internal control over financial reporting is a process, under the supervision
of the chief executive officer and the chief financial officer, designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of Sonnen’s financial statements for
external purposes in accordance with United States generally accepted accounting principles (GAAP).
Internal control over financial reporting includes those policies and procedures that:
Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the
transactions and dispositions of Sonnen’s assets;
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of
the financial statements in accordance with generally accepted accounting principles, and that
receipts and expenditures are being made only in accordance with authorizations of management
and the board of directors; and
Provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of Sonnen’s assets that could have a material effect on the
financial statements.
14
Due to its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk
that controls may become inadequate because of changes in conditions or that the degree of compliance
with the policies or procedures may deteriorate.
Sonnen’s management conducted an assessment of the effectiveness of our internal control over financial
reporting as of June 30, 2012, based on criteria established in Internal Control – Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission, which assessment
identified material weaknesses in internal control over financial reporting. A material weakness is a
control deficiency, or a combination of deficiencies in internal control over financial reporting that creates
a reasonable possibility that a material misstatement in annual or interim financial statements will not be
prevented or detected on a timely basis. Since the assessment of the effectiveness of our internal control
over financial reporting did identify material weaknesses, management considers its internal control over
financial reporting to be ineffective.
Sonnen identified the following material weakness:
Lack of Appropriate Independent Oversight. The board of directors was not providing an appropriate
level of oversight of Sonnen’s consolidated financial reporting and procedures for internal control over
financial reporting as of June 30, 2012 since there no independent directors who might provide an
appropriate level of oversight including challenging management’s accounting for and reporting of
transactions. Our lack of appropriate independent oversight over the period was a material weakness due
to the interested nature of those individuals who comprise our board of directors. Our lack of appropriate
independent oversight has been a material weakness since the annual period ended June 30, 2009 through
the annual period of this report. While this control deficiency did not result in any audit adjustments to
our 2012 or 2011 interim or annual financial statements, it could have resulted in material misstatements
that might have been prevented or detected by independent oversight. Accordingly we determined that
this control deficiency as of June 30, 2012 constituted a material weakness.
Sufficiency of Accounting Resources. Sonnen has no dedicated accounting personnel to prepare its
financial statements, including the consolidation of Sonnen and its subsidiaries in a timely manner
contemporaneously with the periods reported. Rather, Sonnen relies on independent engagements to
compile accounting information. The insufficiency of our accounting resources has been a material
weakness since the annual period ended June 30, 2009 through the annual period of this report. This
control deficiency did result in any audit adjustments to our 2012 financial statements and resulted in
certain delays in the consolidation of Sonnen and its subsidiaries for periodic reporting purposes.
Accordingly, we determined that this control deficiency as of June 30, 2012 constituted a material
weakness.
Remediation Initiatives
Since the end of the reporting period management has determined to appoint additional directors to
Sonnen’s board of directors and to engage an independent accountant on a consistent basis to ensure its
capability to remain current in its periodic reporting obligations. The appointment of independent
directors and the engagement of an accountant on an ongoing basis remain subject to Sonnen’s ability to
secure sufficient financial resources to complete these objectives.
15
This annual report does not include an attestation report of our independent registered public accounting
firm regarding internal control over financial reporting. We were not required to have, nor have we,
engaged our independent registered public accounting firm to perform an audit of internal control over
financial reporting pursuant to the rules of the Commission that permit us to provide only management’s
report in this annual report.
Changes in Internal Controls over Financial Reporting
During the period ended June 30, 2012, there has been no change in internal control over financial
reporting that has materially affected, or is reasonably likely to materially affect our internal control over
financial reporting.
Subsequent to the period and to the date of this filing, there has been no change in internal control over
financial reporting that has materially affected, or is reasonably likely to materially affect our internal
control over financial reporting.
ITEM 9B.
OTHER INFORMATION
None.
16
PART III
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
Directors and Executive Officers
The following table sets forth the name, age and position of each director and executive officer of the
Sonnen:
Name
Age
Year Appointed Position(s) and Office(s)
Robert Miller
58
2009
President, chief executive officer and
director.
Costas Takkas
54
2009
Chief financial officer, principal
accounting officer and director
Business Experience
The following is a brief account of the business experience of our directors, executive officers, and other
significant employees, including their background occupations and employment over the past five years.
We also provide the responsibilities and qualifications of our executive officers and other significant
employees and the qualifications of our directors. Except as otherwise noted, none of the following
referenced organizations are affiliates of Sonnen.
Robert Miller was appointed as a member of the board of directors on June 16, 2009, and as president and
chief executive officer on July 27, 2009.
Background:
From 2007 until the present Mr. Miller has been a director (and was an early investor) of Lifespan
Biosciences Inc., a company commercializing proprietary antibodies, providing immune histochemistry
services and developing localization databases. Since 2009 he has served as an officer and director of
Sonnen Corporation, a company involved in the research and development of a novel process for energy
generation consisting of specific materials and proprietary material combinations. (Mr. Miller is
the beneficial owner of more than five percent of Sonnen’s common stock.) From 2002 to present, Mr.
Miller has been a consultant to Prosper Financial, Inc., a management company that provides financial
and corporate consulting services to start-up companies. Between 1998 and 2000 he was a director and
financier of Zmax Corporation, a "y2k" company. From 1997 to 2002 Mr. Miller was the president of
Stamford International whose principal subsidiary, Nanovation Technologies Inc., was a developer of
nano-sized fiber-optic products and he served as director of Nanovation between 1998 and 2001. In 1992
Mr. Miller was the founder and president of Crystallex International Corporation and he served as the
company’s Chairman between 1992 and 1996. Between 1988 and 1992 he was the principal financier and
consultant to Asiamerica Equities Inc., a NASDAQ listed merchant bank.
Officer and Director Responsibilities and Qualifications:
Mr. Miller is responsible for the overall management of Sonnen and is involved in many of its day-to-day
operations. He is Sonnen’s primary leader, communicator and fundraiser.
17
Mr. Miller has worked as officer and director of many early-stage companies for almost three decades and
has participated as the principal investor in over 50 business ventures. He has founded corporations, listed
numerous companies on the NASDAQ and the Toronto Stock Exchange, worked full-time with and as a
consultant to numerous startups.
Other Public Company Directorships in the Last Five Years:
Mr. Miller has been a director of Abakan, Inc. since 2009.
Costas Takkas was appointed as a member of the board of directors on July 27, 2009, and as chief
financial officer and principal accounting officer on July 27, 2009.
Background:
Mr. Takkas brings to Sonnen over 25 years of financial experience and expertise. He has acted as a
director and officer of numerous development-stage public companies involved with projects in the
technology, mining, construction, gaming, drug development and medical equipment industries. Mr.
Takkas is a member of the Institute of Chartered Accountants in England & Wales (ACA).
Officer and Director Responsibilities and Qualifications:
Mr. Costas is responsible for those functions typically associated with a chief financial officer and is
involved in the day to day operation of Sonnen.
Mr. Costas graduated with a B.Sc. (Honors) in Physics and an Associate Royal College of Science
(ARCS) from the Imperial College of Science and Technology, University of London in 1978.
Other Public Company Directorships in the Last Five Years:
None.
Term of Office
Our directors are appointed for one year terms to hold office until the next annual meeting of our
shareholders or until removed from office in accordance with our bylaws. Our executive officers are
appointed by our board of directors and hold office pursuant to employment agreements or until removed
by the board.
Family Relationships
There are no family relationships between or among the directors or executive officers.
Involvement in Certain Legal Proceedings
During the past ten years there are no events that occurred related to an involvement in legal proceedings
that are material to an evaluation of the ability or integrity of any of the Company’s directors, persons
nominated to become directors or executive officers.
18
Compliance with Section 16(A) of the Exchange Act
Based solely upon a review of Forms 3, 4 and 5 furnished to Sonnen, we are not aware of any persons
who, during the period ended June 30, 2011, failed to file, on a timely basis, reports required by Section
16(a) of the Securities Exchange Act of 1934.
Code of Ethics
Sonnen has not adopted a Code of Ethics within the meaning of Item 406(b) of Regulation S-K of the
Securities Exchange Act of 1934. The Code of Ethics applies to directors and senior officers, such as the
principal executive officer, principal financial officer, controller, and persons performing similar
functions. Sonnen expects to adopt a Code of Ethics in the near future.
Board of Directors Committees
The board of directors has not established an audit committee. An audit committee typically reviews, acts
on and reports to the board of directors with respect to various auditing and accounting matters, including
the recommendations and performance of independent auditors, the scope of the annual audits, fees to be
paid to the independent auditors, and internal accounting and financial control policies and procedures.
Certain stock exchanges currently require companies to adopt a formal written charter that establishes an
audit committee that specifies the scope of an audit committee’s responsibilities and the means by which
it carries out those responsibilities. In order to be listed on any of these exchanges, the Sonnen will be
required to establish an audit committee. The board of directors has not established a compensation
committee. We intend to establish both an audit and compensation committee at such time as sufficient
independent directors join our board of directors.
Director Compensation
Directors currently are reimbursed for out-of-pocket costs incurred in attending meetings but are not
compensated for their service as directors. Sonnen may compensate directors in the future.
ITEM 11.
EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
Since an employment agreement dated January 1, 2010, was terminated by mutual agreement on May 15,
2010, Sonnen has compensated its chief executive officer pursuant to a consulting agreement dated
August 1, 2009. The consulting agreement accrues a consulting fee of $7,500 on a month to month basis
which has not been paid to Sonnen’s chief executive officer since 2010. He expects to continue to serve
on this basis until such time as Sonnen is able to normalize operations upon which he expects to enter into
a new employment agreement that will include a salary, stock options and other compensatory elements.
Our board of directors does not believe that operating without an employment agreement with its chief
executive officer is appropriate for a development stage company though the consulting agreement will
likely remain in place until future financings include sufficient funding to ensure adequate compensation
for Sonnen’s officers.
19
Sonnen has a consulting agreement with its chief financial officer dated July 1, 2009 pursuant to which a
consulting fee of $8,000 accrues on a month to month basis. He expects to continue to serve on this basis
until such time as Sonnen is able to normalize operations upon which he expects to enter into an
employment agreement that will include a salary, stock options and other compensatory elements. Our
board of directors does not believe that operating without an employment agreement with its chief
executive officer is appropriate for a development stage company though the consulting agreement will
likely remain in place until future financings include sufficient funding to ensure adequate compensation
for Sonnen’s officers.
Executive compensation paid or accrued to our chief executive officer for the year ended June 30, 2012,
was $90,000 for the year ended June 30, 2011, was $90,000 and for the year ended June 30, 2010, was
$617,310. The decrease in executive compensation over the comparative periods can be attributed to the
suspension of research and development activities in the second half of 2010.
Executive compensation paid or accrued to our chief financial officer for the year ended June 30, 2012,
was $96,000 for the year ended June 30, 2011, was $96,000 and for the year ended June 30, 2010, was
$611,538. The decrease in executive compensation over the comparative periods can be attributed to the
suspension of research and development activities in the second half of 2010.
Tables
The following table provides summary information for the fiscal years ended June 30, 2012, 2011, and
2010 concerning cash and non-cash compensation paid or accrued by Sonnen to or on behalf of (i) the
chief executive officer and (ii) any other employee to receive compensation in excess of $100,000.
Executive’s Summary Compensation Table
Name and
Year
Salary
Bonus
Stock
Option
Non-Equity
Change in
All Other
Total
Principal
($)
($)
Awards
Awards
Incentive Plan Pension Value
Compensation
($)
Position
($)
($)
Compensation
and
($)
($)
Nonqualified
Deferred
Compensation
($)
Robert Miller:
2012
-
-
-
-
-
-
90,000
90,000
CEO, and
2011
-
-
-
-
-
-
90,000
90,000
director
2010
31,5001
-
-
503,7543
-
-
82,0562
617,310
Costas Takkas: 2012
-
-
-
-
-
-
96,000
96,000
former CFO,
2011
-
-
-
-
-
-
96,000
96,000
PAO and
2010
-
-
-
503,7544
-
-
107,7845
611,538
director6
(1) Robert Miller’s employment agreement was terminated effective May 15, 2010.
(2) Prosper Financial, Inc., an entity related to Robert Miller, was paid for consulting services and the use of office space.
(3) Robert Miller was the beneficial owner of 500,000 options held by Prosper Financial, Inc. which have since been cancelled.
(4) Costas Takkas was the direct owner of 500,000 options which have since been cancelled.
(5) Costas Takkas was paid for consulting services amounting to $96,000 and reimbursed for medical expenses of $11,784.
20
2009 Stock Option Plan
Our board of directors adopted and approved our 2009 Stock option Plan (“Plan”) on August 31, 2009,
which provides for the granting and issuance of up to 5 million shares of our common stock. As of June
30, 2011, we had options to purchase 1,950,000 shares of common stock outstanding of which
1,800,000 had an exercise prices of $1.00, and 200,000 had an exercise price of $1.25, all of which vest
over three years in equal increments. At June 30, 2012, 3,050,000 options remained available for future
grant.
Our board of directors administers our Plan, however, they may delegate this authority to a committee
formed to perform the administration function of the Plan. The board of directors or a committee of the
board has the authority to construe and interpret provisions of the Plan as well as to determine the terms
of an award. Our board of directors may amend or modify Plan at any time. However, no amendment or
modification shall adversely affect the rights and obligations with respect to outstanding awards unless
the holder consents to that amendment or modification.
The Plan permits us to grant non-statutory stock options to our employees, directors and consultants.
The options issued under this Plan are intended to be non-statutory stock options exempt from Code
Section 409A. The duration of a stock option granted under our Plan cannot exceed ten years. The
exercise price of an incentive stock option cannot be less than 100% of the fair market value of the
common stock on the date of grant.
The Plan administrator determines the term of stock options granted under our Plan, up to a maximum
of ten years, except in the case of certain events, as described below. Unless the terms of an optionee's
stock option agreement provide otherwise, if an optionee's relationship with us ceases for any reason
other than disability or death, the optionee may exercise any vested options for a period of ninety days
following the cessation of service. If an optionee's service relationship with us ceases due to disability or
death the optionee or a beneficiary may exercise any vested options for a period of 12 months in the
event of disability or death.
Unless the Plan administrator provides otherwise, options generally are not transferable except by will,
the laws of descent and distribution, or pursuant to a domestic relations order. An optionee may
designate a beneficiary, however, who may exercise the option following the optionee's death.
Long Term Incentive Plan Awards
Sonnen has no long-term incentive plans.
Termination of Employment and Change in Control Arrangements
Sonnen has no agreement that provides for payment to any executive officer at, following, or in
connection with resignation, retirement or other termination, or a change in control, or a change in our
executive officers’ responsibilities following a change in control.
The following table provides summary information for the fiscal year ended June 30, 2012 concerning
unexercised options, stock that has not vested, and equity incentive plan awards by Sonnen to or on behalf
of (i) the chief executive officer and (ii) any other employee to receive compensation in excess of
$100,000:
21
Outstanding Equity Awards at Fiscal Year-End
Option awards
Stock awards
Equity
incentive
Equity
Equity
plan
incentive
incentive
awards:
plan awards:
plan
Market
number of
market or
awards:
Number value of
unearned
payout value
Number of
Number of
number of
of shares
shares
shares,
of unearned
securities
securities
securities
or units
or units
units or
shares, units
underlying
underlying
underlying
of stock
of stock
other
or other
unexercised
unexercised
unexercised
Option
that have
that
rights that
rights that
options
options
unearned
exercise
Option
not
have not
have not
have not
(#)
(#)
options
price
expiration
vested
vested
vested
vested
Name
exercisable unexercisable
(#)
($)
date
(#)
(#)
(#)
($)
Robert
Miller1
333,334
500,000
166,666
1.00
August
31, 2019
-
-
-
-
Costas
Takkas
333,334
500,000
166,666
1.00
August
31, 2019
-
-
-
-
(1) Robert Miller is the indirect beneficial owner of 500,000 options held by Prosper Financial, Inc.
The following table provides summary information for the year ended June 30, 2012 concerning cash and
non-cash compensation paid or accrued by Sonnen to or on behalf of its directors.
Name
Fees earned
Stock
Option
Non-equity
Non-qualified
All other
Total
or paid in
awards
Awards
incentive plan
deferred
compensation
$
cash
$
$
compensation
compensation
$
$
$
$
Robert
-
-
-
-
-
-
-
Miller
Costas
-
-
-
-
-
-
-
Takkas
22
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table sets forth certain information concerning the ownership of Sonnen’s 67,893,000
shares of common stock issued and outstanding as of April 23, 2013 with respect to: (i) all directors; (ii)
each person known by us to be the beneficial owner of more than five percent of our common stock; and
(iii) our directors and executive officers as a group.
Title of Class Name and Address of Beneficial Amount and nature
Percent of Class
Ownership
of Beneficial
Ownership1
Common
Robert Miller
Stock
4801 Alhambra Circle
25,000,0002
37%
Coral Gables, Florida 33146
Costas Takkas
Common
105 Marbel Drive
Stock
P.O. Box 1436 GT
16,000,0003
23%
Grand Cayman, Cayman Islands
British West Indies
Common
All Executive Officers and
Stock
Directors as a Group
41,000,000
60%
(1) Beneficial ownership is determined in accordance with Commission rules and generally includes voting or
investment power with respect to securities. Shares of common stock subject to options, warrants and convertible
preferred stock currently exercisable or convertible, or exercisable or convertible within sixty (60) days, would be
counted as outstanding for computing the percentage of the person holding such options or warrants but not
counted as outstanding for computing the percentage of any other person.
(2) Robert Miller is a indirect beneficial owner of 25,000,000 shares held by Ms. Maria Maz, to whom Mr. Miller is
married and 500,000 options held by Prosper Financial, Inc., an entity owned by Ms. Maz, that vest in equal
increments over three years to purchase shares of common stock at $1.00 per share on or before August 31, 2019.
(3) Costas Takkas was granted 500,000 options that vest in equal increments over three years to purchase shares of
common stock at $1.00 per share on or before August 31, 2019.
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND
DIRECTOR INDEPENDENCE
None of our directors or executive officers, nor any proposed nominee for election as a director, nor any
person who beneficially owns, directly or indirectly, shares carrying more than 5% of the voting rights
attached to all of our outstanding shares, nor any members of the immediate family (including spouse,
parents, children, siblings, and in-laws) of any of the foregoing persons has any material interest, direct or
indirect, in any transaction in the period covered by this report or in any presently proposed transaction
which, in either case, has or will materially affect us.
Director Independence
Our common stock is listed on the OTC Link inter-dealer quotation system, which does not have director
independence requirements. For purposes of determining director independence, we have applied the
definitions set out in NASDAQ Rule 4200(a)(15). Under NASDAQ Rule 4200(a)(15), a director is not
considered to be independent if he or she is also an executive officer or employee of the corporation.
Accordingly, we had no independent directors as of June 30, 2012.
23
ITEM 14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
Matinelli Mick PLLC (“Martinelli”) has provided audits of our annual financial statements and a review
of our quarterly financial statements for the periods ended June 30, 2012 and June 30, 2011 respectively.
The following is an aggregate of fees billed during each of the last fiscal years for professional services
rendered by our principal accountants.
Martinelli Mick Fees and Services
2011
Audit fees
$
-
$
-
Audit-related fees
-
-
Tax fees
-
-
All other fees
-
-
Total fees paid or accrued to our principal accountants
$
-
$
-
Audit Committee Pre-Approval
Sonnen did not have a standing audit committee at the time its respective auditors were engaged.
Therefore, all services provided to Sonnen by Martinelli, as detailed above, were pre-approved by
Sonnen’s board of directors. Martinelli performed all work only with their permanent full time
employees.
24
PART IV
ITEM 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Financial Statements
The following documents are filed under “Item 8. Financial Statements and Supplementary Data,” pages
F-1 through F-21, and are included as part of this Form 10-K:
Financial Statements of Sonnen for the years ended June 30, 2012 and 2011:
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Loss
Consolidated Statements of Changes in Stockholders’ Equity (Deficit)
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
(b) Exhibits
The exhibits required to be attached by Item 601 of Regulation S-K are listed in the Index to Exhibits on
page 27 of this Form 10-K, and are incorporated herein by this reference.
(c) Financial Statement Schedules
We are not filing any financial statement schedules as part of this Form 10-K because such schedules are
either not applicable or the required information is included in the financial statements or notes thereto.
25
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Sonnen Corporation
Date
/s/ Robert Miller
April 23, 2013
By: Robert Miller
Its: President, Chief Executive Officer and Director
/s/ Costas Takkas
April 23, 2013
By: Costas Takkas
Its: Chief Financial Officer, Principal Accounting Officer and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Date
/s/ Robert Miller
April 23, 2013
Robert Miller
President, Chief Executive Officer and Director
/s/ Costas Takkas
April 23, 2013
Costas Takkas
Chief Financial Officer, Principal Accounting Officer and Director
26
INDEX TO EXHIBITS
Exhibit
Description
3.1.1*
Articles of Incorporation, incorporated by reference to the Company’s Form SB-2 filed with the
Commission on August 6, 2007.
3.1.2*
Amendment to the Articles of Incorporation, incorporated by reference to the Company’s Definitive
14C filed with the Commission on October 14, 2009.
3.2*
Bylaws, incorporated by reference to the Company’s Form SB-2 filed with the Commission on August
6, 2007.
10.1*
Licensing Agreement between the Company, the Company’s wholly owned subsidiary, and P.T. Group,
Ltd., dated July 27, 2009, incorporated by reference to the Company’s Form 10-K filed with the
Commission on August 3, 2009.
10.2*
Consulting Agreement between the Company and Costas Takkas, dated July 27, 2009, incorporated by
reference to the Company’s Form 10-K filed with the Commission on August 3, 2009.
10.3*
Employment Agreement between the Company and Paul Leonard dated July 27, 2009, incorporated by
reference to the Company’s Form 10-K filed with the Commission on August 3, 2009.
10.4*
Employment Agreement between the Company and David Greenbaum dated August 1, 2009,
incorporated by reference to the Company’s Form 10-Q filed with the Commission on November 23,
2009.
10.5*
Consulting Agreement between the Company and Carol Laws dated August 1, 2009, incorporated by
reference to the Company’s Form 10-Q filed with the Commission on November 23, 2009.
10.6*
Consulting Agreement between the Company and Backend Technologies, LLC dated August 5, 2009,
incorporated by reference to the Company’s Form 10-Q filed with the Commission on November 23,
2009.
10.7*
Employment Agreement between the Company and Robert H. Miller dated January 1, 2010,
incorporated by reference to the Company’ Form 10-Q filed with the Commission on November 23,
2010.
21*
Subsidiaries of the Company, incorporated by reference to the Company’s Form 10-K filed with the
Commission on August 3, 2009.
Certification of the Chief Executive Officer pursuant to Rule 13a-14 of the Exchange Act as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (attached).
Certification of the Chief Financial Officer pursuant to Rule 13a-14 of the Exchange Act as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (attached).
Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 (attached).
Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 (attached).
101. INS
XBRL Instance Document†
101. PRE
XBRL Taxonomy Extension Presentation Linkbase†
101. LAB
XBRL Taxonomy Extension Label Linkbase†
101. DEF
XBRL Taxonomy Extension Label Linkbase†
101. CAL
XBRL Taxonomy Extension Label Linkbase†
101. SCH
XBRL Taxonomy Extension Schema†
*
Incorporated by reference to previous filings of Allied.
†
Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed “furnished” and
not “filed” or part of a registration statement or prospectus for purposes of Section 11 or 12 of the
Securities Act of 1933, or deemed “furnished” and not “filed” for purposes of Section 18 of the
Securities and Exchange Act of 1934, and otherwise is not subject to liability under these
sections.
27
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