UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



FORM 10-Q



|S | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------
|  |                                                                                  
|  | For the quarter ended June 30, 2012                                              



|£ | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
|- | ---------------------------------------------------------------





Commission File Number: 000-254888



SUSTAINABLE ENVIRONMENTAL TECHNOLOGIES
CORPORATION

(Exact name of registrant as specified in
its charter)





|California                                                     |  | 33-0230641                          
|-------------------------------------------------------------- |  | ------------------------------------
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)





|2345 W. Foothill, Suite 12, Upland, CA   |  | 91786     
|---------------------------------------- |  | ----------
|(Address of principal executive offices) |  | (Zip Code)



Registrant’s telephone number: (801)
810-9888



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.  YesxNoo



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). YesxNoo



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



|Large accelerated filero                                            | Accelerated filero        
|------------------------------------------------------------------- | --------------------------
|                                                                    |                           
|Non-accelerated filero(Do not check if a smaller reporting company) | Smaller reporting companyx



Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YesoNox



As of August 14, 2012,there were 16,659,774shares of the registrant’s common stock issued
and outstanding.


















INDEX



|                            |                                                                                         | Page       
|--------------------------- | --------------------------------------------------------------------------------------- | -----------
|                            |                                                                                         |            
|                            | PART I –  FINANCIAL INFORMATION                                                         |            
|                            |                                                                                         |            
|Item 1.                     | Financial Statements (unaudited)                                                        | F-1        
|                            |                                                                                         |            
|                            | Consolidated Balance Sheets for June 30, 2012 and March 31, 2012                        | F-1        
|                            |                                                                                         |            
|                            | Consolidated Statements of Income For the Three Months Ended June 30, 2012 and 2011     | F-2        
|                            |                                                                                         |            
|                            | Consolidated Statements of Cash Flows For the Three Months Ended June 30, 2012 and 2011 | F-3        
|                            |                                                                                         |            
|                            | Notes to Consolidated Financial Statements                                              | F-4 -- F-11
|                            |                                                                                         |            
|Item 2.                     | Management’s Discussion and Analysis of Financial Condition and Results of Operations   | 1          
|                            |                                                                                         |            
|Item 3.                     | Quantitative and Qualitative Disclosures About Market Risk                              | 7          
|                            |                                                                                         |            
|Item 4.                     | Controls and Procedures                                                                 | 4          
|                            |                                                                                         |            
|PART II – OTHER INFORMATION
|                            |                                                                                         |            
|Item 1.                     | Legal Proceedings                                                                       | 5          
|                            |                                                                                         |            
|Item 2.                     | Unregistered Sales of Equity Securities and Use of Proceeds                             | 5          
|                            |                                                                                         |            
|Item 3.                     | Defaults Upon Senior Securities                                                         | 5          
|                            |                                                                                         |            
|Item 4.                     | Mine Safety Disclosures                                                                 | 5          
|                            |                                                                                         |            
|Item 5.                     | Other Information                                                                       | 6          
|                            |                                                                                         |            
|Item 6.                     | Exhibits                                                                                | 6          
|                            |                                                                                         |            
|                            | Signatures                                                                              | 7          





i











CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING
INFORMATION



All statements contained in this Quarterly
Report on Form 10-Q, other than statements of historical facts, that address future activities, events or developments are forward-looking
statements, including, but not limited to, statements containing the words "believe", "anticipate", "expect"
and words of similar import. These statements are based on certain assumptions and analyses made by us in light of our experience
and our assessment of historical trends, current conditions and expected future developments as well as other factors we believe
are appropriate under the circumstances. However, whether actual results will conform to the expectations and predictions of management
is subject to a number of risks and uncertainties that may cause actual results to differ materially. Consequently, all of the
forward-looking statements made in this Quarterly Report on Form 10-Q are qualified by these cautionary statements and there can
be no assurance that the actual results anticipated by management will be realized or, even if substantially realized, that they
will have the expected consequences to or effects on our business operations. These forward-looking statements are made only as
of the date hereof, and we undertake no obligation to update or revise the forward-looking statements, whether as a result of new
information, future events or otherwise.



The safe harbors of forward-looking statements
provided by Section 21E of the Securities Exchange Act of 1934 are unavailable to issuers of penny stock. Our shares may be considered
penny stock and such safe harbors set forth under the Private Securities Litigation Reform Act of 1995 may not be available to
us.



The following discussion should be read
in conjunction with the historical financial statements and related notes thereto of our Annual Report on Form 10-K for the fiscal
year ended March 31, 2012.



As used in this Quarterly Report on Form
10-Q, unless the context requires otherwise, "we", "us" or the "Company" or “SET Corp.” means
Sustainable Environmental Technologies Corporation, a California corporation, and its divisions and subsidiaries.



ii







PART I –  FINANCIAL
INFORMATION



Item 1. 	Financial Statements.



SUSTAINABLE ENVIRONMENTAL TECHNOLOGIES
CORPORATION

CONSOLIDATED BALANCE SHEETS

(unaudited)





|                                                                                                                                                                          |  | As of June 30, |            |   | As of March 31, |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------- | ---------- | - | --------------- | -
|                                                                                                                                                                          |  | 2012           |            |   | 2012            |  
|Assets                                                                                                                                                                    |  |                |            |   |                 |  
|Current assets:                                                                                                                                                           |  |                |            |   |                 |  
|Cash and cash equivalents                                                                                                                                                 |  | $              | 1,131,900  |   |                 | $
|Accounts receivable, net of allowance for doubtful
    accounts of $6,000 and $6,000, respectively                                                                        |  |                | 380,285    |   |                 |  
|Prepaids and other current assets                                                                                                                                         |  |                | 29,663     |   |                 |  
|Deferred tax assets                                                                                                                                                       |  |                | 117,126    |   |                 |  
|Total current assets                                                                                                                                                      |  |                | 1,658,974  |   |                 |  
|                                                                                                                                                                          |  |                |            |   |                 |  
|Property and equipment, net                                                                                                                                               |  |                | 3,082,714  |   |                 |  
|Other assets                                                                                                                                                              |  |                | 714,950    |   |                 |  
|Intangible assets, net                                                                                                                                                    |  |                | 238,749    |   |                 |  
|Goodwill                                                                                                                                                                  |  |                | 66,188     |   |                 |  
|Deferred tax assets, long-term                                                                                                                                            |  |                | 1,066,964  |   |                 |  
|                                                                                                                                                                          |  |                |            |   |                 |  
|Total Assets                                                                                                                                                              |  | $              | 6,828,539  |   |                 | $
|                                                                                                                                                                          |  |                |            |   |                 |  
|Liabilities and Stockholders' Equity                                                                                                                                      |  |                |            |   |                 |  
|Current liabilities:                                                                                                                                                      |  |                |            |   |                 |  
|Accounts payable                                                                                                                                                          |  | $              | 460,717    |   |                 | $
|Accrued salaries, wages, and related party consulting fees                                                                                                                |  |                | 51,342     |   |                 |  
|Accrued liabilities                                                                                                                                                       |  |                | 168,705    |   |                 |  
|State income taxes payable                                                                                                                                                |  |                | 67,200     |   |                 |  
|Related party convertible notes payable, net of discount
    of $101,625 and $109,318, respectively                                                                       |  |                | 258,165    |   |                 |  
|Notes payable                                                                                                                                                             |  |                | 83,159     |   |                 |  
|Total current liabilities                                                                                                                                                 |  |                | 1,089,288  |   |                 |  
|                                                                                                                                                                          |  |                |            |   |                 |  
|Related party convertible notes payable, long-term, net
    of discount of $111,500 and $133,992, respectively                                                            |  |                | 1,011,026  |   |                 |  
|Warrant liability                                                                                                                                                         |  |                | 34,697     |   |                 |  
|Asset retirement obligation                                                                                                                                               |  |                | 9,900      |   |                 |  
|Total liabilities                                                                                                                                                         |  |                | 2,144,911  |   |                 |  
|                                                                                                                                                                          |  |                |            |   |                 |  
|Commitments and Contingencies                                                                                                                                             |  |                |            |   |                 |  
|                                                                                                                                                                          |  |                |            |   |                 |  
|Stockholders' Equity:                                                                                                                                                     |  |                |            |   |                 |  
|Preferred stock, $0.001 par value, 10,000,000 shares
    authorized; 4,582,827 issued at June 30, 2012 and March 31, 2012, none outstanding                               |  |                | –          |   |                 |  
|Common stock, $0.001 par value, 100,000,000 shares     authorized;
    16,659,774 and 16,458,524 issued and outstanding at June 30, 2012 and March 31, 2012, respectively |  |                | 16,661     |   |                 |  
|Additional paid-in capital                                                                                                                                                |  |                | 6,674,386  |   |                 |  
|Accumulated deficit                                                                                                                                                       |  |                | (2,007,419 | ) |                 |  
|Total stockholders' equity                                                                                                                                                |  |                | 4,683,628  |   |                 |  
|                                                                                                                                                                          |  |                |            |   |                 |  
|Total Liabilities and Stockholders' Equity                                                                                                                                |  | $              | 6,828,539  |   |                 | $



The accompanying notes are an integral part of these consolidated financial statements.



F-1







SUSTAINABLE ENVIRONMENTAL TECHNOLOGIES
CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

(unaudited)





|                                                            |  | For the Three Months Ended  June 30, |           
|----------------------------------------------------------- |  | ------------------------------------ | ----------
|                                                            |  | 2012                                 |           
|Revenues:                                                   |  |                                      |           
|Water processing                                            |  | $                                    | 795,034   
|Reclaimed oil                                               |  |                                      | 188,171   
|Total revenues                                              |  |                                      | 983,205   
|                                                            |  |                                      |           
|Cost of revenues:                                           |  |                                      |           
|Water processing                                            |  |                                      | 237,668   
|Reclaimed oil                                               |  |                                      | 40,246    
|Total cost of revenues                                      |  |                                      | 277,914   
|                                                            |  |                                      |           
|Gross profit                                                |  |                                      | 705,291   
|                                                            |  |                                      |           
|Operating expenses:                                         |  |                                      |           
|General and administrative                                  |  |                                      | 688,568   
|Total operating expenses                                    |  |                                      | 688,568   
|                                                            |  |                                      |           
|Operating income                                            |  |                                      | 16,723    
|                                                            |  |                                      |           
|Other income (expense):                                     |  |                                      |           
|Interest income                                             |  |                                      | 601       
|Interest expense                                            |  |                                      | (54,959   
|Change in fair value of derivative liability                |  |                                      | 85,149    
|Other, net                                                  |  |                                      | 15,444    
|Total other income (expense), net                           |  |                                      | 46,235    
|                                                            |  |                                      |           
|Income before provision for income taxes                    |  |                                      | 62,958    
|                                                            |  |                                      |           
|Provision for income taxes                                  |  |                                      | 58,000    
|                                                            |  |                                      |           
|Net income from continuing operations                       |  |                                      | 4,958     
|                                                            |  |                                      |           
|Net income (loss) from discontinued operations              |  |                                      | –         
|Net income                                                  |  | $                                    | 4,958     
|                                                            |  |                                      |           
|Basic net income (loss) available to common stockholders:   |  |                                      |           
|Continuing operations                                       |  | $                                    | 0.00      
|Discontinued operations                                     |  | $                                    | –         
|Net income                                                  |  | $                                    | 0.00      
|                                                            |  |                                      |           
|Diluted net income (loss) available to common stockholders: |  |                                      |           
|Continuing operations                                       |  | $                                    | 0.00      
|Discontinued operations                                     |  | $                                    | –         
|Net income                                                  |  | $                                    | 0.00      
|                                                            |  |                                      |           
|Weighted average shares - basic                             |  |                                      | 16,524,884
|Weighted average shares - diluted                           |  |                                      | 18,419,374





The accompanying notes are an integral part
of these consolidated financial statements.





F-2







SUSTAINABLE ENVIRONMENTAL TECHNOLOGIES
CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)





|                                                                                          |  | For the Three Months Ended  June 30, |          
|----------------------------------------------------------------------------------------- |  | ------------------------------------ | ---------
|                                                                                          |  | 2012                                 |          
|Cash flows from operating activities:                                                     |  |                                      |          
|Net income                                                                                |  | $                                    | 4,958    
|Adjustments to reconcile net income to net cash provided
    by operating activities:     |  |                                      |          
|Amortization of debt discounts related to beneficial
    conversion features and warrants |  |                                      | 30,184   
|Income tax provision                                                                      |  |                                      | 50,000   
|Loss (gain) on disposal of assets                                                         |  |                                      | 27,820   
|Change in fair value of derivative liabilities                                            |  |                                      | (85,149  
|Depreciation and amortization                                                             |  |                                      | 53,904   
|Stock-based compensation                                                                  |  |                                      | 259,919  
|Gain on settlement and extinguishment of accounts payable                                 |  |                                      | (43,165  
|Change in operating assets and liabilities:                                               |  |                                      |          
|Accounts receivable                                                                       |  |                                      | (80,173  
|Prepaid expenses                                                                          |  |                                      | (5,280   
|Accounts payable                                                                          |  |                                      | (55,693  
|Accrued liabilities                                                                       |  |                                      | (92,274  
|Income taxes payable                                                                      |  |                                      | 8,000    
|Net cash provided by operating activities                                                 |  |                                      | 73,051   
|                                                                                          |  |                                      |          
|Cash flows from investing activities:                                                     |  |                                      |          
|Purchase of property and equipment                                                        |  |                                      | (726,283 
|Net cash used in investing activities                                                     |  |                                      | (726,283 
|                                                                                          |  |                                      |          
|Cash flows from financing activities:                                                     |  |                                      |          
|Payments on related party convertible note payable                                        |  |                                      | (87,177  
|Payments on notes payable                                                                 |  |                                      | (41,418  
|Net cash used in financing activities                                                     |  |                                      | (128,595 
|                                                                                          |  |                                      |          
|Net increase (decrease) in cash                                                           |  |                                      | (781,827 
|Cash - beginning of period                                                                |  |                                      | 1,913,727
|Cash - ending of period                                                                   |  | $                                    | 1,131,900
|                                                                                          |  |                                      |          
|Supplemental disclosures of cash flow information                                         |  |                                      |          
|Cash paid during the period for:                                                          |  |                                      |          
|Interest                                                                                  |  | $                                    | 22,755   
|Income taxes                                                                              |  | $                                    | –        
|                                                                                          |  |                                      |          
|Non-cash investing and financing activities:                                              |  |                                      |          
|Purchase of property and equipment in accounts payable                                    |  | $                                    | 275,087  





The accompanying notes are an integral part
of these consolidated financial statements.



F-3







SUSTAINABLE ENVIRONMENTAL TECHNOLOGIES
CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)



Note 1 – Organization, History and Significant
Accounting Policies and Procedures



Organization and History



Sustainable Environmental Technologies
Corporation (the “Company” or “SET Corp”) is a company dedicated to responsible resource utilization through
the strategic balance of environmental, societal and economic growth.  SET Corp is setting the standard for responsible principles
of sustainable development.  These steadfast values are evident through patented technologies and strategic acquisitions,
which solve environmental issues with an economic advantage. SET Corp limits their customer’s environmental impact while
conserving valuable and diminishing resources that are essential to future generations.



Current and future services include, and
are expected to include innovative eco-technologies that provide patented treatment, recovery, reclamation and re-injection services
for produced water (associated with the oil and gas industry) and complete sustainable energy solutions that bridge the gap between
existing energy inefficient buildings and the sustainable development and design needs of tomorrow.



In addition to these areas of expertise,
SET Corp provides customized services that include design, construction management, operation and maintenance services, and equipment
manufacturing for industrial and municipal sectors.  With strategic partnerships, through prominent global manufacturers
and distributors, SET Corp has access to a worldwide sales and distribution network.  Currently, our revenues are derived
within the United States; however, we intend to also conduct future business in the Australia/Asia region through certain pending
patents purchased from World Environmental Solutions Pty Ltd ("WES").



Note 2 – Accounting
Policies and Basis of Presentation



The consolidated financial statements included
herein, presented in accordance with United States generally accepted accounting principles and stated in US dollars, have been
prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”).
Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that
the disclosures are adequate to make the information presented not misleading.



These statements reflect all adjustments,
consisting of normal recurring adjustments, which, in the opinion of management, are necessary for fair presentation of the information
contained therein. It is suggested that these consolidated interim financial statements be read in conjunction with the consolidated
financial statements and notes thereto for SET Corp for the year ended March 31, 2012 included in SET Corp’s Annual Report
on Form 10-K. The consolidated financial statements for the three months ended June 30, 2012 are not necessarily indicative of
the results expected for the full year.



Consolidation



The consolidated financial statements include
the assets, liabilities and operating results of the Company and its wholly-owned subsidiaries, Pro Water, LLC, a Utah limited
liability company ("PWU"), ProWater, LLC, a Colorado limited liability company ("PWC"), and SET IP Holdings
LLC, a Utah limited liability company ("Set IP"), after elimination of all material inter-company accounts and transactions.
OC Energy and balances related to the Company’s former wastewater treatment plant are classified as discontinued operations.



Estimates



The preparation of financial statements
in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenue and expenses during the reporting period. Significant estimates include the valuation of derivatives,
equity instruments such as options and warrants, and provision for income taxes. Actual results could differ from those estimates.



F-4











Fair Value of Financial Instruments



Effective October 1, 2009, the Company
adopted Accounting Standards Codification ("ASC")825 Fair Value Measurements and Disclosures, except as
it applies to the nonfinancial assets and nonfinancial liabilities subject to ASC 825. ASC 825 clarifies that fair value is an
exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants.  As such, fair value is a market-based measurement that should be determined based on assumptions
that market participants would use in pricing an asset or a liability. As a basis for considering such assumptions, ASC 825 establishes
a three-tier value hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value:



Level 1 - Observable inputs that reflect quoted prices (unadjusted)
for identical assets or liabilities in active markets.

Level 2 - Include other inputs that are directly or indirectly
observable in the marketplace.

Level 3 - Unobservable inputs which are supported by little
or no market activity.



The fair value hierarchy also requires
an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Derivative
instruments include the warrant liability (Level 2). Derivative instruments are valued using standard calculations/models that
are primarily based on observable inputs, including volatilities and interest rates. Therefore, derivative instruments are included
in Level 2.



Fair-value estimates discussed herein are
based upon certain market assumptions and pertinent information available to management as of June 30, 2012 and March 31, 2012.
The respective carrying value of certain on-balance-sheet financial instruments approximated their fair values. These financial
instruments include cash, prepaids, accounts payable, accrued liabilities, notes payable, and convertible notes payable. Fair values
for these items were assumed to approximate carrying values because of their short term nature or because they are payable on demand.



The following table presents the Company’s
fair value hierarchy for assets and liabilities measured at fair value on a recurring basis at June 30, 2012:



|                                         |  | Level 1 |           |  | Level 2 |   |        | Level 3 |  |   | Total | 
|---------------------------------------- |  | ------- | --------- |  | ------- | - | ------ | ------- |  | - | ----- | 
|Assets                                   |  |         |           |  |         |   |        |         |  |   |       | 
|Cash and cash equivalents                |  | $       | 1,131,900 |  |         | $ | –      |         |  | $ | –     | 
|Total assets measured at fair value      |  | $       | 1,131,900 |  |         | $ | –      |         |  | $ | –     | 
|                                         |  |         |           |  |         |   |        |         |  |   |       | 
|Liabilities                              |  |         |           |  |         |   |        |         |  |   |       | 
|Derivative instruments                   |  | $       | –         |  |         | $ | 34,697 |         |  | $ | –     | 
|Total liabilities measured at fair value |  | $       | –         |  |         | $ | 34,697 |         |  | $ | –     | 



Concentrations



Credit Risk



At times, the Company maintains cash balances
at a financial institution in excess of the $250,000 FDIC insurance limit. In addition, at times the Company extends credit to
customers in the normal course of business, after an evaluation of the credit worthiness. The Company does not expect to take any
unnecessary credit risks causing significant write-offs of potentially uncollectible accounts. The Company also maintains reserves
for potential credit losses. The Company considers the following factors when determining if collection of a fee is reasonably
assured: customer credit-worthiness, past transaction history with the customer, current economic industry trends and changes in
customer payment terms.



F-5









Customer



The geographic location of the injection
well is a direct factor with relation to the radius of customers’ wells that can be economically serviced. While there are
several key factors to obtaining new business, the ratio of available business per customer is based solely on the number of wells
the customer has within the serviceable radius of the injection well. As new oil and gas wells are developed within the serviceable
radius of the well, the ratio of customers to percentage of business will decrease. Until new wells are developed, the expected
customer to business ratio is not expected to change. During the three months ended June 30, 2012, the Company had two (2) customers
that accounted for approximately 97% of its revenue and one (1) customer that accounted for 97% of its accounts receivable at June
30, 2012. During the three months ended June 30, 2011, the Company had two (2) customers that accounted for approximately 98% of
its revenue and one (1) customer that accounted for 43% of its accounts receivable at June 30, 2011. The loss of our injection
well customers would have a significant impact on the Company’s financial results. In addition, we are selling our reclaimed
oil to one customer. If there was an issue with this customer, we have additional oil customers that would potentially take this
position.



Earnings Per Common Share



Basic earnings per common share is computed
by dividing net income available to common shareholders by the weighted-average number of common shares outstanding during the
reporting period. Diluted earnings per common share is computed by dividing net income available to common shareholders by the
combination of dilutive common share equivalents, comprised of shares issuable under the Company’s share-based compensation
plans and the weighted-average number of common shares outstanding during the reporting period. Dilutive common share equivalents
include the dilutive effect of in-the-money share equivalents, which are calculated, based on the average share price for each
period using the treasury stock method. Under the treasury stock method, the exercise price of an award, if any, the amount of
compensation cost, if any, for future service that the Company has not yet recognized, and the estimated tax benefits that would
be recorded in paid-in capital, if any, when an award is settled are assumed to be used to repurchase shares in the current period.



The following is a summary of outstanding
securities which have been included in the calculation of diluted net income per share and reconciliation of net income to net
income available to common stock holders for the three months ended June 30, 2012 and 2011:





|                                                                                                    |  | For the Three Months Ended
June 30, |           
|--------------------------------------------------------------------------------------------------- |  | ----------------------------------- | ----------
|                                                                                                    |  | 2012                                |           
|Weighted average common shares outstanding used in calculating basic earnings per share             |  |                                     | 16,524,884
|Effect of related party convertible notes payable                                                   |  |                                     | 1,427,439 
|Effect of options and warrants                                                                      |  |                                     | 467,051   
|Weighted average common and common equivalent shares used in calculating diluted earnings per share |  |                                     | 18,419,374
|                                                                                                    |  |                                     |           
|Net income as reported                                                                              |  | $                                   | 4,958     
|Add - Interest on convertible notes payable                                                         |  |                                     | 47,978    
|Net income available to common stockholders                                                         |  | $                                   | 52,936    





The Company excluded 75,000 and 23,367
options and 2,005,502 and 867,502 warrants from the computation for the three months ended June 30, 2012 and 2011, respectively,
as their exercise prices were in excess of the average closing market price of the Company’s common stock.



Note 3 – Intangible Assets



Customer Relationships



During the three months ended June 30,
2012 and 2011, the Company recorded amortization expense to cost of goods sold related to the customer relationship of $7,195 and
$7,195, respectively. The net carrying value of the customer relationship as of June 30, 2012 was $122,914.



Pending Patents



In connection with the pending patents
acquired from WES, the Company is amortizing the value of the patents over an estimated life of 15 years, which is the approximate
remaining life and projected cash flows of the pending patents. During the three months ended June 30, 2012 and 2011, the Company
amortized $2,500 and $6,333, respectively, which is included in general and administrative expense. At June 30, 2012, the net carrying
value of the pending patents was $115,835. As of June 30, 2012, none of the contingent consideration under the WES agreement had
been triggered.



F-6







Note 4 – Property and Equipment



Property and equipment as of June 30, 2012 and March 31, 2012
consisted of the following:



|                                                                |  | June 30, 2012 |           |   | March 31, 2012 |  
|--------------------------------------------------------------- |  | ------------- | --------- | - | -------------- | -
|                                                                |  |               |           |   |                |  
|Injection well                                                  |  | $             | 613,976   |   |                | $
|Machinery and equipment                                         |  |               | 2,653,531 |   |                |  
|Buildings                                                       |  |               | 7,500     |   |                |  
|Land                                                            |  |               | 51,000    |   |                |  
|Office equipment, computer software, and furniture and fixtures |  |               | 43,343    |   |                |  
|Accumulated depreciation                                        |  |               | (286,636  | ) |                |  
|Total                                                           |  | $             | 3,082,714 |   |                | $



During the three months ended June 30, 2012 and 2011, the Company
recorded depreciation expense of $44,210 and $37,854, respectively.



Note 5 – Certain Balance Sheet Elements



Accrued Liabilities



At June 30, 2012 and March 31, 2012, the Company had accrued
liabilities as follows:



|                 |  | June 30, 2012 |         |  | March 31, 2012 |  
|---------------- |  | ------------- | ------- |  | -------------- | -
|                 |  |               |         |  |                |  
|Accrued interest |  | $             | 41,291  |  |                | $
|Royalty payable  |  |               | 58,095  |  |                |  
|Other            |  |               | 69,319  |  |                |  
|Total            |  | $             | 168,705 |  |                | $



Note 6 – Notes Payable



MOU
Note Payable



The Company has a promissory note payable
of $45,000 which was incurred in connection with a memorandum of understanding to purchase SET Corp’s discontinued water
treatment plant. The note bears interest at 10% with a default rate of 18%. As of June 30, 2012, the note is in default and interest
is being accrued at the default rate.





F-7







Yates Petroleum



In connection with cross complaint brought
by Yates Petroleum ("Yates") against the Company, the Company entered into an agreement dated November 30, 2010 which
requires that the Company pay a total of $175,000, incurring interest at 10% per annum, payable in 24 equal payments. As of June
30, 2012, the Company is current on the note and a principal balance of $29,165 remains.



Related Party Convertible Note Payable
to Metropolitan Real Estate LLC



In connection with the acquisition of PWU,
the Company entered into a $2.0 million convertible note payable. Under the current terms of the convertible note payable, $1,600,000
of the note may be converted at $3.00 per share and $400,000 may be converted at $0.375 per share. The convertible note incurs
interest at 5% per annum. The Company is to make 60 monthly payments of $35,478 commencing January 2011 and concluding December
2015, which was extended until April 2016 by the holding during the fiscal year ended March 31, 2012.



Since the conversion price of $0.375 related
to $400,000 was significantly less than the fair value of the Company’s common stock per the closing market price, a beneficial
conversion feature was present. The Company valued the beneficial conversion feature as of the date of the amended agreement in
the amount of $696,000, and recorded the maximum discount allowed of $400,000 against the note. At June 30, 2012, the $213,125
unamortized discount on the note was allocated between short and long term based on the expected annual amortization of which $101,625
has been allocated to short-term portion with the remaining $111,500 allocated to long-term portion. During the three months ended
June 30, 2012 and 2011, the Company amortized $30,184 and $37,502 of the discount to interest expense, respectively, using the
effective interest method.



Note 7 – Stockholders’ Equity



On March 27, 2012, the Company granted
common stock to three board members which vest over a twenty-four (24) month period, starting April 1, 2012 and then the first
of each quarter thereafter (ending January 1, 2014). Under the agreement, the Company agreed to issue a total of 450,000 shares
of common stock valued at $585,000 on the date of the grant, with the first tranche of 56,250 being issued in April 2012. During
the three months ended June 30, 2012, the Company recorded compensation expense of $73,125 within general and administrative expense.
The Company will record stock based compensation per quarter of approximately $73,125 through March 31, 2014. The shares were issued
from the Company's Incentive and Nonstatutory Stock Option Plans.



On June 20, 2012, the Board of Directors
via unanimous written consent gave discretionary compensation bonuses in the form of the Company’s common stock to its employees
and key consultants. The total amount of common stock issued was 145,000 valued at $53,650 based on the closing market price of
the Company's common stock on the date of grant which was recorded within general and administrative expense. The shares were issued
from the Company's Incentive and Nonstatutory Stock Option Plans. Out of the 145,000 shares issued, Robert Glaser received 50,000
shares, Keith Morlock received 50,000 shares, Cynthia Glaser received 25,000 shares and Steve Ritchie received 10,000 shares. The
shares were issued from the Company’s Incentive and Nonstatutory Stock Option Plans.



Note 8 – Options and Warrants



On June 13, 2012, the Board of Directors
of the Company via unanimous written consent re-priced all of the stock options outstanding under our non-statutory stock options
under the Corporation’s 2006, 2007 and 2010 incentive and non-statutory stock option plans at $0.36 per share of common stock
of the Company. The Board of Directors re-priced such stock options to keep such employees and consultants who were granted options
incentivized. The re-pricing resulted in additional stock compensation expense recorded in general and administrative expense in
the statement of operations for the three months ended June 30, 2012 of $6,453.



Stock
compensation expense, excluding items disclosed above, recorded in general and administrative expense in the statements of income
for the three months ended June 30, 2012 and 2011 was $126,691 and
$122,820, respectively.



The following is a summary of activity of outstanding stock option activity for the three months
ended June 30, 2012:



|                               |  | Number of Shares |        
|------------------------------ |  | ---------------- | -------
|Balance, March 31, 2012        |  |                  | 865,000
|Options granted                |  |                  | –      
|Options exercised              |  |                  | –      
|Options cancelled or forfeited |  |                  | (36,667
|                               |  |                  |        
|Balance, June 30, 2012         |  |                  | 828,333



F-8







Although management believes its estimate
regarding the fair value of the services to be reasonable, there can be no assurance that all of the subjective assumptions will
remain constant, and therefore the valuation of the services may not be a reliable measure of the fair value of stock compensation
or stock based payments for consulting services. Expected volatility is based primarily on historical volatility. Historical volatility
was computed using weekly pricing observations for recent periods that correspond to the remaining life of the options. We believe
this method produces an estimate that is representative of our expectations of future volatility over the expected term of these
options. We currently have no reason to believe future volatility over the expected remaining life of these warrants is likely
to differ materially from historical volatility. The expected life is based on the remaining term of the options. The risk-free
interest rate is based on U.S. Treasury securities.



Warrants



The Company has 376,068 common stock purchase
warrants in which are considered derivative liabilities due to reset provisions included within the agreements. Accordingly, these
warrants are recorded as liabilities at fair value at each reporting date. Currently, these warrants have an exercise price of
$11.70 and expire in May of 2013; however, these warrants have exercise price reset features in the event the Company issues common
stock below the exercise price of the warrants.  During the three months ended June 30, 2012, the Company recorded gain
of $85,149 for the change in fair value of the warrant liability. As of June 30, 2012, the warrant liability was $34,697.



The following is a summary of activity of outstanding
common stock warrants for the three months ended June 30, 2012:



|                                |  | Number Of Shares |          
|------------------------------- |  | ---------------- | ---------
|                                |  |                  |          
|Balance, March 31, 2012         |  |                  | 2,005,502
|Warrants granted                |  |                  | –        
|Warrants exercised              |  |                  | –        
|Warrants cancelled or forfeited |  |                  | –        
|Balance, June 30, 2012          |  |                  | 2,005,502



Note 9 – Commitments and Contingencies



Manufacturing and Engineering Agreement



In
January 2012, PWC entered into a manufacturing and engineering agreement to build part of the Centerline SWD System facility for
$1,770,000. To start the process 35% was paid, a second payment of 30% is to be paid after major components are delivered to the
manufacturer. The balance of 35% is due when their portion of the facility is completed and shipped to the Cartwright Well. As
of June 30, 2012, approximately $675,000 was recorded in other assets on the accompanying balance sheet .



F-9







Legal Proceedings



Previous Consultant Complaint



On April 27, 2012, a Complaint was
filed against the Company by a previous consultant, as Case No. 30-2012-00565519 in the Orange County Superior Court.  The
main contention of the Complaint is that there was an alleged breach of a consulting agreement that was entered into by
us in which the plaintiff claims to have damages.  As of June 30,
2012, the Company had amounts in accounts payable in excess of any remote potential estimated liability.



Note 10 – Segment Information



The Company reports information about operating
segments, as well as disclosures about products and services and major customers. Operating segments are defined as revenue-producing
components of the enterprise, which are generally used internally for evaluating segment performance. Management has determined
that the water disposal operations of SWD (“Pro Water”) and the operations of SET Corp (“SET Corp”)
should be disclosed separately as management reviews financial statements for these entities separately and makes decisions independently
of the other entities included within the Company’s financial statements. All intercompany transactions between the reportable
segments are eliminated upon consolidation of the Company. At June 30, 2012, the Pro Water segment is the only revenue producing
segment, see revenue recognition policy for how revenues are recorded. As of June 30, 2012, the Company operates in one geographic
area.



The Company evaluates the performance of
its segments based on net income (loss) from continuing operations. Certain income and charges are not allocated to segments in
the Company’s management reports because they are not considered in evaluating the segments’ operating performance.
The following is a summary of information about profit or loss and assets by segment:





|                                                              |  | For the Three Months Ended |         |   | For the Three Months Ended |  
|------------------------------------------------------------- |  | -------------------------- | ------- | - | -------------------------- | -
|                                                              |  | June 30, 2012              |         |   | June 30, 2011              |  
|                                                              |  | Pro Water                  |         |   | SETCORP                    |  
|Revenues                                                      |  | $                          | 983,205 |   |                            | $
|Cost of revenues                                              |  |                            | 277,914 |   |                            |  
|                                                              |  |                            |         |   |                            |  
|Gross profit                                                  |  |                            | 705,291 |   |                            |  
|                                                              |  |                            |         |   |                            |  
|Operating expenses:                                           |  |                            |         |   |                            |  
|General and administrative                                    |  |                            | 115,896 |   |                            |  
|Total operating expenses                                      |  |                            | 115,896 |   |                            |  
|                                                              |  |                            |         |   |                            |  
|Operating income (loss)                                       |  |                            | 589,395 |   |                            |  
|Other income (expense):                                       |  |                            |         |   |                            |  
|Interest income                                               |  |                            | 105     |   |                            |  
|Interest expense                                              |  |                            | (47,982 | ) |                            |  
|Change in fair value of derivative liability                  |  |                            | –       |   |                            |  
|Gain (loss) on settlement of payables and accrued liabilities |  |                            | (27,721 | ) |                            |  
|Total other income (expense)                                  |  |                            | (75,598 | ) |                            |  
|                                                              |  |                            |         |   |                            |  
|Income (loss) before provision for income taxes               |  |                            | 513,797 |   |                            |  
|                                                              |  |                            |         |   |                            |  
|Provision for income taxes                                    |  |                            |         |   |                            |  
|                                                              |  |                            |         |   |                            |  
|Net income from continuing operations                         |  |                            |         |   |                            |  
|                                                              |  |                            |         |   |                            |  
|Net income (loss) from discontinued operations                |  |                            |         |   |                            |  
|Net income                                                    |  |                            |         |   |                            |  





F-10







The geographic location of the injection
well is a direct factor with relation to the radius of customer’s wells that can be economically serviced. While there are
several key factors to obtaining new business, the ratio of available business per customer is based solely on the number of wells
the customer has within the serviceable radius of the injection well.  As new oil and gas wells are developed within the serviceable
radius of the well, the ratio of customers to percentage of business will decrease.  Until new wells are developed the expected
customer to business ratio are not expected to change. All revenue and receivable concentrations disclosed in Note 2 related to
the Pro Water Utah segment.



As of June 30, 2012, primarily all
of the assets, with the exception of the SET Corp’s pending patents of $115,835 were within the Pro Water segment. All assets
were located with the United States.



Note 11 – Subsequent Events



In accordance with ASC Topic 855-10, the Company has analyzed
its operations subsequent to June 30, 2012 to the date these financial statements were issued, and has determined that it does
not have any material subsequent events to disclose in these financial statements other than those discussed above.



F-11







Item 2. 	Management’s Discussion and Analysis of
Financial Condition and Results of Operations.



You should read the following discussion
and analysis of our financial condition and results of operations together with "Selected Financial Data" and our financial
statements and related notes appearing elsewhere in this Quarterly Report.  This discussion and analysis contains forward-looking
statements that involve risks, uncertainties, and assumptions. The actual results may differ materially from those anticipated
in these forward-looking statements as a result of certain factors, including, but not limited to, those presented in our prior
SEC filings and elsewhere in this Quarterly Report.



Overview



Our business is dedicated to responsible
resource utilization through environmentally sustainable technologies. Our products and services are intended to limit our
customer’s environmental impact by conserving valuable and diminishing natural resources. Current and future products include,
and are expected to include, innovative eco-technologies that provide patented treatment, recovery, reclamation and re-injection
services for Produced Water (which is associated with the oil and gas industry) and the ultra-efficient tri-gen systems that offer
combined cooling, heating, and power generation with the added capability of water production from a single energy source. We also
will provide customized services that include design, construction, management, operation and maintenance services, and equipment
manufacturing for the industrial and municipal sectors. Therefore, we continue to be competitive with our competitors, which range
from small start-up enterprises to companies that are larger and more established than us with access to significant financial
resources.



Products and Services



Our Blue Bench Class II Salt Water Disposal
(“SWD”) well owned and operated in Duchesne, Utah by our wholly owned subsidiary Pro Water, LLC, a Utah limited liability
company (“PWU”) is one of the few, available methods for disposing Produced Water in that area.  PWU’s
Blue Bench Class II SWD well takes the Produced Water brought in from customers and converts that Produced Water into processed
water which can be reused when drilling for oil and gas or alternatively safely injected into approved formations.



Through our wholly owned
subsidiary ProWater, LLC, a Colorado limited liability company (“PWC”) and its wholly owned subsidiary Blue
Bench, LLC, a Colorado limited liability company (“BB”) we own the proprietary Centerline salt water disposal
system (“Centerline SWD System”).  In addition, through PWC, we plan to construct three SWD wells
utilizing PWC’s Centerline SWD System. We have completed the drilling and production casing of the first well in
Cartwright, North Dakota (the "Cartwright Well").  The portable Centerline SWD System for the salt water
disposal well is being built in Casper, Wyoming and is in its final stages of construction.  Thus, we anticipate
the completion of this well within the next 45 to 90 days. The injection well has been completed and the Centerline
modules are scheduled to ship to the site at the end of August. Tanks are currently being placed on site and piping is in
process of being installed. We are currently securing a short term loan to cover additional cost requirements for the
Cartwright well.



Our intellectual property is owned by our
wholly owned subsidiary Set IP Holdings, LLC, a Utah limited liability company (“SET IP”). Through SET IP, we license
our MultiGen technology which is an integrated solution that uses natural gas, biogas, diesel or other fuels to power a micro-turbine
that in turn powers a chiller running our patent-pending air conditioning/water-from-air generation unit. We also license through
SET IP our DynIXTM from wastewater treatment technology which is based on an ion-exchange process for the treatment and
reclamation of Produced Water. Although we have nothing to report on our DynIXTM wastewater treatment technology, the MultiGen
technology is being installed in Australian, in a government Education Institution in New South Wales, and is expected to be in
full production by September 2012.



Results of Operations for the Three Months Ended June 30,
2012 And 2011



The following table summarizes the results of continuing operations
amounts of the Company for the periods and dates shown:



|                                       |  | Three Months Ended June 30, |        
|-------------------------------------- |  | --------------------------- | -------
|                                       |  | 2012                        |        
|Combined Statement of Operations Data: |  |                             |        
|Revenue                                |  | $                           | 983,205
|Cost of revenue                        |  |                             | 277,914
|Operating expenses                     |  |                             | 688,568
|Operating income                       |  |                             | 16,723 
|Other income (expense)                 |  |                             | 46,235 
|Income from continuing operations      |  |                             | 4,958  
|Net income                             |  | $                           | 4,958  





1







Revenues decreased $259,807 or 21%, for
the three months ended June 30, 2012 compared to the corresponding period of the prior year. This decrease is based upon management’s
decision to reduce its volume intake to maximize the wells longevity. The long term effect of utilizing the wells maximum capacity
would create additional capital investment and maintenance costs that outweigh the benefits to short term revenue gains. The well
is currently averaging over 7,000 BPD which is greater than the original forecast projected. The Company’s largest customer
accounted for 79% of revenue compared to 77% for the corresponding prior period.



Cost of revenue decreased $127,184 or
31%, for the three months ended June 30, 2012 compared to the corresponding period of the prior year. As a percentage of revenues,
cost of revenue was 28% compared to 33% in the prior year period. Items included within cost of revenues represent labor, depreciation
and amortization, equipment rental, supplies, utilities, repair and maintenance. Principal factors contributing to the decrease
in cost of revenue included a decrease in variable expenditures such as rental equipment and repair and maintenance due to the
decrease barrels produced. Payroll related costs are primarily fixed due to the minimal staffing required to monitor the facility
and thus do not fluctuate significantly from period to period.



Total operating expenses increased $236,579
or 52% for the three months ended June 30, 2012 compared to the corresponding period of the prior year due to traveling and administrative
costs related to the previously disclosed pending acquisition that was cancelled and approximately $138,000 increase in stock based
compensation due to options and shares issued for services. Operating expenses include management and administrative personnel
costs (including non-cash stock-based compensation), corporate office costs, accounting fees, depreciation and amortization, legal
expense, information systems expense, product marketing, and sales expense.  Expenditures included approximately $260,000
for stock based compensation, $98,000 in professional fees, $155,000 in salaries and wages, and general corporate expenditures
for the Company for rent, utilities, etc in which were not present in the previous comparable period.



Total other income was $46,235 for the
three months ended June 30, 2012 compared to expense of $66,623 for the corresponding prior period due to a decrease in financing
activities. Other income (expense) includes interest income, interest expense, change in fair value of derivative liability, and
gain on settlement of payables and accrued liabilities. The other income during the current period was primarily related to $85,149
to the change in fair value of derivative liability.



Provision for income taxes increased $58,000
or 100% for the three months ended June 30, 2012 compared to the corresponding period of the prior year due to use of deferred
tax assets compared to the previous period presented in which there was a full valuation allowance on deferred tax assets.



Segment Results for the Three Months Ended June 30, 2012
and 2011



The following should be read in conjunction
with the quarterly financial results of fiscal 2012 for each reporting segment. See “Notes to Consolidated Financial Statements,
Note 10 — Segment Information.” The Company evaluates the performance of its segments based on net income from continuing
operations. Certain income and charges are not allocated to segments in the Company’s management reports because they are
not considered in evaluating the segments’ operating performance. The following is a summary of information about profit
or loss by segment:





2









|                                                              |  | For the Three Months Ended |         |   | For the Three Months Ended |  
|------------------------------------------------------------- |  | -------------------------- | ------- | - | -------------------------- | -
|                                                              |  | June 30, 2012              |         |   | June 30, 2011              |  
|                                                              |  | Pro Water                  |         |   | SETCORP                    |  
|Revenues                                                      |  | $                          | 983,205 |   |                            | $
|Cost of revenues                                              |  |                            | 277,914 |   |                            |  
|                                                              |  |                            |         |   |                            |  
|Gross profit                                                  |  |                            | 705,291 |   |                            |  
|                                                              |  |                            |         |   |                            |  
|Operating expenses:                                           |  |                            |         |   |                            |  
|General and administrative                                    |  |                            | 115,896 |   |                            |  
|Total operating expenses                                      |  |                            | 115,896 |   |                            |  
|                                                              |  |                            |         |   |                            |  
|Operating income (loss)                                       |  |                            | 589,395 |   |                            |  
|Other income (expense):                                       |  |                            |         |   |                            |  
|Interest income                                               |  |                            | 105     |   |                            |  
|Interest expense                                              |  |                            | (47,982 | ) |                            |  
|Change in fair value of derivative liability                  |  |                            | –       |   |                            |  
|Gain (loss) on settlement of payables and accrued liabilities |  |                            | (27,721 | ) |                            |  
|Total other income (expense)                                  |  |                            | (75,598 | ) |                            |  
|                                                              |  |                            |         |   |                            |  
|Income (loss) before provision for income taxes               |  |                            | 513,797 |   |                            |  
|                                                              |  |                            |         |   |                            |  
|Provision for income taxes                                    |  |                            |         |   |                            |  
|                                                              |  |                            |         |   |                            |  
|Net income from continuing operations                         |  |                            |         |   |                            |  
|                                                              |  |                            |         |   |                            |  
|Net income (loss) from discontinued operations                |  |                            |         |   |                            |  
|Net income                                                    |  |                            |         |   |                            |  



Pro Water (“PWU”)



All revenues and cost of revenues are associated
with the Pro Water segment. See explanation above regarding changes in revenues and cost of revenues.



Total operating expenses increased $18,183
or 19% for the three months ended June 30, 2012 compared to the prior period presented due to the increase in management and administrative
costs of the Company as discussed above. Also as a result, as a percentage of revenue, operating expenses increased from 8% to
12%.



Total other expense increased $47,873 or
173% for the three months ended June 30, 2012 compared to the prior period presented due to an increase in financing activities.
Other income (expense) includes interest income and interest expense. The increase during the current period was primarily related
to approximately $48,000 of amortization expense related to the beneficial conversion feature allocated to Pro Water in connection
with the $2.0 million note payable to the former shareholder of Pro Water.



SET Corp



There is no revenue generated by this segment
for any of the periods presented.



Total operating expenses for the three
months ended June 30, 2012 increased $218,396 compared to the prior period presented due to increased operations. Operating expenses
include management and administrative personnel costs (including non-cash stock-based compensation), corporate office costs, accounting
fees, depreciation and amortization, legal expense, information systems expense, product marketing, sales expense and research
and development expenses.  Expenditures included approximately $236,000 for stock based compensation, $97,000 in professional
fees, $109,000 in salaries and wages, and general corporate expenditures for SET Corp for rent, utilities, etc.



Total other income for the three months
ended June 30, 2012 increased $160,731 compared to the prior period presented due to a decrease in financing activities. Other
income was the result of financing activities. Other income (expense) includes interest expense, change in fair value of derivative
liability, and other.





3







Liquidity and Capital Resources



As shown in the accompanying
consolidated financial statements, during the three months ended June 30, 2012, the Company generated operating income from
continuing operations before income taxes of $62,958.  As of June 30, 2012, we had working capital of
$519,686.  In addition, the Company’s operations are primarily concentrated with one customer which
represented 79% of total revenues during the three months ended June 30, 2012.  During the three months ended June
30, 2012, the Company generated positive cash flows from operations of $73,051. During the three months ended June 30, 2012,
the Company funded operations through cash flows generated from the Pro Water segment. In fiscal 2013, the Company intends to
fund operations and pay down liabilities through cash on hand and the positive cash flow being generated by the Pro Water
segment. In addition, the Company intends to continue to negotiate the settlement of liabilities. The drilling of the
Cartwright ND injection well has been completed and the Centerline modules are scheduled to ship to the site at the end of
August. Tanks are currently being placed and piping is in process. We estimate that capital expenditures of $2,200,000 remain
to make the Cartwright facility operational. We are currently securing a short term loan to cover additional cost
requirements.



If current and projected revenue growth
does not meet Management estimates, the Management may choose to raise additional capital through debt and/or equity transactions,
renegotiate current convertible debt obligations, reduce certain overhead costs through the deferral of salaries and other means,
and settle liabilities through negotiation.  Currently, the Company does not have any commitments or assurances for additional
capital nor can the Company cannot provide assurance that such financing will be available to it on favorable terms, or at
all. If, after utilizing the existing sources of capital available to the Company, further capital needs are identified and the
Company is not successful in obtaining the financing, it may be forced to curtail its existing or planned future operations. The
Company believes its plans will enable the Company to continue for a period in excess of one year from the date of the most recent
balance sheet.



Operating Activities



Cash provided by operating activities during
the three months ended June 30, 2012 and 2011 were $73,051 and $361,484, respectively.  In 2012, this was the result
of a net income of $4,958 offset by non-cash and non-operating items (depreciation, stock-based compensation, change in fair value
of warrant liability, gain on settlement of accounts payable, and interest expense from the amortization of debt discounts) totaling
$293,513 and net income provided by the change in current assets and liabilities of $225,420. In 2011, the usage of cash was primarily
due to the increase in our operations which caused assets such as accounts receivable and prepaids to increase. In addition, we
have made an effort to decrease our accounts payable.



Investing Activities



Cash used in investing activities
during the three months ended June 30, 2012  and 2011 were $726,283 and $31,087, respectively. In 2012, the primary
investing activity was purchases of fixed assets related to the Cartwright ND injection well of $726,283. The $31,087
invested in 2011 was for upgrades to the Duchesne UT SWD. The additional Utah expenditures are for the purpose of building
loading stations with the goal of shipping processed water back to the oil fields for fracking or water flooding
operations.



Financing Activities



Financing cash flows used in the three
months ended June 30, 2012 amounted to $128,595 and consisted of payments of $87,177 on a related party convertible note payable,
and $41,418 of payments on notes payable. In the 2011 period, financing cash flows amounted to $120,064 and consisted of payments
on related party convertible note payable of $84,325 and payments on notes payable of $35,739.



Off-Balance Sheet Arrangements



The Company does not have any off-balance
sheet arrangements that have or are reasonably likely to have a current or future effect on the Company's financial condition,
changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources
that are material to investors.



Item 3. 	Quantitative and Qualitative Disclosures About
Market Risk.



Not applicable.





4







Item 4. 	Controls and Procedures.



Disclosure Controls and Procedures



As required
by Rule 13a-15 or Rule 15d-15 of the Securities Exchange Act of 1934, as amended (the “Exchange
Act”), our Chief Executive Officer and Principal Accounting & Financial Officer carried out an evaluation of the effectiveness
of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based
on the foregoing evaluation, we have concluded that our disclosure controls and procedures were effective as of June 30, 2012
and that they do allow for information required to be disclosed by the Company in the reports that it files or submits under
the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange
Commission (“SEC”) rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures
designed to ensure that information required to be disclosed by the us in the reports that we file or submit under the Exchange
Act is accumulated and communicated to the Company’s management, including its Chief Executive and Principal Accounting &
Financial Officers as appropriate to allow timely decisions regarding required disclosure.



Changes in Internal Control Over Financial
Reporting.



There have been no changes in our internal
control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably
likely to materially affect, our internal control over financial reporting.



PART II – OTHER INFORMATION



Item 1. 	Legal Proceedings.



On April 27, 2012, a Complaint was
filed against the Company by a previous consultant, as Case No. 30-2012-00565519 in the Orange County Superior
Court.  The main contention of the Complaint is that there was an alleged breach of a consulting agreement
that was entered into by us in which the plaintiff claims to have damages.



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



None.



Item 3.	 Defaults Upon Senior Securities.



None.



Item 4.	 Mine Safety Disclosures.



Not applicable.





5







Item 5.  Other Information.



On April 5, 2012, we entered into
a letter agreement (“LOI”) with Cancen Oil Canada Inc., a British Columbia corporation (“Cancen”).
Both Cancen and SET Corp. have agreed as formerly reported in our Form 10-K for the year ended March 31, 2012, to abandon
the LOI and have continued to discuss alternatives for a strategic
alliance.



On June 15, 2012, our board
of directors voted in favor of filing a restatement of our Articles of Incorporation as incorporated by this reference
as Exhibit 3(i). In addition, our board of directors voted in favor of restating and amending our Bylaws as incorporated by
this reference as Exhibit 3(ii). However, before such documents are to become effective, the aforementioned shall be
submitted to our shareholders for review and approval at our annual shareholders meeting which we are planning to have in
October. Therefore, all shareholders’ proposals must be received by the Company before the close of business on August 28,
2012. Please send such proposals to Sustainable Environmental Technologies Corporation at 2345 West Foothill Blvd., Suite 12,
Upland, CA 91786.



Item 6. 	Exhibits.



Exhibits required by Item 601 of Regulation S-K are listed in
the Exhibit Index hereto and include the following:



|Exhibit Number |  | Description of Document                                                                                                                                                              
|-------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3(i)           |  | Restated Articles of Incorporation (1)                                                                                                                                               
|3(ii)          |  | Amended and Restated Bylaws (1)                                                                                                                                                      
|10.1           |  | Pro Water Acquisition Agreement and Convertible Secured Promissory Note (2)                                                                                                          
|10.2           |  | Amendment No. 1 to Pro Water Acquisition Agreement (3)                                                                                                                               
|10.3           |  | Technology Purchase Agreement with World Environmental Solutions Pty Ltd. (4)                                                                                                        
|10.4           |  | Amendment to Convertible Secured Promissory Note (5)                                                                                                                                 
|10.5           |  | Amendment to Technology Purchase Agreement with World Environmental Solutions Pty Ltd. (6)                                                                                           
|31.1           |  | Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|31.2           |  | Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|32.1           |  | Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                
|32.2           |  | Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                
|101.INS*       |  | XBRL Instance Document                                                                                                                                                               
|101.SCH*       |  | XBRL Schema Document                                                                                                                                                                 
|101.CAL*       |  | XBRL Calculation Linkbase Document                                                                                                                                                   
|101.LAB*       |  | XBRL Label Linkbase Document                                                                                                                                                         
|101.PRE*       |  | XBRL Presentation Linkbase Document                                                                                                                                                  
|101.DEF*       |  | XBRL Definition Linkbase Document                                                                                                                                                    





* Pursuant to Rule 405(a)(2) of Regulation S-T, the
Company will furnish the XBRL Interactive Data Files with detailed footnote tagging as Exhibit 101 in an amendment to this
Form 10-Q within the permitted 30-day grace period granted for the first quarterly period in which detailed footnote tagging
is required.







| | (1) | Incorporated by reference from Exhibit 3(i) and Exhibit 3(ii) to the Company’s Annual Report
on Form 10-K as filed with the SEC on June 29, 2012.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------

| | (2) | Incorporated by reference from Exhibit 1.01 to the Company’s Current Report on Form 8-K as
filed with the SEC on July 9, 2010
| | --- | -----------------------------------------------------------------------------------------------------------------------------

| | (3) | Incorporated by reference from Exhibit 10.1 to the Company’s Annual Report on Form 10-K as
filed with the SEC on July 14, 2010.
| | --- | -------------------------------------------------------------------------------------------------------------------------------

| | (4) | Incorporated by reference from Exhibit 10 to the Company’s Current Report on Form 8-K as
filed with the SEC on September 3, 2010.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------

| | (5) | Incorporated by reference from Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q
as filed with the SEC on February 17, 2011.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------

| | (6) | Incorporated by reference from Exhibit 10.1 to the Company’s Current Report on Form 8-K as
filed with the SEC on September 8, 2011.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------





6







SIGNATURES



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



|                       | SUSTAINABLE ENVIRONMENTAL TECHNOLOGIES CORPORATION
|---------------------- | --------------------------------------------------
|                       |                                                   
|Dated: August 14, 2012 | /s/ Robert Glaser                                 
|                       | Robert Glaser                                     
|                       | Chief Executive Officer                           
|                       |                                                   
|Dated: August 14, 2012 | /s/ Cynthia Glaser                                
|                       | Cynthia Glaser                                    
|                       | Chief Financial and Accounting Officer            







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