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

12 Months Ended

Mar. 31, 2012

Organization, Consolidation and Presentation of Financial Statements Disclosure [Text Block]

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

Organization and History

Sustainable Environmental Technologies Corporation and subsidiaries (collectively the “Company” or “SET Corp” without the use of personal pronouns) is dedicated to responsible resource utilization through the strategic balance of Environmental, Societal and Economic growth. Headquartered in Southern California, 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 echo-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 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. 

Acquisitions

Acquisition

On July 7, 2010 (the “Effective Date”), SET Corp entered into an agreement to acquire Pro Water, LLC ("PWU"), a Utah limited liability company (formerly a Colorado limited liability company) with its sole equity member Metropolitan Real Estate LLC (the “Member), a New York limited liability company. Pro Water owns and operates a Blue Bench Class II salt water disposal ("SWD") well in Duchesne, Utah; the operations were assumed by the Member on October 1, 2009 (“Inception”).  Under the terms of the Agreement, the Company acquired 100% of the equity of PWU from its sole member, and PWU became a wholly-owned subsidiary of the Registrant in exchange for the payment of 1,333,333 shares of the Company’s restricted common stock, a secured convertible promissory note payable quarterly over the period of one year from the closing date in the amount of $2.0 million, with an interest rate of 5% and a conversion feature at the option of the holder into shares of the Company’s common stock at a price of $1.50 per share, and the assumption of Pro Water debts.  The note is secured by all the assets of PWU and the wastewater treatment facility owned by SET Corp. Metropolitan Real Estate LLC is an entity controlled by Horst Franz Geicke, a significant shareholder of the Company.

On July 12, 2010, the terms of the acquisition were amended whereby the number of shares of common stock paid for PWU was increased to 2,222,222 (from 1,333,333), and the conversion rate of the $2,000,000 related secured convertible promissory note, which previously all converted at $1.50 at the option of the holder, such amended to so that $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 is due based on the following: $100,000 paid on or before September 30, 2010, $200,000 paid on or before December 31, 2010, $200,000 paid on or before March 31, 2011 and the remaining amount of $1,500,000 with unpaid interest on or before June 30, 2011. The $100,000 payment due in September 2010 was paid in October 2010.

On January 14, 2011, the terms of the convertible note were amended. As of the date of the amendment, the unpaid principal amount was $1,880,000. Under the terms of the new agreement, the term of the note was extended to five years and all accrued interest was forgiven. The Company is to make 60 monthly payments of $35,478 commencing January 2011 and concluding December 2015, see Note 7 for minor modification made to the convertible note during fiscal 2012. All other terms, including conversion and interest rates remained the same. The Company accounted for the change in terms of the debt as an extinguishment of the debt due to the significant change in the repayment period. See Note 7 for additional information.

The acquisition of PWU was accounted for as a reverse acquisition in accordance with Accounting Standards Codification (“ASC”) 805 Business Combinations. The Company determined for accounting and reporting purposes that Pro Water is the acquirer because of the significant holdings and influence of the control group of Pro Water before and after the acquisition. As a result of the transaction the Pro Water control group owns in excess of 44% of issued and outstanding common stock of SET Corp on a diluted basis.  In addition, in connection with the acquisition certain members of management were required to sign voting agreements.  As of January, these voting agreements expired. The control group of Pro Water could elect or appoint or to remove a majority of the members of the governing body of the Company due to the significant holdings of the Company’s common stock. The control group of Pro Water could have influence on the organization as they have provided funding for operations of SET Corp, prior to the acquisition, in an attempt to settle debts prior to the reverse acquisition. In addition, the Pro Water control group initially had a $2.0 million note payable, approximately $1,800,000, at March 31, 2011 in which additional influence can be subjected.  In addition, Pro Water is significantly larger than SET Corp in terms of assets and operations. Additionally, the future operations of PWU will be the Company intended primary operations and more indicative of the operations of the consolidated entity on a go forward basis.

Accordingly, the assets and liabilities of PWU are reported at historical costs and the historical results of PWU will be reflected in this and future SET Corp filings as a change in reporting entity.  The assets and liabilities of SET Corp will be reported at fair value on the date of acquisition, and results of operations will be reported from the date of acquisition.  The assets and liabilities of SET Corp were reported at their carrying values, which approximated fair value, and no goodwill was recorded. The results of SET Corp have been included in the accompanying consolidated financial statements from the Effective Date. The following is a schedule of SET Corp’s assets and liabilities at the Effective Date:

Assets:
Cash and cash equivalents	$	35,630
Prepaid expenses and other current assets		9,827
Current assets of discontinued operations		3,503
Property and equipment		24,667
Other assets		10,231
Assets of discontinued operations, long term		30,000
Total Assets		113,858
Liabilities:
Accounts payable		747,023
Accrued liabilities		1,149,763
State income taxes payable		77,223
Notes payable		455,500
Current liabilities of discontinued operations		230,738
Accounts payable, long term		11,883
Accrued liabilities, long term		684,879
Convertible notes payable, long term		388,541
Warrant liability		144,700
Total Liabilities		3,890,250
Net liabilities in excess of assets	$	(3,776,392	)

Since PWU assumed operations on Inception due to the change in reporting entity, there are no reportable periods in 2009 to compare to those periods reported herein for 2010.  The excess liabilities assumed were accounted for as a deemed distribution through a charge to the Company’s accumulated deficit.

The following unaudited pro forma information was prepared as if the acquisition had taken place at the beginning of the period for the year ended March 31, 2011:

	Pro-Forma Combined
	For the Year Ended  March 31, 2011
Revenue	$	2,617,400
Net loss from continuing operations	$	(756,814	)
Net loss per share:
Basic and diluted - continuing operations	$	(0.00	)

MultiGen Acquisition

On August 27, 2010, we entered into a “Technology Purchase Agreement” with World Environmental Solutions Pty Ltd, an Australian company (“WES”).  In exchange for an investment in WES, we purchased certain technologies, including all intellectual property rights and pending patents of WES.  Such patents and patent applications include patent application number 20088237617 and patent application number 2010228129.  Both patent applications relate to the water extraction and electricity generation units as referred to as MultiGen.

Effective September 1, 2011, we entered into an amendment with WES to the aforementioned Technology Purchase Agreement (“Amendment to the TPA”).  Pursuant to the terms of the Amendment to the TPA: (i) SET Corp’s option to purchase 3% of the capital stock of WES has been canceled; (ii) WES’ warrant to purchase 333,333 shares of SET Corp’s common stock at a price of $5.25 per share has been canceled; (iii) WES’ $200,000 convertible secured promissory note issued by SET Corp. (convertible at $5.25 per share of SET Corp’s common stock), and all security interests granted there under, has been canceled; (iv) SET Corp’s ownership of 12% of the capital stock of WES has been canceled; (v) SET Corp’s payment to WES upon certain terms of WES’ successful installation and sale of a MultiGen unit has been reduced to 250,000 shares of SET Corp’s common stock; (vi) the maximum share issuance by SET Corp to WES based on WES royalties paid to SET Corp for certain WES sales of MultiGen units has been reduced to 333,333 shares of SET Corp’s common stock; (vii) any shares of SET Corp common stock issued to WES pursuant to the Agreement, as amended, shall be restricted from transfer for one year from the date of issuance; (viii) SET Corp maximum royalty obligation to WES for SET Corp sales of MultiGen units has been reduced to $500,000; (ix) WES shall pay SET Corp a royalty of 10% of gross revenues for WES sales of MultiGen units; (x) WES and SET Corp shall split 75/25 certain fees paid to WES in connection with agency for sales of MultiGen units outside of Australia; and (xi) the parties have covenanted to use their best efforts in regards to maintaining distributor status for sourcing components for the MultiGen units; WES retained 133,333 shares of common stock issued in connection with the original agreement. See Notes 2, 4, and 8 for additional information.

Due to the significant change in the terms of the Technology Purchase Agreement, the Company determined that the Amendment to the TPA represented the establishment of a new agreement. Thus, the Company revalued the 133,333 shares of common stock issued to WES on the date of the Amendment to the TPA resulting in a value of $140,000 being applied to the pending patents. The Company determined that the fair market value of the common stock issued was more representative of fair value than the pending patents received. The net difference between removing the fair value of the items issued under the old Technology Purchase Agreement and the Amendment to the TPA were classified as additional paid in capital, thus, no gain or loss was recorded on the transaction.