UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the Fiscal Year Ended
June 30, 2013
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXHANGE ACT OF 1934
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For the Transition Period from ________ to ________
FREESTONE RESOURCES, INC.
(Exact name of registrant
as specified in its charter)
NEVADA
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000-28753
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90-0514308
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(State or other jurisdiction of incorporation)
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(Commission File Number)
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(IRS Employer Identification No.)
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Republic Center,
Suite 1350
325 N. St. Paul St. Dallas, TX
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75201
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(Address of Principal Executive Offices)
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(Zip Code)
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Registrant’s telephone number, including area code:
214-880-4870
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common
Stock, Par value $0.001
Indicate by a check mark if the registrant is a well-known seasoned
issuer, as defined by Rule 405 of the Securities Act. Yes
o
No
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Indicate by a check mark whether the registrant is not required
to file reports pursuant to Section 13 or Section 15 (d) of the Securities Exchange Act. Yes
o
No
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Indicate by check mark whether the registrant has (1) filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such
shorter period that the registrant was required to file such reports) (2) has been subject to such filing requirement for the past
90 days. Yes
þ
No
o
Indicate
by check mark whether the registrant has submitted electronically and posted on its website, if any, every Interactive File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T (
§
325.405
of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post
such files),
Yes
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No
o
Indicate by check if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (s229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's
knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment
to this Form 10-K.
o
Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated
filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer
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Accelerated Filer
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Non-Accelerated Filer
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Smaller Reporting Company
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Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act): Yes
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No
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Aggregate market value of the voting stock held by non-affiliates
of the registrant as of June 30, 2013: $2,732,545.
Indicate the number of Shares of outstanding of each of the
Registrant's classes of common stock, as of the latest practicable date: As of September 10, 2013, the Registrant had
68,943,177 shares of common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None
TABLE OF CONTENTS
PART I
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Item 1.
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Description of Business
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4
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Item 1A.
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Risk Factors
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6
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Item 1B.
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Unresolved Staff Comments
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6
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Item 2.
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Description of Properties
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7
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Item 3.
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Legal Proceedings
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7
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Item 4.
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Submission of Matters to a Vote of Security Holders
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7
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PART II
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Item 5.
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Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
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8
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Item 6.
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Selected Financial Data
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9
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Item 7.
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Management’s Discussion and Analysis of Financial Condition and Results of Operations
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9
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Item 7A.
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Quantitative and Qualitative Disclosures about Market Risk
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12
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Item 8.
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Financial Statements and Supplementary Data
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12
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Item 9.
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Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
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13
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Item 9A.
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Controls and Procedures
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13
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Item 9B.
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Other Information
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PART III
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Item 10.
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Directors, Executive Officers and Corporate Governance
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14
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Item 11.
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Executive Compensation
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16
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Item 12.
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Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
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17
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Item 13.
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Certain Relationship and Related Transactions and Director Independence
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17
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Item 14.
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Principal Accounting Fees and Services
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18
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PART IV
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Item 15.
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Exhibits and Financial Statement Schedules
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18
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FORWARD-LOOKING STATEMENTS
This report includes forward-looking
statements as the term is defined in the Private Securities Litigation Reform Act of 1995 or by the U.S. Securities and Exchange
Commission in its rules, regulations and releases, regarding, among other things, all statements other than statements of historical
facts contained in this report, including statements regarding our future financial position, business strategy and plans and objectives
of management for future operations. The words “believe,” “may,” “estimate,” “continue,”
“anticipate,” “intend,” “should,” “plan,” “could,” “target,”
“potential,” “is likely,” “will,” “expect” and similar expressions, as they relate
to us, are intended to identify forward-looking statements. We have based these forward-looking statements largely on our current
expectations and projections about future events and financial trends that we believe may affect our financial condition, results
of operations, business strategy and financial needs. In addition, our past results of operations do not necessarily
indicate our future results.
Other sections of this
report may include additional factors which could adversely affect our business and financial performance. New risk factors emerge
from time to time and it is not possible for us to anticipate all the relevant risks to our business, and we cannot assess the
impact of all such risks on our business or the extent to which any risk, or combination of risks, may cause actual results to
differ materially from those contained in any forward-looking statements. Those factors include, among others, those matters disclosed
in this Annual Report on Form 10-K.
Except as otherwise required
by applicable laws and regulations, we undertake no obligation to publicly update or revise any forward-looking statements or the
risk factors described in this report, whether as a result of new information, future events, changed circumstances or any other
reason after the date of this report. Neither the Private Securities Litigation Reform Act of 1995 nor Section 27A of the Securities
Act of 1933 provides any protection to us for statements made in this report. You should not rely upon forward-looking statements
as predictions of future events or performance. We cannot assure you that the events and circumstances reflected in the forward-looking
statements will be achieved or occur. Although we believe that the expectations reflected in the forward-looking statements are
reasonable, we cannot guarantee future results, levels of activity, performance or achievements.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
Company Background
Freestone Resources, Inc. (the “Company”
or “Freestone”) is an oil and gas technology development company that is actively developing and marketing technologies
and solvents designed to benefit various sectors in the oil and gas industry. The Company has re-launched its Petrozene solvent
after months of working with manufactures to develop a new and improved formula. Petrozene is
predominantly
used for paraffin buildup. .Petrozene can be used for pipelines, oil storage tanks, oil sludge build up, de-emulsification, well
treatment, as a corrosion inhibitor and as a catalyst in opening up formations thereby aiding in oil production.
On November 16, 2012 the Company entered into
a Company Agreement of Aqueous Services, LLC (“Aqueous”), a Texas limited liability company, with International Aqueous
Investments, LLC and Pajarito W&M, LP. Aqueous is a joint venture between the Company and the two aforementioned parties, whereas
the Company owns a 33.33% interest in Aqueous. Aqueous is a full water management company with access to a fresh water well that
has been permitted to up to one thousand five hundred acre-feet of water per annum. A facility has been constructed that is owned
and operated by Aqueous for the purpose of providing water for oil and gas activities in the Eagle Ford. This site includes a designated
location for the recycling frac water and produced water.
Available Information
The Freestone website is
www.freestoneresourcesinc.com
. The
Company’s references to the URLs for these websites are intended to be inactive textual references only. The Company’s
Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to reports filed pursuant
to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended, are filed with the U.S. Securities and Exchange
Commission (the “SEC”).
The public may read and copy any materials
filed by the Company with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Room 1580, Washington, DC 20549.
The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The
SEC maintains an Internet site that contains reports, proxy, and information statements and other information regarding issuers
that file electronically with the SEC at
http://www.sec.gov
.
Technology Development Business
Freestone is actively engaged in the development
of technologies that can enhance oil and gas production in an environmentally responsible way. The Company currently markets and
sells Petrozene, which is a solvent derived from recycled hydrocarbons. Petrozene can cost effectively decrease paraffin buildup
in oil and gas wells, and can be utilized to clean oil storage facilities. Furthermore, Petrozene has been shown to reduce bottom
sediment and water in oil storage tanks and act as a de-emulsification agent.
Freestone is also involved in Aqueous which
was developed to provide water to the oil and gas industry in the Eagle Ford Shale. Aqueous has developed the facility so that
it can be expanded to include frac water recycling and full water management for exploration and production companies.
Products and Services
Solvent Testing and Water Production
Freestone’s current well assets and leases
were purchased for the purpose of testing various solvents and technologies designed to increase oil and gas production. These
leases contain wells that have paraffin and asphaltine problems, and the tests are allowing the Company to perfect a treatment
method that can be marketed to potential customers.
Freestone is actively working with Aqueous
in order to develop a large customer base for its freshwater sales facility, as well as actively researching products and technologies
that can be utilized to recycle frac water and produced water.
Research and Development
Freestone is currently evaluating other oil
and gas treatment technologies, solvents, and water treatment systems that enhance the services and technologies offered by the
Company. The current technologies under evaluation focus on the waste streams created by the oil and gas industry. These
waste streams include: oil-based sludge, frac water, produced water, tailing ponds derived from oil sand production, etc.
Growth Strategy
Freestone is actively pursuing a strategy of
growth through the development of joint ventures and sales agreements with oil and gas, and environmental service companies that
can utilize Petrozene. Freestone’s growth strategy also includes investment and development of various water management services
for the oil and gas industry through its joint venture Aqueous. Freestone intends to research various methods in which
to expand its marketing efforts to refineries, oil and gas storage companies, oil and gas service companies, independent operators,
and environmental service companies.
Sale of Natural Gas and Oil
Freestone does not intend to refine its natural
gas or oil production. Freestone will sell all or most of its production to certain purchasers in a manner consistent with industry
practices at prevailing rates. Freestone currently sells its natural gas to Tristate ETX, LLC(previously Shoreline Gas,
LLC) and sells oil to Bargas, Inc, Superior Crude Gathering, Inc. Under current conditions, we should be able to find other purchasers,
if needed. All of our produced oil is held in tank batteries and then each respective purchaser transports the oil by
truck. Respectively, our natural gas is transported via pipeline.
Environmental Matters
Freestone’s oil and gas operations and
properties are subject to extensive and changing federal, state and local laws and regulations relating to environmental protection,
including the generation, storage, handling, emission, transportation and discharge of materials into the environment, and relating
to safety and health. The recent trend in environmental legislation and regulation generally is toward stricter standards, and
this trend will likely continue.
These laws and regulations may:
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require the acquisition of a permit or other authorization before construction or drilling commences and for certain other activities;
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limit or prohibit construction, drilling and other activities on certain lands lying within wilderness and other protected areas; and
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impose substantial liabilities for pollution resulting from its operations, or due to previous operations conducted on any leased lands.
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The permits required for our operations may
be subject to revocation, modification and renewal by issuing authorities. Governmental authorities have the power to enforce their
regulations, and violations are subject to fines or injunctions, or both. In the opinion of management, we are in substantial compliance
with current applicable environmental laws and regulations, and have no material commitments for capital expenditures to comply
with existing environmental requirements. Nevertheless, changes in existing environmental laws and regulations or in interpretations
thereof could have a significant impact on us, as well as the oil and natural gas industry in general.
The Comprehensive Environmental, Response,
Compensation, and Liability Act, as amended (“CERCLA”), and comparable state statutes impose strict, joint and several
liability on owners and operators of sites and on persons who disposed of or arranged for the disposal of “hazardous substances”
found at such sites. It is not uncommon for the neighboring land owners and other third parties to file claims for personal injury
and property damage allegedly caused by the hazardous substances released into the environment. The Federal Resource Conservation
and Recovery Act, as amended (“RCRA”), and comparable state statutes govern the disposal of “solid waste”
and “hazardous waste” and authorize the imposition of substantial fines and penalties for noncompliance. Although CERCLA
currently excludes petroleum from its definition of “hazardous substance,” state laws affecting our operations may
impose clean-up liability relating to petroleum and petroleum related products. In addition, although RCRA classifies certain oil
field wastes as “non-hazardous,” such exploration and production wastes could be reclassified as hazardous wastes thereby
making such wastes subject to more stringent handling and disposal requirements.
ITEM 1A. RISK FACTORS
As a smaller reporting company we are not required
to provide the information required by this item.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. DESCRIPTION OF PROPERTY
Freestone's corporate offices are located at
Republic Center, Suite 1350, 325 N. St. Paul St. Dallas, TX 75201. Freestone entered into a lease agreement on this
property for a term of five years.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
None. The Company intends to hold
an annual shareholder’s meeting in the third quarter of the fiscal year ending June 30, 2014.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED
STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
The Common Stock is currently quoted on the
OTCQB under the symbol “FSNR.”
The following tables set forth the quarterly
high and low bid prices for the Common Stock for 2013 and 2012. The prices set forth below represent interdealer quotations,
without retail markup, markdown or commission and may not be reflective of actual transactions.
Fiscal 2013
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High
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Low
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First Quarter
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$
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0.25
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$
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0.06
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Second Quarter
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$
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0.30
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$
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0.17
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Third Quarter
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$
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0.23
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$
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0.12
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Fourth Quarter
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$
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0.18
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$
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0.11
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Fiscal 2012
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High
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Low
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First Quarter
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$
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0.25
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$
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0.15
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Second Quarter
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$
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0.25
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$
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0.10
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Third Quarter
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$
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0.30
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$
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0.04
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Fourth Quarter
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$
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0.22
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$
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0.08
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Shareholders
As of June 30, 2013, there were approximately 248 record holders
of the Common Stock. This number excludes any estimate by Freestone of the number of beneficial owners of shares held in street
name, the accuracy of which cannot be guaranteed.
Dividends
Freestone has not paid cash dividends
on any class of common equity since formation and Freestone does not anticipate paying any dividends on its outstanding common
stock in the foreseeable future.
Warrants
On November 16,
2012 the Company entered into an agreement to
form Aqueous Services, LLC, a
joint
venture
between Freestone Resources, Inc., Pajarito W&M, LP. and International Aqueous Investment, LLC for the purpose of developing
a shale oil and gas water management facility in Wilson County, Texas. Each JV partner has a one-third interest and the Company
is not in a position of control and will therefore account for its interest under the equity method of accounting.
As part of the agreement the Company sold 300,000
shares of common stock to each partner at par value of .001 a share. The Company treated the difference between the selling price
and the fair market value of the stock as consulting expense resulting in a $167,400 expense in the second quarter. The Company
also sold each of the JV partners 500,000 warrants to purchase shares of common stock at 80% of the closing price on the exercise
date. The warrants vest immediately and have a three year term from the issuance date. The Company accounted for the transaction
using the Black-Scholes option pricing model and given the variable settlement price and cash settlement terms recorded an expense
of $279,625 and a resulting derivative liability. All of the derivative instruments will be accounted for under the fair value
method and changes in fair value will be reflected in earnings.
Stock compensation
On April 10, 2013 the Company, through a unanimous
consent of the Board of Directors, agreed to issue the following stock (total of 2,700,000 shares, valued at $378,000):
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1,000,000 shares at $0.14 per share pursuant to SEC Rule 144, to Mr.
G. Don Edwards, the Company’s Chief Investment Officer, Secretary and Director, in lieu of cash compensation for services.
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1,000,000 shares at $0.14 per share pursuant to SEC Rule 144, to Mr.
Clayton Carter, the Company’s President and Director, in lieu of cash compensation for services.
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100,000 shares at $0.14 per share pursuant to SEC Rule 144, to Mr.
James Carroll, the Company’s Chief Financial Officer and Director, in lieu of cash compensation for services.
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250,000 shares at $0.14 per share pursuant to SEC Rule 144, to Mr.
Richard Harris, a Consultant for the Company, in lieu of cash compensation for services.
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300,000 shares at $0.14 per share pursuant to SEC Rule 144, to Capital
Financial Consultants, LLC, a Consultant for the Company, in lieu of cash compensation for services.
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50,000 shares at $0.14 per share pursuant to SEC Rule 144, to Mark
Smith a Consultant for the Company.
ITEM 6. SELECTED FINANCIAL DATA
As a smaller reporting company we are not required to provide the
information required by this item.
ITEM 7. MANAGEMENT DISCUSSIONS AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
At present, Freestone’s management is
focused on the development of the Petrozene product line, and assisting Aqueous with the continued development of its water management
facility. The continued development of Aqueous includesthe testing and utilization of technology that can effectively recycle frac
water and produced water, as well as the sale of fresh water for oil and gas exploration and production purposes. Freestone’s
acquisitions of certain oil and gas properties are necessary to conduct research and development for its hydrocarbon-based product
Petrozene. Minimal revenues have been earned and related expenses have been incurred from the incidental operation
of these oil and gas interests, as well as miscellaneous fees associated with the corporation. Freestone continues to look for
various solvents, chemicals, and technologies that might fit into Freestone’s petro-chemical line, and continues to seek
opportunities in the oil and gas water industry.
Critical Accounting Policies
Our consolidated financial statements were
prepared in conformity with U.S. generally accepted accounting principles. As such, management is required to make certain
estimates, judgments and assumptions that they believe are reasonable based upon the information available. These estimates
and assumptions affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and
the reported amounts of income and expense during the periods presented. The significant accounting policies which management
believes are the most critical to aid in fully understanding and evaluating our reported financial results include the following:
Revenue Recognition
Revenues from oil, gas and natural gas liquids,
which are produced from the Company’s wells used its research and development activities, are recognized when the products
are sold to a purchaser at a fixed or determinable price, delivery has occurred and title has transferred, and collectability of
the revenue is reasonably assured.
Stock Based Compensation
Pursuant to Accounting Standards Codification
(“ASC”) 505, the guidelines for recording stock issued for services require the fair value of the shares granted be
based on the fair value of the services received or the publicly traded share price of the Company’s registered shares on
the date the shares were granted (irrespective of the fact that the shares granted were unregistered), whichever is more readily
determinable. This position has been further clarified by the issuance of ASC 820, ASC 820 defines fair
value as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between
market participants at the measurement date”. Accordingly, the Company elected the application of these guidelines. Freestone
has determined that the fair value of all common stock issued for goods or services is more readily determinable based on the publicly
traded share price on the date of grant.
Research and Development
The Company currently has limited finances
available for research and development. As the Company’s financial position improves the Company plans to develop
an appropriate research and development policy.
Results of Operations for the Year Ended June 30, 2013 Compared
to the Year Ended June 30, 2012
Revenues
Revenue for the years ended June 30, 2013 and
June 30, 2012 were $8,983 and $5,705, respectively. This was provided by sales of oil of $8,983 and $0 respectively, sales
of gas of $0 and $5,705 respectively.
Operating Expense
Total operating expenses in the years ended
June 30, 2013 and 2012 were $856,790 and $471,893, respectively. These included cost of sales which, for the years ended June 30,
2013 and June 30, 2012 were made up of lease operating costs of $14,203 and $21,611, respectively. Stock issued
and recorded as consulting expense related to Aqueous was $167,400 and $0 as of June 30, 2013 and 2012, respectively. Stock based
compensation included of consulting and contract services paid for by the issuance of common stock of $378,000 and $191,100 for
the years ended June 30, 2013 and 2012, respectively, depreciation of $25,053 and $21,008 year respectively, with the balance of
general and administrative expenses of 272,134 and $223,174, respectively.
The increase is stock based compensation of
$186,900 is related to the stock price being higher by 79% in 2013 versus 2012.
The increase of $33,960 in general and administrative
expenses is related to a increase in payroll expenses of $28,780, and general expenses of about $5,000.
Other income and expense for the years ended
June 30, 2013 and 2012 consist of other expense of $287,277 and expense of $31,070, respectively. The change of $256,207 is due
to warrants being issued for the Aqueous Services, LLC ("Aqueous") agreement of $279,625 partially offset by a smaller
ARO adjustment in 2013 versus 2012 of about $22,000.
Net (Loss) Income
Net loss for the year ended June 30, 2013 was
$1,135,084. Net loss for the year ended June 30, 2012 was $497,258.
Liquidity and Capital Resources
We have little cash reserves and liquidity
to the extent we receive it from operations and through the sale of common stock.
During the year ended June 30, 2013, cash increased
by $58,132 to $205,767 at June 30, 2013. This increase resulted from the financing activities, specifically the sale of stock,
of about $542,000 and mostly off-set by use of cash in our operating activities.
Net cash used by operating activities was $565,394
for the year ended June 30, 2013, compared to net cash used by operating activities of $279,688 for the same period ending June
30, 2012.
Employees
As of June 30, 2013, our only employees are
the officers of the Company.
Need for Additional Financing
The Company believes it will not generate sufficient
liquidity from its operations so the need for additional funding will be necessary. We may sell stock and/or issue additional
debt to raise capital to accelerate our growth.
Going Concern Uncertainties
As of the date of this annual report, there
is doubt regarding our ability to continue as a going concern as we have not generated sufficient cash flows to fund our business
operations and loan commitments. Our future success and viability, therefore, are dependent upon our ability to generate
capital financing. The failure to generate sufficient revenues or raise additional capital may have a material and adverse
effect upon the Company and our shareholders.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk represents the risk of loss arising
from adverse changes in market rates and foreign exchange rates. The amount of our outstanding debt at any time may fluctuate and
we may from time to time be subject to refinancing risk. A hypothetical 100 basis point increase in interest rates would
have a material effect on our annual interest expense and on our results of operations or financial condition as we rely on these
notes to sustain our operations. Since we do not have transactions in foreign currencies, we do not consider it necessary
to hedge against currency risk.
ITEM 8. FINANCIAL STATEMENTS
AND SUPPLEMENTARY DATA
The consolidated financial statements of Freestone
Resources, Inc., together with the Report of Independent Registered Public Accounting Firm of The Hall Group, CPAs covering our
years ended June 30, 2013 and 2012, appear on pages 20 through 35 of this report.
SELECTED QUARTERLY FINANCIAL INFORMATION
(UNAUDITED)
The following is a summary of selected quarterly
results of operations for the years ended June 30, 2013 and 2012.
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Quarter Ended:
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Fiscal year ended June 30, 2013
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30-Sep-12
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31-Dec-12
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31-Mar-13
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30-Jun-13
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Revenues
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$
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0
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$
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8,983
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$
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0
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|
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$
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0
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Gross profit
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|
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0
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8,983
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0
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0
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Net income (loss)
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|
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(85,740
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)
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(508,750
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)
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(75,537
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)
|
|
|
(465,057
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)
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|
|
|
|
|
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|
|
|
|
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Net income (loss) per share, basic and diluted
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$
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(0.00
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)
|
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$
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(0.01
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)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
Weighted average shares used in per share calculation, basic and diluted
|
|
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58,364,010
|
|
|
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62,183,304
|
|
|
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62,702,198
|
|
|
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62,702,416
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|
|
|
Quarter Ended:
|
Fiscal year ended June 30, 2012
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30-Sep-11
|
|
31-Dec-11
|
|
31-Mar-12
|
|
30-Jun-12
|
Revenues
|
|
$
|
4,757
|
|
|
$
|
161
|
|
|
$
|
787
|
|
|
$
|
0
|
|
Gross profit
|
|
|
4,757
|
|
|
|
161
|
|
|
|
787
|
|
|
|
0
|
|
Net income (loss)
|
|
|
(78,496
|
)
|
|
|
(57,910
|
)
|
|
|
(244,838
|
)
|
|
|
(116,014
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share, basic and diluted
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
Weighted average shares used in per share calculation, basic and diluted
|
|
|
52,512,760
|
|
|
|
52,598,629
|
|
|
|
53,251,198
|
|
|
|
56,275,548
|
|
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANICAL DISCLOSURES
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We carried out an evaluation of the effectiveness
of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)
as of June 30, 2013. This evaluation was accomplished under the supervision and with the participation of our chief
executive officer / principal executive officer, and chief financial officer / principal financial officer who concluded that our
disclosure controls and procedures are not effective to ensure that all material information required to be filed in the annual
report on Form 10-K has been made known to them.
For purposes of this section, the term disclosure
controls and procedures means controls and other procedures of an issuer that are designed to ensure that information required
to be disclosed by the issuer in the reports that it files or submits under the Act (15 U.S.C. 78a et seg.) is recorded, processed,
summarized and reported, within the time periods specified in the Commission’s rules and forms. Disclosure, controls
and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed
by in our reports filed under the Securities Exchange Act of 1934, as amended (the "Act") is accumulated and communicated
to the issuer's management, including its principal executive and principal financial officers, or persons performing similar functions,
as appropriate to allow timely decisions regarding required disclosure.
Management’s Annual Report on Internal
Control Over Financial Reporting
Our management is responsible for establishing
and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f)
of the Exchange Act. Our internal control system was designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes, in accordance with generally accepted accounting principles
in the United States of America. Our internal control over financial reporting includes those policies and procedures
that (i) pertain to the maintenance records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions
of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation
of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts
and expenditures of the Company are being made only in accordance with authorizations of management of the Company; and (iii) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s
assets that could have a material effect on the financial statements.
Because of inherent limitations, a system of
internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness
to future periods are subject to the risk that controls may become inadequate due to change in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
Our management conducted an evaluation of the
effectiveness of our internal control over financial reporting using the criteria set forth by the Committee of Sponsoring Organizations
of the Treadway Commission (COSO) in Internal Control—Integrated Framework at June 30, 2013. Based
on its evaluation, our management concluded that, as of June 30, 2013, our internal control over financial reporting was not effective
because of: 1) Our reliance upon independent financial reporting consultants for review of critical accounting areas and disclosures
and material non-standard transaction; and 2) a lack of sufficient accounting staff which results in a lack of segregation of duties
necessary for a good system of internal control. A material weakness is a deficiency, or a combination of control deficiencies,
in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the Company’s
annual or interim financial statements will not be prevented or detected on a timely basis.
This annual report does
not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial
reporting. Management’s report was not subject to the attestation by the Company’s registered public accounting
firm pursuant to the rules of the SEC that permit the Company to provide only management’s report in this annual report.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE
The following persons serve as directors and
officers of Freestone Resources, Inc.:
Clayton Carter, Chief Executive Officer and
President
James F. Carroll, Chief Financial Officer
Don Edwards, Chief Investment Officer
Clayton Carter, age 28, received his Bachelor
of Arts in Integrated Marketing and Communications from Pepperdine University. With his extensive knowledge of the public markets
and investment-based finance, Mr. Carter has raised the capital to develop multiple startups. Mr. Carter has served as President
and Director of Freestone Resources since January 2009, and will continue his current duties at the Company as the Chief Executive
Officer and Chairman of the Company. Mr. Carter strongly believes in Freestone's continuing mission to develop new technologies
that allow for the utilization of various petroleum resources in an environmentally responsible and cost effective way. Mr.
Carter has served as the President of Freestone Resources since September of 2008. Previous positions within the past
five years include a position as a customer service representative at Wells Fargo bank.
Don Edwards, age 64, is a graduate from Texas
Christian University with a BBA degree concentrating in Finance and Economics. Mr. Edwards started his business career with E.
F. Hutton where he was a regional OTC Coordinator. He also ran a trading desk for OTC stocks. He later served as President, CFO,
CEO and Director for four securities firms as well as a Director for two savings and loans. He has been responsible for managing
many public and private companies. He has raised startup capital for dozens of both private and public companies. Mr. Edwards has
vast knowledge in the investment field including fine art. He has bought and sold art works of such artists as Charles Russell
and Monet. Don was a licensed Insurance agent for many years and assisted in managing the West Texas region for Mass Mutual Life
Ins. Co. Don also has a background in the Oil and Gas Industry. His family has run a successful Drilling Co. in West Texas for
over half a century. Mr. Edwards will maintain his position as Chief Investment Officer of the Company. Mr. Edwards
has served as the Chief Investment Officer for the Company for six months. Prior to his employment at the Company, Mr.
Edwards was self employed.
James F. Carroll, 57, has served as the Chief
Financial Officer and Treasurer of Freestone since May 1, 1999. He has served as a director of Freestone since November 12, 1999.
From December 1973 to April 1999, Mr. Carroll was employed by F. Schumacher & Co., a New York fabric company, as a manager
of production, purchasing and inventory. Mr. Carroll received a B.B.A. degree in public accounting from Pace University of New
York in 1985.
Section 16(a) Beneficial Ownership Reporting
Compliance
Section 16(a) of the Securities Exchange Act
of 1934, as amended (the “Exchange Act”), requires our executive officers and directors, and persons who beneficially
own more than ten percent of our common stock, to file initial reports of ownership and reports of changes in ownership with the
SEC. Executive officers, directors and greater than ten percent beneficial owners are required by SEC regulations to furnish us
with copies of all Section 16(a) forms they file. We believe that as of the date of this report they were all current in their
16(a) reports.
Board of Directors
Our board of directors currently consists of
three members. Our directors serve one-year terms. Our board of directors has affirmatively determined that there are currently
no independent directors serving on our board.
Committees of the Board of Directors
Audit Committee
We do not have a standing audit committee of
the Board of Directors. Management has determined not to establish an audit committee at present because of our limited resources
and limited operating activities do not warrant the formation of an audit committee or the expense of doing so. We do not
have a financial expert serving on the Board of Directors or employed as an officer based on management’s belief that the
cost of obtaining the services of a person who meets the criteria for a financial expert under Item 401(e) of Regulation S is beyond
its limited financial resources and the financial skills of such an expert are simply not required or necessary for us to maintain
effective internal controls and procedures for financial reporting in light of the limited scope and simplicity of accounting
issues raised in its financial statements at this stage of its development.
Governance, Compensation and Nominating
Committee
We do not have a standing governance, compensation
and nominating committee of the Board of Directors. Management has determined not to establish governance, compensation and nominating
committee at present because of our limited resources and limited operations do not warrant such a committee or the expense of doing
so.
Code of Ethics
The Company has adopted the following code
of ethics for officers, directors and employees:
|
·
|
Show respect towards others in the workplace
|
|
·
|
Conduct all business activities in a fair and ethical manner
|
|
·
|
Work dutifully and responsibly for the Company’s shareholders
and stakeholders
|
Limitation of Liability of Directors
Pursuant to the Nevada General Corporation
Law, our Articles of Incorporation exclude personal liability for our Directors for monetary damages based upon any violation of
their fiduciary duties as Directors, except as to liability for any breach of the duty of loyalty, acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law, or any transaction from which a Director receives
an improper personal benefit. This exclusion of liability does not limit any right which a Director may have to be indemnified
and does not affect any Director’s liability under federal or applicable state securities laws.
ITEM 11. EXECUTIVE COMPENSATION
Compensation of Executive Officers
The following summary compensation table sets
forth all compensation awarded to, earned by, or paid to the named executive officers paid by us during the fiscal years ended
June 30, 2013 and 2012 in all capacities for the accounts of our executives, including the Chief Executive Officer (CEO), Chief
Financial Officer (CFO), and Chief Investment Officer (CIO):
SUMMARY COMPENSATION TABLE
Name and Principal Position
|
|
Year
|
|
Salary
($)
|
|
Bonus
($)
|
|
Stock Awards
($)
|
|
Option Awards
($)
|
|
Non-Equity Incentive Plan Compensation ($)
|
|
Non-Qualified Deferred Compensation Earnings
($)
|
|
All Other Compensation
($)
|
|
Totals
($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Clayton Carter,
|
|
|
2013
|
|
|
|
38,900
|
|
|
|
0
|
|
|
|
140,000
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
178,900
|
|
CEO
|
|
|
2012
|
|
|
|
40,020
|
|
|
|
0
|
|
|
|
78,000
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
118,020
|
|
Don Edwards,
|
|
|
2013
|
|
|
|
43,550
|
|
|
|
0
|
|
|
|
140,000
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
183,550
|
|
CIO
|
|
|
2012
|
|
|
|
27,000
|
|
|
|
0
|
|
|
|
78,000
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
105,000
|
|
James Carroll, CFO
|
|
|
2013
|
|
|
|
0
|
|
|
|
0
|
|
|
|
14,000
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
14,000
|
|
|
|
|
2012
|
|
|
|
0
|
|
|
|
0
|
|
|
|
7,800
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
7,800
|
|
Employment Agreements
We do not have any employment agreements in place.
Compensation of Directors
Directors do not receive any compensation for
their services as directors. The Board of Directors has the authority to fix the compensation of directors. No amounts have been
paid to, or accrued to, directors in such capacity.
ITEM 12. SECUIRTY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS
As of June 30, 2013, the following persons
are known to Freestone to own 5% or more of Freestone's Common Stock, as well as the Company’s officers and directors.
Name and Address of Beneficial Owner, Officer or Director
|
|
A
mount Beneficially Owned*
|
|
|
Percent of Clas
s
|
|
|
|
|
|
|
|
|
Clayton Carter, President, CEO and Director
|
|
|
6,005,000
|
|
|
|
8.79
|
%
|
|
|
|
|
|
|
|
|
|
James Carroll, Chief Financial Officer and Director
|
|
|
1,890,000
|
|
|
|
2.77
|
%
|
|
|
|
|
|
|
|
|
|
Don Edwards, Chief Investment Officer and Director
|
|
|
4,900,000
|
|
|
|
7.17
|
%
|
|
|
|
|
|
|
|
|
|
Richard Feldman
|
|
|
3,600,000
|
|
|
|
5.68
|
%
|
|
|
|
|
|
|
|
|
|
Cade Carter (a)
|
|
|
3,123,180
|
|
|
|
4.57
|
%
|
Directors and Officers as a Group
325 N. St. Paul St.
Suite 1350
Dallas, TX 75201
(a) Mr. Cade Carter is the trustee of the 360 Trust which
owns 2,623,180 shares.
* Unless otherwise indicated such person is the sole beneficial
owner of the shares set forth opposite his name.
ITEM 13. CERTAIN
RELATIONSHIPS AND RELATED PARTY TRANSACTIONS AND DIRECTOR INDEPENDENCE
We were not a party to any transactions or
series of similar transactions that have occurred during this fiscal year in which a director, executive officer, holder of more
than 5% of our common stock or any member of their immediate family had or will have a direct or indirect material interest.
Due to our limited resources, the Company does
not have any independent directors serving on the board of directors.
ITEM 14. PRINCIPAL
ACCOUNTANT FEES AND SERVICES
Audit Fees
The aggregate fees billed for professional
services rendered by our auditors, for the audit of the our annual financial statements and review of the financial statements
included in our Form 10-K and Forms 10-Q or services that are normally provided by the accountant in connection with statutory
and regulatory filings or engagements for the year ended June 30, 2013 was $28,000, and $24,400 for fees relating to the year ended
June 30, 2012.
Audit Related Fees
None.
Tax Fees
None.
All Other Fees
None.
ITEM 15. EXHIBITS AND FINANICAL STATEMENT
SCHEDULES
(a) The following documents are filed as part of this report:
Included in Part II, Item 7 of this report:
Report of Independent Registered Public Accounting
Firm
Consolidated Balance Sheets as of June 30, 2013
and 2012
Consolidated Statements of Operations –
For the Years Ended June 30, 2013 and 2012 and Since Reentering the Development Stage (July 1, 2010 through June 30, 2013)
Consolidated Statements of Cash Flows - For
the Years Ended June 30, 2013 and 2012 and Since Reentering the Development Stage (July 1, 2010 through June 30, 2013)
Consolidated Statements of Stockholders’
Equity) – For the Years Ended June 30, 2013 and 2012
Notes to the Consolidated Financial Statements
(b)
Freestone filed the following Exhibits in the year ended June 30, 2013:
On April 10, 2013 Freestone filed an 8-K to
report the Unregistered Sales of Equity Securities (incorporated by reference to the Form 8-K filed on April 10, 2013)
(c) Exhibits
31
|
Certification
|
|
|
32
|
Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 – CEO and CFO
|
SIGNATURES
Pursuant to the requirements of Section 13 or
15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
|
Freestone Resources, Inc.
|
|
|
|
|
|
Dated: September 17, 2013
|
By:
|
/s/ Clayton Carter
|
|
|
|
Clayton Carter,
Chief Executive Officer
|
|
Pursuant to the requirements of the Securities
Exchange Act of 1934, the Registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned
hereunto duly authorized.
Name
|
|
Title
|
|
Date
|
|
|
|
|
|
By: /s/ Clayton Carter
|
|
President, Chief Executive Officer and Director
|
|
September 17, 2013
|
Clayton Carter
|
|
|
|
|
|
|
|
|
|
By: /s/ James Carroll
|
|
Chief Financial Officer, Director
|
|
September 17, 2013
|
James Carroll
|
|
|
|
|
|
|
|
|
|
By: /s/ Don Edwards
|
|
Chief Investment Officer, Director
|
|
September 17, 2013
|
Don Edwards
|
|
|
|
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
The Board of Directors and Stockholders
Freestone Resources, Inc.
Dallas, Texas
We have audited the accompanying consolidated
balance sheets of Freestone Resources, Inc. (a Development Stage Company) as of June 30, 2032 and 2012 and the related consolidated
statements of operations, cash flows and stockholders’ equity for the years then ended and since reentering the development
stage (July 1, 2010 through June 30, 2013). These financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits of these financial
statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
We were not engaged to examine management’s
assertion about the effectiveness of Freestone Resources, Inc.’s internal control over financial reporting as of June 30,
2013 and 2012 and, accordingly, we do not express an opinion thereon.
In our opinion, the consolidated financial
statements referred to above present fairly, in all material respects, the financial position of Freestone Resources, Inc. as of
June 30, 2013 and 2012 and the results of its operations and its cash flows for the years then ended and since reentering the development
stage (July 1, 2010 through June 30, 2013), in conformity with accounting principles generally accepted in the United States
of America.
The accompanying financial statements have
been prepared assuming that the Company will continue as a going concern. As discussed in Note 12 to the consolidated
financial statements, the Company has suffered significant losses and will require additional capital to develop its business until
the Company either (1) achieves a level of revenues adequate to generate sufficient cash flows from operations; or (2) obtains
additional financing necessary to support its working capital requirements. These conditions raise substantial doubt
about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters
are also described in Note 12. The financial statements do not include any adjustments that might result from the outcome
of this uncertainty.
/s/ The Hall Group,CPAs
The Hall Group, CPAs
Dallas, Texas
September 13, 2013
FREESTONE RESOURCES, INC.
(A Development Stage Company)
Consolidated Balance Sheets
As of June 30, 2013 and 2012
|
|
2013
|
|
2012
|
ASSETS
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
205,767
|
|
|
$
|
147,635
|
|
Accounts receivable, net of allowance of $0 and $0
|
|
|
0
|
|
|
|
0
|
|
Total current assets
|
|
|
205,767
|
|
|
|
147,635
|
|
|
|
|
|
|
|
|
|
|
Oil and gas properties used for research and development
|
|
|
20,000
|
|
|
|
23,000
|
|
Equipment and other fixed assets, net of accumulated depreciation of $61,094 and $36,040
|
|
|
47,889
|
|
|
|
31,512
|
|
Total fixed assets, net
|
|
|
67,889
|
|
|
|
54,512
|
|
|
|
|
|
|
|
|
|
|
Investment in Aqueous Services, LLC
|
|
|
109,763
|
|
|
|
0
|
|
Other assets
|
|
|
8,910
|
|
|
|
600
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$
|
392,329
|
|
|
$
|
202,747
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
5,452
|
|
|
$
|
6,200
|
|
Accrued expenses
|
|
|
5,784
|
|
|
|
6,908
|
|
Note payable, related party
|
|
|
0
|
|
|
|
6,691
|
|
Equity Investment in Freestone Water Solutions
|
|
|
0
|
|
|
|
11,978
|
|
Derivative Liability
|
|
|
279,625
|
|
|
|
0
|
|
Stock to be issued
|
|
|
0
|
|
|
|
23,000
|
|
Total current liabilities
|
|
|
290,861
|
|
|
|
54,777
|
|
|
|
|
|
|
|
|
|
|
Long term liabilities:
|
|
|
|
|
|
|
|
|
Asset retirement obligations
|
|
|
40,497
|
|
|
|
40,915
|
|
Total long term liabilities
|
|
|
40,497
|
|
|
|
40,915
|
|
TOTAL LIABILITIES
|
|
|
331,358
|
|
|
|
95,692
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS' EQUITY:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, $.001 par value, 100,000,000 shares
|
|
|
|
|
|
|
|
|
authorized, 68,318,177 and 58,364,010 shares issued and outstanding
|
|
|
68,318
|
|
|
|
58,364
|
|
Additional paid in capital
|
|
|
18,117,111
|
|
|
|
17,038,065
|
|
Accumulated deficit
|
|
|
(18,124,458
|
)
|
|
|
(16,989,374
|
)
|
Total stockholders' equity
|
|
|
60,971
|
|
|
|
107,055
|
|
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
$
|
392,329
|
|
|
$
|
202,747
|
|
The accompanying notes are an integral part
of these consolidated financial statements.
FREESTONE RESOURCES, INC.
(A Development Stage Company)
Consolidated Statements of Operations
For the Years Ended June 30, 2013 and 2012
and
Since Reentering the Development Stage (July
1, 2010 to June 30, 2013)
|
|
|
|
|
|
Since Reentering the Development Stage
(July 1, 2010 to
|
|
|
2013
|
|
2012
|
|
June 30, 2013)
|
Revenue:
|
|
|
|
|
|
|
Oil & gas revenues resulting from research activities
|
|
$
|
8,983
|
|
|
$
|
5,705
|
|
|
$
|
55,552
|
|
Total revenue
|
|
|
8,983
|
|
|
|
5,705
|
|
|
|
55,552
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease operating costs
|
|
|
14,203
|
|
|
|
21,611
|
|
|
|
62,542
|
|
Depreciation
|
|
|
25,053
|
|
|
|
21,008
|
|
|
|
57,307
|
|
Stock-based compensation
|
|
|
545,400
|
|
|
|
191,100
|
|
|
|
1,690,500
|
|
General and administrative
|
|
|
272,134
|
|
|
|
238,174
|
|
|
|
834,944
|
|
Total operating expenses
|
|
|
856,790
|
|
|
|
471,893
|
|
|
|
2,645,293
|
|
Net operating (loss)
|
|
|
(847,807
|
)
|
|
|
(466,188
|
)
|
|
|
(2,589,741
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income related to the settlement of the EOS litigation
|
|
|
0
|
|
|
|
0
|
|
|
|
1,665,834
|
|
Other income
|
|
|
188
|
|
|
|
0
|
|
|
|
188
|
|
Warrants expense
|
|
|
(279,625
|
)
|
|
|
0
|
|
|
|
(279,625
|
)
|
Gain on sale of asset
|
|
|
(3,000
|
)
|
|
|
3,265
|
|
|
|
17,541
|
|
Loss on equity method investment
|
|
|
(5,327
|
)
|
|
|
(11,978
|
)
|
|
|
(17,215
|
)
|
Revision to ARO estimate
|
|
|
418
|
|
|
|
(22,263
|
)
|
|
|
(5,639
|
)
|
Interest expense
|
|
|
(21
|
)
|
|
|
(94
|
)
|
|
|
(2,294
|
)
|
Total other income (expense)
|
|
|
(287,277
|
)
|
|
|
(31,070
|
)
|
|
|
1,378,790
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(1,135,084
|
)
|
|
$
|
(497,258
|
)
|
|
$
|
(1,210,951
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
68,383,885
|
|
|
|
57,544,765
|
|
|
|
|
|
The accompanying notes are an integral part
of these consolidated financial statements.
FREESTONE RESOURCES, INC.
(A Development Stage Company)
Consolidated Statements of Cash Flow
For the Years Ended June 30, 2013 and 2012
and
Since Reentering the Development Stage (July
1, 2010 to June 30, 2013)
|
|
|
|
|
|
Since Reentering the Development Stage
(July 1, 2010 to
|
|
|
2013
|
|
2012
|
|
June 30, 2013)
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(1,135,084
|
)
|
|
$
|
(497,258
|
)
|
|
$
|
(1,210,951
|
)
|
Adjustments to reconcile net income (loss) to net cash
|
|
|
|
|
|
|
|
|
|
|
|
|
provided by (used in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
25,053
|
|
|
|
21,008
|
|
|
|
57,307
|
|
(Gain) Loss on sale of investment asset
|
|
|
3,000
|
|
|
|
(3,265
|
)
|
|
|
(17,541
|
)
|
(Gain) Loss on equity method investiment
|
|
|
5,237
|
|
|
|
0
|
|
|
|
5,237
|
|
Shares issued for demonstration equipment
|
|
|
0
|
|
|
|
0
|
|
|
|
58,585
|
|
Stock based compensation
|
|
|
378,000
|
|
|
|
191,100
|
|
|
|
1,523,100
|
|
Increase (Decrease) in revision to ARO estimate
|
|
|
(418
|
)
|
|
|
22,263
|
|
|
|
5,639
|
|
Shares issued for warrants
|
|
|
169,000
|
|
|
|
0
|
|
|
|
193,000
|
|
Change in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
0
|
|
|
|
2,153
|
|
|
|
22,029
|
|
Other assets
|
|
|
(8,310
|
)
|
|
|
2,487
|
|
|
|
(6,123
|
)
|
Accounts payable
|
|
|
(748
|
)
|
|
|
(16,847
|
)
|
|
|
(245,317
|
)
|
Accounts payable – related parties
|
|
|
0
|
|
|
|
0
|
)
|
|
|
(150,010
|
)
|
Accrued expenses
|
|
|
(1,124
|
)
|
|
|
(1,329
|
)
|
|
|
(6,775
|
)
|
Net cash provided by (used in) operating activities
|
|
|
(565,394
|
)
|
|
|
(279,688
|
)
|
|
|
228,180
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
(41,430
|
)
|
|
|
0
|
|
|
|
(100,015
|
)
|
Investment in Freestone Water Solutions
|
|
|
(126,978
|
)
|
|
|
11,978
|
|
|
|
(115,000
|
)
|
Proceeds from sale of investment asset
|
|
|
0
|
|
|
|
0
|
|
|
|
30,000
|
|
Net cash provided by (used in) investing activities
|
|
|
(168,408
|
)
|
|
|
11,978
|
|
|
|
(185,015
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sale of stock
|
|
|
542,000
|
|
|
|
314,100
|
|
|
|
1,300,600
|
|
Stock to be issued
|
|
|
(23,000
|
)
|
|
|
23,000
|
|
|
|
(150,000
|
)
|
Payments on notes payable, related parties
|
|
|
(6,691
|
)
|
|
|
(14,770
|
)
|
|
|
(34,321
|
)
|
Derivative liability
|
|
|
279,625
|
|
|
|
0
|
|
|
|
279,625
|
|
Stock returned upon settlement of litigation
|
|
|
0
|
|
|
|
0
|
|
|
|
(1,261,364
|
)
|
Net cash provided by (used in) financing activities
|
|
|
791,934
|
|
|
|
322,330
|
|
|
|
134,540
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CHANGE IN CASH
|
|
|
58,132
|
|
|
|
54,620
|
|
|
|
177,705
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AT BEGINNING OF YEAR
|
|
|
147,635
|
|
|
|
93,015
|
|
|
|
28,062
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AT END OF YEAR
|
|
$
|
205,767
|
|
|
$
|
147,635
|
|
|
$
|
205,767
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURES
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
22
|
|
|
$
|
94
|
|
|
$
|
358
|
|
Cash paid for income taxes
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Stock issued for acquisition of subsidiary
|
|
|
0
|
|
|
|
0
|
|
|
|
(1,261,364
|
)
|
Stock based compensation
|
|
|
378,000
|
|
|
|
191,100
|
|
|
|
1,523,100
|
|
The accompanying notes are an integral part
of these consolidated financial statements.
FREESTONE RESOURCES, INC.
(A Development Stage Company)
Consolidated Statement of Stockholders’
Equity
For the Years Ended June 30, 2013 and 2012
|
|
Common Stock
|
|
|
Additional Paid
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
Shares
|
|
|
|
Amount
|
|
|
|
in Capital
|
|
|
|
Deficit
|
|
|
|
Total
|
|
Balance, June 30, 2010
|
|
|
71,718,994
|
|
|
$
|
71,719
|
|
|
$
|
16,299,789
|
|
|
$
|
(16,913,507
|
)
|
|
$
|
(541,999
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for cash
|
|
|
3,712,500
|
|
|
|
3,713
|
|
|
|
440,787
|
|
|
|
0
|
|
|
|
444,500
|
|
Common stock issued for Demo equipment
|
|
|
100,000
|
|
|
|
100
|
|
|
|
58,485
|
|
|
|
0
|
|
|
|
58,585
|
|
Common stock issued for services
|
|
|
5,300,000
|
|
|
|
5,300
|
|
|
|
948,700
|
|
|
|
0
|
|
|
|
954,000
|
|
Common stock issued for warrants
|
|
|
500,000
|
|
|
|
500
|
|
|
|
23,500
|
|
|
|
0
|
|
|
|
24,000
|
|
Common stock returned for EOS acquisition
|
|
|
(28,818,734
|
)
|
|
|
(28,819
|
)
|
|
|
(1,232,545
|
)
|
|
|
0
|
|
|
|
(1,261,364
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
421,391
|
|
|
|
421,391
|
|
Balance, June 30, 2011
|
|
|
52,512,760
|
|
|
|
52,513
|
|
|
|
16,538,716
|
|
|
|
(16,492,116
|
)
|
|
|
99,113
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for cash
|
|
|
3,701,250
|
|
|
|
3,701
|
|
|
|
310,399
|
|
|
|
0
|
|
|
|
314,100
|
|
Common stock issued for services
|
|
|
2,450,000
|
|
|
|
2,450
|
|
|
|
188,650
|
|
|
|
0
|
|
|
|
191,100
|
|
Common stock canceled for Hydrex agreement
|
|
|
(300,000
|
)
|
|
|
(300
|
)
|
|
|
300
|
|
|
|
0
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(497,258
|
)
|
|
|
(497,258
|
)
|
Balance, June 30, 2012
|
|
|
58,364,010
|
|
|
$
|
58,364
|
|
|
$
|
17,038,065
|
|
|
$
|
(16,989,374
|
)
|
|
$
|
107,055
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for cash
|
|
|
6,654,167
|
|
|
|
6,654
|
|
|
|
535,346
|
|
|
|
0
|
|
|
|
542,000
|
|
Common stock issued for services
|
|
|
2,700,000
|
|
|
|
2,700
|
|
|
|
375,300
|
|
|
|
0
|
|
|
|
378,000
|
|
Common stock issued for Warrants
|
|
|
600,000
|
|
|
|
600
|
|
|
|
168,400
|
|
|
|
0
|
|
|
|
169,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,135,084
|
)
|
|
|
(1,135,084
|
)
|
Balance, June 30, 2013
|
|
|
68,318,177
|
|
|
$
|
68,318
|
|
|
$
|
18,117,111
|
|
|
|
$(18,124,458
|
)
|
|
$
|
60,971
|
|
The accompanying notes are an integral part
of these consolidated financial statements
.
FREESTONE RESOURCES, INC.
Notes To Consolidated Financial Statements
June 30, 2013 and 2012
NOTE 1 – NATURE OF ACTIVITIES AND SIGNIFICANT ACCOUNTING
POLICIES
Nature of Activities, History and Organization
:
Freestone Resources, Inc. (“Freestone”
or the “Company”) is an oil and gas technology development company. The Company is located in Dallas, Texas and is
incorporated under the laws of the State of Nevada.
The Company’s primary business is the
development of new technologies that allow for the utilization of oil and gas resources in an environmentally responsible and cost
effective way, as well as the development of technologies and services that can be utilized by the oil and gas industry.
Development Stage Company:
The Company is a development-stage company
as defined in ASC 915. As of July 1, 2010 the Company reentered the development stage entity because it is devoting
substantially all of its efforts to raising capital and establishing its business and principal operations, and no sales have been
derived to date from its principal operations. The Company reentered the development stage due to management's decision to
develop a wholly owned oil separation technology. The development of the aforesaid technology resulted in the need to raise
additional capital for the construction and development of a prototype Oil Recovery Unit.
Significant Accounting Policies:
The Company’s management selects accounting
principles generally accepted in the United States of America and adopts methods for their application. The application
of accounting principles requires the estimating, matching and timing of revenue and expense. It is also necessary for
management to determine, measure and allocate resources and obligations within the financial process according to those principles. The
accounting policies used conform to generally accepted accounting principles which have been consistently applied in the preparation
of these financial statements.
The financial statements and notes are representations
of the Company’s management which is responsible for their integrity and objectivity. Management further acknowledges
that it is solely responsible for adopting sound accounting practices, establishing and maintaining a system of internal accounting
control and preventing and detecting fraud. The Company's system of internal accounting control is designed
to assure, among other items, that 1) recorded transactions are valid; 2) valid transactions are
recorded; and 3) transactions are recorded in the proper period in a timely manner
to produce financial statements which present fairly the financial condition, results of operations and
cash flows of the Company for the respective periods being presented.
Going Concern Uncertainties:
As of the date of this annual report, there
is substantial doubt regarding our ability to continue as a going concern as we have not generated sufficient profits and cash
flows to fund our business operations and loan commitments. Our future success and viability, therefore, are dependent
upon our ability to generate capital financing and to develop products through our research and development activities that will
generate revenues sufficient to cover our operating costs and expenses. The failure to generate sufficient revenues
or raise additional capital may have a material and adverse effect upon the Company and our shareholders.
Basis of Presentation:
The Company prepares its financial statements
on the accrual basis of accounting. The accompanying consolidated financial statements include the accounts
of the Company and its wholly owned subsidiaries, Freestone Technologies, LLC, all of which have a fiscal year end of June 30,
2013. All significant intercompany accounts, balances and transactions have been eliminated in the consolidation.
The Company consolidates its subsidiaries in
accordance with ASC 810, and specifically ASC 810-10-15-8 which states, "The usual condition for a controlling financial interest
is ownership of a majority voting interest, and, therefore, as a general rule ownership by one reporting entity, directly or indirectly,
or over 50% of the outstanding voting shares of another entity is a condition pointing toward consolidation."
The Company owns 33.33% of Aqueous Services,
LLC and has recorded the investment in accordance with the equity method.
Use of Estimates:
The preparation of financial statements in
conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain
reported amounts and disclosures. Accordingly, actual results could differ from those estimates.
Recently Issued Accounting Pronouncements:
The Company does not expect the adoption of
recently issued accounting pronouncements to have a significant impact on the Company’s results of operations, financial
position or cash flows.
Income Taxes:
The Company has adopted ASC 740-10, which
requires the use of the liability method in the computation of income tax expense and the current and deferred income taxes payable. A
valuation allowance is provided for the amount of deferred tax assets that, based on available evidence, are not expected to be
realized.
Earnings per Share:
Basic net loss per share is calculated by dividing
the net loss by the weighted average number of common shares outstanding for the period covered. Freestone has no potentially
dilutive securities; therefore fully diluted loss per share is identical to basic loss per share.
Cash and Cash Equivalents:
Cash and cash equivalents includes cash in
banks with original maturities of three months or less and are stated at cost which approximates market value, which in the opinion
of management, are subject to an insignificant risk of loss in value. The Company maintains deposits in a financial
institution which provides Federal Deposit Insurance Corporation coverage for interest bearing and non interest bearing
transaction accounts of up to $250,000 through December 31, 2013. At June 30, 2013, none of the Company’s cash
was in excess of federally insured limits.
Revenue Recognition:
The Company recognizes revenue from the sale
of products in accordance with ASC 605. Revenue will be recognized only when all of the following criteria have been
met:
|
* Persuasive evidence of an arrangement exists;
|
|
* Ownership and all risks of loss have been transferred to buyer, which is generally upon shipment;
|
|
* The price is fixed and determinable; and
|
|
* Collectability is reasonably assured.
|
Revenues associated with sales of crude oil,
natural gas, natural gas liquids, petroleum and chemical products, and other items are recognized when title passes to the customer,
which is when the risk of ownership passes to the purchaser and physical delivery of goods occurs, either immediately or within
a fixed delivery schedule that is reasonable and customary in the industry.
Revenues from the production of natural gas
and crude oil properties, in which we have an interest with other producers, are recognized based on the actual volumes we sold
during the period. Any differences between volumes sold and entitlement volumes, based on our net working interest, which are deemed
to be non-recoverable through remaining production, are recognized as accounts receivable or accounts payable, as appropriate.
Cumulative differences between volumes sold and entitlement volumes are generally not significant.
Accounts Receivable:
Accounts Receivable consists of accrued oil
and gas receivables due from purchasers of oil and gas for which the Company owns an interest. Oil and natural gas sales are generally
unsecured and such amounts are generally due within 30 to 45 days after the month of sale. Accounts Receivable
are carried at their face amount, less an allowance for doubtful accounts. On a periodic basis, the Company evaluates
accounts receivable and establishes the allowance for doubtful accounts based on a combination of specific customer circumstances
and credit conditions, based on a history of write offs and collections. The Company’s policy is generally not
to charge interest on trade receivables after the invoice becomes past due. A receivable is considered past due if payments
have not been received within agreed upon invoice terms. Write offs are recorded at a time when a customer receivable
is deemed uncollectible. The Company had no bad debt accruals at June 30, 2013 and 2012.
Oil and Gas Properties:
Freestone is actively purchasing marginal oil
and gas properties and leasing properties that will be used in the further research and development of oil and gas technologies. This
research focuses on the types of formations that will benefit the most from the use of the solvent, as well as the various applications
from production and storage to end cycle refinement.
Equipment:
Equipment is carried at the cost of acquisition
or construction and depreciated over the estimated useful lives of the assets. Costs associated with repair and maintenance are
expensed as incurred. Costs associated with improvements which extend the life, increase the capacity or improve the efficiency
of our property and equipment are capitalized and depreciated over the remaining life of the related asset. Gains and losses on
dispositions of equipment are reflected in operations. Depreciation and amortization are provided using the straight-line method
over the estimated useful lives of the assets, which are 3 to 30 years. Oil and gas properties were purchased primarily
for product testing and are depreciated over their estimated useful lives of 3 years but not reduced below estimated salvage value.
Impairment of Long-Lived Assets:
The Company evaluates, on a periodic basis,
long-lived assets to be held and used for impairment in accordance with the reporting requirements of ASC 360-10. The evaluation
is based on certain impairment indicators, such as the nature of the assets, the future economic benefit of the assets, any historical
or future profitability measurements, as well as other external market conditions or factors that may be present. If these impairment
indicators are present or other factors exist that indicate that the carrying amount of the asset may not be recoverable, then
an estimate of the discounted value of expected future operating cash flows is used to determine whether the asset is recoverable
and the amount of any impairment is measured as the difference between the carrying amount of the asset and its estimated fair
value. The fair value is estimated using valuation techniques such as market prices for similar assets or discounted future operating
cash flows.
Asset Retirement Obligation
:
The Company records the fair value of a liability
for asset retirement obligations (“ARO”) in the period in which an obligation is incurred and records a corresponding
increase in the carrying amount of the related long-lived asset. For Freestone Resources, asset retirement obligations primarily
relate to the abandonment of oil and gas properties. The present value of the estimated asset retirement cost is capitalized as
part of the carrying amount of oil and gas properties. The settlement date fair value is discounted at Freestone Resource’s
credit adjusted risk-free rate in determining the abandonment liability. The abandonment liability is accreted with the passage
of time to its expected settlement fair value. Revisions to such estimates are recorded as adjustments to the ARO and capitalized
asset retirement costs and are charged to operations in the period in which they become known. At the time the abandonment cost
is incurred, Freestone Resources is required to recognize a gain or loss if the actual costs do not equal the estimated costs included
in the ARO. During 2013 and 2012, the Company recognized no accretion expense, as the properties were written
down to salvage value as of June 30, 2009.
The amounts recognized for the ARO are based
upon numerous estimates and assumptions, including future abandonment costs, future recoverable quantities of oil and gas, future
inflation rates, and the credit adjusted risk free interest rate.
Fair Value Measurements
:
ASC Topic 820, defines
fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and requires certain
disclosures about fair value measurements. In general, fair value of financial instruments are based upon quoted market
prices, where available. If such quoted market prices are not available, fair value is based upon internally developed
models that primarily use, as inputs, observable market based parameters. Valuation adjustments may be made to ensure
that financial instruments are recorded at fair value. These adjustments may include amounts to reflect counterparty
credit quality and the Corporation’s credit worthiness, among other things, as well as unobservable parameters.
Stock-Based Compensation:
The Company accounts for stock-based compensation
using a fair value based method whereby compensation cost is measured at the grant date based on the value of the services received
and is recognized over the service period. The Company uses the Black-Scholes pricing model to calculate the fair
value of options and warrants issued. In calculating this fair value, there are certain assumptions used such as the
expected life of the option, risk-free interest rate, dividend yield, volatility and forfeiture rate. The use of a different
estimate for any one of these components could have a material impact on the amount of calculated compensation expense.
The Company does not have any employee benefit
or stock option plans.
Concentrations of Credit Risk:
The Company’s financial instruments that
are exposed to concentrations of credit risk consist primarily of cash. The Company places its cash in highly-rated financial institutions,
limits the amount of credit exposure with any one financial institution and conducts ongoing evaluation of the credit worthiness
of the financial institutions with which it does business.
Emerging
Growth Company Critical Accounting Policy Disclosure
The Company qualifies
as an “emerging growth company” under the 2012 JOBS Act. Section 107 of the JOBS Act provides that an emerging growth
company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying
with new or revised accounting standards. As an emerging grown company, the Company can delay the adoption of certain
accounting standards until those standards would otherwise apply to private companies. The Company may
elect to take advantage of the benefits of this extended transition period in the future.
NOTE 2 – FIXED ASSETS
Fixed assets at June 30, 2013 and 2012 are as follows:
|
|
2013
|
|
2012
|
Computers & office furniture
|
|
$
|
108,983
|
|
|
$
|
67,552
|
|
Oil and gas properties used for research and development
|
|
|
20,000
|
|
|
|
23,000
|
|
Total fixed assets
|
|
|
128,983
|
|
|
|
90,552
|
|
Less: Accumulated depreciation
|
|
|
(61,094
|
)
|
|
|
(36,040
|
)
|
Total fixed assets, net of accumulated depreciation
|
|
$
|
67,889
|
|
|
$
|
54,512
|
|
Depreciation expense was $25,053 and $21,008 for the years
ended June 30, 2013 and 2012, respectively.
The Company wrote-off $3,000 of oil and gas related equipment during
2013.
NOTE 3 – RELATED PARTY TRANSACTIONS
On May 26, 2009, the Company received a loan
from Mike Doran (“Doran”), the Company’s CEO at that time, in the amount of $25,000. A note payable
was formally prepared by the Company but never executed by Doran. The terms of the loan included an interest rate of
three and a half percent, and the payment of twelve monthly installments beginning on October 31, 2009. On July 8, 2009,
an amended and restated promissory note with similar terms was executed to replace the original note payable, at which time the
Company recorded a $6,200 gain on extinguishment of debt. During the year ended June 30, 2009, the Company received
an advance from Doran of $20,000 which was repaid during the year. As of June 30, 2013 and 2012 the balance
owed to Mr. Doran was $0 and $1,691 respectively.
On July 9, 2009, the Company received an advance
from Jimmy Carter, a shareholder, in the amount of $25,000. There are no terms on the advance and no interest is paid. At
June 30, 2013 and 2012 the balance owed was $0 and $5,000.
The Company had a related party receivable
of $15,000 from Freestone Water Solutions, (“FWS”) a joint venture between MEA Solutions, LLC and Freestone Resources,
Inc., which was created in September of 2011. Freestone does not have a controlling equity position in FWS nor does Freestone control
the board or management of FWS. FWS is in the business of recycling flow back water and produced water for subsequent reuse in
the fracking process. MEA and Freestone have advanced FWS certain short-term, start-up cash, which FWS intends to repay to Freestone
and MEA upon funding and/or when profits are made. Profits and losses from FWS will be accounted for under the equity method and
reflected as an Investment in Freestone Water Solutions on the balance sheet. As discussed in Note 14, on September 4, 2012, FWS
was dissolved. The receivable has been written off to bad debt expense, as it is deemed uncollectible.
NOTE 4 – ASSET RETIREMENT OBLIGATIONS
The Company’s asset retirement obligations
(“ARO”) represents the estimated present value of the amount Freestone Resources will incur to plug, abandon and remediate
its producing properties at the end of their productive lives, in accordance with applicable state laws. Freestone Resources determines
the ARO on its oil and gas properties by calculating the present value of estimated cash flows related to the liability. The
asset retirement obligations are recorded as current or non-current liabilities based on the estimated timing of the anticipated
cash flows. For the year ended June 30, 2013 and June 30, 2012, Freestone Resources recognized no accretion expense.
The following table presents the changes in the asset retirement
obligations for the year ended June 30, 2013 and 2012.
|
|
2013
|
|
2012
|
Asset retirement obligations beginning period
|
|
$
|
40,915
|
|
|
$
|
24,917
|
|
Accretion expense
|
|
|
0
|
|
|
|
0
|
|
Change in ARO estimate
|
|
|
(418
|
)
|
|
|
22,263
|
|
ARO liability transferred on property sold
|
|
|
0
|
|
|
|
(6,265)
|
|
Asset retirement obligations, end of period
|
|
$
|
40,497
|
|
|
$
|
40,915
|
|
NOTE 5 – INVESTMENT IN AQUEOUS SERVICES, LLC.
On November 16, 2012 the Company formed Aqueous
Services, LLC (“Aqueous”), a Texas limited liability company, with International Aqueous Investments, LLC and Pajarito
W&M, LP. The Company made an initial capital contribution of $100,000 in exchange for a 33.33% interest in the joint venture.
Aqueous is a full water management company with access to a fresh water well that has been permitted to extract up to one thousand
five hundred acre-feet (approximately 500 million gallons) of water per annum. Aqueous constructed and operates a facility to provide
fresh water for oil and gas activities in the Eagle Ford. This site also includes a designated location for the recycling frac
and production water.
The joint venture is accounted for under the
equity method as follows:
Balance 6/30/12
|
|
$
|
0
|
|
|
|
|
|
|
Capital Contributions
|
|
|
115,000
|
|
|
|
|
|
|
Equity in Loss of JV
|
|
|
(5,327
|
)
|
|
|
|
|
|
Balance 6/30/13
|
|
$
|
109,673
|
|
|
|
|
|
|
NOTE 6 – EQUITY
The Company is authorized to issue 100,000,000
common shares at a par value of $0.001 per share. These shares have full voting rights. At June 30, 2013 and 2012, there
were 68,318,177 and 58,364,010, respectively, common shares outstanding.
The Company has not paid a dividend to its
shareholders.
As part of the agreement to form Aqueous Service,
LLC. the Company sold 300,000 shares of common stock to each partner at par value of .001 a share. The Company treated the difference
between the selling price and the fair market value of the stock as consulting expense resulting in a $168,400 expense in the second
quarter
Stock Warrant and Derivative Liability:
The Company also sold each of the JV partners
500,000 warrants to purchase shares of common stock at 80% of the closing price on the exercise date. The warrants vest immediately
and have a three year term from the issuance date. These warrants expire August 15, 2015. The Company accounted for the transaction
using the Black-Scholes option pricing model and given the variable settlement price and cash settlement terms recorded an expense
of $278,273 in the second quarter and $1,352 in the fourth quarter resulting in a derivative liability. All of the derivative instruments
will be accounted for under the fair value method and changes in fair value will be reflected in earnings.
NOTE 7 – INCOME TAXES
The Company has adopted ASC 740-10, which requires
the use of the liability method in the computation of income tax expense and the current and deferred income taxes payable. Freestone
has calculated its tax liability in accordance with Section 382 of the Internal Revenue Code which generally limits the amount
of its income that can be offset by historical losses (NOL carryforwards) once a corporation has undergone an ownership change. Ownership
changed in Freestone on November 1, 2007. The cumulative net operating loss carry-forward that can offset current and/or future
income includes amounts and is approximately $2,576,000. The use of this loss carryforward is limited under Internal
Revenue Code Section 382 due to an ownership change in the fiscal year ended June 30, 2008. The annual limitation is
currently $151,000.
During the year ended June 30, 2013 and 2012,
the Company had a net loss of $1,135,084 and net loss of $497,258, respectively, changing the deferred tax asset by $385,929 and
$169,068 at the statutory tax rate of 34%. All NOLs will expire between 2019 and 2030. The realization of
deferred tax benefits is contingent upon future earnings and is fully reserved at June 30, 2013 and 2012.
Freestone’s net deferred tax amounts are as follows:
|
|
|
|
|
2013
|
|
2012
|
Tax benefit (expense) at statutory rate
|
|
$
|
385,929
|
|
|
|
34
|
%
|
|
$
|
169,068
|
|
|
|
34
|
%
|
Permanent differences
|
|
|
0
|
|
|
|
0
|
%
|
|
|
0
|
|
|
|
0
|
%
|
State income taxes
|
|
|
0
|
|
|
|
0
|
%
|
|
|
0
|
|
|
|
0
|
%
|
Expiration of NOL’s and other
|
|
|
0
|
|
|
|
0
|
%
|
|
|
0
|
|
|
|
|
%
|
|
|
Valuation allowance
|
|
|
385,929
|
|
|
|
(34
|
)%
|
|
|
169,068
|
|
|
|
(34
|
)%
|
Net Tax Provision
|
|
$
|
0
|
|
|
|
0
|
%
|
|
$
|
0
|
|
|
|
0
|
%
|
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant
components of deferred tax assets as of June 30, 2013 and 2012 are as follows:
|
|
2013
|
|
2012
|
|
|
|
|
|
|
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Net operating losses carry forwards
|
|
$
|
1,308,755
|
|
|
$
|
1,139,687
|
|
Current year benefit (expense)
|
|
|
385,929
|
|
|
|
169,068
|
|
Total deferred tax assets
|
|
|
1,694,684
|
|
|
|
1,308,755
|
|
Deferred tax liabilities
|
|
|
0
|
|
|
|
0
|
|
Total deferred tax liabilities
|
|
|
0
|
|
|
|
0
|
|
Net deferred tax asset
|
|
|
1,694,684
|
|
|
|
1,308,755
|
|
Valuation allowance
|
|
|
(1,694,684
|
)
|
|
|
(1,308,755
|
)
|
Deferred tax asset, net
|
|
$
|
0
|
|
|
$
|
0
|
|
NOTE 8 – CONCENTRATION OF REVENUE
During the fiscal year ended June 30, 2013,
100% of revenue from oil and gas sales was generated from one wholesaler. In fiscal year ended June 30,
2012, 100% of revenue from oil and gas sales was generated from one wholesaler.
NOTE 9 – FREESTONE TECHNOLOGIES, LLC
On October 24, 2008, Freestone established
Freestone Technologies, LLC (the “Subsidiary”) in the state of Texas. The Subsidiary is wholly owned by
Freestone and has certain assets and liabilities relating to the purchase of oil wells. These wells were purchased
to be used to test Freestone’s chemical solvents. The assets and liabilities of the Subsidiary are included in
the consolidated financial statements of Freestone. During 2013 the Company wrote off the Oil Field assets of Freestone Tech resulting
in a $3,000 loss.
NOTE 10 – FAIR VALUE MEASUREMENTS
Cash, accounts receivable, accounts payable
and other accrued expenses and other current assets and liabilities are carried at amounts which reasonably approximate their fair
values because of the relatively short maturity of those instruments.
Accounting Standards Codification (“ASC”)
Topic 820, establishes a framework for measuring fair value. That framework provides a fair value hierarchy that prioritizes the
inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices
in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level
3 measurements). The three levels of the fair value hierarchy are described as follows:
Level 1
|
Inputs to the valuation methodology are unadjusted quoted prices
for identical assets or liabilities in active markets that the Company has the ability to access.
|
|
Level 2
|
Inputs to the valuation methodology include:
|
|
|
-
|
quoted prices for similar assets or liabilities in active markets.
|
|
-
|
quoted prices for identical or similar assets or liabilities in inactive markets.
|
|
-
|
inputs other than quoted prices that are observable for the asset or liability.
|
|
-
|
inputs that are derived principally from or corroborated by observable
market data by correlation or other means.
|
|
If the asset or liability has a specified (contractual) term, the
Level 2 input must be observable for substantially the full term of the asset or liability.
|
|
Level 3
|
Inputs to the valuation methodology are unobservable and significant to the fair value measurement.
|
|
|
|
|
|
The asset or liability’s fair value measurement
level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.
Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.
The following table sets forth by level, within
the fair value hierarchy, the Company’s financial assets at fair value as of June 30, 2013 and 2012:
Assets at Fair Value
|
|
|
|
|
Level 1
|
|
|
|
Level 2
|
|
|
|
Level 3
|
|
|
|
Total
|
|
|
June 30, 2013
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
|
$
|
205,767
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
205,767
|
|
|
June 30, 2012
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
|
$
|
147,635
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
147,635
|
|
Asset retirement obligations are recorded based
on the present value of the estimated cost to retire the oil and gas properties and are depleted over the useful life of the asset.
The settlement date fair value is discounted at the Company’s credit adjusted risk-free rate in determining the abandonment
liability. Derivative Liability is calculated using the black scholes method to estimate the Companys future liability for stock
warrants outstanding.
The preceding method described may produce
a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, although
the Company believes its valuation method is appropriate and consistent with other market participants, the use of different methodologies
or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement
at the reporting date. The following table sets forth by level, within the fair value hierarchy, the Company’s liabilities
at fair value as of June 30, 2013and 2012:
Liabilities at Fair
Value
|
|
|
Level 1
|
|
|
|
Level 2
|
|
|
|
Level 3
|
|
|
|
Total
|
|
June 30, 2013:
Asset retirement obligations
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
40,497
|
|
|
$
|
40,497
|
|
Derivative Liability
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
279,625
|
|
|
$
|
279,625
|
|
June 30, 2012:
Asset retirement obligations
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
40,915
|
|
|
$
|
40,915
|
|
Derivative Liability
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
NOTE 11 – COMMITMENTS AND CONTINGENCIES
The Company leases office space under a non-cancelable
operating lease that expires in June 2014. The lease requires fixed escalations and payment of electricity costs.
Rent expense, included in general and administrative expenses, totaled approximately $28,563 and $31,140 for the fiscal years ended
June 30, 2013 and 2012, respectively.
The future minimum rental commitments under
the operating lease are as follows:
Fiscal Year Ending June 30,
|
|
Minimum
Rental Commitments
|
|
2014
|
|
|
$
|
24,112
|
|
|
2015
|
|
|
|
0
|
|
|
2016
|
|
|
|
0
|
|
|
2017
|
|
|
|
0
|
|
|
2018
|
|
|
|
0
|
|
|
Thereafter
|
|
|
|
0
|
|
|
|
|
|
$
|
24,112
|
|
NOTE 12 – IMPAIRMENT OF OIL AND GAS PROPERTIES
During the fiscal years ended June 30, 2013
and June 30, 2012, the Company recorded impairment expense of $0 and $0, respectively, related to its oil and gas property and
equipment.
NOTE 13 – FINANCIAL CONDITION AND GOING CONCERN
The Company has an accumulated deficit through
June 30, 2012 totaling $18,124,458 and recurring losses from operations. Because of this accumulated loss, Freestone
will require additional working capital to develop its business operations. The Company intends to raise additional
working capital either through private placements, public offerings, bank financing and/or shareholder funding. There
are no assurances that Freestone will be able to either (1) achieve a level of revenues adequate to generate sufficient cash flow
from operations; or (2) obtain additional financing through either private placement, public offerings, bank financing and/or shareholder
funding necessary to support their working capital requirements. To the extent that funds generated from any private placements,
public offerings, bank financing and/or shareholder funding are insufficient, Freestone will have to raise additional working capital.
No assurance can be given that additional financing will be available, or if available, will be on terms acceptable to Freestone. If
adequate working capital is not available Freestone may not be able to continue its operations. Management
believes that the efforts it has made to promote its business will continue for the foreseeable future.
These conditions raise substantial doubt about
Freestone’s ability to continue as a going concern. The financial statements do not include any adjustments relating
to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might be
necessary should Freestone be unable to continue as a going concern.
NOTE 14 – RECENT ACCOUNTING PRONOUNCEMENTS
The Company believes that the adoption
of any new pronouncements will not have an impact on its financial statements.
NOTE 15 - SUPPLEMENTAL OIL AND GAS DATA
(UNAUDITED)
The following tables set forth supplementary
disclosures for oil and gas producing activities in accordance with FASB ASC Topic 932,
Extractive Activities - Oil and Gas
(“ASC 932”). The Company generates revenue from the disposal of oil that is extracted during their research and
development activities. Currently, as the Company is in the development stage, 100% of their revenue is generated from the revenue
associated with the disposal. The properties were purchased as test properties for the various technologies the Company is developing
or would analyze for potential development. In order to get the most accurate data of the testing, the Company was required to
purchase and own the wells so the data could be verified as accurate by the Company without the fear of third-party variables.
The wells are marginally to poorly producing wells and it is not economically feasible to perform the work necessary to bring them
up to the condition in order for them to effectively produce. As the wells are not economically feasible to operate in a capacity
other than research and development, and the Company has no intentions to develop the wells, no proved reserves have been estimated.
As the wells are not economically feasible, there is no value assigned to the oil and gas leaseholds and the equipment is recorded
at salvage value.
Costs Incurred
A summary of costs incurred in oil and gas
property acquisition, development, and exploration activities (both capitalized and charged to expense) for the nine months ended
June 30, 2013and 2012, as follows:
|
|
2013
|
|
2012
|
Acquisition of proved properties
|
|
$
|
0
|
|
|
$
|
0
|
|
Acquisition of unproved properties
|
|
$
|
0
|
|
|
$
|
0
|
|
Exploration costs
|
|
$
|
0
|
|
|
$
|
0
|
|
Results of Operations for Producing Activities
The following table presents the results of
operations for the Company’s oil and gas producing activities for the nine months ended June 30, 2013 and 2012:
|
|
2013
|
|
2012
|
Revenues
|
|
$
|
8,983
|
|
|
|
(21,611
|
)
|
|
|
|
|
|
|
|
|
|
Production costs
|
|
|
(14,203
|
)
|
|
|
(21,611
|
)
|
|
|
|
|
|
|
|
|
|
Depletion, depreciation, accretion and valuation provisions
|
|
|
0
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
Exploration costs
|
|
|
0
|
|
|
|
0
|
|
|
|
|
(5,220
|
)
|
|
|
(15,906
|
)
|
Income tax expense
|
|
|
0
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
Results of operations for producing activities (excluding corporate overhead and interest costs)
|
|
$
|
(5,220
|
)
|
|
$
|
15,906
|
)
|
Reserve Quantity Information
The following table presents the Company’s
estimate of its proved oil and gas reserves all of which are located in the United States. The Company emphasizes that reserve
estimates are inherently imprecise and that estimates of reserves related to new discoveries are more imprecise than those for
producing oil and gas properties. Accordingly, the estimates are expected to change as future information becomes available. Oil
reserves, which include condensate and natural gas liquids, are stated in barrels and gas reserves are stated in thousands of cubic
feet.
|
|
Oil
(Bbls)
|
|
Gas
(mcf)
|
Proved developed and undeveloped reserves:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2012
|
|
|
0
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
Production
|
|
|
104.58
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
Revisions of previous estimates
|
|
|
(104.58
|
)
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2013
|
|
|
0
|
|
|
|
0
|
|
Proved developed reserves:
|
|
|
|
|
|
|
|
|
|
June 30, 2011
|
|
|
0
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
June 30, 2012
|
|
|
0
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
June 30, 2013
|
|
|
0
|
|
|
|
0
|
|
NOTE 16 – SUBSEQUENT EVENTS
Since June 30, 2013 the Company has sold 625,000
shares of common stock for $08 per share totaling $50,000. As of the date of this report there are no other reportable subsequent
events.