U.S. SECURITIES
AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30,
2014
OR
[ ] TRANSITION
REPORT UNDER SECTION 13 OF 15(d) OF THE EXCHANGE ACT OF 1934
Commission File Number 000-28753
FREESTONE RESOURCES, INC.
(Exact name of small
business issuer as specified in its charter)
Nevada |
|
90-0514308 |
(State or other jurisdiction of incorporation) |
|
(IRS Employer Identification No.) |
Republic Center, Suite 1350
325 N. St. Paul Street Dallas, TX 75201
(Address of principal executive offices)
(214) 880-4870
(Issuer's telephone number)
(Former name, former address and former fiscal
year, if changed since last report)
Indicate by check mark whether the registrant
(1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past
90 days: Yes | X | No | |
Indicate by check mark whether the Registrant
is a large accredited filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions
of “large accredited filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2
of the Exchange Act:
Large Accredited Filer [ ] |
Accelerated Filer [ ] |
|
Non-Accredited Filer [ ] |
Smaller Reporting Company [X] |
|
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act). Yes | | No | X |
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 (SS325.405 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 [ X ] No [ ]
As of November 12, 2014 there were 73,763,177 shares of Common
Stock of the issuer outstanding.
Freestone
Resources, Inc.
Consolidated
Balance Sheets
As
of September 30, 2014 and June 30, 2014
|
Assets | | |
| |
| | | |
| | |
| |
| (Unaudited) | | |
| (Audited) | |
| |
| September 30, 2014 | | |
| June 30, 2014 | |
| |
| | | |
| | |
Current Assets: | |
| | | |
| | |
Cash | |
$ | 10,908 | | |
$ | 73,106 | |
Accounts receivable | |
| 81 | | |
| 81 | |
Deposits and other assets | |
| 5,625 | | |
| — | |
Total Current Assets | |
| 16,615 | | |
| 73,187 | |
| |
| | | |
| | |
Oil and gas properties used for research and development | |
| — | | |
| — | |
Fixed assets, net of accumulated depreciation of $23,210 and $19,689 | |
| 71,639 | | |
| 48,480 | |
Total fixed assets, net | |
| 71,639 | | |
| 48,480 | |
| |
| | | |
| | |
Investment in Aqueous Services, LLC | |
| 73,115 | | |
| 78,423 | |
Other assets | |
| 3,625 | | |
| 3,625 | |
| |
| | | |
| | |
Total Assets | |
$ | 164,994 | | |
$ | 203,715 | |
| |
| | | |
| | |
| |
| | | |
| | |
Liabilities and Stockholders' Equity |
| |
| | | |
| | |
Current Liabilities: | |
| | | |
| | |
Accounts payable | |
$ | 18,233 | | |
$ | 9,320 | |
Accrued expenses | |
| 466 | | |
| 466 | |
Derivative Liability | |
| 279,625 | | |
| 279,625 | |
Stock to be issued | |
| 22,000 | | |
| — | |
Total Current Liabilities | |
| 320,323 | | |
| 289,411 | |
| |
| | | |
| | |
Long-term Liabilities: | |
| | | |
| | |
Asset retirement obligations | |
| 14,470 | | |
| 14,470 | |
Total Liabilities | |
| 334,793 | | |
| 303,881 | |
| |
| | | |
| | |
Stockholders' Equity (Deficit): | |
| | | |
| | |
Common stock, $.001 par value, 100,000,000 shares | |
| | | |
| | |
Authorized 73,543,177 and 73,543,177 shares issued | |
| 73,543 | | |
| 73,543 | |
and outstanding, respectively | |
| | | |
| | |
Additional paid in capital | |
| 18,471,686 | | |
| 18,471,686 | |
Accumulated deficit | |
| (18,715,028 | ) | |
| (18,645,395 | ) |
Stockholders' Equity | |
| (169,799 | ) | |
| (100,166 | ) |
Total Liabilities and Stockholders’ Equity | |
$ | 164,994 | | |
$ | 203,715 | |
The accompanying notes are an integral part
of these consolidated financial statements.
Freestone
Resources, Inc.
Consolidated
Statements of Operations
For
the Three Months Ended September 30, 2014 and 2013
(Unaudited) |
| |
Three Months Ended September 30, 2014 | |
Three Months Ended September 30, 2013 |
Revenue: | |
| |
|
Oil and gas revenues resulting from research activities | |
$ | — | | |
$ | — | |
Other oil and gas related revenues | |
| — | | |
| 6,460 | |
Total revenue from oil and gas activities | |
| — | | |
| 6,460 | |
| |
| | | |
| | |
Operating expenses: | |
| | | |
| | |
Cost of Revenue | |
| — | | |
| 2,925 | |
Lease operating costs | |
| 2,575 | | |
| 56 | |
Depreciation | |
| 3,520 | | |
| 6,874 | |
Stock based compensation | |
| — | | |
| — | |
General and administrative | |
| 58,230 | | |
| 75,359 | |
Total operating expenses | |
| 64,325 | | |
| 85,214 | |
| |
| | | |
| | |
Operating loss | |
| (64,325 | ) | |
| (78,754 | ) |
| |
| | | |
| | |
Other income (expense): | |
| | | |
| | |
Interest income (expense) | |
| — | | |
| — | |
Other income related to the settlement of the EOS litigation | |
| — | | |
| — | |
Other income | |
| — | | |
| 836 | |
Warrant expense | |
| — | | |
| — | |
Revision to ARO estimate | |
| — | | |
| — | |
Loss on Equity Method Investment | |
| (5,308 | ) | |
| (8,357 | ) |
Gain on sale of asset | |
| — | | |
| — | |
Total other income (expense) | |
| (5,308 | ) | |
| (7,521 | ) |
| |
| | | |
| | |
Net income (loss) | |
$ | (69,633 | ) | |
$ | (86,275 | ) |
| |
| | | |
| | |
| |
| | | |
| | |
Basic and diluted loss per share | |
$ | (0.00 | ) | |
$ | (0.00 | ) |
| |
| | | |
| | |
Weighted average shares outstanding: | |
| | | |
| | |
Basic and diluted | |
| 73,543,177 | | |
| 68,820,894 | |
| |
| | | |
| | |
The accompanying notes are an integral part
of these consolidated financial statements.
Freestone
Resources, Inc.
Consolidated
Statement of Stockholders’ Equity
For
the Year Ended June 30, 2014
And
the Three Months Ended September 30, 2014
(Unaudited) |
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
|
|
Paid in |
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
Shares |
|
|
|
Amount |
|
|
|
Capital |
|
|
|
Deficit |
|
|
|
Total |
|
Balance, June 30, 2013 |
|
|
68,318,177 |
|
|
$ |
68,318 |
|
|
$ |
18,117,111 |
|
|
$ |
(18,124,458 |
) |
|
$ |
60,971 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for cash |
|
|
2,625,000 |
|
|
|
2,625 |
|
|
|
167,375 |
|
|
|
— |
|
|
|
170,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for services |
|
|
2,600,000 |
|
|
|
2,600 |
|
|
|
187,200 |
|
|
|
— |
|
|
|
189,800 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(520,937 |
) |
|
|
(520,937) |
|
Balance, June 30, 2014 |
|
|
73,543,177 |
|
|
$ |
73,543 |
|
|
$ |
18,471,686 |
|
|
$ |
(18,645,395 |
) |
|
$ |
(100,166) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for cash |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(69,633 |
) |
|
|
(69,633) |
|
Balance, September 30, 2014 |
|
|
73,543,177 |
|
|
$ |
73,543 |
|
|
$ |
18,471,686 |
|
|
$ |
(18,715,028 |
) |
|
$ |
(169,799) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part
of these consolidated financial statements.
Freestone Resources, Inc.
Consolidated Statements of Cash Flows Three Months Ended September 30, 2014 and 2013 (Unaudited) |
| |
| |
|
| |
| Three Months Ended September 30, 2014 | | |
| Three Months Ended September 30, 2013 | |
CASH FLOWS FROM OPERATING ACTIVITIES: | |
| | | |
| | |
Net loss | |
$ | (69,633 | ) | |
$ | (86,275 | ) |
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | |
| | | |
| | |
Depreciation and amortization | |
| 3,520 | | |
| 6,874 | |
Shares issued for demonstration equipment | |
| — | | |
| — | |
(Gain) loss on equity method investment | |
| 5,308 | | |
| 8,357 | |
(Gain) on sale of investment asset | |
| — | | |
| — | |
Stock based compensation | |
| — | | |
| — | |
Decrease in revision of ARO estimate | |
| — | | |
| — | |
Shares issued for warrants | |
| — | | |
| — | |
Changes in operating assets and liabilities: | |
| | | |
| | |
Write-off in note receivable | |
| — | | |
| — | |
Change in account receivable | |
| — | | |
| — | |
Change in inventory of Petrozene | |
| — | | |
| — | |
Change in other assets | |
| (5,625 | ) | |
| — | |
Change in accounts payable | |
| 8,913 | | |
| (4,172 | ) |
Change in accounts payable – related party | |
| — | | |
| — | |
Change in accrued expenses | |
| — | | |
| 455 | |
Net cash provided by (used in) operating activities | |
| (57,518 | ) | |
| (74,761 | ) |
CASH FLOWS FROM INVESTING ACTIVITIES: | |
| | | |
| | |
Investment in Freestone Water Solutions | |
| — | | |
| — | |
Sale of investment asset | |
| — | | |
| — | |
Purchase of fixed assets | |
| (26,680 | ) | |
| — | |
Net cash used in investing activities | |
| (26,680 | ) | |
| — | |
CASH FLOWS FROM FINANCING ACTIVITIES: | |
| | | |
| | |
Payments on note payable | |
| — | | |
| — | |
Payments on note payables – related party | |
| — | | |
| — | |
Proceeds from sale of stock | |
| — | | |
| 50,000 | |
Stock returned upon settlement of litigation | |
| — | | |
| — | |
Derivative liability | |
| — | | |
| — | |
Stock to be issued | |
| 22,000 | | |
| — | |
Net cash provided by (used in) financing activities | |
| 22,000 | | |
| 50,000 | |
NET CHANGE IN CASH | |
| (62,198 | ) | |
| (24,761 | ) |
CASH AT BEGINNING OF PERIOD | |
| 73,106 | | |
| 205,767 | |
CASH AT END OF PERIOD | |
$ | 10,908 | | |
$ | 181,006 | |
Supplemental cash flow information: | |
| | | |
| | |
Cash paid for interest | |
$ | — | | |
$ | — | |
Non-cash investing activities: | |
| | | |
| | |
Stock returned upon settlement of litigation | |
$ | — | | |
$ | — | |
| |
| | | |
| | |
The accompanying notes are an integral part
of these consolidated financial statements.
Freestone
Resources, Inc.
Notes to Consolidated
Financial Statements
September
30, 2014
(Unaudited)
NOTE 1 – NATURE OF ACTIVITIES AND SIGNIFICANT ACCOUNTING
POLICIES
Nature of Activities, History and Organization:
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. More information about Petrozene™
can be found at http://www.petrozene.com.
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 frack water and produced water. More information about Aqueous Services can be found at http://www.aqueousservices.com.
Development Stage Company
The Company is a development-stage company
as defined in FASB Accounting Standards Codification (“ASC”) 915 “Development Stage Enterprises”. 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 cease any operations of the oil separation technology
licensed by Earth Oil Services, Inc. Instead, the Company began development of its own 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.
Unaudited Interim Financial Statements:
The accompanying unaudited interim consolidated
financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United
States of America and the rules of the Securities and Exchange Commission. These financial statements are unaudited and, in the
opinion of management, include all adjustments (consisting of normal recurring accruals) necessary to present fairly the balance
sheet, statement of operations, statement of stockholders’ equity and statement of cash flows for the periods presented in
accordance with accounting principles generally accepted in the United States. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with accounting principles generally accepted in the United States have
been condensed or omitted pursuant to SEC rules and regulations. It is presumed that users of this interim financial information
have read or have access to the audited financial statements and footnote disclosure for the preceding fiscal year contained in
the Company’s Annual Report on Form 10-K. The results of operations for the three months ended September 30, 2014 are not
necessarily indicative of the results of operations for the full year or any other interim period. The information included
in this Form 10-Q should be read in conjunction with Management's Discussion and Analysis and Financial Statements and notes thereto
included in the Company’s June 30, 2014 Form 10-K.
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.
Basis of Presentation
The Company prepares its financial statements
on the accrual basis of accounting. All intercompany balances and transactions are eliminated. Investments
in subsidiaries, where the Company has a controlling interest, are reported using the equity method. For those businesses
that the Company does not have a controlling interest, they are accounted through the Noncontrolling Interest method. Management
believes that all adjustments necessary for a fair presentation of the results of the three months ended September 30, 2014 and
2013 have been made.
The Company consolidates its subsidiaries in
accordance with ASC 810, “Business Combinations”, 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."
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 flow.
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.
Revenue Recognition:
The Company recognizes revenue from the sale of products in accordance
with ASC 605-15 “Revenue Recognition”. Revenue will be recognized only when all of the following criteria have been
met:
1. Persuasive evidence of an arrangement exists;
2. Ownership and all risks of loss have been transferred to buyer,
which is generally upon shipment;
3. The price is fixed and determinable; and
4. Collectability is reasonably assured.
Revenue is recorded net any of sales taxes charged to customers.
Income Taxes:
The Company has adopted ASC 740-10 “Income Taxes”, which
requires the use of the liability method in the computation of income tax expense and the current and deferred income taxes payable.
Earnings per Share:
Basic earnings (loss) per share are computed
by dividing net income (loss) by the weighted average number of common shares outstanding for the period. Diluted earnings
(loss) per share include the effects of any outstanding options, warrants and other potentially dilutive securities. For
the periods presented, there were no potentially dilutive securities outstanding, therefore basic earnings per share equals diluted
earnings per share.
Fair Value Measurements:
ASC Topic 820, “Fair Value Measurements
and Disclosures”, 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. Any such valuation adjustments are applied consistently over time.
Accounts Receivable:
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 September 30, 2014 and June 30, 2014.
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 its oil enhancement 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, “Accounting
for the Impairment or Disposal of Long-Lived Assets”. 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 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 ARO.
The amounts recognized for 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.
NOTE 2 – FIXED ASSETS
Fixed assets at September 30, 2014 and June
30, 2014 are as follows:
| |
September 30, 2014 | |
June 30, 2014 |
Computers & office furniture | |
$ | 94,849 | | |
$ | 68,169 | |
Oil and gas research and development equipment | |
| 0 | | |
| 0 | |
Total fixed assets | |
| 94,849 | | |
| 68,169 | |
Less: Accumulated depreciation | |
| (23,210 | ) | |
| (19,689 | ) |
Total fixed assets, net of accumulated depreciation | |
$ | 71,639 | | |
$ | 48,480 | |
Depreciation expense was $3,520 for the quarter
ended September 30, 2014 and $6,874 for the quarter ended September 30, 2013.
NOTE 3 – INCOME TAXES
The Company has adopted ASC 740-10, “Income
Taxes”, which requires the use of the liability method in the computation of income tax expense and the current and deferred
income taxes payable (deferred tax liability) or benefit (deferred tax asset). Valuation allowances are established
when necessary to reduce deferred tax assets to the amount expected to be realized.
During the three months ended September
30, 2014 the Company had a net loss of $69,633, increasing the deferred tax asset approximately $23,675 at the statutory tax rate
of 34%. Deferred tax assets at September 30, 2014 and June 30, 2014 consisted of the following:
Deferred tax asset
related to:
| |
September 30, | |
June 30, |
| |
2014 | |
2014 |
Prior Year | |
$ | 1,871,803 | | |
$ | 1,694,684 | |
Tax Benefit (Expense) for Current Period | |
| 23,675 | | |
| 177,119 | |
Net Operating Loss Carryforward | |
$ | 1,895,478 | | |
$ | 1,871,803 | |
Less: Valuation Allowance | |
| (1,895,478 | ) | |
| (1,871,803 | ) |
Net Deferred Tax Asset | |
$ | 0 | | |
$ | 0 | |
The net deferred tax asset generated by the
loss carryforward has been fully reserved and will expire in the years 2019 through 2032. The realization of deferred tax benefits
is contingent upon future earnings and is fully reserved at September 30, 2014 and June 30, 2014.
NOTE 4 – ASSET RETIREMENT OBLIGATION
The Company’s asset retirement obligation
(“ARO”) primarily represents the estimated present value of the amount Freestone Resources will incur to plug, abandon
and remediate sits 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. At September 30, 2014, the liability for ARO was $14,470, all of which is considered long term. The asset retirement
obligations are recorded as current or non-current liabilities based on the estimated timing of the anticipated cash flows. During
2014, the Company has not recognized accretion expense, as the oil and gas properties and recorded at salvage value.
NOTE 5 – COMMITMENTS AND CONTINGENCIES
The Company leases office space under a non-cancelable
operating lease that expires in July 2014. The lease requires fixed escalations and payment of electricity costs. Rent
expense, included in general and administrative expenses, totaled approximately $6,805 and $7,303 for the three months ended September
30, 2014 and 2013 respectively. Future minimum lease payments are as follows:
| Year Ending June 30, |
|
| Amount |
|
| 2015 |
|
$ | 22,605 |
|
| 2016 |
|
| 22,605 |
|
| 2017 |
|
| 22,605 |
|
| Total |
|
$ | 67,815 |
|
NOTE 6 – EQUITY TRANSACTIONS
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 September 30, 2014 and June
30, 2014, respectively, there were 73,543,177 and 73,543,177, common shares outstanding.
During the three months ended September 30,
2014 the Company sold 220,000 shares. The shares were issued subsequent to quarter end and are shown as stocked to be issued at
September 30, 2014.
NOTE 7 – 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 as additional test wells for Petrozene™ and research and development
for subsequent technologies. The assets and liabilities of the Subsidiary are included in the consolidated financial
statements of Freestone.
NOTE 8 – INVESTMENT IN AQUESOUS 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 frack
and production water.
The joint venture is accounted for under the
equity method as follows:
| |
September 30, 2014 | |
June 30, 2014 |
Beginning Balance | |
$ | 78,423 | | |
$ | 109,673 | |
Capital Contributions | |
| 0 | | |
| 0 | |
Equity in Loss of JV | |
| (5,308 | ) | |
| (31,340 | ) |
Period End Balance | |
$ | 73,115 | | |
$ | 78,423 | |
NOTE 9 – GOING CONCERN
As reflected in the accompanying consolidated
financial statements, Freestone incurred operating losses, and has a negative working capital position as of September 30, 2014. The
above factors raise substantial doubt about Freestone's ability to continue as a going concern. Freestone's continued
existence is dependent on its ability to obtain additional equity and/or debt financing to fund its operations. Freestone
plans to raise additional financing and to increase sales volume. There is no assurance that Freestone will obtain additional
financing or achieve profitable operations or cash inflows. The consolidated financial statements do not include any
adjustments relating to the recoverability or classification of recorded asset amounts or the amount and classification of liabilities
that might be necessary as a result of this uncertainty.
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, “Fair Value Measurements and Disclosures”, 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
under ASC 820 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.
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.
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 Company’s liabilities all valued at Level 3, at fair value as of September 30, 2014 and June 30,
2014 were $334,793 and $303,881, respectively.
NOTE 11 – SUBSEQUENT EVENTS
There were no reportable subsequent events that occurred
as of the filing date.
NOTE 13- 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 three months ended
September 30, 2014 and 2013, as follows:
|
|
|
2014 |
|
|
|
2013 |
|
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 three months ended September 30, 2014 and 2013:
|
|
2014 |
|
2013 |
Revenues |
|
$ |
0 |
|
|
$ |
6,460 |
|
Production costs |
|
|
0 |
|
|
|
(2,981 |
) |
Depletion, depreciation, accretion and valuation provisions |
|
|
0 |
|
|
|
0 |
|
Exploration costs |
|
|
0 |
|
|
|
0 |
|
|
|
|
0 |
|
|
|
3,479 |
|
Income tax expense |
|
|
0 |
|
|
|
0 |
|
Results of operations for producing activities (excluding corporate overhead and interest costs) |
|
$ |
0 |
|
|
$ |
3,479 |
|
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, 2013 |
|
|
0 |
|
|
|
0 |
|
Production |
|
|
0 |
|
|
|
0 |
|
Revisions of previous estimates |
|
|
0 |
|
|
|
0 |
|
Balance at September 30, 2014 |
|
|
0 |
|
|
|
0 |
|
Proved developed reserves: |
|
|
|
|
June 30, 2013 |
|
|
0 |
|
|
|
0 |
|
June 30, 2014 |
|
|
0 |
|
|
|
0 |
|
September 30, 2014 |
|
|
0 |
|
|
|
0 |
|
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS
This report contains forward looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934,
as amended. The Company’s actual results could differ materially from those set forth on the forward looking statements as
a result of the risks set forth in the Company’s filings with the Securities and Exchange Commission, general economic conditions,
and changes in the assumptions used in making such forward looking statements.
General
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 that can be used in the environmental cleanup of oil-based contaminant
byproducts.
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.
The Company owns a 33.33% interest in Aqueous
Services, LLC (“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.
Results of Operations
Three months ended September 30, 2014 compared to three months
ended September 30, 2013
Revenue -
Our revenue for the three months ended September 30, 2014 was $0, compared to $6,460 for the same period in 2013. Prior year revenue
was from sales of Petrozene™ that were not realized in 2014.
Cost of Revenue
– Cost of revenues (Petrozene™) were $0 for the three months ended September 30,
2014 versus $2,925 for the same period in 2013. This is the cost related to purchasing and transporting the product and the drop
in cost of sales reflected the drop in sales.
Lease Operating Expense - Lease operating
expense for the three months ended September 30, 2014 was $2,575 compared to $56 for the same period in 2013. The increase
in lease operating expenses is due to maintenance costs.
Operating Expense – Depreciation
expense for the three months ended September 30, 2014 and 2013 was $3,520 and $6,874, respectively. Total operating expenses for
the three months ended September 30, 2014 and 2013 were $58,230 and $75,359 respectively. The decreased costs of $17,129
in the three months ended September 30, 2014 were primarily due to decreases in payroll and consulting expenses.
Net Income (Loss) - Net loss for the
three months ended September 30, 2014 was $69,633 compared to net loss of $86,275 for the same period in 2013. The decrease
is primarily due to a reduction in costs as discussed above.
Liquidity and Capital Resources
As of September 30, 2014 we have little cash
reserves and liquidity to the extent we receive it from operations and from the sale of stock. Net cash used in operations by the
Company was $57,518 for the three months ended September 30, 2014 compared to cash used of $74,761 for the same period in 2013. We
continue to explore options for working capital. Our cash balance at September 30, 2014 was $10,908.
Employees
As of September 30, 2014, Freestone had two employees.
Need for Additional Financing
No commitments to provide additional funds
have been made by management or other stockholders. Our independent auditors included a going concern explanatory paragraph
in their report included in our annual report on Form 10-K for the year ended June 30, 2014, which raises substantial
doubt about our ability to continue as a going concern.
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
Not applicable.
ITEM 4T: 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 September 30, 2014. 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.
Based upon an evaluation conducted for the
period ended September 30, 2014, our Chief Executive and Chief Financial Officer as of September 30, 2014 and as of the date of
this Report, has concluded that as of the end of the periods covered by this report, we have identified the following material
weakness of our internal controls:
● | | Lack of sufficient accounting staff which results in
a lack of segregation of duties necessary for a good system of internal control and financial statement presentation and reliance
upon independent financial reporting consultants for review of critical accounting areas, disclosures and material non-standard
transactions. |
Changes in Internal Controls over Financial Reporting
We have not yet made any changes in our
internal controls over financial reporting that occurred during the period covered by this report on Form 10-Q that has materially
affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II
Items No. 1, 3, 4, 5 - Not Applicable.
Item 6 - Exhibits and Reports on Form 8-K
(a) During the three months ended September 30, 2014
the Company filed no Form 8-Ks.
(b) Exhibits
Exhibit Number
31.1 |
Certification of Chief Executive Officer, pursuant to Rule 13a-14(a) of the Exchange Act, as enacted by Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
31.2 |
Certification of Chief Financial Officer, pursuant to Rule 13a-14(a) of the Exchange Act, as enacted by Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
32.1 |
Certification of Chief Executive Officer and Chief Financial Officer, pursuant to 18 United States Code Section 1350, as enacted by Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
SIGNATURES
In accordance with the requirements 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.
By /s/ Clayton Carter
Clayton Carter, CEO
Date: November 10, 2014
EXHIBIT 31.1
CHIEF EXECUTIVE OFFICER CERTIFICATION
I, Clayton Carter, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Freestone
Resources, Inc.
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying
officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules
13a-15 (e) and 15d-15(e) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))
for the registrant and have:
a) Designed such disclosure
controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control
over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
c) Evaluated the effectiveness
of the registrant’s disclosure controls and procedures and presented in this report our conclusion about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report
any change to the registrant’s internal control over financial reporting that occurred during the registrant’s most
recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an quarterly report) that has materially affected,
or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed,
based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit
committee of registrant’s board of directors (or persons performing the equivalent functions):
a) all significant deficiencies
and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to
adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) any fraud, whether or not
material, that involves management or other employees who have a significant role in the registrant’s internal control over
financial reporting.
Date: November 10, 2014
/s/ Clayton Carter
Clayton Carter
Chief Executive Officer
EXHIBIT 31.2
CHIEF FINANCIAL OFFICER CERTIFICATION
I, James F. Carroll, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Freestone
Resources, Inc.
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying
officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules
13a-15 (e) and 15d-15(e) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))
for the registrant and have:
a) Designed such disclosure
controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control
over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
c) Evaluated the effectiveness
of the registrant’s disclosure controls and procedures and presented in this report our conclusion about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report
any change to the registrant’s internal control over financial reporting that occurred during the registrant’s most
recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an quarterly report) that has materially affected,
or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed,
based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit
committee of registrant’s board of directors (or persons performing the equivalent functions):
a) all significant deficiencies
and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to
adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) any fraud, whether or not
material, that involves management or other employees who have a significant role in the registrant’s internal control over
financial reporting.
Date: November 10, 2014
/s/ James F. Carroll
James F. Carroll
Chief Financial Officer
EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report
of Freestone Resources, Inc. (the “Company”) on Form 10-Q for the period ended September 30, 2014 as filed
with the Securities and Exchange Commission (the “Report”), each of the undersigned, in the capacities and on the
dates indicated below, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that:
1. the
Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. the
information contained in the Report fairly presents, in all material respects, the financial condition and results of operation
of the Company.
Dated: November 10, 2014
/s/ Clayton Carter
Name: Clayton Carter
Title: President and Chief Executive Officer
Dated: November 10, 2014
/s/ James F. Carroll
James F. Carroll
Chief Financial Officer