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 March 31, 2015
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 or organization) |
|
(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 May 15, 2015 there were 75,988,177 shares of Common Stock
of the issuer outstanding.
Freestone Resources, Inc.
Consolidated Balance Sheets
As of March 31, 2015 and June 30, 2014
|
Assets | | |
| |
| | | |
| | |
| |
| (Unaudited) | | |
| | |
| |
| March 31, 2015 | | |
| June 30, 2014 | |
| |
| | | |
| | |
Current Assets: | |
| | | |
| | |
Cash | |
$ | 91,850 | | |
$ | 73,106 | |
Accounts receivable | |
| 1,520 | | |
| 81 | |
Repaid Expenses and Other Assets | |
| 1,875 | | |
| — | |
Total Current Assets | |
| 95,245 | | |
| 73,187 | |
| |
| | | |
| | |
Fixed assets, net of accumulated depreciation of $28,163 and $19,689 | |
| 64,711 | | |
| 48,480 | |
Total fixed assets, net | |
| 64,711 | | |
| 48,480 | |
| |
| | | |
| | |
Investment in Aqueous Services | |
| 14,778 | | |
| 31,000 | |
Other assets | |
| 8,010 | | |
| 3,625 | |
| |
| | | |
| | |
Total Assets | |
$ | 182,744 | | |
$ | 156,292 | |
| |
| | | |
| | |
| |
| | | |
| | |
Liabilities and Stockholders' Equity |
| |
| | | |
| | |
Current Liabilities: | |
| | | |
| | |
Accounts payable | |
$ | 10,796 | | |
$ | 9,320 | |
Accrued expenses | |
| 466 | | |
| 466 | |
Derivative liability - warrants | |
| 59,064 | | |
| 59,819 | |
Total Current Liabilities | |
| 70,326 | | |
| 69,605 | |
| |
| | | |
| | |
| |
| | | |
| | |
Long-term Liabilities: | |
| | | |
| | |
Asset retirement obligations | |
| 14,470 | | |
| 14,470 | |
Total Liabilities | |
| 84,796 | | |
| 84,075 | |
| |
| | | |
| | |
Stockholders' Equity (Deficit): | |
| | | |
| | |
Common stock, $.001 par value, 100,000,000 shares | |
| | | |
| | |
authorized, 75,988,177 and 75,543,177 shares issued | |
| | | |
| | |
and outstanding, respectively | |
| 75,988 | | |
| 73,543 | |
Additional paid in capital | |
| 18,711,241 | | |
| 18,471,686 | |
Accumulated deficit | |
| (18,689,281 | ) | |
| (18,473,012 | ) |
Stockholders' Equity (Deficit) | |
| 97,948 | | |
| 72,217 | |
Total Liabilities and Stockholders’ Equity | |
$ | 182,744 | | |
$ | 156,292 | |
The accompanying notes are an integral part
of these unaudited consolidated financial statements.
Freestone Resources, Inc.
Consolidated Statements of Operations
For the Three and Nine Months Ended March
31, 2015 and 2014
(unaudited) |
| |
Three Months Ended March 31, 2015 | |
Three Months Ended March 31, 2014 | |
Nine Months Ended March 31, 2015 | |
Nine Months Ended March 31, 2014 |
| |
| | | |
| | | |
| | | |
| | |
Revenue: | |
| | | |
| | | |
| | | |
| | |
Oil and gas revenues resulting from research activities | |
$ | 2,723 | | |
$ | 117 | | |
$ | 2,723 | | |
$ | 1,335 | |
Other oil and gas related revenues | |
| | | |
| | __ | |
| | __ | |
| 11,390 | |
Total revenue | |
| 2,723 | | |
| 117 | | |
| 2,723 | | |
| 12,725 | |
| |
| | | |
| | | |
| | | |
| | |
Operating expenses: | |
| | | |
| | | |
| | | |
| | |
Cost of revenue | |
| — | | |
| — | | |
| — | | |
| 5,511 | |
Lease operating costs | |
| 912 | | |
| 2,919 | | |
| 7,410 | | |
| 25,306 | |
Depreciation | |
| 3,233 | | |
| 1,932 | | |
| 10,324 | | |
| 15,987 | |
Stock Based Compensation | |
| — | | |
| 189,800 | | |
| — | | |
| 189,800 | |
Revision to ARO estimate | |
| — | | |
| — | | |
| — | | |
| (26,027 | ) |
(Gain) Loss on Equity Method Investment | |
| 5,506 | | |
| 8,793 | | |
| 16,222 | | |
| 23,076 | |
General and administrative | |
| 72,758 | | |
| 69,167 | | |
| 186,856 | | |
| 229,608 | |
Total operating expenses | |
| 82,409 | | |
| 272,611 | | |
| 220,812 | | |
| 463,261 | |
| |
| | | |
| | | |
| | | |
| | |
Operating loss | |
| (79,686 | ) | |
| (272,494 | ) | |
| (218,089 | ) | |
| (450,536 | ) |
| |
| | | |
| | | |
| | | |
| | |
Other income (expense): | |
| | | |
| | | |
| | | |
| | |
Gain (loss) on change in valuation of derivative liability | |
| 67,172 | | |
| 8,323 | | |
| 756 | | |
| 75,046 | |
| |
| | | |
| | | |
| | | |
| | |
Gain (Loss) on sale of asset | |
| 530 | | |
| — | | |
| 1,064 | | |
| (15,000 | ) |
Other income (expense) | |
| — | | |
| — | | |
| — | | |
| 836 | |
| |
| | | |
| | | |
| | | |
| | |
| |
| | | |
| | | |
| | | |
| | |
Total other income (expense) | |
| 67,702 | | |
| 8,323 | | |
| 1,820 | | |
| 60,882 | |
| |
| | | |
| | | |
| | | |
| | |
Net loss | |
$ | (11,984 | ) | |
$ | (264,171 | ) | |
$ | (216,269 | ) | |
$ | (389,654 | ) |
| |
| | | |
| | | |
| | | |
| | |
| |
| | | |
| | | |
| | | |
| | |
Basic and diluted loss per share | |
$ | (0.00 | ) | |
$ | (0.00 | ) | |
$ | (0.00 | ) | |
$ | (0.01 | ) |
| |
| | | |
| | | |
| | | |
| | |
Weighted average shares outstanding: | |
| | | |
| | | |
| | | |
| | |
Basic and diluted | |
| 74,543,177 | | |
| 68,943,177 | | |
| 74,738,907 | | |
| 68,943,177 | |
The accompanying notes are an integral part
of these unaudited consolidated financial statements.
Freestone Resources, Inc.
Consolidated Statement of Stockholders’
Equity
And the Nine Months Ended March 31, 2015
(Unaudited) |
| |
| |
| |
| |
|
| |
| Common Stock | | |
| Additional
Paid in | | |
| Accumulated | |
| |
| Shares | | |
| Amount | | |
| Capital | | |
| Deficit | | |
| Total | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Balance, June 30, 2014 | |
| 73,543,177 | | |
$ | 73,543 | | |
$ | 18,471,686 | | |
$ | (18,473,012 | ) | |
$ | 72,217 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Common stock issued for cash | |
| 2,445,000 | | |
| 2,445 | | |
| 239,555 | | |
| | | |
| 242,000 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Net loss | |
| | | |
| | | |
| | | |
| (216,269 | ) | |
| (216,269 | ) |
Balance, March 31, 2015 | |
| 75,988,177 | | |
$ | 75,988 | | |
$ | 18,711,241 | | |
$ | (18,689,281 | ) | |
$ | 97,948 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
The accompanying notes are an integral part
of these unaudited consolidated financial statements.
Freestone Resources, Inc.
Consolidated Statements of Cash Flows
Nine Months Ended March 31, 2015 and 2014
(Unaudited) |
| |
Nine Months Ended
March 31, 2015 | |
Nine Months Ended
March 31, 2014 |
| |
| | | |
| | |
CASH FLOWS FROM OPERATING ACTIVITIES: | |
| | | |
| | |
Net income (loss) | |
$ | (216,269 | ) | |
$ | (389,654 | ) |
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | |
| | | |
| | |
Depreciation and amortization | |
| 10,324 | | |
| 15,987 | |
(Gain) loss on change in valuation of derivative liability | |
| (756 | ) | |
| (75,046 | ) |
(Gain) loss on equity method investment | |
| 16,222 | | |
| 23,076 | |
(Gain) loss on sale of asset | |
| (1,064 | ) | |
| 15,000 | |
(Decrease) increase of ARO estimate | |
| — | | |
| (26,027 | ) |
Shares issued for services | |
| — | | |
| 189,800 | |
Changes in operating assets and liabilities: | |
| | | |
| | |
Change in account receivable | |
| (1,439 | ) | |
| (81 | ) |
Change in other assets | |
| (6,260 | ) | |
| 5,285 | |
Change in accounts payable | |
| 1,477 | | |
| (22 | ) |
Change in accrued expenses | |
| — | | |
| (5,318 | ) |
Net cash provided used in operating activities | |
| (197,765 | ) | |
| (247,000 | ) |
| |
| | | |
| | |
CASH FLOWS FROM INVESTING ACTIVITIES: | |
| | | |
| | |
Sale of asset | |
| 3,840 | | |
| 5,000 | |
Purchases of fixed assets | |
| (29,331 | ) | |
| (6,211 | ) |
Net cash used in investing activities | |
| (25,491 | ) | |
| (1,211 | ) |
| |
| | | |
| | |
CASH FLOWS FROM FINANCING ACTIVITES: | |
| | | |
| | |
Proceeds from sale of stock | |
| 242,000 | | |
| 50,000 | |
Stock returned upon settlement of litigation | |
| — | | |
| — | |
Net cash provided by financing activities | |
| 242,000 | | |
| 50,000 | |
| |
| | | |
| | |
NET CHANGE IN CASH | |
| 18,744 | | |
| (198,211 | ) |
CASH AT BEGINNING OF PERIOD | |
| 73,106 | | |
| 205,767 | |
CASH AT END OF PERIOD | |
$ | 91,850 | | |
$ | 7,556 | |
Supplemental cash flow information: | |
| | | |
| | |
Cash paid for interest | |
$ | — | | |
$ | 22 | |
Stock Based Compensation | |
$ | — | | |
$ | 189,800 | |
The accompanying notes are an integral part
of these unaudited consolidated financial statements.
Freestone Resources, Inc.
Notes to Unaudited Consolidated Financial
Statements
March 31, 2015
(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. During the quarter ended
December 31, 2014, the Company has elected to early adopt Accounting Standards Update No. 2014-10, Development Stage Entities (Topic
915): Elimination of Certain Financial Reporting Requirements. The adoption of this ASU allows the Company to remove the inception
to date information and all references to development stage. 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.
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.
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.
NOTE 2 – FIXED ASSETS
Fixed assets at March 31, 2015 and June 30, 2014 are as follows:
|
|
3/31/15 |
|
6/30/14 |
Computers & office furniture |
|
$ |
8,968 |
|
|
$ |
8,968 |
|
Collectable Art Work (not depreciated) |
|
|
13,000 |
|
|
|
13,000 |
|
Oil and gas properties used for research and development |
|
|
70,906 |
|
|
|
46,201 |
|
Total fixed assets |
|
|
92,874 |
|
|
|
68,169 |
|
Less: Accumulated depreciation |
|
|
(28,163 |
) |
|
|
(19,689 |
) |
Total fixed assets, net of accumulated depreciation |
|
$ |
64,711 |
|
|
$ |
48,480 |
|
Depreciation expense was $10,324 and $15,987 for the nine months
ended March 31, 2015 and 2014, respectively.
NOTE 3 – 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 March 31, 2015 and June 30,
2014, there were 75,988,177and 73,543,177 respectively, common shares outstanding. During the nine months ended March 31, 2015
the Company sold 2,445,000 shares for cash proceeds of $242,000.
NOTE 4 – 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:
| |
March 31, 2015 | |
June
30, 2014 |
| |
| | | |
| | |
Beginning Balance | |
$ | 31,000 | | |
$ | 70,000 | |
Capital Contributions | |
| — | | |
| — | |
Equity in Loss of JV | |
| (16,222 | ) | |
| (31,340 | ) |
Impairment of Investment | |
| — | | |
| (7,660 | ) |
Period End Balance | |
$ | 14,778 | | |
$ | 31,000 | |
| |
| | | |
| | |
NOTE 5 – GOING CONCERN
As reflected in the accompanying consolidated
financial statements, Freestone incurred operating losses, and has a negative working capital position as of March 31, 2015. 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 6 – 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 March 31, 2015 and June 30, 2014
were $84,796 and $84,075, respectively.
NOTE 7 – COMMITMENTS AND CONTINGENCIES
The Company leases office space under a non-cancelable
operating lease that expires in July 2018. The lease requires fixed escalations and payment of electricity costs. Rent
expense, included in general and administrative expenses, totaled approximately $19,709 and $19,476 for the Nine months ended March
31, 2015 and 2014 respectively.
NOTE 8- CORRECTION OF AN ERROR
During the preparation of our quarterly report,
we identified an error related to the overstatement of our derivative liability, which is required to be marked-to-market each
reporting period. The error reported in our income statement amounted to $75,046 for the nine months ended March 31, 2014 and $8,323for
the quarter ended March 31, 2014. In addition, the derivative liability was overstated by $219,806 at June 30, 2014.
During the years ended June 30, 2014 and 2013,
we evaluated the investment in Aqueous and recorded an impairment of $7,660 and $39,763, respectively. The impairment was due to
recurring losses incurred by Aqueous from inception. The error reported had no effect on net income for the nine months ended March
31, 2014. At June 30, 2014 the investment in Aqueous Services was overstated by $47,423.
Management evaluated these errors both quantitatively
and qualitatively, and determined that the errors were immaterial to the prior year. Pursuant to the SEC SAB Topic 108, the prior
period numbers have been corrected in this filing.
The following table reflects the impact of the error:
Statement of Operations for the three months ended March 31, 2014: |
| |
|
| |
|
| |
| As reported | |
| |
| Adjustment | | |
As adjusted |
| |
| | |
| |
| | |
Net Operating Income (Loss) | |
$ | (272,494 | ) |
| |
| | | |
$(272,494) |
Total other expense | |
| | |
| |
| 8,323 | | |
8,323 |
Net loss | |
$ | (272,494 | ) |
| |
$ | 8,323 | | |
$(264,171) |
Basic and diluted loss per common share | |
$ | 0.00 | |
| |
$ | 0.00 | | |
$0.00 |
| |
| | |
| |
| | |
Statement of Operations for the nine months ended March 31, 2014:
| |
| |
| | |
| |
| | |
| |
| | |
| |
| As reported | |
| |
| Adjustment | | |
As adjusted |
| |
| | |
| |
| | |
Net Operating Income (Loss) | |
$ | (450,536 | ) |
| |
$ | — | | |
$(450,536) |
Total other expense | |
| (14,164 | ) |
| |
| 75,046 | | |
60,882 |
Net loss | |
$ | (464,700 | ) |
| |
$ | 75,046 | | |
$(389,654) |
Basic and diluted loss per common share | |
$ | 0.00 | |
| |
$ | 0.00 | | |
$0.00 |
Balance Sheet for the year ended June 30, 2014: |
| |
| |
| |
|
| |
| As reported | | |
| Adjustment | | |
| As adjusted | |
| |
| | | |
| | | |
| | |
Total Assets | |
$ | 203,715 | | |
$ | (47,423 | ) | |
$ | 156,292 | |
Derivative liability | |
$ | 279,625 | | |
$ | (219,806 | ) | |
$ | 59,819 | |
| |
| | | |
| | | |
| | |
Total liabilities | |
| 303,881 | | |
| (219,806 | ) | |
| 84,075 | |
Stockholders’ equity | |
| (100,166 | ) | |
| 172,383 | | |
| 72,217 | |
Total Liabilities and Stockholders’ Equity | |
$ | 203,715 | | |
$ | (47,423 | ) | |
$ | 156,292 | |
| |
| | | |
| | | |
| | |
| |
| | | |
| | | |
| | |
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 and nine months Ended March 31, 2014 compared to three
and nine months Ended March 31, 2013
Revenue -
Our revenue for the three months ended March 31, 2015 was $2,723 compared to $117 for the same period in 2014 due to the reversal
of a second quarter sale Revenue for the nine months ended March 31, 2015 was $2,723 compared to $12,725 for the same period in
2014. The decrease was due to a decline in Petrozene™ sales.
Cost of Revenues
– Cost of sales (Petrozene™) for the three months ended March 31, 2015 and 2014
were $0 and $0, respectively. Cost of sales for the nine months ended March 31, 2015 and 2014 were 0 and $5,511, respectively.
The drop in cost is reflective of the drop in sales. The cost is related to purchasing and transporting the product.
Lease Operating Expense - Lease operating
expense for the three months ended March 31, 2014 was $912 compared to $2,919 for the same period in 2015 and $7,410 for the nine
months ended March 31, 2014 compared to $25,306 for the same period in 2014. The decrease is due to the drop in production
activity.
Operating Expense - Total operating
expenses for the three months ended March 31, 2015 were $3,233 of depreciation expense, loss on equity investment of $5,506 and
$72,758 of general and administrative expenses, respectively, compared to $1,932 of depreciation, loss on equity investment of
$8,793, stock compensation of $189,800 and $69,167 of general and administrative expenses for the same period in 2014.
Total operating expenses for the nine months
ended March 31, 2015 were $10,324 of depreciation expense, loss on equity investment of $16,222 and $186,856 of general and administrative
expenses, respectively, compared to $15,987 of depreciation expense, loss on equity investment of $23,076, a gain on the revision
of the ARO liability of $26,027, stock based compensation of $189,800 and $229,608 of general and administrative expenses for the
same period in 2014. The decrease in general and administrative cost was due primarily to a decrease in consulting and payroll
expenses.
Net Income (Loss) - Net loss for the
three months ended March 31, 2015 was $11,984 compared to net loss of $264,171 for the same period in 2014. Net loss
for the nine months ended March 31, 2015 was $216,269 compared to $389,654 for the same period in 2014. The decrease in loss was
primarily due to the no stock compensation in 2015.
Liquidity and Capital Resources
We have little cash reserves and liquidity to the extent we receive
it from operations and from the sale of stock.
Net cash provided by the Company was $18,744
for the nine months ended March 31, 2015 compared to cash used of $198,211 for the same period in 2014. The change was due largely
to the increase in funds from sales of stock. We continue to explore working capital. Our cash balance at March 31,
2015 was $91,850.
Employees
As of March 31, 2015, 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 4: 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 March 31, 2015. 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 March 31, 2014, our Chief Executive and Chief Financial Officer as of March 31, 2015 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:
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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. |
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) The Company filed a Form 8-K on February 11, 2015
related the Company’s decision to change certifying accountants.
(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. |
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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. |
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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. |
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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: May 15, 2015
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: May 15, 2015
/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: May 15, 2015
/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 March 31, 2015 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: May 15, 2015
/s/ Clayton Carter
Name: Clayton Carter
Title: President and Chief Executive Officer
Dated: May 15, 2015
/s/ James F. Carroll
James F. Carroll
Chief Financial Officer