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 |
For the Fiscal Year Ended June 30, 2015
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXHANGE ACT OF 1934 |
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 |
(State or other jurisdiction of incorporation) |
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(Commission File Number) |
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(IRS Employer Identification No.) |
Republic Center,
Suite 1350
325 N. St. Paul St. Dallas, TX |
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75201 |
(Address of Principal Executive Offices) |
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(Zip Code) |
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. Yeso No þ
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 þ
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 Noo
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
þ Noo
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 |
o |
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Non-Accelerated Filer |
o |
Smaller Reporting Company |
þ |
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act): Yes o No þ
Aggregate market value of the voting stock held by non-affiliates
of the registrant as of June 30, 2015: $11,252,840
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 28, 2015, the Registrant had
86,138,117 shares of common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None
TABLE OF CONTENTS
PART I |
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Item 1. |
Description of Business |
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5 |
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Item 1A. |
Risk Factors |
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7 |
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Item 1B. |
Unresolved Staff Comments |
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7 |
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Item 2. |
Description of Properties |
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Item 3. |
Legal Proceedings |
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7 |
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Item 4. |
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. |
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. |
Selected Financial Data |
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8 |
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Item 7. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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8 |
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Item 7A. |
Quantitative and Qualitative Disclosures about Market Risk |
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11 |
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Item 8. |
Financial Statements and Supplementary Data |
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11 |
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Item 9. |
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
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11 |
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Item 9A. |
Controls and Procedures |
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11 |
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Item 9B. |
Other Information |
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PART III |
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Item 10. |
Directors, Executive Officers and Corporate Governance |
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12 |
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Item 11. |
Executive Compensation |
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14 |
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Item 12. |
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
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14 |
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Item 13. |
Certain Relationship and Related Transactions and Director Independence |
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15 |
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Item 14. |
Principal Accounting Fees and Services |
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15 |
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PART IV |
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Item 15. |
Exhibits and Financial Statement Schedules |
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15 |
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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”), a Nevada corporation, 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 developing a new and improved formula. Petrozene™ is primarily used to dissolve paraffin
buildup, and it is primarily 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 June 24, 2015 Freestone purchased 100% of
the common stock of C.C. Crawford Retreading Company, Inc. (“CTR”), a Texas corporation. CTR is an Off-The-Road (“OTR”)
tire company located in Ennis, Texas, and a wholly owned subsidiary of Freestone. CTR’s primary business is to repair, recycle,
dispose of and sell OTR tires, which are used on large, industrial equipment. Freestone made the decision to purchased CTR in order
to utilize the CTR facility for the production of Petrozene™.
On June 24, 2015 the Company formed Freestone
Dynamis Energy Products, LLC (“FDEP”) with Dynamis Energy, LLC (“Dynamis”). FDEP was formed in order to
operate and manage the specialized pyrolysis process that is used to create Petrozene™ and other byproducts of value. Freestone
chose to work with Dynamis based on their extensive engineering and waste-to-energy expertise. Freestone owns a 70% member interest
in FDEP.
The acquisition of CTR and the formation of
FDEP have allowed Freestone to vertically integrate the Petrozene™ product line. CTR will remain an auxiliary company that
will maintain existing operations that complement the efforts of FDEP and Freestone.
Available Information
The Freestone website is www.freestoneresources.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.
Products and Services
OTR Tire Services
CTR has been involved in the OTR tire business
since 1987. Since its formation, CTR has evolved into a unique company that can handle most of the needs of its customers that
require OTR tire services. These services include:
| · | Specialized OTR tire repair services quickly and efficiently, and
at competitive prices; and |
| · | Disposal services for OTR tires that can no longer be used or repaired;
and |
| · | A substantial inventory of used OTR tires for sale; and |
| · | Recycling OTR tires for alternative uses that prevent them from going
to landfills. |
Petrozene™
Freestone purchased CTR in order to use a specialized
pyrolysis technology. Pyrolysis, by definition, is the decomposition of organic matter in the absence of oxygen. The Company and
FDEP will use this process to convert the OTR tires that have been disposed of into byproducts of value. One of the byproducts
from this process is used in the production of Petrozene™. The use of pyrolysis allows Freestone and CTR to reduce the amount
of tires that would have otherwise been disposed of in landfills.
Customers
CTR provides services to many international
OTR tire dealers. These OTR tire dealers make up a majority of its customer base.
Competition
OTR Tire Services
Several tire processing companies are permitted
in the Dallas/Ft. Worth area, but most of them cannot handle OTR tires due to the size of the OTR tires. CTR has its own trucks,
forklifts and other equipment that are necessary for the management and processing of OTR tires. CTR also has specialized, on-site
shredding equipment to convert the OTR tires into one inch tire pieces that can be sold as a tire derived fuel (“TDF”),
or processed in the specialized pyrolysis technology.
CTR is one of the few tire processing facilities
that provide other services to its customers. These additional services include the sale of used OTR tires and the repair of OTR
tires. CTR’s operations focus on the states of Texas, Oklahoma, Louisiana, New Mexico and Arkansas. Focusing on these specific
states allow CTR to provide some of the fastest repair turnarounds in the industry.
Petrozene™
Many oil and gas service companies and petro-chemical
companies provide a product that competes with Petrozene™. The Company’s advantage is that Petrozene™ is derived
from a readily available waste product, and the pyrolysis process used to create Petrozene™ is extremely cost efficient.
Most of the Company’s competitors use synthetically derived chemicals that are extremely expensive to develop and manufacture.
Research and Development
Freestone and its partners are continuously
evaluating technologies and processes that can convert waste streams into valuable byproducts. Freestone’s main focus has
been the development of byproducts that can be used by the oil and gas industry to increase production and efficiency. The Company’s
research has resulted in the relaunch of Petrozene™, and expanding the ways in which Petrozene™ can be utilized. Freestone’s
partners and customers have provided valuable feedback that has continued to help create a superior product.
Growth Strategy
Freestone is actively pursuing a strategy of
growth through the vertical integration of Petrozene™. The implementation of this strategy allows the Company to reduce variables
that could affect growth, performance and the quality of its products. In addition, Freestone and FDEP are providing CTR with another
recycling option. This means that more tires will be processed each year, and thus will allow CTR to increase its disposal operations.
Government Approval and Environmental Matters
Freestone’s and CTR’s 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.
CTR is registered with the Texas Commission
on Environmental Quality (“TCEQ”) as a transporter and scrap tire facility.
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, CTR and Freestone 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.
Intellectual Property
Freestone is the owner of the Petrozene™
trademark. Freestone does not own any patents at this time.
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 amendment
on April 30th 2014 on this property to extend its lease for a term of three years. CTR is located at 101 W. Ave. D,
Ennis TX 75119 and owns approximately 10.141 acres with three buildings consisting of 32,800 square feet.
ITEM 3. LEGAL PROCEEDINGS
Freestone and CTR are not subject to any material
pending legal proceedings, nor are the companies aware of any material threatened claims against them.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
None.
The Company intends to hold an annual shareholders’
meeting in the third quarter of the fiscal year ending June 30, 2016.
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 2015 and 2014. The prices set forth below represent interdealer quotations,
without retail markup, markdown or commission and may not be reflective of actual transactions.
Fiscal 2015 |
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High |
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Low |
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First Quarter |
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$ |
0.29 |
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$ |
0.10 |
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Second Quarter |
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$ |
0.25 |
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$ |
0.14 |
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Third Quarter |
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$ |
0.20 |
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$ |
0.08 |
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Fourth Quarter |
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$ |
0.17 |
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$ |
0.05 |
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Fiscal 2014 |
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High |
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Low |
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First Quarter |
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$ |
0. 14 |
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$ |
0. 09 |
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Second Quarter |
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$ |
0. 13 |
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$ |
0. 06 |
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Third Quarter |
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$ |
0. 11 |
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$ |
0. 06 |
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Fourth Quarter |
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$ |
0. 09 |
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$ |
0. 06 |
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Shareholders
As of June 30, 2015, there were approximately 251 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 (“Aqueous”) for the purpose of developing a shale oil and gas water management facility in Wilson County, Texas.
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.
On June 24, 2015 the Company entered into a
warrant purchase agreement with Dynamis for 5,000,000 warrants to purchase shares of common stock at 80% of the average closing
bid and sale cost over the previous ten days at exercise date. The warrants vest immediately and have a one year term.
ITEM 6. SELECTED FINANCIAL DATA
As a smaller reporting company we are not required to report selected
financial data disclosures as required by item 301 of Regulation S-K.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
At present, Freestone’s management is
focused on the development and vertical integration of the Petrozene™ product line, and assisting Aqueous with the continued
development of its water management facility. The continued development of Aqueous includes the testing and utilization of technology
that can effectively recycle frack water and produced water, as well as the sale of fresh water for oil and gas exploration and
production purposes. 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
The Company’s 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
Freestone and CTR recognize 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:
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· Persuasive evidence of an arrangement exists; and |
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· Ownership and all risks of loss have been transferred to buyer, which is generally upon delivery; and |
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· The price is fixed and determinable; and |
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· Collectability is reasonably assured. |
The three main sources of revenue are recognized
as follows:
| · | Revenues associated with tire disposals
are recognized upon receipt of the tire by CTR; and |
| · | Revenues associated with tire repairs are
invoiced and recognized upon completion of repair and receipt of the tire by the customer; and |
| · | Revenue associated with used tires and scrap
sales are recognized upon delivery of the product to the customer. |
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.
Results of Operations for the Period from July 1, 2014 to June
25, 2015 (Predecessor) Compared to the Year Ended June 30, 2014 (Predecessor)
Revenues
Revenues for the period from July 1, 2014 to
June 24, 2015 (Predecessor) and year ended June 30, 2014 (Predecessor) were $1,150,020 and $1,232,680, respectively. The decrease
was primarily due to a 70% decrease in used tire sales. Tire disposal revenue increased by 29% over the previous year, and tire
repair revenue increased by 14%. There was no revenue in the Successor period.
Cost of Goods and Gross Profit
The Company’s gross margin remained consistent
at 48%. Cost of sales declined by $52,800. This is reflective in the decline in sales.
Operating Expense
Total operating expenses in the period from
July 1, 2014 to June 24, 2015 (Predecessor) and the year ended June 30, 2014 (Predecessor) were $544,950 and $561,299. Depreciation
decreased from $74,099 to $60,652 and general and administrative expenses decreased from $345,375 to $329,456 while selling cost
increased from $141,825 to $154,842. The Successor period had no operating expenses.
The decrease in depreciation expense is related
to the aging of the Company’s assets base, as well as the equipment becoming fully depreciated.
The decrease of $15,919 in general and administrative
expenses is related to a decrease in personnel and consulting expenses.
The increase in selling cost was due to an
increase in travel and benefit costs.
Other income and expense for the period from
July 1, 2014 to June 24, 2015 (Predecessor) and the year ended June 30, 2014 (Predecessor) consisted of interest expense of $13,474
and $10,530 respectively. The decrease was due to a decrease in the Company’s debt.
Net (Loss) Income
Net loss for period from July 1, 2014 to June
24, 2015 (Predecessor) and the year ended June 30, 2014 (Predecessor) was $20,537. Net income for the year ended June 30, 2014
(Predecessor) was $25,030. The decrease was primarily due to the Company’s decrease in sales. Net gain for the Successor
period was $128,750 consisting of a bargain purchase gain on the acquisition of CTR.
Liquidity and Capital Resources
The Company has little cash reserves and liquidity
to the extent we receive it from operations and through the sale of common stock.
Cash increased by $7,907 from $30,155 at June
30, 2014 (Predecessor) to $38,372 at June 30, 2015 (Successor). The increase was due to the acquisition of CTR by Freestone,
and the inclusion of Freestone’s funds in the consolidated balance sheet as of June 30, 2015.
Net cash provided by operating activities was
$40,337 for the period from July 1, 2014 to June 24, 2015 (Predecessor), compared to net cash provided by operating activities
of $83,004 for the year ended June 30, 2014 (Predecessor). The decrease was due to the decrease in sales and the resulting operating
loss. The Successor period generated no cash from operations.
Employees
As of June 30, 2015 CTR had 12 full time employees.
Freestone’s only employees are its officers.
Need for Additional Financing
The Company is uncertain of its ability to
generate sufficient liquidity from its operations so the need for additional funding may be necessary. The Company may
sell stock and/or issue additional debt to raise capital to accelerate our growth.
Going Concern Uncertainties
The accompanying financial statements are presented
on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course
of business. As of the date of this annual report, there is doubt regarding the Company’s 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.
The Company formed FDEP in order to vertically
integrate its Petrozene™ product line, and utilize a specialized pyrolysis process in order to produce other byproducts of
value that will generate revenue for FDEP. In turn, the ability of FDEP to process large quantities of OTR tires will allow the
Company to increase the amount of OTR tires it can dispose of and process, which will generate additional revenue of the Company.
Additionally, the Company intends to raise equity or debt financing that will allow the Company to expand its current operations.
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. and Subsidiaries, together with the Report of Independent Registered Public Accounting Firm of MaloneBailey, LLP,
appear on pages 17 through 33 of this report.
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, 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 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 (2013 framework) at June 30, 2015. Based
on its evaluation, our management concluded that, as of June 30, 2015, 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 30, 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 66, 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 five years. Prior to his employment at the Company, Mr.
Edwards was self-employed.
James F. Carroll, 59, 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, 2015 and 2014 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, |
|
|
2015 |
|
|
|
56,260 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
56,260 |
|
CEO |
|
|
2014 |
|
|
|
49,580 |
|
|
|
0 |
|
|
|
73,000 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
122,580 |
|
Don Edwards, |
|
|
2015 |
|
|
|
30,500 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
30,500 |
|
CIO |
|
|
2014 |
|
|
|
48,953 |
|
|
|
0 |
|
|
|
73,000 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
121,983 |
|
James Carroll, CFO |
|
|
2015 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
|
2014 |
|
|
|
0 |
|
|
|
0 |
|
|
|
7,300 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
7.300 |
|
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. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED SHAREHOLDER MATTERS
As of September 28, 2015, 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 |
|
Amount Beneficially Owned* |
|
|
Percent of Class |
|
|
|
|
|
|
|
|
Clayton Carter, President, CEO and Director |
|
|
7,605,000 |
|
|
|
8.83 |
% |
|
|
|
|
|
|
|
|
|
James Carroll, Chief Financial Officer and Director |
|
|
2,040,000 |
|
|
|
2.37 |
% |
|
|
|
|
|
|
|
|
|
Don Edwards, Chief Investment Officer and Director |
|
|
6,500,000 |
|
|
|
7.55 |
% |
|
|
|
|
|
|
|
|
|
Gerald M. Johnston, Beneficial Owner |
|
|
12,341,667 |
|
|
|
14.33 |
% |
|
|
|
|
|
|
|
|
|
Directors and Officers as a Group
325 N. St. Paul St.
Suite 1350
Dallas, TX 75201
Gerald M. Johnston
2821 Alliance Place
Suite 1
Springdale, AR 72764
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, 2015 was $25,610, and $28,000 for fees relating to the year ended
June 30, 2014.
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
Consolidated Statements of Operations
Consolidated Statements of Cash Flows
Consolidated Statements of Stockholders’
Equity
Notes to the Consolidated Financial Statements
(b)
Freestone filed the following Exhibits in the year ended June 30, 2015:
On February 17, 2015 Freestone filed an 8-K
to report the Change in Registrant’s Certifying Accountant (incorporated by reference to the Form 8-K filed on February 17,
2015)
On June 29, 2015 Freestone filed an 8-K to report
the Entry into a Material Definitive Agreement and the Unregistered Sales of Equity Securities (incorporated by reference to the
Form 8-K filed on June 29, 2015)
(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 |
|
|
99.1 |
Freestone Financial Statements
(Restated) as originally filed on Form 10-K on September 4, 2014 |
|
|
XBRL |
|
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: October 5, 2015 |
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 |
|
October 5, 2015 |
Clayton Carter |
|
|
|
|
|
|
|
|
|
By: /s/ James Carroll |
|
Chief Financial Officer, Director |
|
October 5, 2015 |
James Carroll |
|
|
|
|
|
|
|
|
|
By: /s/ Don Edwards |
|
Chief Investment Officer, Director |
|
October 5, 2015 |
Don Edwards |
|
|
|
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Board of Directors and Stockholders of
Freestone
Resources, Inc.
Dallas,
Texas
We
have audited the accompanying consolidated balance sheet of Freestone Resources, Inc. and its subsidiaries (collectively the “Company”,
or “Successor”) as of June 30, 2015, and the related consolidated statements of operations, changes in stockholders’
equity, and cash flows for the period from June 25, 2015 through June 30, 2015. We have also audited the accompanying balance
sheet of C. C. Crawford Retreading Co., Inc. (the “Predecessor”) as of June 30, 2014 and the related statements of
operations, changes in stockholders’ equity, and cash flows for the period from July 1, 2014 through June 24, 2015 and for
the year ended June 30, 2014. These consolidated financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform an audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control
over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing
audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness
of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. 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.
In
our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position
of Freestone Resources, Inc. and its subsidiaries as of June 30, 2015 and the results of their operations and their cash flows
for the period from June 25, 2015 through June 30, 2015, in conformity with accounting principles generally accepted in the United
States of America. Further, in our opinion, the Predecessor financial statements referred to above present fairly, in all material
respects, the financial position of C. C. Crawford Retreading Co., Inc. as of June 30, 2014 and results of operations and its
cash flows for the period from July 1, 2014 through June 24, 2015 and for the year ended June 30, 2014, in conformity with accounting
principles generally accepted in the United States of America.
The
accompanying financial statements have been prepared assuming that Freestone Resources, Inc. will continue as a going concern.
As discussed in Note 14 to the financial statements, Freestone Resources, Inc. has not generated sufficient profits and cash flows
to fund our business operations, which raises substantial doubt about its ability to continue as a going concern. Management’s
plans regarding those matters also are described in Note 14. The financial statements do not include any adjustments to reflect
the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities
that may result from the outcome of this uncertainty.
/s/
MaloneBailey, LLP
www.malonebailey.com
Houston,
Texas
October
6, 2015
Freestone Resources Inc. and Subsidiaries |
Consolidated Balance Sheets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
June 30, |
|
|
|
|
|
|
|
|
|
2015 |
|
|
2014 |
|
|
|
|
|
|
|
|
|
Successor |
|
|
Predecessor |
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets |
|
|
|
|
|
|
|
|
|
|
|
Cash |
|
|
|
|
|
$ |
38,372 |
|
$ |
30,465 |
|
Accounts receivable |
|
|
|
|
|
98,208 |
|
|
123,889 |
|
Inventory |
|
|
|
|
|
|
122,000 |
|
|
26,544 |
|
Prepaid and Other Assets |
|
|
|
|
|
51,151 |
|
|
48,473 |
|
|
Total Current Assets |
|
|
|
|
|
309,731 |
|
|
229,371 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net of accumulated depreciation of |
|
|
|
|
|
|
|
$16,564 and $727,102 |
|
|
|
|
|
1,665,430 |
|
|
652,920 |
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS |
|
|
|
|
|
$ |
1,975,161 |
|
$ |
882,291 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities |
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities |
|
|
$ |
124,046 |
|
$ |
75,579 |
|
Accrued bonus payable |
|
|
|
|
|
- |
|
|
264,964 |
|
Environmental liability |
|
|
|
|
|
32,000 |
|
|
320,000 |
|
Current portion of long term debt |
|
|
|
|
56,051 |
|
|
52,577 |
|
|
Total Current Liabilities |
|
|
|
|
|
212,097 |
|
|
713,120 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Retirement Obligation |
|
|
|
|
|
14,470 |
|
|
|
Long term debt, less current portion |
|
|
|
|
1,104,913 |
|
|
140,964 |
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES |
|
|
|
|
|
1,331,480 |
|
|
854,084 |
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS' EQUITY |
|
|
|
|
|
|
|
|
|
|
Common stock, $.001 par value, 100,000,000 shares authorized, |
|
|
|
|
|
|
|
|
81,088,177 shares issued and outstanding |
|
|
|
81,088 |
|
|
|
|
Common stock, $10 par value, 100,000 shares authorized |
|
|
|
|
|
|
|
|
and outstanding |
|
|
|
|
|
|
|
|
1,000,000 |
|
Additional paid in capital |
|
|
|
|
|
19,488,278 |
|
|
(557,816) |
|
Accumulated deficit |
|
|
|
|
|
(18,925,985) |
|
|
(413,977) |
|
|
|
|
|
|
|
|
|
643,381 |
|
|
28,207 |
|
Non-Controlling Interest |
|
|
|
|
|
300 |
|
|
- |
|
|
|
|
|
|
|
|
|
643,681 |
|
|
28,207 |
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY |
|
|
$ |
1,975,161 |
|
$ |
882,291 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Accompanying Notes Are An Integral Part of These Consolidated Financial Statements |
Freestone Resources Inc. and Subsidiaries |
Consolidated Statements of Operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 25, 2015 |
|
|
July 1, 2014 |
|
Year Ended |
|
|
|
|
|
|
|
to June 30, |
|
|
to June 24, |
|
June 30, |
|
|
|
|
|
|
|
2015 |
|
|
2015 |
|
2014 |
|
|
|
|
|
|
|
Successor (A) |
|
|
Predecessor (A) |
|
Predecessor |
|
|
|
|
|
|
|
|
|
|
|
|
|
REVENUE |
|
|
|
|
|
|
|
|
|
|
|
Tipping Fee Revenue |
|
|
$ |
- |
|
$ |
463,537 |
$ |
358,946 |
|
Tire Repair Revenue |
|
|
|
- |
|
|
432,039 |
|
377,459 |
|
Used Tire Sales |
|
|
|
- |
|
|
161,445 |
|
415,395 |
|
Scrap Material Sales |
|
|
|
- |
|
|
57,999 |
|
80,880 |
|
|
Total Revenue |
|
|
|
- |
|
|
1,115,020 |
|
1,232,680 |
|
|
|
|
|
|
|
|
|
|
|
|
|
COSTS OF REVENUE |
|
|
|
|
|
|
|
|
|
|
Tipping Fee Operations |
|
|
|
- |
|
|
255,345 |
|
278,786 |
|
Tire Repair and Sales |
|
|
|
- |
|
|
163,011 |
|
207,924 |
|
Tire Disposal |
|
|
|
|
- |
|
|
161,721 |
|
146,167 |
|
|
Total Cost of Revenue |
|
|
|
- |
|
|
580,077 |
|
632,877 |
|
|
|
|
|
|
|
|
|
|
|
|
|
GROSS PROFIT |
|
|
|
|
- |
|
|
534,943 |
|
599,803 |
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES |
|
|
|
|
|
|
|
|
|
|
Selling |
|
|
|
|
- |
|
|
154,842 |
|
141,825 |
|
General and Administrative |
|
|
- |
|
|
329,456 |
|
345,375 |
|
Depreciation and Amortization |
|
|
- |
|
|
60,652 |
|
74,099 |
|
|
Total Operating Expense |
|
|
- |
|
|
544,950 |
|
561,299 |
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) FROM OPERATIONS |
|
|
- |
|
|
(10,007) |
|
38,504 |
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSES) |
|
|
|
|
|
|
|
|
|
Bargain Purchase Gain |
|
|
|
128,750 |
|
|
- |
|
- |
|
Interest Expense, net |
|
|
|
|
|
|
(10,530) |
|
(13,474) |
|
|
|
|
|
|
|
128,750 |
|
|
(10,530) |
|
(13,474) |
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) BEFORE TAXES |
|
|
128,750 |
|
|
(20,537) |
|
25,030 |
|
|
|
|
|
|
|
|
|
|
|
|
|
PROVISION FOR INCOME TAXES |
|
|
- |
|
|
- |
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME(LOSS) |
|
|
$ |
128,750 |
|
$ |
(20,537) |
$ |
25,030 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted income (loss) per share |
|
|
|
|
|
|
|
|
|
Net income (loss) per share |
|
$ |
0.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding |
|
81,088,177 |
|
|
|
|
|
|
|
Basic and diluted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(A) The acquisition of C.C. Crawford Retreading Co., Inc. by Freestone Resources Inc. closed on June 24, 2015. |
|
(See Note 3 to the consolidated financial Statements) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Accompanying Notes Are An Integral Part of These Consolidated Financial Statements |
Freestone
Resources Inc. and Subsidiaries | |
|
Statement
of Changes in Stockholders' Equity | |
|
| |
| |
|
| |
| |
Non | |
|
| |
Common
Stock | |
Paid-In | |
Accumulated | |
Controlling | |
|
| |
Shares | |
Amount | |
Capital | |
Deficit | |
Interest | |
Totals |
Predecessor | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Balance, June 30, 2013 | |
| 100,000 | | |
$ | 1,000,000 | | |
$ | (557,816 | ) | |
$ | (439,007 | ) | |
$ | — | | |
$ | 3,177 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net Income | |
| | | |
| | | |
| | | |
| 25,030 | | |
| | | |
| 25,030 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Balance, June 30, 2014 | |
| 100,000 | | |
| 1,000,000 | | |
| (557,816 | ) | |
| (413,977 | ) | |
| | | |
| 28,207 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net Loss | |
| | | |
| | | |
| | | |
| (20,537 | ) | |
| | | |
| (20,537 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Balance, June
24, 2015 (A) | |
| 100,000 | | |
$ | 1,000,000 | | |
$ | (557,816 | ) | |
$ | (434,514 | ) | |
$ | — | | |
$ | 7,670 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| |
| | | |
| | | |
| | |
| |
| Common
Stock | |
| Paid-In | | |
| Accumulated
| | |
| Non
Controlling | |
| |
| Shares | | |
| Amount | | |
| Capital | | |
| Deficit | | |
| Interest | | |
| Totals | |
Successor (A) | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Balance, June 25, 2015 | |
| 76,088,177 | | |
$ | 76,088 | | |
$ | 18,993,278 | | |
$ | (19,054,735 | ) | |
$ | — | | |
$ | 14,631 | |
Common
Stock Issued | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
to
fund CTR Downpayment | |
| 5,000,000 | | |
| 5,000 | | |
| 495,000 | | |
| | | |
| | | |
| 500,000 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Sale
of Membership Interest | |
| | | |
| | | |
| | | |
| | | |
| 300 | | |
| 300 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Bargain
Purchase Gain | |
| | | |
| | | |
| | | |
| 128,750 | | |
| | | |
| 128,750 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Balance, June
30, 2015 | |
| 81,088,177 | | |
$ | 81,088 | | |
$ | 19,488,278 | | |
$ | (18,925,985 | ) | |
$ | 300 | | |
$ | 643,681 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
(A)
The acquisition of C.C. Crawford Retreading Co., Inc. by Freestone Resources Inc. closed on June 24, 2015. |
(See
Note 3 to the consolidated financial Statements) |
The
Accompanying Notes Are An Integral Part of These Consolidated Financial Statements
Freestone Resources Inc. and Subsidiaries |
Consolidated Statements of Cash Flow |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 25, 2015 |
|
|
July 1, 2014 |
|
Year Ended |
|
|
|
|
|
|
|
|
to June 30, |
|
|
to June 24, |
|
June 30, |
|
|
|
|
|
|
|
|
2015 |
|
|
2015 |
|
2014 |
|
|
|
|
|
|
|
|
Successor (A) |
|
|
Predecessor (A) |
|
Predecessor |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOW FROM OPERATING ACTIVITIES |
|
|
|
|
|
|
|
|
|
Net Income (Loss) |
|
|
|
$ |
128,750 |
|
$ |
(20,537) |
$ |
25,030 |
|
Adjustments to reconcile net income (loss) to net cash provided |
|
|
|
|
|
|
|
by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation |
|
|
|
|
- |
|
|
60,652 |
|
74,099 |
|
|
Loss on Disposal of Assets |
|
|
|
- |
|
|
- |
|
510 |
|
|
Bargain Purchase Gain |
|
|
|
|
(128,750) |
|
|
- |
|
- |
|
Changes in operating assets and liabilities |
|
|
|
|
|
|
|
|
|
|
Decrease in Accounts Receivable |
|
|
|
- |
|
|
25,981 |
|
3,086 |
|
|
Decrease in Inventory |
|
|
|
|
- |
|
|
1,968 |
|
18,807 |
|
|
Increase in Prepaid Expenses |
|
|
|
- |
|
|
(527) |
|
(19,342) |
|
|
Increase (Decrease) in Accounts Payable and Accrued Liabilities |
- |
|
|
27,800 |
|
(14,186) |
|
|
Decrease in Accrued Bonus Payable |
|
|
- |
|
|
(55,000) |
|
(5,000) |
Net Cash Provided by Operating Activities |
|
|
- |
|
|
40,337 |
|
83,004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOW FROM INVESTING ACTIVITIES |
|
|
|
|
|
|
|
|
|
Cash received in CTR Acquisition |
|
|
|
18,225 |
|
|
|
|
|
|
Purchase of Fixed Assets |
|
|
|
|
- |
|
|
- |
|
(19,339) |
Net Cash Used in Investing Activities |
|
|
|
18,225 |
|
|
- |
|
(19,339) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOW FROM FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
|
Repayment of Debt |
|
|
|
|
- |
|
|
(52,577) |
|
(55,577) |
Net Cash Used In Financing Activities |
|
|
|
- |
|
|
(52,577) |
|
(55,577) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Decrease in Cash |
|
|
|
|
18,225 |
|
|
(12,240) |
|
8,088 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash at Beginning of the Period |
|
|
|
20,147 |
|
|
30,465 |
|
22,377 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash at the End of the Period |
|
|
|
$ |
38,372 |
|
$ |
18,225 |
$ |
30,465 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Transactions |
|
|
|
|
|
|
|
|
|
|
|
Total Amount of Interest Paid in Cash |
|
|
$ |
- |
|
$ |
10,802 |
$ |
14,546 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Income Taxes Paid in Cash |
|
|
$ |
- |
|
$ |
- |
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non Cash financing and Investing Activities |
|
|
|
|
|
|
|
|
|
Note Payable for Purchase of Vehicle |
|
|
$ |
- |
|
$ |
- |
$ |
15,114 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade in of Vehicle and Note Payoff |
|
|
$ |
- |
|
$ |
- |
$ |
5,942 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note Payable for Acquisition of CTR |
|
|
$ |
1,020,000 |
|
$ |
- |
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Issued to fund down payment of |
|
|
|
|
|
|
|
|
|
|
|
CTR Purchase |
|
|
|
$ |
500,000 |
|
$ |
- |
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(A) The acquisition of C.C. Crawford Retreading Co., Inc. by Freestone Resources Inc. closed on June 24, 2015. |
|
(See Note 3 to the consolidated financial Statements) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Accompanying Notes Are An Integral Part of These Consolidated Financial Statements |
Freestone
Resources Inc. and Subsidiaries
Notes
to Financial Statements
June
30, 2015 and 2014
NOTE
1 – NATURE OF ACTIVITIES AND CONTINUANCE OF BUSINESS
Freestone
Resources, Inc. and subsidiaries (“Freestone” or collectively the “Company”) are 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
subsidiaries consist of C.C. Crawford Retreading Company, Inc., Freestone Technologies, LLC and Freestone Dynamis Energy Products,
LLC.
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.
C.C.
Crawford Retreading Company, Inc. (“CTR”) is an Off-The-Road (“OTR”) tire company located in Ennis, Texas
and incorporated under the laws of the State of Texas. CTR’s primary business is to repair, recycle, dispose of and sell
OTR tires, which are used on large, industrial equipment.
Freestone
Dynamis Energy Products, LLC (“FDEP”) is a joint venture between Dynamis Energy, LLC and the Company. FDEP was established
to pursue the production and marketing of Petrozene™. FDEP’s initial operations will utilize a specialized pyrolysis
technology in order to process CTR’s feedstock, and begin large scale production of Petrozene™. Freestone owns 70%
of FDEP.
Freestone
Technology, LLC. is an inactive subsidiary.
NOTE
2 – 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. The accompanying consolidated
financial statements include the accounts of the Company and its subsidiaries, all of which have a fiscal year end of June 30.
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, "[t]he 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."
Predecessor
Accounting:
On
June 24, 2015 Freestone acquired 100% of the outstanding common stock of CTR. The results of operations and cash flows from June
24, 2015 (the date of acquisition) through June 30, 2015 are considered immaterial.. The allocation of the purchase price and
the estimated fair value of the assets acquired and liabilities assumed are presented as of that date. (See Note 3) The operations
of Freestone were insignificant in comparison to CTR, so the consolidated financial statements included herein are presented for
the fiscal year ended June 30, 2014 and for the period from July 1, 2014 to June 24, 2015 are presented under predecessor entity
reporting wherein the prior historical information consists solely of CTR’s balance sheet and results of operations and
cash flows. The consolidated financial statements as of June 30, 2015 and for the period from June 25, 2015 through June 30, 2015
are presented under successor entity reporting. Because the results of operations and cash flows from June 24, 2015 (the date
of acquisition) through June 30, 2015 are immaterial, they have been included in the predecessor period for reporting purposes.
Accordingly, only transactions directly associated with the purchase of CTR are included in the successor period.
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.
Cash:
Cash
and cash equivalents include cash in banks and short term investments with original maturities of three months or less. 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. At June 30, 2015, none of the Company’s
cash was in excess of federally insured limits.
Revenue
Recognition:
CTR
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; and |
|
·
Ownership and all risks of loss have been transferred to buyer, which is generally upon delivery; and |
|
·
The price is fixed and determinable; and |
|
·
Collectability is reasonably assured. |
The
three main sources of revenue are recognized as follows:
| · | Revenues
associated with tire disposals are recognized upon receipt of the tire by CTR; and |
| · | Revenues
associated with tire repairs are invoiced and recognized upon completion of repair and
receipt of the tire by the customer; and |
| · | Revenue
associated with used tires and scrap sales are recognized upon delivery of the product
to the customer. |
| · | Revenue
associated with sales of Petrozene is recognize upon delivery to the customer. |
Accounts
Receivable:
Accounts
Receivable consists of accrued OTR tire repair, disposal, recycling and used tire sales receivables due from customers and are
unsecured. The receivables are generally unsecured and such amounts are generally due within 30 to 45 days after the date
of the invoice. Accounts Receivable are carried at their face amount, less an allowance for doubtful accounts.
CTR’s policy is generally not to charge interest on 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. CTR had no bad debt accruals at June 30, 2015 and 2014.
Inventory:
Inventory
of the predecessor company is carried at lower of cost or market. At acquisition the Company’s inventory was revalued at
fair market value as part of the purchase price allocation. The Company’s inventory consists of processed rubber from disposed
tires carried at cost of processing, and used tires for sale carried at the cost of repairs. As of June 30, 2015 and June 30,
2014 inventory consisted of:
|
|
2015
Successor |
|
2014
Predecessor |
Crum Rubber for Processing |
$ |
10,246 |
$ |
10,121 |
Used Tire for Resale |
|
111,754 |
|
16,423 |
|
$ |
122,000 |
$ |
26,544 |
Property,
Plant and Equipment:
Property,
Plant and Equipment are carried at the cost of acquisition or construction, and are depreciated over the estimated useful lives
of the assets. Assets acquired in a business combination are stated at estimated fair value. Costs associated with repair and
maintenance are expensed as they are 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 in operating income. Depreciation and amortization are provided using
the straight-line and accelerated methods over the estimated useful lives of the assets as follows:
|
Buildings and Improvements |
|
10 - 39 Years |
|
Machinery and Equipment |
|
7 Years |
|
Automotive Equipment |
|
5-7 Years |
|
Office Furniture & Equipment |
|
5 Years |
|
Collectable Art Work |
|
Not Depreciated |
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 undiscounted 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’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 2015 and 2014, 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.
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 stock granted 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.
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 Company’s credit worthiness, among other things, as well as unobservable
parameters.
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.
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
3 - ACQUISITION OF C.C. CRAWFORD RETREADING CO., INC.
On
June 24, 2015 the Company acquired 100% of the outstanding common stock of C.C. Crawford Retreading Co., Inc., a privately held
company, for an aggregate price of $1,520,000. Terms of the purchase were $500,000 cash at closing and a note payable to the seller
for $1,020,000. The cssh down payments was paid direct to a seller by a third party form sale of stock proceeds as discussed in
note 10. The Company estimated the fair value of assets acquired net of liabilities assumed to be $1,648,750 resulting in a bargain
purchase gain of $128,750. The operations of Freestone were insignificant in comparison to CTR, so the consolidated financial
statements included herein are presented for the fiscal year ended June 30, 2014 and for the period from July 1, 2014 to June
24, 2015 are presented under predecessor entity reporting wherein the prior historical information consists solely of CTR’s
balance sheet and results of operations and cash flows. The consolidated financial statements as of June 30, 2015 and for the
period from June 25, 2015 through June 30, 2015 are presented under successor entity reporting. Because the results of operations
and cash flows from June 24, 2015 (the date of acquisition) through June 30, 2015 are immaterial, they have been included in the
predecessor period for reporting purposes. Accordingly, only transactions directly associated with the purchase of CTR are included
in the successor period.
The
allocation of the purchase price and the estimated fair market value of the assets acquired and liabilities assumed are shown
below:
Acquired assets: | |
|
| |
|
Current
assets | |
| | |
Cash | |
$ | 18,225 | |
Accounts receivable | |
| 97,908 | |
Inventory | |
| 122,000 | |
Prepaid
Expenses | |
| 49,000 | |
Total
Current Assets | |
| 287,133 | |
| |
| | |
Property,
Plant and Equipment | |
| | |
Land | |
| 360,000 | |
Buildings
and improvements | |
| 700,000 | |
Automotive
equipment | |
| 78,100 | |
Machinery
and equipment | |
| 499,860 | |
Total
PP&E | |
| 1,637,960 | |
| |
| | |
Total
acquired assets | |
| 1,925,093 | |
| |
| | |
Assumed
liabilities | |
| | |
| |
| | |
Current
liabilities | |
| | |
Accounts
payable | |
| (103,379 | ) |
Environmental
liability | |
| (32,000 | ) |
Current
portion of long term debt | |
| (56,051 | ) |
| |
| (191,430 | ) |
| |
| | |
Long
Term Debt | |
| (84,913 | ) |
| |
| | |
Total
assumed liabilities | |
| (276,343 | ) |
| |
| | |
Net
Assets Acquired | |
| 1,648,750 | |
Purchase
Price | |
| 1,520,000 | |
Bargain
Purchase Gain | |
$ | 128,750 | |
Unaudited
pro forma results of operations data for the fiscal years ending June 30, 2015 and 2014 as if the Company’s had been combined
as of July 1, 214 and July 1, 2013, respectively, follow. The pro forma results include estimates and assumptions which management
believes are reasonable. However pro form results do not include any anticipated cost savings or other effects of the planned
integration of these entities, and are not necessarily indicative of the results that would have occurred if the business combination
had been in effect on the dates indicated or which may result in the future.
FREESTONE
RESOURCES, INC. |
UNAUDITED
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS |
| |
| |
|
| |
| Year
Ended | |
| |
| 6/30/2015 | | |
| 6/30/2014 | |
| |
| | | |
| | |
REVENUE | |
| | | |
| | |
Tipping
Fee Revenue | |
$ | 463,537 | | |
$ | 358,946 | |
Tire
Repair Revenue | |
| 432,039 | | |
| 377,459 | |
Used
Tire Sales | |
| 161,445 | | |
| 415,395 | |
Oil
& Gas Revenue | |
| 2,723 | | |
| 12,758 | |
Scrap
Material Sales | |
| 57,999 | | |
| 80,880 | |
Total
Revenue | |
| 1,117,743 | | |
| 1,245,438 | |
| |
| | | |
| | |
COSTS
OF REVENUE | |
| | | |
| | |
Tipping
Fee Operations | |
| 255,345 | | |
| 278,786 | |
Tire
Repair and Sales | |
| 163,011 | | |
| 207,924 | |
Tire
Disposal | |
| 161,721 | | |
| 146,167 | |
Cost
of Petrozine | |
| — | | |
| 5,511 | |
Total
Cost of Revenue | |
| 580,077 | | |
| 638,388 | |
| |
| | | |
| | |
GROSS
PROFIT | |
| 537,666 | | |
| 607,050 | |
| |
| | | |
| | |
OPERATING
EXPENSES | |
| | | |
| | |
Lease
Operating Cost | |
| 33,563 | | |
| 43,492 | |
Loss
on Equity Method Investment | |
| | | |
| 14,283 | |
Impairment
of Equity method Investment | |
| | | |
| 95,480 | |
Impairment
of Oil and Gas Investment | |
| | | |
| 12,575 | |
Selling | |
| 154,842 | | |
| 141,825 | |
General
and Administrative | |
| 590,060 | | |
| 823,661 | |
Depreciation
and Amortization | |
| 60,652 | | |
| 88,154 | |
Gain
on Sale of Asset | |
| (1,064 | ) | |
| (11,027 | ) |
Total
Operating Expense | |
| 838,053 | | |
| 1,208,443 | |
| |
| | | |
| | |
INCOME
(LOSS) FROM OPERATIONS | |
| (300,387 | ) | |
| (601,393 | ) |
| |
| | | |
| | |
OTHER
EXPENSES | |
| | | |
| | |
Interest
Expense, net | |
| (10,530 | ) | |
| (13,474 | ) |
| |
| (10,530 | ) | |
| (13,474 | ) |
| |
| | | |
| | |
INCOME
(LOSS) BEFORE TAXES | |
| (310,917 | ) | |
| (614,867 | ) |
| |
| | | |
| | |
PROVISION
FOR INCOME TAXES | |
| — | | |
| — | |
| |
| | | |
| | |
NET
INCOME(LOSS) | |
$ | (310,917 | ) | |
$ | (614,867 | ) |
NOTE
4 - FORMATION OF FREESTONE DYNAMIS ENERGY PRODUCTS, LLC.
On
June 24, 2015 the Company entered into an agreement with Dynamis in order to form the joint venture FDEP, a Delaware limited liability
company. Freestone determined to enter into a joint venture with Dynamis based on their track record and experience in the waste-to-energy
industry, and their ability to provide the necessary funding to fully integrate the production, marketing and sale of Petrozene™
to current and future customers. The terms of the joint venture between the Company and Dynamis are as follows:
| · | Freestone
owns a 70% member interest in FDEP for licensing the rights to use Petrozene™ to
FDEP; and |
| · | Dynamis
owns a 30% member interest FDEP in exchange providing funding up to $5,000,000 to operate
the joint venture, and purchase a continuous-feed pyrolysis machine capable of producing
a product that can be used to produce Petrozene™; and |
| · | FDEP
will be leasing employees from CTR, and said employees will operate the machine. FDEP
will reimburse CTR for the leased employees; and |
| · | FDEP
has the right, but not the obligation to purchase CTR from Freestone through cash compensation
to Freestone, the issuance of additional units in FDEP to Freestone or a combination
of both cash and units in FDEP as mutually agreed upon by FDEP and Freestone; and |
| · | FDEP
will lease a building from CTR in order to operate the specialized pyrolysis technology
for payment of either the ad valorem taxes associated with the rented property or $1,000
per month depending on which amount is the greater of the two; and |
| · | Dynamis
will receive 80% of the distributions from FDEP until they have reached a 25% initial
rate of return on funds invested into the joint venture. Once the 25% initial rate of
return threshold is meet all distributions from FDEP will be split according to the 70
/ 30 member interest of FDEP owned by the Company and Dynamis. |
On
June 24, 2015 FDEP simultaneously entered into a lease agreement with a company that has developed a continuous-feed pyrolysis
technology that will be operated by FDEP at the Company’s facility in Ennis, Texas. FDEP and the company that developed
the pyrolysis technology will split the revenues generated from the machine. FDEP will receive 70% of the revenues generated from
the machine, and the company providing the continuous-feed pyrolysis technology will receive 30% of the revenues. This revenue
split will remain in place so long as the machine is operating at the Company’s facility in Ennis, Texas. The agreement
between the two companies allows FDEP the opportunity to ensure that the technology continues to operate properly under the strict
conditions that are necessary to produce Petrozene™. If the leased pyrolysis machine operates within certain, predefined
parameters then FDEP has the right to purchase additional machines.
NOTE
5 – ACCOUNTS RECEIVABLE AND CONCENTRATION OF CREDIT RISK
At
June 30, 2015 and 2014 two customers made up 53% and one customer made up 50% of the company’s outstanding accounts receivable
balance, respectively. For the years ending June 30, 2015 and 2014 one customer accounted for 49% and two customers accounted
for 65% of the Company’s net revenue, respectively.
NOTE
6 – PROPERTY, PLANT AND EQUIPMENT
|
|
2015
Successor |
|
|
2014
Predecessor |
Land |
$ |
360,000 |
|
$ |
104,612 |
Buildings and Improvements |
|
700,000 |
|
|
599,754 |
Computers and Office Furniture |
|
21,967 |
|
|
- |
Automotive Equipment |
|
78,100 |
|
|
207,595 |
Machinery and Equipment |
|
499,860 |
|
|
468,061 |
Oil and gas properties used for research and development |
|
22,067 |
|
|
- |
|
|
1,681,994 |
|
|
1,380,022 |
Less Accumulated Depreciation |
|
16,564 |
|
|
727,102 |
|
$ |
1,665,430 |
|
$ |
652,920 |
For the year ended June 30, 2014
(Predecessor) and the period from July 1, 2014 through June 24, 2015 (Predecessor) depreciation expense was $60,652 and $74,099,
respectively. There was no depreciation expense during the Successor period.
NOTE
7 – ENVIRONMENTAL LIABILITY
The
Company’s tire recycling permit requires the Company to ultimately dispose of all tires accepted for recycling. Tire
disposal occurs in the normal course of business however the Company always has tires stored at its facility that have not yet
been disposed of. CTR had recorded liabilities totaling $320,000 at June 30, 2014 (Predecessor) for estimated costs related to
dispose of all tires at its Ennis, Texas facility. The environmental liability was calculated by estimating the costs associated
with the various disposal costs that would be necessary to remove the tires from the CTR permitted facility. Upon acquisition
of CTR by Freestone the liability was reduced to $32,000 (Successor) as part of the purchase price allocation, and the revaluation
of assets and liability to fair market value. The reduction was due to the formation of FDEP. CTR will convert the majority of
the tires into crum rubber, and sell it to FDEP as a feedstock for its specialized pyrolysis operations. The remaining $32,000
is an estimate of cost of disposing of the tires that are not acceptable for use as feedstock.
NOTE
8 – NOTES PAYABLE
At June 30, 2015 and 2014 Notes
Payable were as follows:
|
|
|
|
|
|
|
|
2015
Successor |
|
|
2014
Predecessor |
Note payable to bank bearing interest at 4.5% with monthly payment of $390 maturing September, 2017. The note is secured by an automobile |
$ |
9,989 |
|
$ |
14,112 |
|
|
|
|
|
|
Note payable to bank bearing interest at 6.5% with monthly payment of $4,892 maturing November, 2017. The note is secured by machinery and equipment |
|
130,975 |
|
|
179,429 |
|
|
|
|
|
|
Note payable to seller in connection with purchase of CTR bearing interest at 12% maturing June, 2019. Interest only payable for the first year. Monthly payment of $34,991 thereafter. Secured by the common stock and assets of CTR |
|
1,020,000 |
|
|
_ |
|
|
|
|
|
|
|
|
1,160,964 |
|
|
193,541 |
|
|
|
|
|
|
Less current maturities |
|
(56,051) |
|
|
(52,577) |
|
|
|
|
|
|
|
$ |
1,104,913 |
|
$ |
140,964 |
|
|
|
|
|
|
At
June 30, 2015 future maturities of long term debt were as follows: | |
| |
|
| |
| |
|
Year
Ending June 30: | |
| |
|
| 2016 |
$ | 56,051 |
|
| 2017 |
$ | 374,076 |
|
| 2018 |
$ | 357,007 |
|
| 2019 |
$ | 373,830 |
|
| |
$ | 1,160,964 |
|
NOTE
9 – ASSET RETIREMENT OBLIGATIONS
Freestone’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 successor period ended June 30, 2015, Freestone Resources
recognized no accretion expense. CTR did not have an asset retirement obligation.
The following
table presents the changes in the asset retirement obligations as of and for the period from June 25, 2015 through June 30, 2015
(Successor):
| |
| 2015
(Successor) | |
Asset
retirement obligations beginning period | |
$ | 14,470 | |
Accretion
expense | |
| 0 | |
Change
in ARO estimate | |
| 0 | |
Asset
retirement obligations, end of period | |
$ | 14,470 | |
NOTE
10 – 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, 2015 there were 81,088,177 common shares outstanding.
The
Company has not paid a dividend to its shareholders.
June
30, 2015:
At
June 30, 2015 (beginning of successor period) the Company had 76,088,177 shares outstanding. As part of the acquisition of CTR,
the Company sold 5,000,000 shares for $.10 each. The $500,000 proceeds were paid directly to the seller of CTR.
The certificate representing the shares carry a legend that the shares may not be transferred without compliance with
the registration requirements of the Securities Act of 1933 or in reliance upon an exemption therefrom. For each
of these transactions, the Company relied upon Section 4(2) of the Securities Act of 1933 as an exemption from the registration
requirements of the Act.
Stock
Warrant:
As
of June 30, 2015 there were 1,000,000 warrants outstanding allowing the holder to purchase one share of common stock each for
80% of the closing price at the exercise date. These warrants expire November 15, 2015. See Note 15 for subsequent event cancelling
warrants.
In
connection with the sale of 5,000,000 shares of the company common stock associated with the purchase of CTR the Company issued
5,000,000 warrants to purchase shares of common stock at 80% of the average closing bid and sale cost over the previous ten days
at exercise date. The warrants vest immediately and have a one year term.
NOTE
11 – INCOME TAXES
As
of June 30, 2015 and 2014 the components of the Company's deferred tax assets were as follows:
|
|
|
|
|
|
|
|
|
|
|
2015
Successor |
|
2014
Predecessor |
Depreciation Expense |
|
|
$ |
(21,000) |
$ |
(26,000) |
Capitalized Loan Fees |
|
|
|
31,000 |
|
42,000 |
Accrued Management Bonus |
|
|
|
- |
|
90,000 |
Environmental Liability |
|
|
|
11,000 |
|
109,000 |
Inventory Impairment |
|
|
|
- |
|
33,000 |
NOL Carryforward |
|
|
|
1,178,000 |
|
--- |
Other |
|
|
|
- |
|
(1,000) |
Total Deferred Tax Asset |
|
|
|
1,199,000 |
|
247,000 |
Valuation Allowance |
|
|
|
(1,199,000) |
|
(247,000) |
Net Deferred Tax Asset |
|
|
$ |
- |
$ |
- |
|
|
|
|
|
|
|
Income tax expense for the periods ended June 24, 2015 and June 30, 2014 (Predecessor) and June 30, 2015 (Successor)
consisted of the following
|
|
|
|
|
|
|
|
2015
Successor |
|
|
2015
Predecessor |
|
2014
Predecessor |
Current Tax Expense (Benefit) $ |
44,000 |
|
$ |
(64,000) |
$ |
15,000 |
Deferred Tax Expense (Benefit) |
- |
|
|
57,000 |
|
(6,500) |
Use of NOL Carryforward $ |
(44,000) |
|
|
- |
|
(8,500) |
Valuation Allowance |
- |
|
|
7,000 |
|
- |
Net Tax Expense (Benefit) $ |
- |
|
$ |
- |
$ |
- |
At June 30, 2015 Freestone had a net operating loss carryforward
of approximately $3,455,000 and CTR had a NOL carryforward of approximately $265,000 all of which expire from 2032 through 2036.
Under IRC Code Sec 382 future use of the NOL carryforwards may be limited due to CTR’s acquisition by Freestone.
NOTE
12 – EMPLOYEE BENEFITS AND AGREEMENTS
Officer
Agreement:
On
June 5, 2012 CTR entered into a three year Employment Agreement with Dirk Crawford (“Mr. Crawford”). For certain compensation,
including a salary and signing bonus, Mr. Crawford would remain president of CTR for the term of his Employee Agreement. Mr. Crawford
also received certain retirement and healthcare benefits relating to his Employee Agreement. No other employees have employment
agreements at CTR, and they are at will employees.
On
June 24, 2015 CTR agreed to an extension of Mr. Crawford’s Employee Agreement (“Employee Agreement Extension”).
The Employee Agreement Extension included an increased yearly salary, as well as a commission for tires sold. The aforesaid tire
sales commission is limited to $40,000. All other retirement and healthcare benefits remained the same, and no other changes were
made to the Employee Agreement.
Accrued
Compensation:
At
June 30, 2014 (Predecessor), liabilities included an accrued bonus due to Mr. Crawford as part of his Employee Agreement. The
signing bonus due to Mr. Crawford at June 30, 2014, was $264,964.
At
June 30, 2015 the Employee Agreement Extension, and the terms therein, eliminated the bonus owned to Mr. Crawford.
Retirement
Plan Contribution:
During
the period from July 1, 2014 until June 24, 2015 (Predecessor) and the year ended June 30, 2014 (Predecessor) the Company contributed
$5,246 and $4,574 in matching contributions to the Company’s IRA plan. There were no contributions during the successor
period.
NOTE
13 – COMMITMENTS AND CONTINGENCIES
Freestone
lease office space under a non-cancelable office lease which expires July 31, 2017. |
There was
no lease expense during the successor period. The predecessor had no lease expense for either predecessor period. |
Future
Minimum Lease payments are as follow
| |
|
| Year
End June 30 | | |
| Amount
| |
| 2016 | | |
| 22,605 | |
| 2017 | | |
| 22,605 | |
| 2018 | | |
| 1,884 | |
| Total | | |
| 47,094 | |
Freestone
has royalty and commission agreements with certain consultants related to the sale of Petrozene™ for their work in the re-launch
of the Petrozene™ product line. These royalty and commission agreements range from 2.5% to 7.5% of the net income
the Company receives from Petrozene™ sales, and the agreements also have special royalty provisions for certain customers
that expire on April 14, 2016. One of the consultants is related party and the brother of the Chief Executive Officer of the Company.
NOTE
14 – GOING CONCERN
As
of the date of this annual report, there is doubt regarding the Company’s 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.
The
Company formed FDEP in order to vertically integrate its Petrozene™ product line, and utilize a specialized pyrolysis process
in order to produce other byproducts of value that will generate revenue for FDEP. In turn, the ability of FDEP to process large
quantities of OTR tires will allow the Company to increase the amount of OTR tires it can dispose of and process, which will generate
additional revenue of the Company. Additionally, the Company intends to raise equity or debt financing that will allow the Company
to expand its current operations.
NOTE
15 – SUBSEQUENT EVENTS
On
July 25, 2015 Company sold 3,500,000 shares at $0.10 per share to provide funding of subsequent costs associated with the acquisition
of CTR, as well as general working capital for the Company. This transaction made Gerald M. Johnson a controlling shareholder
of the Company. Mr. Johnson also joined the Company’s advisory board. Mr. Johnson is the former CFO of Tyson Foods, Inc.
On
July 30, 2015 the Company reached an agreement with the holders to cancel the 1,000,000 warrants outstanding which would have
expired November 15, 2015.
On
August 21, 2015 FDEP entered into a one year lease for a 10,000 square foot office warehouse adjacent to the Company’s facilities
in Ennis, TX with a purchase option for $260,000.
Future
Minimum lease payments are as follow
| |
|
| Year
End June 30 | | |
| Amount
| |
| 2016 | | |
| 19,700 | |
| 2017 | | |
| 3,940 | |
| Total | | |
| 23,640 | |
On
September 23, 2015 the Company issued shares of the Company’s common stock to certain directors, officers and consultants
for services rendered to the Company. Clayton Carter, the Company’s Director and Chief Executive Officer, received 600,000
shares of the Company’s common stock, G. Don Edwards, the Company’s Director and Chief Investment Officer, received
600,000 shares of the Company’s common stock, and James Carroll, the Company’s Director and Chief Financial Officer
received 50,000 shares of the Company’s common stock. The Company also issued 100,000 shares to consultants as consideration
for services rendered to the Company.
On
September 14, 2015 the Company repurchased an 8.25% revenue interest in the Company’s Rodgers Oil and Gas Lease for $20,000.
The Company issued 200,000 shares of common stock at $.10 to satisfy the debt.
On
September 14, 2015 the Company disposed of its remaining oil and gas properties used for research by transferring 100% of its
working interest in the Rogers Oil and Gas Lease to a third party in exchange for assumption of all asset retirement obligations
and other liabilities associated with the property.
EXHIBIT 31
CERTIFICATION OF CHIEF EXECUTIVE AND PRINCIPAL ACCOUNTING OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
CERTIFICATION
I, Clayton Carter, and I, James Carroll, certify that:
|
1.
|
We have reviewed this report on Form 10-K of Freestone Resources, Inc.;
|
|
2.
|
Based on our 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 our 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 annual report;
|
|
4.
|
We 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 my supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to me 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 my 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 my conclusions 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 in 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 annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
|
5.
|
We have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant’s auditors of the 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 control 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:
October 5, 2015
Clayton Carter
Chief Executive Officer
James Carroll
Chief Financial Officer
EXHIBIT 32
CERTIFICATION OF CHIEF EXECUTIVE AND PRINCIPAL ACCOUNTING OFFICER
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
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 Annual Report of Freestone Resources, Inc. (the “Company”) on Form 10-K for the year ended June 30, 2015, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Clayton Carter, Chief Executive Officer of the Company, and I, James Carroll, Principal Accounting Officer of the Company certify, 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 operations of the Company.
|
|
/s/ Clayton Carter
|
|
Clayton Carter
Chief Executive Officer
October
5, 2015
|
|
/s/ James Carroll
|
|
James Carroll
Chief Financial Officer
October
5, 2015
|
Exhibit 99.1
Index to the Freestone Financial Statements
(Restated) as originally filed on Form 10-K on September 4, 2014
Report of Independent Registered Public Accounting
Firm
Consolidated Balance Sheet as of June 30, 2014
(Restated)
Consolidated Statement of Operations for the
Year Ended June 30, 2014 (Restated)
Consolidated Statement of Cash Flows for the
Year Ended June 30, 2014 (Restated)
Consolidated Statement of Stockholders’
Equity for the Year Ended June 30, 2014 (Restated)
Notes to the Consolidated Financial Statements
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Board of Directors and Stockholders of
Freestone
Resources, Inc.
Dallas,
Texas
We
have audited the accompanying consolidated balance sheet of Freestone Resources, Inc. and its subsidiaries (collectively the “Company”)
as of June 30, 2014, and the related consolidated statements of operations, stockholders’ equity, and cash flows for the
year then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility
is to express an opinion on these consolidated financial statements based on our audit.
We
conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform an audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial
reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures
that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s
internal control over financial reporting. Accordingly, we express no such opinion. 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 audit provides a reasonable basis for our opinion.
In
our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position
of Freestone Resources, Inc. and its subsidiaries as of June 30, 2014 and the results of their operations and their cash flows
for the year then ended, in conformity with accounting principles generally accepted in the United States of America.
The
accompanying financial statements have been prepared assuming that Freestone Resources, Inc. will continue as a going concern.
As discussed in Note 10 to the financial statements, Freestone Resources, Inc. has an accumulated deficit and recurring losses
from operations, which raise substantial doubt about its ability to continue as a going concern. Management’s plans regarding
those matters also are described in Note 10. The financial statements do not include any adjustments to reflect the possible future
effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from
the outcome of this uncertainty.
/s/
MaloneBailey, LLP
www.malonebailey.com
Houston,
Texas
October
6, 2015
FREESTONE
RESOURCES, INC.
Consolidated
Balance Sheet
As of June
30, 2014
| |
2014 (Restated) |
ASSETS | |
| | |
Current assets: | |
| | |
Cash | |
$ | 73,155 | |
Accounts receivable, net of allowance of $0 | |
| 81 | |
Total current assets | |
| 73,236 | |
| |
| | |
Equipment and other fixed assets, net of accumulated depreciation of $16,564 | |
| 27,470 | |
Total fixed assets, net | |
| 27,470 | |
| |
| | |
| |
| | |
| |
| | |
TOTAL ASSETS | |
$ | 100,706 | |
| |
| | |
LIABILITIES AND STOCKHOLDERS' EQUITY | |
| | |
| |
| | |
Current liabilities: | |
| | |
Accounts payable | |
$ | 9,369 | |
Accrued expenses | |
| 466 | |
Deferred income | |
| 20,000 | |
Total current liabilities | |
| 29,835 | |
| |
| | |
Long term liabilities: | |
| | |
Asset retirement obligations | |
| 14,470 | |
Total long term liabilities | |
| 14,470 | |
TOTAL LIABILITIES | |
| 44,305 | |
| |
| | |
STOCKHOLDERS' EQUITY: | |
| | |
| |
| | |
Common stock, $.001 par value, 100,000,000 shares | |
| | |
authorized, 73,543,177 shares issued and outstanding | |
| 73,543 | |
Additional paid in capital | |
| 18,747,213 | |
Accumulated deficit | |
| (18,764,355 | ) |
Total stockholders' equity | |
| 56,401 | |
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | |
$ | 100,706 | |
| |
| | |
The accompanying
notes are an integral part of these consolidated financial statements.
FREESTONE
RESOURCES, INC.
Consolidated
Statement of Operations
For the Year
Ended June 30, 2014
| |
|
| |
2014 (Restated) |
Revenue: | |
| | |
Sale of Petrozene | |
$ | 12,758 | |
Total revenue | |
| 12,758 | |
| |
| | |
Cost of sales | |
| 5,511 | |
| |
| | |
Gross Profit | |
| 7,247 | |
| |
| | |
Operating expenses: | |
| | |
Lease operating costs | |
| 43,492 | |
Depreciation | |
| 14,055 | |
(Gain) Loss on sale of asset | |
| (11,027 | ) |
Loss on equity method investment | |
| 14,283 | |
Impairment of equity investment | |
| 95,480 | |
Impairment of oil & gas property | |
| 12,575 | |
General and administrative | |
| 478,286 | |
Total operating expenses | |
| 647,144 | |
| |
| | |
| |
| | |
Net income (loss) | |
$ | (639,897 | ) |
| |
| | |
Basic and diluted income (loss) per share: | |
| | |
Net income (loss) per share | |
$ | (0.01 | ) |
| |
| | |
Weighted average shares outstanding: | |
| | |
Basic and diluted | |
| 70,197,385 | |
The accompanying
notes are an integral part of these consolidated financial statements.
FREESTONE
RESOURCES, INC.
Consolidated
Statement of Cash Flow
For the Year
Ended June 30, 2014
| |
|
| |
2014 (Restated) |
CASH FLOWS FROM OPERATING ACTIVITIES | |
| | |
Net income (loss) | |
$ | (639,897 | ) |
Adjustments to reconcile net income (loss) to net cash | |
| | |
used in operating activities: | |
| | |
Depreciation | |
| 14,055 | |
(Gain) Loss on sale of asset | |
| (11,027 | ) |
(Gain) Loss on equity method investment | |
| 14,283 | |
Impairment of equity investment | |
| 95,480 | |
Impairment of oil & gas property | |
| 12,575 | |
Stock based compensation | |
| 189,800 | |
Warrant expense | |
| (4,098 | ) |
Change in assets and liabilities: | |
| | |
Accounts receivable | |
| (81 | ) |
Other assets | |
| 8,910 | |
Accounts payable & accrued expenses | |
| (1,401 | ) |
Deferred revenue | |
| 20,000 | |
Net cash used in operating activities | |
| (301,401 | ) |
| |
| | |
CASH FLOWS FROM INVESTING ACTIVITIES | |
| | |
Purchase of property and equipment | |
| (6,211 | ) |
Proceeds from sale of investment asset | |
| 5,000 | |
Net cash used in investing activities | |
| (1,211 | ) |
| |
| | |
CASH FLOWS FROM FINANCING ACTIVITIES | |
| | |
Proceeds from sale of stock | |
| 170,000 | |
Net cash provided by financing activities | |
| 170,000 | |
| |
| | |
NET CHANGE IN CASH | |
| (132,612 | ) |
| |
| | |
CASH AT BEGINNING OF YEAR | |
| 205,767 | |
| |
| | |
CASH AT END OF YEAR | |
$ | 73,155 | |
| |
| | |
SUPPLEMENTAL DISCLOSURES | |
| | |
Cash paid for interest | |
$ | — | |
Cash paid for income taxes | |
$ | — | |
NON CASH INVESTMENT ACTIVITIES | |
| | |
| |
| | |
ARO transferred to buyer in sale of property | |
$ | 26,027 | |
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
(Restated)
|
|
|
Common Stock |
|
|
|
Additional Paid |
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
Shares |
|
|
|
Amount |
|
|
|
in Capital |
|
|
|
Deficit |
|
|
|
Total |
|
Balance, June 30, 2013 |
|
|
68,318,177 |
|
|
$ |
68,318 |
|
|
$ |
18,117,111 |
|
|
$ |
(18,124,458 |
) |
|
$ |
60,971 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of stock warrants (See note 12) |
|
|
— |
|
|
|
— |
|
|
|
275,527 |
|
|
|
— |
|
|
|
275,527 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(639,897 |
) |
|
|
(639,897 |
) |
Balance, June 30, 2014 (Restated) |
|
|
73,543,177 |
|
|
$ |
73,543 |
|
|
$ |
18,747,213 |
|
|
$ |
(18,764,355 |
) |
|
$ |
56,401 |
|
The accompanying
notes are an integral part of these consolidated financial statements.
FREESTONE
RESOURCES, INC.
Notes To Consolidated
Financial Statements
June 30, 2014
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.
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. 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, 2014 on a stand-alone basis. 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.
These stand-alone
financial statements replace the Company’s previously issued financials for the year ended June 30, 2014. Subsequent to
that filing it was determined that the Company’s auditors at the time, The Hall Group, did not have a valid PCAOB license
and therefore the audit opinion issued for those financial statements were deemed invalid by the Security and Exchange Commission.
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:
During
the year ended June 30, 2014 the Company elected the early adoption of changes to ASC 915 Development Stage Enterprises which
eliminated certain reporting requirements including identification of the Company as a development stage enterprises in financial
statement headings, discussion of development stage enterprises in Note 1 Summary of Accounting Policy and the presentation of
cumulative data in the statements of income and 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. Because
of the Company had a net operating loss for the year there is no difference between basic and fully diluted loss per share.
Cash and
Cash Equivalents:
Cash and cash
equivalents includes cash in banks and short term investments 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, 2014. At June 30,
2014 the Company had no cash balances 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.
Revenue from
the sale of Petrozene is recognized upon delivery to the customer.
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, 2014.
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 2014, the Company recognized no accretion
expense.
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 for non-employees using a fair value based method using either the fair value of the stock
given or the fair value of the services render whichever is more readily determinable. For employees the Company uses the fair
value of the stock on the grant date. 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 growth 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, 2014 are
as follows:
|
2014 |
Computers & office furniture |
$ | 8,967 | |
Collectable Art Work (not depreciated) |
| 13,000 | |
Oil and gas properties used for research and development |
| 22,067 | |
Total fixed assets |
| 44,034 | |
Less: Accumulated depreciation |
| (16,564 | ) |
Total fixed assets, net of accumulated depreciation |
$ | 27,470 | |
Depreciation expense was $14,055
for the year ended June 30, 2014.
Subsequent to
year end the company disposed of it’s the Rogers lease in exchange for assumption of the asset retirement obligation (see
note 13) therefore the Company recorded impairment expense of $12,575 to reduce the net value of it oil & gas property to
the amount of its asset retirement obligations.
NOTE 3
– 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, 2014, Freestone Resources recognized
no accretion expense.
The following table presents the
changes in the asset retirement obligations for the year ended June 30, 2014.
|
2014 |
Asset retirement obligations beginning period |
$ | 40,497 | |
Accretion expense |
| — | |
Change in ARO estimate |
| — | |
ARO liability transferred on property sold |
| (26,027 | ) |
Asset retirement obligations, end of period |
$ | 14,470 | |
NOTE 4 – 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 frack and production water.
The joint venture
is accounted for under the equity method as follows:
|
| | |
Balance 6/30/13 |
| 109,763 | |
|
| | |
Equity in Loss of JV |
| (14,283 | ) |
|
| | |
Impairment of investment |
| (95,480 | ) |
|
| | |
Balance 6/30/14 |
$ | — | |
Subsequent to
year end, the board of directors of Aqueous determined to scale back the fresh water loadout facility due to decreased drilling
in the region, which in turn led to a decrease in demand for fresh water from the Aqueous’ facility and minimal sales. The
Aqueous’ board determined to keep the facility intact, and Aqueous will maintain the ability to provide fresh water to vendors
on an as needed basis through its contractual term. Based on this decision and minimal sales, the Company impaired its investment
down to zero as of December 31, 2013.
NOTE 5
– 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, 2014, there were 73,543,177 common shares outstanding.
The Company
has not paid a dividend to its shareholders.
During the year
ended June 30, 2014 the Company sold 2,625,000 shares for cash of $170,000.
On February
18, 2014 the Company issued 2,600,000 shares of the Company’s common stock to certain directors, officers and consultants
for services rendered to the Company. The stock was valued at $.073 a share for a total expense of $189,800.
Clayton Carter,
the Company’s Director and Chief Executive Officer, received 1,000,000 shares of the Company’s common stock, G. Don
Edwards, the Company’s Director and Chief Investment Officer, received 1,000,000 shares of the Company’s common stock,
and James Carroll, the Company’s Director and Chief Financial Officer received 100,000 shares of the Company’s common
stock.
The Company
also issued 500,000 shares of the Company’s common stock to consultants as consideration for services rendered to the Company.
In each case,
the certificates representing the shares carry a legend that the shares may not be transferred without compliance with the registration
requirements of the Securities Act of 1933 or in reliance upon an exemption therefrom. For each of these transactions,
the Company relied upon Section 4(2) of the Securities Act of 1933 as an exemption from the registration requirements of the Act.
Stock Warrants
On March 16,
2012 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 November
16, 2015. Subsequent to year end an agreement was reach with the holder to void the warrants. See note 13.
NOTE 6
– 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 $3,167,000.
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.
During the year
ended June 30, 2014, the Company had a net loss of $639,897 changing the deferred tax asset by $217,565 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, 2014.
Freestone’s net deferred tax
amounts are as follows:
| |
|
| |
2014 |
Tax benefit (expense) at statutory rate | |
$ | 217,565 | | |
| 34 | % |
Permanent differences | |
| — | | |
| — | % |
State income taxes | |
| — | | |
| — | % |
Expiration of NOL’s and other | |
| — | | |
| — | % |
Valuation allowance | |
| 217,565 | | |
| (34 | )% |
Net Tax Provision | |
$ | — | | |
| — | % |
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, 2014are
as follows:
| |
2014 |
Total deferred tax liabilities | |
| — | |
Net Operating Loss carryforward | |
| 1,076,780 | |
Valuation allowance | |
| (1,076,780 | ) |
Deferred tax asset, net | |
$ | — | |
NOTE 7 – CONCENTRATION
OF REVENUE
During the fiscal
year ended June 30, 2014, 100% of revenue was generated from sales of Petrozene.
NOTE 8 – 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
$27,180 for the fiscal year ended June 30, 2014.
The future minimum
rental commitments under the operating lease are as follows:
Fiscal Year Ending June 30, | |
Minimum Rental Commitments |
| 2015 | | |
$ | 22,731 | |
| 2016 | | |
| 22,605 | |
| 2017 | | |
| 22,605 | |
| 2018 | | |
| 1,884 | |
| 2019 | | |
| — | |
| Thereafter | | |
| — | |
| | | |
$ | 69,825 | |
NOTE 9 – DEFERRED REVENUE
During the quarter
ended June 30, 2014, the Company sold an 8.25 revenue interest in the Rogers lease to a third party for $20,000. The proceeds
were treated as deferred revenue. Subsequent to year end the Company repurchased the interest in exchange for $20,000 in common
stock valued at $.10 a share. See note 13.
NOTE 10 – FINANCIAL CONDITION
AND GOING CONCERN
The Company
has an accumulated deficit through June 30, 2014 totaling $18,764,355 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.
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 11
- 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 years ended June 30, 2014 is as follows:
| |
2014 |
Acquisition of proved properties | |
$ | 0 | |
Acquisition of unproved properties | |
$ | 0 | |
Exploration costs | |
$ | 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 year ended June 30,
2014:
| |
2014 |
Revenues | |
$ | 0 | |
| |
| | |
Production costs | |
| (43,492 | ) |
| |
| | |
Depletion, depreciation, accretion and valuation provisions | |
| 0 | |
| |
| | |
Exploration costs | |
| 0 | |
| |
| (43,492 | ) |
Income tax expense | |
| 0 | |
| |
| | |
Results of operations for producing activities (excluding corporate overhead and interest costs) | |
$ | (43.,492 | ) |
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 June 30, 2014 |
|
|
0 |
|
|
|
0 |
|
Proved developed reserves: | |
| |
|
| |
| |
|
June 30, 2013 | |
| 0 | | |
| 0 | |
| |
| | | |
| | |
June 30, 2014 | |
| 0 | | |
| 0 | |
NOTE 12- RESTATEMENT
Certain previously reported numbers
have been adjusted and are reflected in this table:
| |
Balance sheet as of June 30, 2014 | |
As Reported | |
Adjustment | |
| |
As Adjustment |
|
| |
| |
| |
| |
|
|
|
|
| | | |
Fixed
Assets | |
$ | 48,480 | | |
| (21,010 | ) | |
| <A> | $ | |
27,470 |
|
| | | |
| |
| | | |
| | | |
| | |
|
|
|
| | | |
Investment
in Aqueous Service | |
$ | 78,423 | | |
| (78,423 | ) | |
| <B> | $ | |
— |
|
| | | |
| |
| | | |
| | | |
| | |
|
|
|
| | | |
Other
Assets | |
$ | 3,625 | | |
| (3,625 | ) | |
| <A> | $ | |
— |
|
| | | |
| |
| | | |
| | | |
| | |
|
|
|
| | | |
Total
Assets | |
$ | 203,715 | | |
$ | (103,009 | ) | |
| | $ | |
100,706 |
|
| | | |
| |
| | | |
| | | |
| | |
|
|
|
| | | |
Deferred
Revenue | |
$ | — | | |
| 20,000 | | |
| <D> | | |
$20,000 |
|
| | | |
| |
| | | |
| | | |
| | |
|
|
|
| | | |
Derivative
Liability - Warrants | |
$ | 279,625 | | |
| (279,625 | ) | |
| <C> | $ | |
— |
|
| | | |
| |
| | | |
| | | |
| | |
|
|
|
| | | |
Total
Liabilities | |
$ | 303,881 | | |
$ | (259,576 | ) | |
| | $ | |
44,305 |
|
| | | |
| |
| | | |
| | | |
| | |
|
|
|
| | | |
Additional
Paid In Capital | |
$ | 18,471,686 | | |
| 275,527 | | |
| <C> | $ | |
18,747,213 |
|
| | | |
| |
| | | |
| | | |
| | |
|
|
|
| | | |
Accumulated
deficit | |
$ | (18,645,395 | ) | |
$ | (118,960 | ) | |
| | $ | |
(18,764,355 |
) |
| | | |
Stockholders'
Equity | |
$ | (100,166 | ) | |
$ | 156,567 | | |
| | $ | |
56,401 |
|
| | | |
| |
| | | |
| | | |
| | |
|
|
|
| | | |
Total
Liabilities & Stockholders' Equity | |
$ | 203,715 | | |
$ | (103,009 | ) | |
| | $ | |
100,706 |
|
| | | |
| |
| | | |
| | | |
| | |
|
|
|
| | | |
| |
| | | |
| | | |
| | |
|
|
|
| | | |
| |
| | | |
| | | |
| | |
|
|
|
| | | |
| |
| | | |
| | | |
| | |
|
|
|
| | | |
| |
| | | |
| | | |
| | |
|
|
|
| | | |
| |
| | | |
| | | |
| | |
|
|
|
| | | |
Statement of Operations
for the Year Ended | |
| | | |
| | | |
| | |
|
|
|
| | | |
| |
| | | |
| | | |
| | |
|
|
|
| | | |
| |
| As
Reported | | |
| Adjustment
| | |
| | | |
As Adjustment |
|
| | | |
| |
| | | |
| | | |
| | |
|
|
|
| | | |
Total
Revenue | |
$ | 12,758 | | |
$ | — | | |
| | $ | |
12,758 |
|
| | | |
| |
| | | |
| | | |
| | |
|
|
|
| | | |
Lease
Operating Costs | |
$ | 28,306 | | |
| 15,186 | | |
| <A> | $ | |
43,492 |
|
| | | |
| |
| | | |
| | | |
| | |
|
|
|
| | | |
Depreciation | |
$ | 17,181 | | |
| (3,126 | ) | |
| <A> | $ | |
14,055 |
|
| | | |
| |
| | | |
| | | |
| | |
|
|
|
| | | |
(Gain)
Loss on Sale of Asset | |
| (31,027 | ) | |
| 20,000 | | |
| <D> | $ | |
(11,027 |
) |
| | | |
| |
| | | |
| | | |
| | |
|
|
|
| | | |
(Gain)
Loss on Equity Method Investment | |
$ | 31,340 | | |
| (17,057 | ) | |
| <B> | $ | |
14,283 |
|
| | | |
| |
| | | |
| | | |
| | |
|
|
|
| | | |
Impairment
of Equity Investment | |
$ | — | | |
| 95,480 | | |
| <B> | $ | |
95,480 |
|
| | | |
| |
| | | |
| | | |
| | |
|
|
|
| | | |
Impairment
of Oil & Gas Investment | |
$ | — | | |
| 12,575 | | |
| <A> | $ | |
12,575 |
|
| | | |
| |
| | | |
| | | |
| | |
|
|
|
| | | |
General
and Administrative Expenses | |
$ | 482,384 | | |
| (4,098 | ) | |
| <C> | $ | |
478,286 |
|
| | | |
| |
| | | |
| | | |
| | |
|
|
|
| | | |
Total
Expenses | |
$ | 533,695 | | |
$ | 118,960 | | |
| | $ | |
652,655 |
|
| | | |
| |
| | | |
| | | |
| | |
|
|
|
| | | |
Net
Income (Loss) | |
$ | (520,937 | ) | |
$ | (118,960 | ) | |
| | $ | |
(639,897 |
) |
| | | |
| |
| | | |
| | | |
| | |
|
|
|
| | | |
| |
| | | |
| | | |
| | |
|
|
|
| <A> | | |
The Company prior auditors, The Hall Group, did not have a valid PCAOB registration when they audited the financial statements for this period. Certain subsequent events to the original issuance of the financial statements provided additional evidence about the condition of the oil and gas assets. Consequently, these assets were impaired and reported at their net realizable value |
|
|
|
|
|
|
|
| | | |
| |
| | | |
| | | |
| | |
|
|
|
| <B> | | |
The Company prior auditors, The Hall Group, did not have a valid PCAOB registration when they audited the financial statements for this period. Certain subsequent events to the original issuance of the financial statements provided additional evidence about the condition of the investment in Aqueous Services. Consequently, these assets were impaired and reported at their net realizable value. |
|
|
|
|
|
|
|
| | | |
| |
| | | |
| | | |
| | |
|
|
|
| <C> | | |
During the preparation of our annual report, we identified an error related the accounting for the issuance of stock warrants. The warrants were incorrectly identified as a derivative. This resulted in an overstatement of a derivative liability of $279,625 at December 31, 2013, and an overstatement of expense of $4,098 due to miscalculation of the value of the warrants. 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 error has been correct in the current period. |
|
|
|
|
|
|
|
| | | |
| |
| | | |
| | | |
| | |
|
|
|
| <D> | | |
During the preparation of our annual report, we identified an error related the accounting for the sales of a revenue interest in an oil & gas property. The proceeds of $20,000 were improperly recorded as a gain on sale instead of deferred income The gain/loss on sale of asset includes the caption “Revision to ARO estimate” from the previously reported financial statements, which represents ARO assumed by the buyer in the sale of the Carroll Unit. |
|
|
|
|
|
|
|
| | | |
| |
| | | |
| | | |
| | |
|
|
|
NOTE 13 – SUBSEQUENT
EVENTS
During the year
ended June 30, 2015 Freestone sold 7,445,000 shares for cash of $742,000.
On April 14,
2015 Freestone entered into a royalty and commission agreements with certain consultants related to the sale of Petrozene™
for their work in the re-launch of the Petrozene™ product line. These royalty and commission agreements range from
2.5% to 7.5% of the net income the Company receives from Petrozene™ sales, and the agreements also have special royalty
provisions for certain customers that expire on April 14, 2016. One of the consultants is related party and the brother of the
Chief Executive Officer of the Company
On June 24,
2015 the Company acquired 100% of the outstanding common stock of C.C. Crawford Retreading Co., Inc. (“CTR”), a privately
held company, for an aggregate price of $1,520,000. Terms of the purchase were $500,000 cash at closing and a note payable to
the seller for $1,020,000.
On June 24,
2015 the Company entered into an agreement with Dynamis in order to form the joint venture FDEP, a Delaware limited liability
company. Freestone determined to enter into a joint venture with Dynamis based on their track record and experience in the waste-to-energy
industry, and their ability to provide the necessary funding to fully integrate the production, marketing and sale of Petrozene™
to current and future customers. The terms of the joint venture between the Company and Dynamis are as follows:
| · | Freestone
owns a 70% member interest in FDEP for licensing the rights to use Petrozene™ to
FDEP; and |
| · | Dynamis
owns a 30% member interest FDEP in exchange providing funding up to $5,000,000 to operate
the joint venture, and purchase a continuous-feed pyrolysis machine capable of producing
a product that can be used to produce Petrozene™; and |
| · | FDEP
will be leasing employees from CTR, and said employees will operate the machine. FDEP
will reimburse CTR for the leased employees; and |
| · | FDEP
has the right, but not the obligation to purchase CTR from Freestone through cash compensation
to Freestone, the issuance of additional units in FDEP to Freestone or a combination
of both cash and units in FDEP as mutually agreed upon by FDEP and Freestone; and |
| · | FDEP
will lease a building from CTR in order to operate the specialized pyrolysis technology
for payment of either the ad valorem taxes associated with the rented property or $1,000
per month depending on which amount is the greater of the two; and |
| · | Dynamis
will receive 80% of the distributions from FDEP until they have reached a 25% initial
rate of return on funds invested into the joint venture. Once the 25% initial rate of
return threshold is meet all distributions from FDEP will be split according to the 70
/ 30 member interest of FDEP owned by the Company and Dynamis. |
On June 24,
2015 FDEP simultaneously entered into a lease agreement with a company that has developed a continuous-feed pyrolysis technology
that will be operated by FDEP at the Company’s facility in Ennis, Texas. FDEP and the company that developed the pyrolysis
technology will split the revenues generated from the machine. FDEP will receive 70% of the revenues generated from the machine,
and the company providing the continuous-feed pyrolysis technology will receive 30% of the revenues. This revenue split will remain
in place so long as the machine is operating at the Company’s facility in Ennis, Texas. The agreement between the two companies
allows FDEP the opportunity to ensure that the technology continues to operate properly under the strict conditions that are necessary
to produce Petrozene™. If the leased pyrolysis machine operates within certain, predefined parameters then FDEP has the
right to purchase additional machines.
On June 29,
2015 the Company also issued 100,000 shares to consultants as consideration for services rendered to the Company.
On July 25,
2015 Company sold 3,500,000 shares at $0.10 per share to provide funding of subsequent costs associated with the acquisition of
CTR, as well as general working capital for the Company. This transaction made Gerald M. Johnson a controlling shareholder of
the Company. Mr. Johnson also joined the Company’s advisory board. Mr. Johnson is the former CFO of Tyson Foods, Inc.
On July 30,
2015 Pajarito W&M, LP and International Aqueous Investment, LLC signed an agreement with the Company to cancel all of the
warrants related to the Aqueous transaction.
On August 21,
2015 FDEP entered into a one year lease with a purchase option for a 10,000 square foot office warehouse adjacent to the Company’s
facilities in Ennis, TX.
Future Minimum lease payments are as follow |
| |
|
| Year
End June 30 | | |
| Amount
| |
| 2016 | | |
| 19,700 | |
| 2017 | | |
| 3,940 | |
| Total | | |
| 23,640 | |
On September
23, 2015 the Company issued shares of the Company’s common stock to certain directors, officers and consultants for services
rendered to the Company. Clayton Carter, the Company’s Director and Chief Executive Officer, received 600,000 shares of
the Company’s common stock, G. Don Edwards, the Company’s Director and Chief Investment Officer, received 600,000
shares of the Company’s common stock, and James Carroll, the Company’s Director and Chief Financial Officer received
50,000 shares of the Company’s common stock. The Company also issued 100,000 shares to consultants as consideration for
services rendered to the Company.
On September
14, 2015 the Company repurchased an 8.25% revenue interest in the Company’s Rogers Oil and Gas Lease for $20,000. The Company
issued 200,000 shares of common stock at $.10 to satisfy the debt.
On September
14, 2015 the Company disposed of its remaining oil and gas properties used for research by transferring 100% of its working interest
in the Rogers Oil and Gas Lease to a third party in exchange for assumption of all asset retirement obligations and other liabilities
associated with the property.