FREESTONE
RESOURCES, INC.
Consolidated
Statement of Stockholders’ Equity
For the Years
Ended June 30, 2014 (Restated) and 2013 (Unaudited)
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Common
Stock
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Paid-In
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Accumulated
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Shares
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Amount
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Capital
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Deficit
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Totals
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Balance, June 30, 2012
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58,364,010
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$
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58,364
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$
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17,038,065
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$
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(16,989,374
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)
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$
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107,055
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Common stock issued for cash
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6,654,167
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6,654
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535,346
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542,000
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Common stock issued for services
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2,700,000
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2,700
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375,300
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378,000
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Common stock issued for warrants
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600,000
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600
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168,400
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169,000
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Net Loss
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(1,135,084
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)
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(1,135,084
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)
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Balance, June 30, 2013 (Unaudited)
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68,318,177
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68,318
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18,117,111
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(18,124,458
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)
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60,971
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Issuance of stock warrants (See not 12)
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275,527
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275,527
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Common stock issued for cash
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2,625,000
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2,625
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167,375
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170,000
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Common stock issued for services
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2,600,000
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2,600
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187,200
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189,800
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Net Loss
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(639,897
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)
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(639,897
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)
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Balance, June 30, 2014 (Restated)
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73,543,177
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$
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73,543
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$
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18,747,213
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$
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(18,764,355
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)
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$
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56,401
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The Accompanying Notes Are An Integral Part of These Consolidated Financial Statements
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FREESTONE
RESOURCES, INC.
Notes to Consolidated
Financial Statements
June 30, 2014
and 2013
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.
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 enterprise 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:
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* Persuasive evidence of an arrangement exists;
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* Ownership and all risks of loss have been transferred to buyer,
which is generally upon shipment;
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* The price is fixed and determinable; and
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* Collectability is reasonably assured.
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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 and June
30, 2013.
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 and 2013 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.
Reclassifications:
Certain
prior year balances have been reclassified in order to conform to current year presentation.
NOTE
2 – FIXED ASSETS
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Fixed assets at June 30, 2014 and 2013 are as follows:
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2014
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2013
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(Restated)
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(Unaudited)
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Computers & office furniture
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$
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8,967
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$
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8,967
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Collectable Art Work (not depreciated)
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13,000
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13,000
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Oil and gas properties used for research and development
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22,067
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107,016
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Total fixed assets
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44,034
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|
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|
128,983
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Less: Accumulated depreciation
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(16,564
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)
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|
|
(61,094
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)
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Total fixed assets, net of accumulated depreciation
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$
|
27,470
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|
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$
|
67,889
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Depreciation
expense was $14,055 for the year ended June 30, 2014 and $25,053 for the year ended June 30, 2013.
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 $12,575 to reduce the net value of it oil & gas property
to the amount of its asset retirement obligations.
NOTE
3 – ASSET RETIREMENT OBLIGATIONS
The
Company’s asset retirement obligations (“ARO”) represents the estimated present value of the amount Freestone
Resources will incur to plug, abandon and remediate its producing properties at the end of their productive lives, in accordance
with applicable state laws. Freestone Resources determines the ARO on its oil and gas properties by calculating the present value
of estimated cash flows related to the liability. The asset retirement obligations are recorded as current or non-current liabilities
based on the estimated timing of the anticipated cash obligations are recorded as current or non-current liabilities based on
the estimated timing of the anticipated cash flows. For the ended June 30, 2014 and June 30, 2013.
The
following table presents the changes in the asset retirement obligations for the year ended June 30, 2014 and June 30, 2013.
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2014
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2013
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(Restated)
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(Unaudited)
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Asset retirement obligations beginning period
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$
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40,497
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$
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40,915
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Accretion expense
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—
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—
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Change in ARO estimate
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—
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(418
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)
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ARO liability transferred on property sold
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(26,027
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)
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|
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—
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Asset retirement obligations, end of period
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$
|
14,470
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$
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40,497
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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 $100,000 in exchange for
a 33.33% interest in the joint venture. Aqueous is a full water management company with access to a fresh water well that has
been permitted to extract up to one thousand five hundred acre-feet (approximately 500 million gallons) of water per annum. Aqueous
constructed and operates a facility to provide fresh water for oil and gas activities in the Eagle Ford. This site also includes
a designated location for the recycling frack and production water.
The joint venture is accounted
for under the equity method as follows:
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2014
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2013
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(Restated)
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(Unaudited)
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Beginning of Period
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$
|
109,763
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$
|
—
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Equity in Loss of JV
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|
—
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115,000
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Equity in Loss of JV
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(14,283
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)
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(5,237
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)
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Impairment of investment
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(95,480
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)
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|
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—
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Balance End of Period
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$
|
—
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$
|
109,763
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|
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. At June 30, 2013, there were 68,318,177 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.
As part of the
agreement to form Aqueous Service, LLC, the Company sold 300,000 shares of common stock to each partner at par value of .001 a
share. The Company treated the difference between the selling price and the fair market value of the stock as consulting expense
resulting in a $168,400 expense in the quarter ended December 31, 2012.
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 and 2013.
Freestone’s net deferred tax amounts are as follows:
|
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|
|
2014
|
|
2013
|
|
|
|
|
(Unaudited)
|
Tax benefit (expense) at statutory rate
|
|
$
|
217,565
|
|
|
|
34
|
%
|
|
$
|
385,929
|
|
|
|
34
|
%
|
Permanent differences
|
|
|
—
|
|
|
|
—
|
%
|
|
|
—
|
|
|
|
—
|
%
|
State income taxes
|
|
|
—
|
|
|
|
—
|
%
|
|
|
—
|
|
|
|
—
|
%
|
Expiration of NOL’s and other
|
|
|
—
|
|
|
|
—
|
%
|
|
|
—
|
|
|
|
—
|
%
|
Valuation allowance
|
|
|
217,565
|
|
|
|
(34
|
)%
|
|
|
385,929
|
|
|
|
(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, 2014 are as follows:
|
|
2014
|
|
2013
(Unaudited)
|
Total deferred tax liabilities
|
|
|
—
|
|
|
|
—
|
|
Net Operating Loss carryforward
|
|
|
1,076,780
|
|
|
|
1,694,684
|
|
Valuation allowance
|
|
|
(1,076,780
|
)
|
|
|
(1,694,684
|
)
|
Deferred tax asset, net
|
|
$
|
—
|
|
|
$
|
—
|
|
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, 2014 are 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 and 2013, is as follows:
|
|
2014
|
|
2013
|
Acquisition of proved properties
|
|
$
|
0
|
|
|
$
|
0
|
|
Acquisition of unproved properties
|
|
$
|
0
|
|
|
$
|
0
|
|
Exploration costs
|
|
$
|
0
|
|
|
$
|
0
|
|
Results of Operations for Producing Activities
The following table presents the results of
operations for the Company’s oil and gas producing activities for the year ended June 30, 2014 and 2013:
|
|
2014
|
|
2013
|
|
|
(Restated)
|
|
(Unaudited)
|
Revenues
|
|
$
|
—
|
|
|
|
8,983
|
|
|
|
|
|
|
|
|
|
|
Production costs
|
|
|
(43,492
|
)
|
|
|
(14,203
|
)
|
|
|
|
|
|
|
|
|
|
Depletion, depreciation, accretion and valuation provisions
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Exploration costs
|
|
|
—
|
|
|
|
—
|
|
|
|
|
(43,492
|
)
|
|
|
(5,220
|
)
|
Income tax expense
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Results of operations for producing activities (excluding corporate overhead and interest costs)
|
|
$
|
(43,492
|
)
|
|
$
|
(5,220
|
)
|
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
(mef)
|
|
Proved developed and undeveloped reserves:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2012
|
|
|
0
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
Production
|
|
|
104.58
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
Revisions of previous estimates
|
|
|
401.58
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
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, 2012
|
|
|
0
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
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. As of March 31, 2015 Dynamis has made capital contributions
totaling $388,961 to FDEP. There have been no distributions.
|
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.
On
January 6, 2016, the Company issued 100,000 shares of the Company’s common stock at $0.18 per share, restricted pursuant
to Rule 144, a consultant for the company and a related party to a Director of the Company, for representing Freestone on the
Board of Members of FDEP and for consulting services rendered to the Company.
On January 6,
2016, the Company issued 150,000 shares of the Company’s common stock at $0.18 per share, restricted pursuant to Rule 144,
to an accounting employee of the Company, for services rendered to the Company.
On January 6,
2016, Clayton Carter resigned as Chief Executive Officer of the Company, and Michael J. McGhan was appointed by the Board of Directors
as the Chief Executive Officer and Chairman of the Board.
On January 7,
2016 Michael McGhan and the Company entered into a two-year employment agreement (“Employment Agreement”). The terms
of the Employment Agreement include an initial salary of $5,000.00 per month, which will increase to $10,000.00 per month after
six months, as well as stock-based compensation in the amount of 3,000,000 shares of the Company’s restricted stock pursuant
to Rule 144. Subject to Board approval, Mr. McGhan is eligible to receive warrants for up to 2,000,000 shares of the Company’s
common stock (the “Warrants”). The Warrants are not issued on the date of the Employment Agreement. The Board is not
required to issue the Warrants. If the Warrants are issued to Mr. McGhan during the term of his Employment Agreement, the terms
and conditions of the Warrants will be determined by the Board on the date the Warrants are issued. Mr. McGhan will also be eligible
to participate in the Company’s employee benefit plan that is generally available to all other employees at the Company.
On January 7,
2016, 3,000,000 million shares of the Company’s common stock, restricted pursuant to Rule 144, were issued to Michael McGhan
at a price of $0.18 per share per the terms and conditions of Mr. McGhan’s Employee Agreement.
On January 26,
2016, the Company sold 250,000 shares of the Company’s common stock, restricted pursuant to Rule 144, at a purchase price
of $0.08 per share.
On January 26,
2016, the Company sold 62,500 shares of the Company’s common stock, restricted pursuant to Rule 144, at a purchase price
of $0.08 per share.
On January 28,
2016, the Company sold 562,500 shares of the Company’s common stock, restricted pursuant to Rule 144, to Gerald M. Johnston,
a Director of the Company, at $0.08 per share.
On January 28,
2016, the Company sold 62,500 shares of the Company’s common stock, restricted pursuant to Rule 144, at a purchase price
of $0.08 per share.