Securities registered pursuant to Section 12(g) of the Act: Common
Stock, Par value $0.001
Indicate by a check mark if the registrant is a well-known seasoned
issuer, as defined by Rule 405 of the Securities Act. Yes
o
No
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
No
o
Indicate by check if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (s229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's
knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment
to this Form 10-K X
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.
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 December 31, 2015: $10,276,044
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 30, 2016, the Registrant had
91,238,177 shares of common stock outstanding.
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.
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 statements of operations, changes in stockholders’
equity, and cash flows of C. C. Crawford Retreading Co., Inc. (the “Predecessor”) for the period from July 1, 2014
through June 24, 2015. 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, results of operations and cash flows
of C. C. Crawford Retreading Co., Inc. for the period from July 1, 2014 through June 24, 2015 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,
|
|
|
2016
|
|
2015
|
|
|
Successor
|
|
Successor
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
29,791
|
|
|
$
|
38,372
|
|
Accounts receivable, net of allowance for doubtful account of
|
|
|
|
|
|
|
|
|
$4,000 and $0
|
|
|
141,134
|
|
|
|
98,208
|
|
Inventory
|
|
|
69,570
|
|
|
|
122,000
|
|
Prepaid and O
ther Assets
|
|
|
43,497
|
|
|
|
51,151
|
|
Total Current Assets
|
|
|
283,992
|
|
|
|
309,731
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net of accumulated depreciation of
|
|
|
|
|
|
|
|
|
$125,436 and $16,564
|
|
|
1,641,661
|
|
|
|
1,665,430
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$
|
1,925,653
|
|
|
$
|
1,975,161
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
86,661
|
|
|
$
|
51,269
|
|
Accrued liabilities
|
|
|
205,382
|
|
|
|
72,777
|
|
Environmental liability
|
|
|
400,000
|
|
|
|
32,000
|
|
Current portion of capital lease obligation
|
|
|
11,419
|
|
|
|
—
|
|
Current portion of long-term debt
|
|
|
1,212,261
|
|
|
|
56,051
|
|
Total Current Liabilities
|
|
|
1,915,723
|
|
|
|
212,097
|
|
|
|
|
|
|
|
|
|
|
Asset Retirement Obligation
|
|
|
—
|
|
|
|
14,470
|
|
Capital lease obligation, less current portion
|
|
|
37,523
|
|
|
|
—
|
|
Long-term debt, less current portion
|
|
|
50,279
|
|
|
|
1,104,913
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES
|
|
|
2,003,525
|
|
|
|
1,331,480
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
Common stock, $.001 par value, 100,000,000 shares authorized,
|
|
|
|
|
|
|
|
|
90,613,177 and 81,088,177 shares issued and outstanding
|
|
|
90,613
|
|
|
|
81,088
|
|
Additional paid in capital
|
|
|
20,786,503
|
|
|
|
19,488,278
|
|
Accumulated deficit
|
|
|
(21,304,159
|
)
|
|
|
(18,925,985
|
)
|
|
|
|
(427,043
|
)
|
|
|
643,381
|
|
Non-Controlling Interest
|
|
|
349,171
|
|
|
|
300
|
|
|
|
|
(77,872
|
)
|
|
|
643,681
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
$
|
1,925,653
|
|
|
$
|
1,975,161
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Accompanying Notes Are An Integral Part of These Consolidated Financial Statements
|
Freestone Resources Inc. and Subsidiaries
|
Consolidated Statements of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
June 25, 2015
|
|
|
July 1, 2014
|
|
|
|
|
|
|
|
June 30,
|
|
to June 30,
|
|
|
to June 24,
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
|
2015
|
|
|
|
|
|
|
|
Successor (A)
|
|
Successor (A)
|
|
|
Predecessor (A)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REVENUE
|
|
|
|
|
|
|
|
|
|
|
|
Tipping Fee Revenue
|
|
|
$
|
552,115
|
$
|
-
|
|
$
|
463,537
|
|
Tire Repair Revenue
|
|
|
|
370,298
|
|
-
|
|
|
432,039
|
|
Used Tire Sales
|
|
|
|
|
137,900
|
|
-
|
|
|
161,445
|
|
Oil & Gas Revenue
|
|
|
|
12,180
|
|
|
|
|
|
|
Scrap Material Sales
|
|
|
|
26,433
|
|
-
|
|
|
57,999
|
|
|
Total Revenue
|
|
|
|
1,098,926
|
|
-
|
|
|
1,115,020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COSTS OF REVENUE
|
|
|
|
|
|
|
|
|
|
|
Tipping Fee Operations
|
|
|
|
205,799
|
|
-
|
|
|
255,345
|
|
Tire Repair and Sales
|
|
|
|
237,160
|
|
-
|
|
|
163,011
|
|
Tire Disposal
|
|
|
|
|
637,730
|
|
-
|
|
|
161,721
|
|
|
Total Cost of Revenue
|
|
|
|
1,080,689
|
|
-
|
|
|
580,077
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GROSS PROFIT
|
|
|
|
|
18,237
|
|
-
|
|
|
534,943
|
|
|
|
|
|
|
|
1.7%
|
|
|
|
|
48.0%
|
OPERATING EXPENSES
|
|
|
|
|
|
|
|
|
|
|
Start Up Costs
|
|
|
|
|
418,287
|
|
|
|
|
-
|
|
Selling
|
|
|
|
|
199,274
|
|
-
|
|
|
154,842
|
|
General and Administrative
|
|
|
|
1,649,605
|
|
-
|
|
|
329,456
|
|
Depreciation and Amortization
|
|
|
|
118,978
|
|
|
|
|
60,652
|
|
Loss on Sale of Assets
|
|
|
|
2,111
|
|
-
|
|
|
-
|
|
|
Total Operating Expense
|
|
|
|
2,388,255
|
|
-
|
|
|
544,950
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) FROM OPERATIONS
|
|
|
(2,370,018)
|
|
-
|
|
|
(10,007)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSES)
|
|
|
|
|
|
|
|
|
|
|
Bargain Purchase Gain
|
|
|
|
-
|
|
128,750
|
|
|
-
|
|
Interest Expense, net
|
|
|
|
(134,271)
|
|
|
|
|
(10,530)
|
|
|
|
|
|
|
|
(134,271)
|
|
128,750
|
|
|
(10,530)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) BEFORE NON-CONTROLLING INTEREST
|
|
(2,504,289)
|
|
128,750
|
|
|
(20,537)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss Attributable to Non-Controlling Interest
|
|
|
126,115
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME(LOSS) ATTRIBUTABLE TO FREESTONE
|
$
|
(2,378,174)
|
$
|
128,750
|
|
$
|
(20,537)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted income (loss) per share
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share
|
|
|
$
|
(0.03)
|
|
0.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
86,963,484
|
|
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, 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non
|
|
|
|
|
|
|
|
Common Stock
|
|
Paid-In
|
|
Accumulated
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock Issued for Cash
|
|
4,600,000
|
|
4,600
|
|
430,400
|
|
|
|
|
|
435,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock Issued for Services
|
|
4,725,000
|
|
4,725
|
|
848,025
|
|
|
|
|
|
852,750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock Issued for O&S Interest
|
200,000
|
|
200
|
|
19,800
|
|
|
|
|
|
20,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Members Contributions to LLC
|
|
|
|
|
|
|
|
|
|
474,986
|
|
474,986
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
|
|
|
|
|
|
|
|
(2,378,174)
|
|
|
|
(2,378,174)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss Attributable to Non-Controlling Interest
|
|
|
|
|
|
|
|
|
(126,115)
|
|
(126,115)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2016
|
|
|
90,613,177
|
$
|
90,613
|
$
|
20,786,503
|
$
|
(21,304,159)
|
$
|
349,171
|
$
|
(77,872)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
July 1, 2014
|
|
|
July 1, 2014
|
|
|
|
|
|
|
|
|
June 30,
|
|
to June 24,
|
|
|
to June 24,
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
|
2015
|
|
|
|
|
|
|
|
|
Successor (A)
|
|
Successor (A)
|
|
|
Predecessor (A)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOW FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
Net Income (Loss)
|
|
|
|
$
|
(2,504,289)
|
$
|
128,750
|
|
$
|
(20,537)
|
|
Adjustments to reconcile net income (loss) to net cash provided
|
|
|
|
|
|
|
|
by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
|
|
118,978
|
|
-
|
|
|
60,652
|
|
|
Loss on Disposal of Assets
|
|
|
|
2,111
|
|
-
|
|
|
-
|
|
|
Bargain Purchase Gain
|
|
|
|
|
-
|
|
(128,750)
|
|
|
-
|
|
|
Stock Issued for Services
|
|
|
|
852,750
|
|
-
|
|
|
-
|
|
Changes in operating assets and liabilities
|
|
|
|
|
|
|
|
|
|
|
Decrease in Accounts Receivable
|
|
|
|
(42,626)
|
|
-
|
|
|
25,981
|
|
|
Decrease in Inventory
|
|
|
|
|
52,430
|
|
-
|
|
|
1,968
|
|
|
Increase in Prepaid Expenses
|
|
|
|
7,654
|
|
-
|
|
|
(527)
|
|
|
Increase (Decrease) in Accounts Payable and Accrued Liabilities
|
713,595
|
|
-
|
|
|
27,800
|
|
|
Decrease in Accrued Bonus Payable
|
|
|
-
|
|
-
|
|
|
(55,000)
|
Net Cash Provided by Operating Activities
|
|
|
(799,397)
|
|
-
|
|
|
40,337
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOW FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
Cash received in CTR Acquisition
|
|
|
|
-
|
|
18,225
|
|
|
|
|
Purchase of Fixed Assets
|
|
|
|
|
(19,419)
|
|
|
|
|
|
|
Cash Contributed to LLC by non-controlling member
|
|
324,113
|
|
-
|
|
|
-
|
Net Cash Used in Investing Activities
|
|
|
|
304,694
|
|
18,225
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOW FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
Proceeds from sale of stock
|
|
|
|
435,000
|
|
|
|
|
|
|
Proceeds from borrowing
|
|
|
|
|
120,000
|
|
|
|
|
|
|
Repayment of Debt
|
|
|
|
|
(68,878)
|
|
-
|
|
|
(52,577)
|
Net Cash Used In Financing Activities
|
|
|
|
486,122
|
|
-
|
|
|
(52,577)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Decrease in Cash
|
|
|
|
|
(8,581)
|
|
18,225
|
|
|
(12,240)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash at Beginning of the Period
|
|
|
|
38,372
|
|
20,147
|
|
|
30,465
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash at the End of the Period
|
|
|
|
$
|
29,791
|
$
|
38,372
|
|
$
|
18,225
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Transactions
|
|
|
|
|
|
|
|
|
|
|
|
Total Amount of Interest Paid in Cash
|
|
|
$
|
10,613
|
$
|
-
|
|
$
|
10,802
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Income Taxes Paid in Cash
|
|
|
$
|
-
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non Cash financing and Investing Activities
|
|
|
|
|
|
|
|
|
|
Note Payable for Fixed Assets
|
|
|
$
|
123,899
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note assumed by Buyer in Sale of Vehicle
|
|
$
|
12,109
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 2016 and 2015
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 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, 2016, 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’s allowance for doubtful accounts was $4,000 and $0 as of June 30, 2016 and 2015, respectively.
Shipping and Handling Costs
The Company’s includes shipping and handlings
cost as part of cost of goods sold.
Inventory:
Inventory of the 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, 2016 and June 30, 2015 inventory consisted of:
|
|
2016
Successor
|
|
2015
Successor
|
Crum Rubber for Processing
|
|
$
|
8,087
|
|
|
$
|
10,246
|
|
Used Tire for Resale
|
|
|
49,945
|
|
|
|
111,754
|
|
Tire Oil
|
|
|
11,538
|
|
|
|
-
|
|
|
|
$
|
69,570
|
|
|
$
|
122,000
|
|
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 2016 and 2015, 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 services received
and is recognized over the service period. The Company uses the Black-Scholes pricing model to calculate the fair
value of options and warrants issued. In calculating this fair value, there are certain assumptions used such as the
expected life of the option, risk-free interest rate, dividend yield, volatility and forfeiture rate. The use of a different
estimate for any one of these components could have a material impact on the amount of calculated compensation expense.
The Company does not have any employee benefit
or stock option plans.
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.
Reclassifications
Certain
accounts in the prior year financial statements have been reclassified to conform with current year presentation.
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 cash down payment was
paid direct to a seller by a third party from sale of stock proceeds as discussed in Note 11. 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 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, 2016 and 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 year ending June 30, 2015 as if the companies had been combined as of July 1, 2014, 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
|
|
|
|
|
|
|
REVENUE
|
|
|
|
|
Tipping Fee Revenue
|
|
$
|
463,537
|
|
Tire Repair Revenue
|
|
|
432,039
|
|
Used Tire Sales
|
|
|
161,445
|
|
Oil & Gas Revenue
|
|
|
2,723
|
|
Scrap Material Sales
|
|
|
57,999
|
|
Total Revenue
|
|
|
1,117,743
|
|
|
|
|
|
|
COSTS OF REVENUE
|
|
|
|
|
Tipping Fee Operations
|
|
|
255,345
|
|
Tire Repair and Sales
|
|
|
163,011
|
|
Tire Disposal
|
|
|
161,721
|
|
Cost of Petrozine
|
|
|
—
|
|
Total Cost of Revenue
|
|
|
580,077
|
|
|
|
|
|
|
GROSS PROFIT
|
|
|
537,666
|
|
|
|
|
|
|
OPERATING EXPENSES
|
|
|
|
|
Lease Operating Cost
|
|
|
33,563
|
|
Loss on Equity Method Investment
|
|
|
|
|
Impairment of Equity method Investment
|
|
|
|
|
Impairment of Oil and Gas Investment
|
|
|
|
|
Selling
|
|
|
154,842
|
|
General and Administrative
|
|
|
590,060
|
|
Depreciation and Amortization
|
|
|
60,652
|
|
Gain on Sale of Asset
|
|
|
(1,064
|
)
|
Total Operating Expense
|
|
|
838,053
|
|
|
|
|
|
|
INCOME (LOSS) FROM OPERATIONS
|
|
|
(300,387
|
)
|
|
|
|
|
|
OTHER EXPENSES
|
|
|
|
|
Interest Expense, net
|
|
|
(10,530
|
)
|
|
|
|
(10,530
|
)
|
|
|
|
|
|
INCOME (LOSS) BEFORE TAXES
|
|
|
(310,917
|
)
|
|
|
|
|
|
PROVISION FOR INCOME TAXES
|
|
|
—
|
|
|
|
|
|
|
NET INCOME(LOSS)
|
|
$
|
(310,917
|
)
|
|
|
|
|
|
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 in FDEP in exchange for 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 met 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.
During the year ended June 30,
2016, Dynamis paid $150,873 for certain engineering and general administrative costs on behalf of FDEP, which are shown on the
Statement of Cash Flows as a non-cash financing activity. These payments were treated as capital contributions to the entity
by Dynamis. Dynamis also made cash contributions totaling $324,113 to the entity during the year ended June 30, 2016
NOTE 5 – ACCOUNTS RECEIVABLE
AND CONCENTRATION OF CREDIT RISK
At June 30, 2016 and 2015 three customers
made up 77% and two customers made up 53% of the Company’s outstanding accounts receivable balance, respectively. For the
years ending June 30, 2016 and 2015 two customers and one customer accounted for 60% and 49% of the Company’s net revenue,
respectively.
NOTE 6 – PROPERTY, PLANT AND
EQUIPMENT
|
|
|
|
|
At June 30, 2016 and 2015 Property, Plant and Equipment was as follows:
|
|
|
|
|
|
|
|
|
|
|
2016
Successor
|
|
|
2015
Successor
|
|
Land
|
|
$
|
360,000
|
|
$
|
360,000
|
|
Buildings and Improvements
|
|
|
700,000
|
|
|
700,000
|
|
Computers and Office Furniture
|
|
|
21,967
|
|
|
21,967
|
|
Automotive Equipment
|
|
|
120,585
|
|
|
78,100
|
|
Machinery and Equipment
|
|
|
505,878
|
|
|
499,860
|
|
Capital Lease Assets
|
|
|
56,738
|
|
|
-
|
|
Oil and gas properties used for research and development
|
|
|
-
|
|
|
22,067
|
|
|
|
|
1,767,097
|
|
|
1,681,994
|
|
Less Accumulated Depreciation
|
|
|
125,436
|
|
|
16,564
|
|
|
|
$
|
1,641,0661
|
|
$
|
1,665,430
|
|
|
|
|
|
|
|
|
|
For
the year ended June 30, 2016 (Sucessor) and the period from July 1, 2014 through June 24, 2015 (Predecessor) depreciation expense
was $118,978 and $60,652, respectively. There was no depreciation expense during the Successor of June 25, 2015 to
June 30, 2015.
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 plans to 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 was an estimate of cost of disposing of the tires that are not
acceptable for use as feedstock. At June 30, 2016, CTR increased its liability to $400,000 representing the estimated disposal
fees on the revised estimate of tires on hand. Although CTR still plans to convert the majority of the tires in crum rubber for
use by FDEP the liability was recorded as part of the plan submitted to the TCEQ to cure potential violations regarding it processing
permit. Since the plan requires CTR to significantly reduce the numbers of tires on hand within the next year and to date FDEP
has not been able to demonstrate the capacity to use the number of tires on hand so the liability is consider short-term.
NOTE 8 – CAPITAL LEASE OBLIGATIONS
Capital lease assets of $56,738 and accumulated
amortization of $8,861 are included in property, plant and equipment on the balance sheet at June 30, 2016. For the year ended
June 30, 2016 amortization expense was $8,861.
At June 30, 2016 and 2015 capital lease obligations were as follows:
|
|
|
|
|
|
|
|
2016
Successor
|
|
|
|
2015
Successor
|
|
Lease payable bearing interest at 4.95% with monthly payments of $315 maturing August 2019. The lease is secured by equipment.
|
|
$
|
11,069
|
|
|
$
|
--
|
|
Lease payable bearing interest at 3.95% with monthly payments of $309 maturing December, 2020. The lease is secured by equipment.
|
|
|
14,969
|
|
|
|
--
|
|
Lease payable bearing interest at 4.78% with monthly payments of $489 maturing September, 2020. The lease is secured by equipment.
|
|
|
22,904
|
|
|
|
--
|
|
|
|
|
48,942
|
|
|
|
--
|
|
|
|
|
|
|
|
|
|
|
Less current maturities
|
|
|
(11,419
|
)
|
|
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
37,523
|
|
|
$
|
--
|
|
|
|
|
|
|
|
|
|
|
At June 30, 2017 future maturities of capital lease obligations were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ending June 30:
|
|
|
|
|
|
|
|
|
|
2017
|
$
|
11,419
|
|
|
|
|
|
|
2018
|
$
|
11,939
|
|
|
|
|
|
|
2019
|
$
|
12,484
|
|
|
|
|
|
|
2020
|
$
|
9,839
|
|
|
|
|
|
|
2021
|
$
|
3,261
|
|
|
|
|
|
|
|
$
|
48,942
|
|
|
|
|
|
NOTE 9 – NOTES PAYABLE
At June 30, 2016 and 2015 notes payable were as follows:
|
|
|
|
|
|
|
|
2016
Successor
|
|
|
|
2015
Successor
|
|
Note payable to bank bearing interest at 4.5% with monthly payment of $390 maturing September, 2017. The note is secured by an automobile
|
|
$
|
5,676
|
|
|
$
|
9,989
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
79,293
|
|
|
|
130,975
|
|
Note payable to bank bearing interest at 6.5%
with monthly payment of $809 maturing April, 2020. The note is secured by a Truck.
|
|
|
32,853
|
|
|
|
--
|
|
Note payable to vendor bearing interest at
6.0% with monthly payment of $800 maturing December, 2016. The note is unsecured.
|
|
|
4,718
|
|
|
|
--
|
|
Note payable to officer bearing interest at
6.5% due April, 2017. The note is convertible into common stock at $.08 a share at maturity. The note is unsecured.
|
|
|
50,000
|
|
|
|
--
|
|
Line of credit with Bank maximum of $75,000
bearing interest at 6.5% due March, 2017. The line is secured by accounts receivable.
|
|
|
70,000
|
|
|
|
--
|
|
|
|
|
|
|
|
|
|
|
Note payable to seller in connection with purchase
of CTR bearing interest at 12% maturing March, 2017. Interest only payable for the first year. Interest and
principal due March, 2017. Secured by the common stock and assets of CTR
|
|
|
1,020,000
|
|
|
|
1,020,000
|
|
|
|
|
1,262,540
|
|
|
|
1,160,964
|
|
|
|
|
|
|
|
|
|
|
Less current maturities
|
|
|
(1,212,261
|
)
|
|
|
(56,051
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
50,279
|
|
|
$
|
1,104,913
|
|
|
|
|
|
|
|
|
|
|
At June 30, 2016 future maturities of long term debt were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ending June 30:
|
|
|
|
|
|
|
|
|
|
2017
|
$
|
1,212,261
|
|
|
|
|
|
|
2018
|
$
|
33,549
|
|
|
|
|
|
|
2019
|
$
|
8,881
|
|
|
|
|
|
|
2020
|
$
|
7,849
|
|
|
|
|
|
|
|
$
|
1,262,540
|
|
|
|
|
|
NOTE 10 – 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 years ending June 30, 2016 and 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):
|
|
2016
(Successor)
|
|
|
2015
(Successor)
|
|
Asset retirement obligations beginning period
|
$
|
14,470
|
|
$
|
14,470
|
|
Accretion expense
|
|
0
|
|
|
0
|
|
Assumed by Buyer of Property
|
|
(14,470
|
)
|
|
0
|
|
Asset retirement obligations, end of period
|
$
|
--
|
|
$
|
14,470
|
|
NOTE 11 – 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, 2016 and 2015 there
were 90,613,177 and 81,088,177 common shares outstanding, respectively.
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.
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.
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 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 expired November 15, 2015.
On June 24, 2015 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
vested immediately and had a one year term.
As of June 30, 2016 there were no stock warrants
outstanding.
NOTE 12 – INCOME TAXES
The Company files a consolidate Federal
Income Tax Return. As of June 30, 2016 the Company has a NOL carryforward of approximately $4,400,000. Under IRC Code Sec 382
use of NOL carryforwards may be limited due to CTR acquisition by Freestone.
The Company recognizes the tax effects
of transactions in the year in which such transactions enter into the determination of net income, regardless of when reported
for tax purposes. Deferred taxes are provided in the financial statements under ASC Topic 740,
Income Taxes
, to give
effect to the resulting temporary differences which may arise from differences in the bases of fixed assets, depreciation methods,
allowances, non-deductible stock for services and environmental reserves based on the income taxes expected to be payable in future
years. Deferred tax benefits related to the NOL carryforward of approximated $1,500,000 are fully reserved.
FDEP has a calendar tax year and files
a separate Form 1065 partnership return with income and loss being allocated based on distributions and contributions under the
partnership agreement. Freestone share of the year ended December 31, 2016 loss is included in the consolidated June 30, 2016 return.
The Company has no tax positions at June 30, 2016 and
2015 for which the ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility.
The Company’s tax
returns for the years ended December 31, 2015, 2014, 2013 and 2012 are open for examination under Federal Statute of Limitations.
The Company recognizes interest accrued related to
unrecognized tax benefits in interest expense and penalties in operating expenses. The Company had no accruals for interest
and penalties since inception.
A reconciliation of the provision for income tax expense with
the expected income tax computed by applying the federal statutory income tax to income before provision for income taxes is as
follows:
|
|
Year Ended
June 30
2016
|
|
Period Ended
June 30
2015
|
|
Period Ended
June 24
2015
|
|
|
(Successor)
|
|
(Successor)
|
|
(Predecessor
)
|
|
|
|
|
|
|
|
Income tax (benefit) computed at
|
|
|
|
|
|
|
Federal statutory tax rate of 34%
|
|
$
|
(809,000
|
)
|
|
$
|
(44,000
|
)
|
|
$
|
(64,000
|
)
|
Non-Deductible Stock Compensation Expense
|
|
|
290,000
|
|
|
|
—
|
|
|
|
—
|
|
Non-Deductible Travel & Entertainment
|
|
|
8,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in valuation allowance
|
|
|
510,000
|
|
|
|
44,000
|
|
|
|
64,000
|
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
NOTE 13 – 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.
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 per month, which will increase to $10,000 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
April 1, 2016, Paul Babb
and the Company entered into a two-year employment agreement (“Employment Agreement”)
to serve as Controller and Director of SEC reporting. The terms of the Employment Agreement include an initial salary of $5,250
per month, which will increase to $6,667 per month after six months, as well as stock-based compensation in the amount of 1,000,000
shares of the Company’s restricted stock pursuant to Rule 144 to be issued over the life of the contract. On June 1, 2016
Mr. Babb was appointed C.F.O.
Retirement Plan Contribution:
During the year ended June 30, 2016 (Successor)
and the period from July 1, 2014 until June 24, 2015 (Predecessor) the Company contributed $6,185 and $5,246 in matching contributions
to the Company’s IRA plan. There were no contributions during the successor period from June 25, 2015 to June 30, 2015.
NOTE 13 – COMMITMENTS AND
CONTINGENCIES
Freestone leases 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
|
|
2017
|
|
|
$
|
22,605
|
|
|
2018
|
|
|
|
1,884
|
|
|
Total
|
|
|
$
|
24,489
|
|
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, 2030. One of the
contracts is with the brother of the former C.E.O of the Company.
NOTE 14 – GOING CONCERN
As of the date of this annual report, there
is substantial 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
In July, 2016 the Company sold 500,000
shares of Common Stock for $25,000 cash.
On July 31, 2016 the Company borrowed
$60,000 from a stockholder under a one year note payable convertible into common stock at $.08 a share.
On September 23, 2016 the Company modified
the terms of its note payable in connection with the purchase of CTR to deferr all principal and interest until March 15, 2017
at which time it will be due in full.
On September 30, 2016 the Company issued
125,000 shares of common stock to its Chief Financial Officer for services render under his employment contract.