SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
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Freestone Resources, Inc.
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Dated:
October 15, 2018
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By:
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/s/
Michael McGhan
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Michael
McGhan,
Chief
Executive Officer
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Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Annual Report on Form 10-K to
be signed on its behalf by the undersigned hereunto duly authorized.
Name
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Title
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Date
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By:
/s/ Michael McGhan
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President, Chief Executive Officer and Director
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October 15, 2018
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Michael McGhan
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By:
/s/ Paul E. Babb
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Chief Financial Officer, Director
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October 15, 2018
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Paul E. Babb
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By:
/s/ Don Edwards
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Chief Investment Officer, Director
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October 15, 2018
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Don Edwards
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To
The Board of Directors and Stockholders of
Freestone
Resources, Inc.
Opinion
on the Financial Statements
We
have audited the accompanying consolidated balance sheets of Freestone Resources, Inc. (the “Company”) as of June
30, 2018 and 2017, and the related consolidated statements of operations, stockholders’ equity (deficit), and cash flows
for each of the years in the two-year period ended June 30, 2018 (collectively referred to as the consolidated financial statements).
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the
Company as of June 30, 2018 and 2017, and the results of its operations and its cash flows for each of the years in the two-yeear
period ended June 30, 2018 and 2017, in conformity with accounting principles generally accepted in the United States of America.
Basis
for Opinion
These
consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an
opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered
with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to
the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and
Exchange Commission and the PCAOB.
We
conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether
due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over
financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting,
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.
Our
audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether
due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the
accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the
consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
The
accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As discussed
in Note 15 to the consolidated financial statements, the Company has not generated sufficient cash flows from operations to fund
its business operations. This factor, among others, raises substantial doubt about the Company’s ability to continue as
a going concern. Management’s plans in regard to this matter are also described in Note 15. The consolidated financial statements
do not include any adjustments that might result from the outcome of this uncertainty.
/s/Pinnacle
Accountancy Group of Utah
We
have served as the Company’s auditor since 2016
Farmington,
Utah
October
15, 2018
F
reestone
Resources Inc. and Subsidiaries
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Consolidated Balance Sheets
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June 30,
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June 30,
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2018
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2017
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ASSETS
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Current Assets
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|
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Cash
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$
|
2,966
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$
|
4,109
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Accounts receivable, net of allowance for doubtful
accounts
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|
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of $4,000 and $4,000
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139,772
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155,845
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Inventory
|
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30,391
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|
30,538
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Prepaid and Other Assets
|
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67,065
|
|
|
|
44,356
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Total Current Assets
|
|
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240,194
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234,848
|
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|
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|
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Property, plant and equipment, net of accumulated depreciation
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|
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of $349,373 and $242,320
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1,359,972
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1,502,810
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TOTAL ASSETS
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$
|
1,600,166
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$
|
1,737,658
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LIABILITIES AND STOCKHOLDERS' EQUITY/(DEFICIT)
|
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Current Liabilities
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Accounts payable
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$
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91,286
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$
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66,429
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Accrued liabilities
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|
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580,124
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310,710
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Environmental liability
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|
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400,000
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400,000
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Convertible Notes Payable - Related Party
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|
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1,579,919
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605,013
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Current portion of capital lease obligation
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|
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12,484
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11,920
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Current portion of long-term
debt
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339,858
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515,527
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Total Current Liabilities
|
|
|
3,003,671
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1,912,599
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Capital lease obligation, less current portion
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13,124
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25,608
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Long-term debt, less current portion
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715,131
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991,893
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TOTAL LIABILITIES
|
|
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3,731,926
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2,930,100
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STOCKHOLDERS' EQUITY/(DEFICIT)
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Preferred stock, 5,000,000 shares authorized,
0 shares issued
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and outstanding
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—
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—
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Common stock, $.001 par value, 100,000,000 shares
authorized,
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91,988,177 and 91,613,177 shares issued and
outstanding
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91,988
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91,613
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Additional paid in capital
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20,858,878
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20,840,503
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Accumulated deficit
|
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(23,829,238
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)
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(22,691,106
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)
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Total Freestone Resources, Inc. stockholders'
deficit
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|
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(2,878,372
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)
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|
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(1,758,990
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)
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Non-Controlling Interest
|
|
|
746,612
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566,548
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Total equity (deficit)
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(2,131,760
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)
|
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(1,192,442
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)
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY/(DEFICIT)
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$
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1,600,166
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$
|
1,737,658
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|
|
|
|
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The
Accompanying Notes Are An Integral Part of These Consolidated Financial Statements
Freestone Resources Inc. and Subsidiaries
|
Consolidated Statements of Operations
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Year Ended
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Year Ended
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June 30,
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June 30,
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2018
|
|
2017
|
|
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REVENUE
|
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Tipping Fee Revenue
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$
|
642,227
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$
|
537,344
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Tire Repair Revenue
|
|
|
370,701
|
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|
|
357,959
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Used Tire Sales
|
|
|
95,375
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|
|
122,742
|
|
Scrap Material Sales
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|
|
55,557
|
|
|
|
61,801
|
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Total Revenue
|
|
|
1,163,860
|
|
|
|
1,079,846
|
|
|
|
|
|
|
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COSTS OF REVENUE
|
|
|
|
|
|
|
|
|
Tipping Fee Operations
|
|
|
295,055
|
|
|
|
271,941
|
|
Tire Repair and Sales
|
|
|
149,350
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|
|
|
156,043
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Used Tires
|
|
|
10,266
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|
|
|
57,926
|
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Tire Disposal
|
|
|
440,714
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|
|
|
353,097
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Scrap and Other Costs
|
|
|
9,422
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|
|
|
—
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Total Cost of Revenue
|
|
|
904,807
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|
|
|
839,007
|
|
|
|
|
|
|
|
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|
|
GROSS PROFIT
|
|
|
259,053
|
|
|
|
240,839
|
|
|
|
|
|
|
|
|
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|
OPERATING EXPENSES
|
|
|
|
|
|
|
|
|
Start Up Costs
|
|
|
282,998
|
|
|
|
307,704
|
|
Selling
|
|
|
122,720
|
|
|
|
187,320
|
|
General and Administrative
|
|
|
722,979
|
|
|
|
930,902
|
|
Depreciation and Amortization
|
|
|
124,755
|
|
|
|
125,851
|
|
Loss on Sale of Assets
|
|
|
13,783
|
|
|
|
6,200
|
|
Total Operating Expense
|
|
|
1,267,235
|
|
|
|
1,557,977
|
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) FROM OPERATIONS
|
|
|
(1,008,182
|
)
|
|
|
(1,317,138
|
)
|
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSES)
|
|
|
|
|
|
|
|
|
Interest Expense, net
|
|
|
(219,944
|
)
|
|
|
(165,312
|
)
|
|
|
|
(219,944
|
)
|
|
|
(165,312
|
)
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) BEFORE NON-CONTROLLING INTEREST
|
|
|
(1,228,126
|
)
|
|
|
(1,482,450
|
)
|
|
|
|
|
|
|
|
|
|
Loss Attributable to Non-Controlling Interest
|
|
|
89,994
|
|
|
|
95,503
|
|
|
|
|
|
|
|
|
|
|
NET INCOME(LOSS) ATTRIBUTABLE
TO FREESTONE
|
|
$
|
(1,138,132
|
)
|
|
$
|
(1,386,947
|
)
|
|
|
|
|
|
|
|
|
|
Basic and diluted income (loss) per share
|
|
|
|
|
|
|
|
|
Net income (loss) per share
|
|
$
|
(0.01
|
)
|
|
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
91,800,506
|
|
|
|
91,273,793
|
|
Basic and diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Accompanying Notes Are An Integral Part of These Consolidated Financial Statements
Freestone Resources
Inc. and Subsidiaries
|
|
|
Statement of
Changes in Stockholders' Equity/(Deficit)
|
|
|
|
|
|
|
|
|
|
Non
|
|
|
|
|
Common Stock
|
|
Paid-In
|
|
Accumulated
|
|
Controlling
|
|
|
|
|
Shares
|
|
Amount
|
|
Capital
|
|
Deficit
|
|
Interest
|
|
Totals
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2016
|
|
|
90,613,177
|
|
|
$
|
90,913
|
|
|
$
|
20,786,503
|
|
|
$
|
(21,304,159
|
)
|
|
$
|
349,3171
|
|
|
$
|
(77,872
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock Issued for Cash
|
|
|
500,000
|
|
|
|
500
|
|
|
|
24,500
|
|
|
|
|
|
|
|
|
|
|
|
25,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock Issued for Services
|
|
|
500,000
|
|
|
|
500
|
|
|
|
29,500
|
|
|
|
|
|
|
|
|
|
|
|
30,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Members
Contributions to LLC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
312,880
|
|
|
|
312,880
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,386,947
|
)
|
|
|
|
|
|
|
(1,386,947
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
Attributable to Non-Controlling Interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(95,503
|
)
|
|
|
(95,503
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2017
|
|
|
91,613,177
|
|
|
|
91,613
|
|
|
|
20,840,503
|
|
|
|
(22,691,106
|
)
|
|
|
566,548
|
|
|
|
(1,192,442
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock Issued for Services
|
|
|
375,000
|
|
|
|
375
|
|
|
|
18,375
|
|
|
|
|
|
|
|
|
|
|
|
18,750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Members
Contributions to LLC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
270,058
|
|
|
|
270,058
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,138,132
|
)
|
|
|
|
|
|
|
(1,138,132
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
Attributable to Non-Controlling Interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(89,994
|
)
|
|
|
(89,994
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2018
|
|
|
91,988,177
|
|
|
$
|
91,988
|
|
|
$
|
20,858,978
|
|
|
$
|
(23,829,238
|
)
|
|
$
|
746,612
|
|
|
$
|
(2,131,760
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Accompanying Notes Are An Integral Part of These Consolidated Financial Statements
Freestone
Resources Inc. and Subsidiaries
|
Consolidated Statements of Cash
Flow
|
|
|
|
|
|
|
|
|
Year
Ended
|
|
|
|
Year
Ended
|
|
|
|
|
June
30,
|
|
|
|
June
30,
|
|
|
|
|
2018
|
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
CASH FLOW FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
Net Income (Loss)
|
|
|
(1,228,126
|
)
|
|
$
|
(1,482,450
|
)
|
Adjustments to reconcile net income (loss)
to net cash provided
|
|
|
|
|
|
|
|
|
by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
124,755
|
|
|
|
125,851
|
|
Loss on Disposal of Assets
|
|
|
13,783
|
|
|
|
6,200
|
|
Bad Debt Write-off
|
|
|
45,158
|
|
|
|
—
|
|
Stock Issued for Services
|
|
|
18,750
|
|
|
|
30,000
|
|
Changes in operating assets and liabilities
|
|
|
|
|
|
|
|
|
Decrease in Accounts Receivable
|
|
|
(29,085
|
)
|
|
|
(14,711
|
)
|
Decrease in Inventory
|
|
|
147
|
|
|
|
39,032
|
|
Increase in Prepaid Expenses
|
|
|
(22,709
|
)
|
|
|
(859
|
)
|
Increase in Accounts Payable
|
|
|
24,857
|
|
|
|
355,977
|
|
Increase in
Accrued Liabilities
|
|
|
266,414
|
|
|
|
108,328
|
|
Net Cash (Used In) Operating Activities
|
|
|
(786,056
|
)
|
|
|
(832,632
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOW FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
Purchase of Fixed Assets
|
|
|
(6,700
|
)
|
|
|
—
|
|
Proceeds from Sale of
Fixed Assets
|
|
|
11,000
|
|
|
|
6,800
|
|
Net Provided By (Cash Used) in Investing Activities
|
|
|
4,300
|
|
|
|
6,800
|
|
|
|
|
|
|
|
|
|
|
CASH FLOW FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Proceeds from sale of stock
|
|
|
—
|
|
|
|
25,000
|
|
Proceeds from Long-Term Debt
|
|
|
—
|
|
|
|
5,000
|
|
Proceeds from Convertible Notes Payable - Related
Parties
|
|
|
974,816
|
|
|
|
555,0013
|
|
Repayment of Debt
|
|
|
(452,341
|
)
|
|
|
(72,186
|
)
|
Capital Lease Payments
|
|
|
(11,920
|
)
|
|
|
(11,414
|
)
|
Cash Contributed to LLC
by non-controlling member
|
|
|
270,058
|
|
|
|
298,737
|
|
Net Provided By In Financing Activities
|
|
|
780,613
|
|
|
|
800,150
|
|
|
|
|
|
|
|
|
|
|
Net Decrease in Cash
|
|
|
(1,143
|
)
|
|
|
(25,682
|
)
|
|
|
|
|
|
|
|
|
|
Cash at Beginning of the Period
|
|
|
4,109
|
|
|
|
29,791
|
|
|
|
|
|
|
|
|
|
|
Cash at the End of the
Period
|
|
$
|
2,966
|
|
|
$
|
4,109
|
|
|
|
|
|
|
|
|
|
|
Cash Transactions
|
|
|
|
|
|
|
|
|
Total Amount of Interest
Paid in Cash
|
|
$
|
118,905
|
|
|
$
|
81,331
|
|
|
|
|
|
|
|
|
|
|
Total Income Taxes Paid
in Cash
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
Non Cash financing and Investing Activities
|
|
|
|
|
|
|
|
|
Accrued Interest and Penalties
Added to Note Payable
|
|
$
|
—
|
|
|
$
|
362,066
|
|
|
|
|
|
|
|
|
|
|
Services paid for directly
by non-controlling interest
|
|
$
|
12,641
|
|
|
$
|
14,143
|
|
|
|
|
|
|
|
|
|
|
The
Accompanying Notes Are An Integral Part of These Consolidated Financial Statements
Freestone
Resources Inc. and Subsidiaries
Notes
to Financial Statements
June
30, 2018 and 2017
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 Ennis, 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."
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:
Stock
compensation
In
March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
2016-09 amending several aspects of share-based payment accounting. This guidance requires all excess tax benefits and tax deficiencies
to be recorded in the income statement when the awards vest or are settled, with prospective application required. The guidance
also changes the classification of such tax benefits or tax deficiencies on the statement of cash flows from a financing activity
to an operating activity, with retrospective or prospective application allowed. Additionally, the guidance requires the classification
of employee taxes paid when an employer withholds shares for tax-withholding purposes as a financing activity on the statement
of cash flows, with retrospective application required. This ASU is effective for annual periods, and interim periods within those
annual periods, beginning after December 15, 2016. As such, The Company adopted these provisions as of the fiscal year beginning
January 1, 2017. There was no material effect of the new provisions on our consolidated financial statements and related disclosures.
In
May 2017, the FASB issued ASU 2017-09, Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting (“ASU
2017-09). ASU 2017-09 provides clarity and reduce both (1) diversity in practice and (2) cost and complexity when applying the
guidance in Topic 718, Compensation—Stock Compensation, to a change to the terms or conditions of a share-based payment
award. The amendments in this update provide guidance about which changes to the terms or conditions of a share-based payment
award require an entity to apply modification accounting in Topic 718. The amendments in this update are effective for all entities
for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted.
As such, The Company is required to adopt these provisions as of the fiscal year beginning on January 1, 2018. The amendments
in this update should be applied prospectively to an award modified on or after the adoption date. We are currently assessing
the potential impact of ASU 2017-09 on our consolidated financial statements and results of operations.
Leases
In
February 2016, FASB issued ASU 2016-02— Leases (Topic 842). The update is intended to increase transparency and comparability
among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about
leasing arrangements. The amendments in this update are effective for fiscal years beginning after December 15, 2018, including
interim periods within those fiscal years. Early application of the amendments in this update is permitted. As such, The Company
is required to adopt these provisions as of the fiscal year beginning on January 1, 2019. The Company is currently evaluating
the impact of FASB ASU 2016-02 and expects the adoption thereof will have a material effect on The Company’s presentation
of balance sheet assets and liabilities based on the present value of future lease payments,but does not expect a material effect
on the presentation of expenses and cash flows.
Revenue:
Revenue
from Contracts with Customers: In May 2014, ASC 606 was issued related to revenue from contracts with customers. Under this guidance,
revenue is recognized when promised goods or services are transferred to customers in an amount that reflects the consideration
that is expected to be received for those goods or services. The updated standard will replace most existing revenue recognition
guidance under GAAP when it becomes effective and permits the use of either the retrospective or cumulative effect transition
method. Early adoption is not permitted. The standard will be effective for the Company's fiscal year beginning July 1, 2018,
including interim reporting periods within that year. The new guidance is not expected to have an impact on the Company's consolidated
financial statements. The Company has analyzed the standard and has implement any relevant provisions for the interim periods
beginning July 1, 2018.
Inventory
In
July 2015, FASB issued ASU 2015-11— Inventory (Topic 330): “Simplifying the Measurement of Inventory”. The update
is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. As such,
the Company adopted these provisions beginning on January 1, 2017. The amendments in this Update should be applied prospectively
with earlier application permitted as of the beginning of an interim or annual reporting period. The update is part of FASB’s
Simplification Initiative, the objective of which is to identify, evaluate, and improve areas of generally accepted accounting
principles (GAAP) for which cost and complexity can be reduced. Pursuant to the update, an entity should measure inventory at
the lower of cost and net realizable value. The amendments in the update more closely align the measurement of inventory in GAAP
with the measurement of inventory in International Financial Reporting Standards (IFRS). Adoption of the new guidance did not
have an impact on the Company's consolidated financial statements.
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, 2018 and 2017, 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 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 $4,000 as of June 30, 2018 and 2017, respectively. During
the year ended June 30, 2018 the Company’s joint venture wrote off a $45,158 receivable for certain cost associated with
the installation and operation of the venture’s leased pyrolysis machine from the lessor of the machine. The Company’s
feel the costs are a valid receivable however since the original lease has expired and the machine is not currently producing
revenue recovery can not be assured.
Shipping
and Handling Costs
The
Company includes shipping and handling cost as part of cost of goods sold.
Inventory:
Inventory
of the Company is carried at lower of cost or market. The Company’s inventory consists of processed rubber from disposed
tires carried at cost of processing, used tires for sale carried at the cost of repairs and tire oil produced from the Company’s
pyrolysis operations. As of June 30, 2018 and 2017 inventory consisted of:
|
|
2018
|
|
2017
|
Crum
Rubber for Processing
|
|
$
|
---
|
|
|
$
|
8,087
|
|
Used
Tire for Resale
|
|
|
11,648
|
|
|
|
15,041
|
|
Petrozene
and Tire Oil
|
|
|
18,743
|
|
|
|
7,410
|
|
|
|
$
|
30,391
|
|
|
$
|
30,538
|
|
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
|
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 ell 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.
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.
Net
Loss Per Share:
Basic
net loss per share is computed using the weighted-average number of common shares outstanding during the period except that it
does not include unvested common shares subject to repurchase or cancellation. Diluted net income per share is computed using
the weighted-average number of common shares and, if dilutive, potential common shares outstanding during the period. Potential
common shares consist of the incremental common shares issuable upon conversion of notes payable to related parties and stock
compensation to officers under employment contracts. The dilutive effect of potential common shares is not reflected in diluted
earnings per share because we incurred net losses for the years ended June 30, 2018 and 2017, and the effect of including these
potential common shares in the net loss per share calculations would be anti-dilutive. The total potential common shares include
8,011,823 for convertible debt. The convertible debt is specifically limited to authorized shares available per the note agreements.
Reclassifications
Certain
accounts in the prior year financial statements have been reclassified to conform with current year presentation.
NOTE
3 - 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, 2018 and 2017, Dynamis paid $12,641 and $14,143, respectively 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 $270,058 and $298,737
to the entity during the year ended June 30, 2018 and 2017, respectively.
NOTE
4 – CONCENTRATION OF CREDIT RISK
At
June 30, 2018 and 2017 two customers made up 67% and two customers made up 64% of the Company’s outstanding trade accounts
receivable balance, respectively. For the years ending June 30, 2018 and 2017 two customers and three customers accounted for
59% and 68% of the Company’s net revenue, respectively.
NOTE
5 – PROPERTY, PLANT AND EQUIPMENT
|
|
|
|
|
At June 30, 2018 and 2017 Property,
Plant and Equipment was as follows:
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
|
|
2017
|
|
Land
|
|
$
|
360,000
|
|
|
$
|
360,000
|
|
Buildings and Improvements
|
|
|
706,700
|
|
|
|
700,000
|
|
Automotive Equipment
|
|
|
78,100
|
|
|
|
120,585
|
|
Machinery and Equipment
|
|
|
507,807
|
|
|
|
507,807
|
|
Capital
Lease Assets
|
|
|
56,738
|
|
|
|
56,738
|
|
|
|
|
1,709,345
|
|
|
|
1,745,130
|
|
Less
Accumulated Depreciation
|
|
|
349,373
|
|
|
|
242,320
|
|
|
|
$
|
1,359,972
|
|
|
$
|
1,502,810
|
|
|
|
|
|
|
|
|
|
|
For
the year ended June 30, 2018 and 2017 depreciation expense was $124,755 and $125,851, respectively.
NOTE
6 – 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. 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. 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. 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.
The liability is considered short-term and the balance at June 30, 2018 and 2017 was $400,000.
NOTE
7 – CAPITAL LEASE OBLIGATIONS
Capital
lease assets of $56,738 and $56,738 and accumulated amortization of $31,557 and $20,209 are included in property, plant and equipment
on the balance sheet at June 30, 2018 and 2017, respectively. For the year ended June 30, 2018 and 2017 amortization expense was
$11,348 and $11,348, respectively.
At June 30, 2018 and 2017 capital lease obligations
were as follows:
|
|
|
|
|
|
|
|
2018
|
|
|
|
2017
|
|
Lease
payable bearing interest at 4.95% with monthly payments of $315 maturing August 2019. The lease is secured by equipment.
|
|
$
|
4,281
|
|
|
$
|
7,758
|
|
Lease
payable bearing interest at 3.95% with monthly payments of $309 maturing December, 2020. The lease is secured
by equipment.
|
|
|
8,725
|
|
|
|
11,934
|
|
|
|
|
|
|
|
|
|
|
Lease
payable bearing interest at 4.78% with monthly payments of $489 maturing
September,
2020. The lease is secured by equipment.
|
|
|
12,602
|
|
|
|
17,869
|
|
|
|
|
25,608
|
|
|
|
37,528
|
|
|
|
|
|
|
|
|
|
|
Less current maturities
|
|
|
(12,484
|
)
|
|
|
(11,920)
|
|
|
|
|
|
|
|
|
|
|
Capital
Lease Obligations, Less Current Maturities
|
|
$
|
13,124
|
|
|
$
|
28,608
|
|
|
|
|
|
|
|
|
|
|
At June 30, 2018
future maturities of capital lease obligations were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ending June
30:
|
|
|
|
|
|
|
|
|
|
2019
|
$
|
12,484
|
|
|
|
|
|
|
2020
|
$
|
9,839
|
|
|
|
|
|
|
2021
|
$
|
3,285
|
|
|
|
|
|
|
|
$
|
25,608
|
|
|
|
|
|
NOTE
8 – NOTES PAYABLE
At June 30, 2018 and 2017 notes payable were
as follows:
|
|
|
|
|
|
|
|
2018
|
|
|
|
2017
|
|
Note
payable to bank bearing interest at 4.5% with monthly payment of $390 maturing September, 2017. The note is secured
by an automobile
|
|
$
|
--
|
|
|
$
|
1,162
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
--
|
|
|
|
24,139
|
|
Note
payable to bank bearing interest at 6.5% with monthly payment of $809 maturing April, 2020. The note is secured
by a truck.
|
|
|
--
|
|
|
|
25,054
|
|
Note
payable to bank bearing interest at 7.0% with monthly payment of $3,718 maturing June, 2020. The note is secured
by accounts receivable.
|
|
|
79,826
|
|
|
|
–
|
|
Line
of Credit with Bank maximum $75,000 bearing interest at 6.5% due March, 2018. Line is secured by accounts receivable.
|
|
|
--
|
|
|
|
75,000
|
|
Note
payable to seller in connection with purchase of CTR bearing interest at 12% maturing October, 2020. Note amended to add
$360,065 of accrued interest and penalties to principal in February, 2017. Interest only payable until November, 2018.
Monthly payment of $45,904 thereafter. Secured by the common stock and assets of CTR
|
|
|
975,163
|
|
|
|
1,382,065
|
|
|
|
|
1,054,989
|
|
|
|
1,507,420
|
|
|
|
|
|
|
|
|
|
|
Less current maturities
|
|
|
(339,858
|
)
|
|
|
(515,527
|
)
|
|
|
|
|
|
|
|
|
|
Long Term
Debt, Less Current Maturities
|
|
$
|
715,131
|
|
|
$
|
991,893
|
|
|
|
|
|
|
|
|
|
|
At June 30, 2018
future maturities of long term debt were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ending June
30:
|
|
|
|
|
|
|
|
|
2019
|
|
$
|
339,858
|
|
|
|
|
|
2020
|
|
$
|
536,014
|
|
|
|
|
|
2021
|
|
$
|
179,117
|
|
|
|
|
|
|
|
$
|
1,054,989
|
|
|
|
|
|
NOTE
9 – NOTES PAYABLE – RELATED PARTIES
At June 30, 2018 and 2017 notes payable
to officers and shareholders were as follows:
|
|
|
|
|
|
|
|
2018
|
|
|
|
2017
|
|
Note
payable to officer bearing interest at 6.5% due December, 2018. The note was amended on June 30, 2018 to change the
conversion terms from $0.055 a share to $0.05 a share. The note is unsecured.
|
|
|
50,000
|
|
|
|
50,000
|
|
Note
payable to stockholder bearing interest at 6.5% due December, 2018. The note is convertible into common stock at $.05
a share. The note is unsecured.
|
|
|
20,000
|
|
|
|
20,000
|
|
Note
payable to stockholder bearing interest at 6.5% due December, 2018. The note was amended on June 30, 2018 to change
the conversion terms from $0.055 a share to $0.05 a share. The note is unsecured.
|
|
|
1,509,919
|
|
|
|
535,013
|
|
|
|
|
1,579,919
|
|
|
|
605,013
|
|
|
|
|
|
|
|
|
|
|
Less
current maturities
|
|
|
(1,579,919
|
)
|
|
|
(605,013
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
|
|
|
|
|
|
|
|
At
June 30, 2018 future maturities of Notes Payable – Related Parties were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ending June 30:
|
|
|
|
|
|
|
|
|
|
2019
|
$
|
1,579,919
|
|
|
|
|
|
|
|
$
|
1,579,919
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE
10 – EQUITY
The
Company is authorized to issue 100,000,000 common shares at a par value of $0.001 per share. These shares have full voting rights. At
June 30, 2018 and 2017 there were 91,988,177 and 90,613,177 common shares outstanding, respectively.
In
July, 2016 the Company sold 500,000 shares of common stock for $25,000 cash.
In
the years ended June 30, 2018 and 2017 the Company issued 375,000 and 500,000 shares valued at $18,750 and $30,000, which was
the fair market value of the stock, to the CFO as compensation for services under his employment contract.
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.
The
Company has not paid any dividends to its shareholders
NOTE
11 – MERGER AGREEMENT
On
November 2, 2017 the Company formed Freestone Dynamis Acquisition, LLC an Idaho limited liability Company.
On
November 2, 2017, Freestone entered into an Agreement and Plan of Merger (the “Plan”) with Freestone Dynamis Acquisition,
LLC, an Idaho limited liability company and wholly owned subsidiary of the Company (“Merger Sub”), and Dynamis Energy,
LLC, an Idaho limited liability company (“Dynamis”). Pursuant to the terms of the Plan, at the Effective Time (as
defined in the Plan) thereof: (i) Merger Sub will be merged with and into Dynamis, with the separate existence of Merger Sub to
cease and with Dynamis to continue as the surviving entity and as a wholly owned subsidiary of the Company; and (ii) all Units
of Dynamis will be exchanged for shares of the Company’s common stock to be paid in accordance with Article II of the Plan
(the “Merger”). At the closing of the Merger, it is expected that the members and warrant holders of Dynamis will
collectively own or have the right to purchase (through exercising a warrant to purchase Dynamis Units, which the Company will
have the right to exchange shares of its common stock in exchange for such Dynamis Units) shares of the Company’s common
stock, representing approximately seventy five percent (75%) of the Company’s issued and outstanding shares. The Merger
contemplated by the Plan, together with the Rights Offering (as defined below), is intended to qualify as a nontaxable exchange
pursuant to Section 351 of the Internal Revenue Code of 1986, as amended.
The
closing of the Merger is subject to numerous conditions including, but not limited to, the following:
-
At
or one week prior to the Effective Time, the Company shall have commenced a rights offering to its stockholders on the terms set
forth in the Plan (the “Rights Offering”), which Rights Offering shall remain open for a period of 90 days;
-
The
approval by the Company’s stockholders and the filing with the Nevada Secretary of State of an amendment to the Company’s
Articles of Incorporation to increase the number of the Company’s authorized shares of common stock in an amount sufficient
to consummate the Merger, the Rights Offering, the Company’s new equity incentive plan and the other transactions contemplated
by the Plan;
-
The
effectiveness of the Company’s to-be-filed: (i) Registration Statement on Form S-3 relating to the registration under the
Securities Act, of the shares of Company common stock to be issued in its Rights Offering; and (ii) Registration Statement on
Form S-4 relating to the authorization and the registration under the Securities Act of the shares of Company common stock to
be issued in the Merger;
-
Dynamis
members, together with Company stockholders participating in the Rights Offering, shall collectively hold at least 80 percent
of the total issued and outstanding shares of the Company’s stock (other than stock subject to vesting restrictions); and
-
The
Company’s stockholders shall have approved the Company’s new equity incentive plan that is contemplated by the Plan.
In
addition, either party may terminate the Plan at any time prior to closing on certain terms and conditions
As
of June 30, 2018, the two Companies continue to work toward completing the merger. Dynamis Energy has encountered delays in completing
the required audited financial statements to comply with SEC requirements. Freestone remains committed to completing the merger
once these issues are resolved. However, the Company is reviewing all options and seeking additional capital investment.
NOTE
12 - INCOME TAXES
The
Company files a consolidated Federal Income Tax Return. As of June 30, 2018, the Company has a NOL carryforward of approximately
$6,072,000. 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 carryforwards of approximately
$1,275,000 are fully reserved by a valuation allowance due to the uncertainly of their realization.
On
December 22, 2017, the 2017 Tax Cuts and Jobs Act (the Act”) was signed into law. Among other provisions, the Act reduced
the highest corporate tax rate from 35% to 21%. With the passage of the Act, the Company’s deferred tax assets and liabilities
were restated as of the effective date of the law to reflect the new applicable rate. The reduction to the net deferred tax asset
was charged to tax expense in the period of the change and offset by a valuation allowance stemming from historical net operating
loss carryforwards.
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’s share of the year ended December 31, 2017 loss is included in the
consolidated June 30, 2018 return.
The
Company has no tax positions at June 30, 2018 and 2017 for which the ultimate deductibility is highly certain but for which there
is uncertainty about the timing of such deductibility.
Freestone’s
tax returns for the years ended June 30, 2017, 2016, and 2015 and CTR’s tax returns for the periods ended June
30, 2015 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, 2018
|
|
|
|
Year
Ended June 30, 2017
|
|
|
|
|
|
|
|
|
|
|
Income Tax (benefit) computed
at Federal statutory tax rate of 21% and 34%
|
|
$
|
(239,000
|
)
|
|
$
|
(498,000
|
)
|
|
|
|
|
|
|
|
|
|
Loss allocated to non-controlling interest
|
|
|
63,000
|
|
|
|
108,000
|
|
|
|
|
|
|
|
|
|
|
Non-Deductible Stock Compensation Expense
|
|
|
4,000
|
|
|
|
10,000
|
|
|
|
|
|
|
|
|
|
|
Change in valuation allowance
|
|
|
(556,175
|
)
|
|
|
380,000
|
|
|
|
|
|
|
|
|
|
|
Impact of rate changes
on valuation allowance
|
|
|
728,175
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Provision For
Income Taxes
|
|
$
|
—
|
|
|
$
|
—
|
|
NOTE
13 – EMPLOYEE BENEFITS AND AGREEMENTS
Retirement
Plan Contribution:
During
the year ended June 30, 2018 and 2017 the Company contributed $8,597 and $6,815 in matching contributions to the Company’s
IRA plan.
NOTE
14 – COMMITMENTS AND CONTINGENCIES
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 CEO of the Company. In case of change of
control of the Company the agreement is voided.
NOTE
15 – 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
16 – SUBSEQUENT EVENTS
On
August 15, 2018 the Company issued at total of 2,500,000 shares of stock to a note holder for conversion of $150,000 of debt a
$0.05 a share in accordance with the note agreement.
On
August 21, 2018 the Company issued 3,750,000 shares of common stock valued at $.04 a share to its Officers as compensation.
On
October 9, 2018 the Company filed a Pre 14C Form with the SEC notifying stockholders regarding a resolution to file with the Nevada
Secretary of State a Certificate of Change: (i) increasing our authorized shares of common stock from one hundred million (100,000,000)
shares having a par value of one mill ($0.001) per share to six hundred million (600,000,000) shares and retaining the par value
of $0.001 per share (the “Common Stock Resolution”); and (ii) increasing our authorized shares of preferred stock
from five million (5,000,000) shares having a par value of one mill ($0.001) per share to ten million (10,000,000) shares and
retaining the par value of $0.001 per share (the “Preferred Stock Resolution”). Under Nevada law the increase
can be implemented by a joint resolution passed by the board of directors approved by a simple majority of the outstanding shares
The joint resolution included in the Form 14C filing included the approval of ten shareholders representing 51.36% of the outstanding
common shares.