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
If an emerging growth company, indicate by check mark if the registrant
has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided
pursuant to Section 13(a) of the Exchange Act.
☐
Aggregate market value of the voting stock held by non-affiliates
of the registrant as of June 30, 2017: $2,874,437.
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, 2017, the Registrant had
91,738,177 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
Freestone Resources, Inc.
We have audited the accompanying
consolidated balance sheets of Freestone Resources, Inc. (the “Company”) as of June 30, 2017 and 2016, and the related
statements of operations, changes in stockholders' equity, and cash flows for the years then ended. These consolidated financial
statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance
with the standards of the Public Company Accounting Oversight Board (United States of America). Those standards require that we
plan and perform the audits to obtain reasonable assurance about whether the consolidated 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 also includes examining, on a test
basis, evidence supporting the amounts and disclosures in the consolidated financial statements, 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. as of June 30, 2017 and 2016, and the results of its operations and cash flows for the years then ended, in conformity with
accounting principles generally accepted in the United States of America.
The accompanying consolidated financial
statements referred to above have been prepared assuming the Company will continue as a going concern. As discussed in Note 14
to the consolidated financial statements, the Company has not generated sufficient cash flows to fund its business operations.
These factors raise substantial doubt that the Company will be able to continue as a going concern. The consolidated financial
statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ Heaton & Company, PLLC
Farmington, Utah
October 4, 2017
Freestone Resources Inc. and Subsidiaries
|
Consolidated Balance Sheets
|
|
|
|
|
|
|
|
June 30,
|
|
June 30,
|
|
|
2017
|
|
2016
|
ASSETS
|
|
|
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
4,109
|
|
|
$
|
29,791
|
|
Accounts receivable, net of allowance for doubtful accounts of
|
|
|
|
|
|
|
|
|
$4,000 and $4,000
|
|
|
155,845
|
|
|
|
141,134
|
|
Inventory
|
|
|
30,538
|
|
|
|
69,570
|
|
Prepaid and O
ther Assets
|
|
|
44,356
|
|
|
|
43,497
|
|
Total Current Assets
|
|
|
234,848
|
|
|
|
283,992
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net of accumulated depreciation of
|
|
|
|
|
|
|
|
|
$251,287 and $125,436
|
|
|
1,502,810
|
|
|
|
1,641,661
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$
|
1,737,658
|
|
|
$
|
1,925,653
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY/(DEFICIT)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
66,429
|
|
|
$
|
86,661
|
|
Accrued liabilities
|
|
|
313,710
|
|
|
|
205,382
|
|
Environmental liability
|
|
|
400,000
|
|
|
|
400,000
|
|
Convertible Notes Payable - Related Party
|
|
|
605,013
|
|
|
|
50,000
|
|
Current portion of capital lease obligation
|
|
|
11,920
|
|
|
|
11,419
|
|
Current portion of long-term debt
|
|
|
515,527
|
|
|
|
1,162,261
|
|
Total Current Liabilities
|
|
|
1,912,599
|
|
|
|
1,915,723
|
|
|
|
|
|
|
|
|
|
|
Capital lease obligation, less current portion
|
|
|
25,608
|
|
|
|
37,523
|
|
Long-term debt, less current portion
|
|
|
991,893
|
|
|
|
50,279
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES
|
|
|
2,930,100
|
|
|
|
2,003,525
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS' EQUITY/(DEFICIT)
|
|
|
|
|
|
|
|
|
Common stock, $.001 par value, 100,000,000 shares authorized,
|
|
|
|
|
|
|
|
|
91,613,177 and 90,613,177 shares issued and outstanding
|
|
|
91,613
|
|
|
|
90,613
|
|
Additional paid in capital
|
|
|
20,840,503
|
|
|
|
20,786,503
|
|
Accumulated deficit
|
|
|
(22,691,106
|
)
|
|
|
(21,304,159
|
)
|
Total Freestone Resources, Inc. stockholders' deficit
|
|
|
(1,758,990
|
)
|
|
|
(427,043
|
)
|
Non-Controlling Interest
|
|
|
566,548
|
|
|
|
349,171
|
|
Total equity (deficit)
|
|
|
(1,192,442
|
)
|
|
|
(77,872
|
)
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY/(DEFICIT)
|
|
$
|
1,737,658
|
|
|
$
|
1,925,653
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Accompanying Notes Are An Integral Part of These Consolidated Financial Statements
|
|
Freestone Resources Inc. and Subsidiaries
|
Consolidated Statements of Operations
|
|
|
|
|
|
|
|
Year Ended
|
|
Year Ended
|
|
|
June 30,
|
|
June 30,
|
|
|
2017
|
|
2016
|
|
|
|
|
|
REVENUE
|
|
|
|
|
|
|
|
|
Tipping Fee Revenue
|
|
$
|
537,344
|
|
|
$
|
552,115
|
|
Tire Repair Revenue
|
|
|
357,959
|
|
|
|
370,298
|
|
Used Tire Sales
|
|
|
122,742
|
|
|
|
137,900
|
|
Scrap Material Sales
|
|
|
61,801
|
|
|
|
38,613
|
|
Total Revenue
|
|
|
1,079,846
|
|
|
|
1,098,926
|
|
|
|
|
|
|
|
|
|
|
COSTS OF REVENUE
|
|
|
|
|
|
|
|
|
Tipping Fee Operations
|
|
|
271,941
|
|
|
|
205,799
|
|
Tire Repair and Sales
|
|
|
156,043
|
|
|
|
155,531
|
|
Used Tires
|
|
|
57,926
|
|
|
|
81,629
|
|
Tire Disposal
|
|
|
353,097
|
|
|
|
637,730
|
|
Total Cost of Revenue
|
|
|
839,007
|
|
|
|
1,080,689
|
|
|
|
|
|
|
|
|
|
|
GROSS PROFIT
|
|
|
240,839
|
|
|
|
18,237
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES
|
|
|
|
|
|
|
|
|
Start Up Costs
|
|
|
307,704
|
|
|
|
418,287
|
|
Selling
|
|
|
187,320
|
|
|
|
199,274
|
|
General and Administrative
|
|
|
930,902
|
|
|
|
1,649,605
|
|
Depreciation and Amortization
|
|
|
125,851
|
|
|
|
118,978
|
|
Loss on Sale of Assets
|
|
|
6,200
|
|
|
|
2,111
|
|
Total Operating Expense
|
|
|
1,557,977
|
|
|
|
2,388,255
|
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) FROM OPERATIONS
|
|
|
(1,317,138
|
)
|
|
|
(2,370,018
|
)
|
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSES)
|
|
|
|
|
|
|
|
|
Interest Expense, net
|
|
|
(165,312
|
)
|
|
|
(134,271
|
)
|
|
|
|
(165,312
|
)
|
|
|
(134,271
|
)
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) BEFORE NON-CONTROLLING INTEREST
|
|
|
(1,482,450
|
)
|
|
|
(2,504,289
|
)
|
|
|
|
|
|
|
|
|
|
Loss Attributable to Non-Controlling Interest
|
|
|
95,503
|
|
|
|
126,115
|
|
|
|
|
|
|
|
|
|
|
NET INCOME(LOSS) ATTRIBUTABLE TO FREESTONE
|
|
$
|
(1,386,947
|
)
|
|
$
|
(2,378,174
|
)
|
|
|
|
|
|
|
|
|
|
Basic and diluted income (loss) per share
|
|
|
|
|
|
|
|
|
Net income (loss) per share
|
|
$
|
(0.02
|
)
|
|
|
(0.03
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
91,273,793
|
|
|
|
86,963,484
|
|
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, 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&G 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
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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,
|
|
|
2017
|
|
2016
|
|
|
|
|
|
CASH FLOW FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
Net Income (Loss)
|
|
$
|
(1,482,450
|
)
|
|
$
|
(2,504,289
|
)
|
Adjustments to reconcile net income (loss) to net cash provided
|
|
|
|
|
|
|
|
|
by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
125,851
|
|
|
|
118,978
|
|
Loss on Disposal of Assets
|
|
|
6,200
|
|
|
|
2,111
|
|
Bargain Purchase Gain
|
|
|
—
|
|
|
|
—
|
|
Stock Issued for Services
|
|
|
30,000
|
|
|
|
852,750
|
|
Changes in operating assets and liabilities
|
|
|
|
|
|
|
|
|
Decrease in Accounts Receivable
|
|
|
(14,711
|
)
|
|
|
(42,626
|
)
|
Decrease in Inventory
|
|
|
39,032
|
|
|
|
52,430
|
|
Increase in Prepaid Expenses
|
|
|
(859
|
)
|
|
|
7,654
|
|
Increase in Accounts Payable
|
|
|
355,977
|
|
|
|
580,990
|
|
Increase (Decrease) in Accrued Liabilities
|
|
|
108,328
|
|
|
|
132,605
|
|
Net Cash (Used In) Operating Activities
|
|
|
(832,632
|
)
|
|
|
(799,397
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOW FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
Purchase of Fixed Assets
|
|
|
—
|
|
|
|
(19,419
|
)
|
Proceeds from Sale of Fixed Assets
|
|
|
6,800
|
|
|
|
—
|
|
Net Provided By (Cash Used) in Investing Activities
|
|
|
6,800
|
|
|
|
(19,419
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOW FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Proceeds from sale of stock
|
|
|
25,000
|
|
|
|
435,000
|
|
Proceeds from Long-Term Debt
|
|
|
5,000
|
|
|
|
70,000
|
|
Proceeds from Convertible Notes Payable - Related Parties
|
|
|
555,013
|
|
|
|
50,000
|
|
Repayment of Debt
|
|
|
(72,186
|
)
|
|
|
(61,083
|
)
|
Capital Lease Payments
|
|
|
(11,414
|
)
|
|
|
(7,795
|
)
|
Cash Contributed to LLC by non-controlling member
|
|
|
298,737
|
|
|
|
324,113
|
|
Net Provided By In Financing Activities
|
|
|
800,150
|
|
|
|
810,235
|
|
|
|
|
|
|
|
|
|
|
Net Decrease in Cash
|
|
|
(25,682
|
)
|
|
|
(8,581
|
)
|
|
|
|
|
|
|
|
|
|
Cash at Beginning of the Period
|
|
|
29,791
|
|
|
|
38,372
|
|
|
|
|
|
|
|
|
|
|
Cash at the End of the Period
|
|
$
|
4,109
|
|
|
$
|
29,791
|
|
|
|
|
|
|
|
|
|
|
Cash Transactions
|
|
|
|
|
|
|
|
|
Total Amount of Interest Paid in Cash
|
|
$
|
81,331
|
|
|
$
|
10,613
|
|
|
|
|
|
|
|
|
|
|
Total Income Taxes Paid in Cash
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
Non Cash financing and Investing Activities
|
|
|
|
|
|
|
|
|
Accrued Interest and Penalities Added to Note Payable
|
|
$
|
362,066
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
Note Payable for Fixed Assets
|
|
$
|
—
|
|
|
$
|
123,899
|
|
|
|
|
|
|
|
|
|
|
Note assumed by Buyer in Sale of Vehicle
|
|
$
|
—
|
|
|
$
|
12,109
|
|
|
|
|
|
|
|
|
|
|
Services paid for drectly by non-controlling interest
|
|
$
|
14,143
|
|
|
$
|
150,873
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Accompanying Notes Are An Integral Part of These Consolidated Financial Statements
|
|
|
Freestone Resources Inc. and Subsidiaries
Notes to Financial Statements
June 30, 2017 and 2016
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."
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
Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09,
Revenue from Contracts with Customers (Topic 606) in May 2014. ASU No. 2014-09 outlines a single, comprehensive revenue recognition
model for revenue derived from contracts with customers and it supersedes the most current revenue recognition guidance. This
includes current guidance that is industry-specific. Under ASU No. 2014-09, an entity recognizes revenue for the transfer of promised
goods or services to customers in an amount that reflects the consideration for which the entity expects to be entitled in exchange
for those goods or services. ASU No. 2014-09 is effective for annual reporting periods beginning after December 15, 2017. Earlier
adoption is permitted as of annual reporting periods beginning after December 15, 2016. The Company is still evaluating the impacts
it will have on its current revenue recognition policy.
On
May 10, 2017, the FASB issued ASU 2017-09, which amends the scope of modification accounting for share-based payment arrangements.
The ASU provides guidance on the types of changes to the terms or conditions of share-based payment awards to which an entity
would be required to apply modification accounting under ASC 718. Specifically, an entity would not apply modification accounting
if the fair value, vesting conditions, and classification of the awards are the same immediately before and after the modification.
ASU No. 2017-09 is effective for annual reporting periods beginning after December 15, 2017. The Company is still evaluating the
impacts it will have on its current revenue recognition policy.
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, 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, 2017 and 2016, respectively.
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, 2017 and 2016 inventory consisted of:
|
|
2017
|
|
2016
|
Crum Rubber for Processing
|
|
$
|
8,087
|
|
|
$
|
8,087
|
|
Used Tire for Resale
|
|
|
15,041
|
|
|
|
49,945
|
|
Tire Oil
|
|
|
7,410
|
|
|
|
11,538
|
|
|
|
$
|
30,538
|
|
|
$
|
69,570
|
|
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.
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, 2017 and 2016, 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 375,000 for stock compensation and 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,
2016 and 2017, Dynamis paid $150,873 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 $324,113 and $298,737 to the entity during
the year ended June 30, 2016 and 2017, respectively.
NOTE 4 – CONCENTRATION OF
CREDIT RISK
At June 30, 2017 and 2016 two customers
made up 64% and three customers made up 77% of the Company’s outstanding trade accounts receivable balance, respectively.
For the years ending June 30, 2017 and 2016 three customers and two customer accounted for 68% and 60% of the Company’s net
revenue, respectively.
NOTE 5 – PROPERTY, PLANT AND
EQUIPMENT
|
|
|
|
|
At June 30, 2017 and 2016 Property, Plant and Equipment was as follows:
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
|
2016
|
|
Land
|
|
$
|
360,000
|
|
|
$
|
360,000
|
|
Buildings and Improvements
|
|
|
700,000
|
|
|
|
700,000
|
|
Computers and Office Furniture
|
|
|
8,967
|
|
|
|
21,967
|
|
Automotive Equipment
|
|
|
120,585
|
|
|
|
120,585
|
|
Machinery and Equipment
|
|
|
507,807
|
|
|
|
507,807
|
|
Capital Lease Assets
|
|
|
56,738
|
|
|
|
56,738
|
|
|
|
|
1,754,097
|
|
|
|
1,767,097
|
|
Less Accumulated Depreciation
|
|
|
251,287
|
|
|
|
125,436
|
|
|
|
$
|
1,502,810
|
|
|
$
|
1,641,661
|
|
|
|
|
|
|
|
|
|
|
For the year ended June 30, 2017 and
2016 depreciation expense was $125,851 and $118,978, 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. CTR had recorded liabilities
totaling $320,000 at June 30, 2014 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 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. The liability is considered short-term and the balance at June 30, 2017 was $400,000.
NOTE 7 – CAPITAL LEASE OBLIGATIONS
Capital lease assets of $56,738 and $56,738
and accumulated amortization of $20,209 and $8,861 are included in property, plant and equipment on the balance sheet at June 30,
2017 and 2016, respectively. For the year ended June 30, 2017 and 2016 amortization expense was $11,348 and $8,861, respectively.
At June 30, 2017 and 2016 capital lease obligations were as follows:
|
|
|
|
|
|
|
|
2017
|
|
|
|
2016
|
|
Lease payable bearing interest at 4.95% with monthly payments of $315 maturing August 2019. The lease is secured by equipment.
|
|
$
|
7,758
|
|
|
$
|
11,069
|
|
Lease payable bearing interest at 3.95% with
monthly payments of $309 maturing December, 2020. The lease is secured by equipment.
|
|
|
11,934
|
|
|
|
14,969
|
|
Lease payable bearing interest at 4.78% with monthly payments of $489 maturing September, 2020. The lease is secured by equipment.
|
|
|
17,836
|
|
|
|
22,904
|
|
|
|
|
37,528
|
|
|
|
48,942
|
|
|
|
|
|
|
|
|
|
|
Less current maturities
|
|
|
(11,920
|
)
|
|
|
(11,419)
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
28,608
|
|
|
$
|
37,523
|
|
|
|
|
|
|
|
|
|
|
At June 30, 2017 future maturities of capital lease obligations were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ending June 30:
|
|
|
|
|
|
|
|
|
|
2018
|
$
|
11,920
|
|
|
|
|
|
|
2019
|
$
|
12,484
|
|
|
|
|
|
|
2020
|
$
|
9,839
|
|
|
|
|
|
|
2021
|
$
|
3,285
|
|
|
|
|
|
|
|
$
|
37,528
|
|
|
|
|
|
NOTE 8 – NOTES PAYABLE
At June 30, 2017 and 2016 notes payable were as follows:
|
|
|
|
|
|
|
|
2017
|
|
|
|
2016
|
|
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
|
|
|
$
|
5,676
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
79,293
|
|
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
|
|
|
|
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
|
|
Line of Credit with Bank maximum $75,000 bearing
interest at 6.5% due March, 2018. Line is secured by accounts receivable.
|
|
|
75,000
|
|
|
|
70,000
|
|
Note payable to seller in connection with purchase
of CTR bearing interest at 12% maturing June, 2020. Note amended to add $360,065 of accrued interest and penalties to principal
in February, 2017. Interest only payable until July, 2017. Monthly payment of $45,904 thereafter. Secured by the common stock and
assets of CTR
|
|
|
1,382,065
|
|
|
|
1,020,000
|
|
|
|
|
1,507,420
|
|
|
|
1,262,540
|
|
|
|
|
|
|
|
|
|
|
Less current maturities
|
|
|
(515,527
|
)
|
|
|
(1,212,261
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
991,893
|
|
|
$
|
50,279
|
|
|
|
|
|
|
|
|
|
|
At June 30, 2017 future maturities of long term debt were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ending June 30:
|
|
|
|
|
|
|
|
|
|
2018
|
$
|
515,527
|
|
|
|
|
|
|
2019
|
$
|
467,387
|
|
|
|
|
|
|
2020
|
$
|
524,506
|
|
|
|
|
|
|
|
$
|
1,507,420
|
|
|
|
|
|
NOTE 9 – NOTES PAYABLE
– RELATED PARTIES
At June 30, 2017 and 2016 notes payable to officers and shareholders were as follows:
|
|
|
|
|
|
|
|
6/30/17
|
|
|
|
6/30/16
|
|
Note payable to officer bearing interest at
6.5% due December, 2017. The note is convertible into common stock at $.055 a share at maturity. The note is unsecured.
|
|
|
50,000
|
|
|
|
50,000
|
|
Note payable to stockholder bearing interest
at 6.5% due December, 2017. The note is convertible into common stock at $.05 a share at maturity. The note is unsecured.
|
|
|
20,000
|
|
|
|
–
|
|
Note payable to stockholder bearing interest
at 6.5% due December, 2017. The note is convertible into common stock at $.055 a share at maturity. The note is unsecured.
|
|
|
535,013
|
|
|
|
–
|
|
|
|
|
605,013
|
|
|
|
50,000
|
|
|
|
|
|
|
|
|
|
|
Less current maturities
|
|
|
(605,013
|
)
|
|
|
(50,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
|
|
|
|
|
|
|
|
At June 30, 2017 future maturities of Notes Payable – Related Parties were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ending June 30:
|
|
|
|
|
|
|
|
|
|
2018
|
$
|
605,013
|
|
|
|
|
|
|
|
$
|
605,013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 2017 and 2016, 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 years ended June 30:
|
|
2017
|
|
2016
|
Asset retirement obligations beginning period
|
|
$
|
—
|
|
|
$
|
14,470
|
|
Accretion expense
|
|
|
—
|
|
|
|
—
|
|
Assumed by Buyer of Property
|
|
|
—
|
|
|
|
(14,470
|
)
|
Asset retirement obligations, end of period
|
|
$
|
—
|
|
|
$
|
—
|
|
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, 2017 and 2016 there
were 91,613,177 and 90,613,177 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.
In July, 2016 the Company sold 500,000
shares of common stock for $25,000 cash.
In September, 2015 the Company issued
1,350,000 shares of common stock valued at $256,500 to officers of the Company.
In January, 2016 the Company issued 3,000,000
shares of common stock valued at $540,000 to its new CEO in conjunction with his employment contract. See Note 12.
In January, 2016 the Company issued 100,000
shares of common Stock valued at $18,000 to consultant as compensation for services.
In the years ended June 30, 2016 and 2017
the Company issued 275,000 and 500,000 shares valued at $38,250 and $30,000 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 12 – INCOME TAXES
The Company files a consolidated Federal
Income Tax Return. As of June 30, 2017 the Company has a NOL carryforward of approximately $5,600,000. 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
$1,905,000 are fully reserved by a valuation allowance due to the uncertainly of their realization.
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, 2017 and 2016 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, 2015 and 2014 and CTR’s tax returns for the periods ended June 30,
2015 and December 31, 2014 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, 2017
|
|
|
|
Year Ended June 30, 2016
|
|
|
|
|
|
|
|
|
|
|
Income Tax (benefit) computed at Federal statutory tax rate of 34%
|
|
$
|
(498,000
|
)
|
|
$
|
(809,000
|
)
|
|
|
|
|
|
|
|
|
|
Loss allocated to non-controlling interest
|
|
|
108,000
|
|
|
|
143,000
|
|
|
|
|
|
|
|
|
|
|
Non-Deductible Stock Compensation Expense
|
|
|
10,000
|
|
|
|
290,000
|
|
|
|
|
|
|
|
|
|
|
Non-Deductible Travel & Entertainment
|
|
|
—
|
|
|
|
8,000
|
|
|
|
|
|
|
|
|
|
|
Change in valuation allowance
|
|
|
380,000
|
|
|
|
368,000
|
|
|
|
|
|
|
|
|
|
|
Provision For Income Taxes
|
|
$
|
—
|
|
|
$
|
—
|
|
NOTE 13 – EMPLOYEE BENEFITS
AND AGREEMENTS
Officer Agreements:
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 CFO.
Retirement Plan Contribution:
During the year ended June 30, 2017 and
2016 the Company contributed $6,185 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
In July, 2017 the Company extended its
note payable to an officer for $50,000 and its note payable to a shareholder for $535,008 both originally due July 25, 2017 to
both being extended to having a maturity date of December 31, 2017. All other terms of the notes remained the same.
On September 30, 2017 the Company issued
125,000 shares of common stock to its Chief Financial Officer for services rendered under his employment contract.