Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes |X| No |    |

As of May 11, 2008 there were 35,115,260 shares of Common Stock of the issuer outstanding.

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Freestone Resources, Inc.
Consolidated Balance Sheets
		(Unaudited)
		September 30, 2008				June 30, 2008
Assets
Current Assets
Cash		$	9,646			$	13,548
Accounts receivable			2,283				42,260
Note receivable			-				16,468
Inventory of Petrozene			90,771				-
Total Current Assets			102,700				72,276
Fixed assets, net			337,260				344,202
Other assets			10,000				-
Petrozene contract, net			1,000				1,000
			11,000				1,000
Total Assets		$	450,960			$	417,478
Liabilities and Stockholders’ Equity
Current Liabilities
Accounts payable		$	1,816			$	23,625
Accounts payable – related party			107,658				5,872
Note payable			-				1,721
Current portion – long term debt			12,267				12,267
Total Current Liabilities			121,741				43,485
Long-term Liabilities:
Note payable			42,489				43,251
Other Long-term Liabilities:
Asset  Retirement Obligations Liability			34,888				34,888
Total Liabilities			199,118				121,624
Stockholders’ Equity:
Preferred stock, $.001 par value, 5,000,000 shares
authorized, -0- shares issued and outstanding
Common stock, $.001 par value, 100,000,000 shares
authorized, 52,180,260 and 50,025,260 shares issued
and outstanding respectively			52,180				50,025
Additional paid in capital			14,177,429				13,964,084
Accumulated deficit			-13,977,767				-13,718,255
Total stockholders’ equity			251,842				295,854
Total Liabilities and Stockholders’ Equity		$	450,960			$	417,478

The accompanying notes are an integral part of these financial statements.

 

 

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Freestone Resources, Inc.
Consolidated Statements of Operations
(Unaudited)
		Three Months Ended				Three Months Ended
		September 30, 2008				September 30, 2007
Revenue
Oil & Gas		$	36,232			$	-
Total Revenue			36,232				-
Operating Expense:
Cost of Sales			4,558				-
Lease Operating Costs			42,091				-
Depreciation and Depletion			6,942				-
General and Administrative			239,162				118,025
Total Operating Expenses			292,753				118,025
Net Operating loss			(256,521	)			(118,025	)
Other income :
Interest expense			(2,991	)			-
Total other income			(2,991	)			-
Net Loss		$	(259,512	)		$	(118,025	)
Basic and diluted income (loss) per share:
Net loss per share		$	0.00			$	(0.01	)
Weighted average shares outstanding:
Basic and diluted			52,156,836				19,577,217

 

The accompanying notes are an integral part of these financial statements.

 

 

 

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		Freestones Resources, Inc.
		Consolidated Statement of Shareholders' Equity
		(Unaudited)
		Common Stock								Additional				Accumulated
		Shares				Amount				paid in capital				Deficit					Total
Balance, June 30, 2008			50,025,260			$	50,025			$	13,964,084			$	(13,718,255	)			$	295,854
Common stock issued for Services			2,155,000				2,155				213,345									215,500
Net Loss															(259,512	)				(259,512	)
Balance, September 30, 2008			52,180,260			$	52,180			$	14,177,429			$	(13,977,767	)			$	251,842

 

 

The accompanying notes are an integral part of these financial statements.

 

 

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Freestone Resource, Inc. Consolidated Statements of Cash Flows (Unaudited)

 

		Three Months Ended				Three Months Ended
		September 30, 2008				September 30, 2007
CASH FLOWS FROM OPERATING ACTIVITIES:
Net  loss		$	(259,512	)		$	(118,025	)
Adjustments to reconcile net loss to net cash used in operating activities:			-				-
Depreciation and Amortization			6,942				-
Shares issued for services			215,500				108,000
Change in accounts receivable			39,977				-
Change in note receivable			16,468				-
Change in inventory			(90,771	)			-
Change in operating assets			(10,000	)			-
Change in accounts payable			(23,530	)			10,025
Change in note payable			101,786				-
Net cash used in operating activities			(3,140	)			-
CASH FLOWS USED IN INVESTING ACTIVITIES			-				-
CASH FLOWS USED IN FINANCING ACTIVITIES
Payments on loans			(762	)			-
Net cash used for financing activities			(762	)			-
NET CHANGE IN CASH			(3,902	)			-
CASH AT BEGINNING OF PERIOD			13,548				-
CASH AT END OF PERIOD		$	9,646			$	-
Supplemental cash flow information:
Cash paid for interest		$	2,991			$	-

 

The accompanying notes are an integral part of these financial statements.

 

 

 

 

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Freestones Resources, Inc.

Notes to Consolidated Financial Statements

(Unaudited)

Note 1 – Basis of Presentation

The accompanying unaudited interim consolidated financial statements of Freestone Resources, Inc. (“Freestone” or “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission. The results of operations for the three months ended September 30, 2008 are not necessarily indicative of the results of operations for the full year or any other interim period.  The information included in this Form 10-Q should be read in conjunction with Management's Discussion and Analysis and Financial Statements and notes thereto included in the Company’s June 30, 2008 Form 10-K.  Notes to the consolidated financial statements which substantially duplicate the disclosure contained in the audited financial statements for fiscal 2008 as reported in the Form 10-K have been omitted.

Critical Accounting Policies

Oil and Gas Properties - Freestone uses the full cost method of accounting for oil and gas properties.  Management believes adoption of the full cost method more accurately reflects management's exploration objectives and results by including all costs incurred as integral for the acquisition, discovery and development of whatever reserves ultimately result from our efforts as a whole.  Under the full cost method of accounting, all costs associated with acquisition, exploration and development of oil and gas reserves, including directly related overhead costs, are capitalized.  Such costs include lease acquisitions, seismic surveys, drilling and completion equipment, estimated future development costs and, where significant, dismantlement, restoration and abandonment costs, net of estimated salvage values. All capitalized costs of oil and gas properties are amortized on the unit-of-production method using estimates of proved reserves.

Investments in unproved properties and major development projects are not amortized until proved reserves associated with the projects can be determined or until impairment occurs.  Unproved or unevaluated properties are evaluated at least annually for impairment on a property-by-property basis.  If the results of an assessment indicate that the properties are impaired, the amount of impairment is added to the proved oil and natural gas property costs to be amortized.

The capitalized costs are subject to a "full cost ceiling test," which generally limits such costs to the aggregate of the "estimated present value," discounted at a 10 percent (10%) interest rate, of future net revenues from proved reserves, based on current economic and operating conditions, plus the lower of cost or fair market value of unproved properties.  If net capitalized costs exceed this limit, the excess is charged to operations through depreciation, depletion and amortization.  Sales of proved and unproved properties are accounted for as adjustments of capitalized costs with no gain or loss recognized, unless such adjustments would significantly alter the relationship between capitalized costs and proved reserves of oil and gas, in which case the gain or loss is recognized in income.

 

Freestone proportionally consolidates its interests in oil and natural gas properties.

Earnings per share - Basic earnings (loss) per share are computed by dividing net income (loss) by the weighted average number of common shares outstanding for the period.  Diluted earnings (loss) per share include the effects of any outstanding options, warrants and other potentially dilutive securities.  For the periods presented, there were no potentially dilutive securities outstanding.

 

 

 

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Note 2 – Going Concern

As reflected in the accompanying consolidated financial statements, Freestone incurred operating losses, and has a negative working capital position as of September 30, 2008.  The above factors raise substantial doubt about Freestone's ability to continue as a going concern.  Freestone's continued existence is dependent on its ability to obtain additional equity and/or debt financing to fund its operations.  Freestone plans to raise additional financing and to increase sales volume.  There is no assurance that Freestone will obtain additional financing or achieve profitable operations or cash inflows.  The financial statements do not include any adjustments relating to the recoverability or classification of recorded asset amounts or the amount and classification of liabilities that might be necessary as a result of this uncertainty.

Note 3 – Common Stock

During the three months ended September 30, 2008, Freestone issued 2,155,000 shares of common stock valued at $215,500 to consultants for services. The shares were valued at the closing price of the common stock on the day of issuance.

Note 4 – Change in Control

On July 1, 2008, the Company agreed to accept the resignation of the following officers and directors:

 

 

Lloyd Lane	President and Director
Tom Bonner	Secretary and Director

On July 1, 2008, the Company appointed the following officers and directors:

 

Mike Doran	Chief Executive Officer and Director
Clayton Carter	President and Director