U.S.
SECURITIES AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-Q








(Mark
One)





[ X
]  QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934





For the
quarterly period ended December 31, 2008





OR





[    ] 
TRANSITION REPORT UNDER SECTION
13 OF 15(d) OF THE EXCHANGE ACT OF 1934





Commission
File Number 000-28753





FREESTONE RESOURCES,
INC.


(Exact
name of small business issuer as specified in its charter)






Nevada
                
                333-0880427(State
      or other jurisdiction of incorporation or organization)
                
                (IRS
      Employer Identification No.)





Republic Center, Suite 1350,
325 N. St. Paul Street Dallas, TX 75201


(Address
of principal executive offices)





(214)
880-4870


(Issuer's
telephone number)





2000 E. Lamar Blvd. Ste. 600
Arlington, TX 76006


(Former
name, former address and former fiscal year, if changed since last
report)





Indicate
by check mark whether the registrant (1) filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days: Yes
|   | No |X|





Indicate
by check mark whether the Registrant is a large accredited filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the
definitions of “large accredited filer”, “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act:






Large
      Accredited Filer [  ]
            Accelerated
      Filer [  ]Non-Accredited
      Filer   [  ]
            Smaller
      Reporting Company [X]




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
18, 2008 there were 35,115,260 shares of Common Stock of the issuer
outstanding.




















Freestone
      Resources, Inc.Consolidated
      Balance Sheets(Unaudited)December
      31, 2008
                
                
                June
      30, 2008AssetsCurrent
      Assets:Cash
                
                $
                22,641
                
                
                $
                13,548Accounts
      receivable
                
                
                5,183
                
                
                
                42,260Note
      receivable
                
                
                -
                
                
                
                16,468Inventory
      of Petrozene
                
                
                90,771
                
                
                
                -Total
      Current Assets
                
                
                118,595
                
                
                
                72,276Fixed
      assets, net
                
                
                366,780
                
                
                
                344,202Other
      assets
                
                
                11,300
                
                
                
                -Petrozene
      contract, net
                
                
                1,000
                
                
                
                1,00012,300
                
                
                
                1,000Total
      Assets
                
                $
                497,675
                
                
                $
                417,478Liabilities
      and Stockholders’ EquityCurrent
      Liabilities:Accounts
      payable
                
                $
                63,587
                
                
                $
                23,625Accounts
      payable – related party
                
                
                101,786
                
                
                
                5,872Note
      payable
                
                
                15,000
                
                
                
                1,721Current
      portion – long term debt
                
                
                12,267
                
                
                
                12,267Total
      Current Liabilities
                
                
                192,640
                
                
                
                43,485Long-term
      Liabilities:Long-term
      debt
                
                
                41,189
                
                
                
                43,251Asset  retirement
      obligations liability
                
                
                34,888
                
                
                
                34,888Total
      Liabilities
                
                
                268,717
                
                
                
                121,624Stockholders’
      Equity:Preferred
      stock, $.001 par value, 5,000,000 sharesauthorized,
      -0- shares issued and outstandingCommon
      stock, $.001 par value, 100,000,000 sharesauthorized,
      52,180,260 and 50,025,260 shares issuedand
      outstanding respectively
                
                
                52,180
                
                
                
                50,025Additional
      paid in capital
                
                
                14,177,429
                
                
                
                13,964,084Accumulated
      deficit
                
                
                (14,000,651
                )
                
                
                (13,718,255
                )Total
      stockholders’ equity
                
                
                228,958
                
                
                
                295,854Total
      Liabilities and Stockholders’ Equity
                
                $
                497,675
                
                
                $
                417,478





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









2









Freestone
      Resources, Inc.Consolidated
      Statements of Operations(Unaudited)Three Months
      Ended
                  
                  
                  Six
      Months EndedDecember
                  
                  
                  December
                  
                  
                  December
                  
                  
                  December31,
      2008
                  
                  
                  
                  31,
      2007
                  
                  
                  
                  31,
      2008
                  
                  
                  
                  31,
      2007Revenue:Oil
      and gas
                  
                  $
                  33,030
                  
                  
                  $
                  39,269
                  
                  
                  $
                  69,262
                  
                  
                  $
                  39,269Petrozene
                  
                  
                  -
                  
                  
                  
                  402,326
                  
                  
                  
                  -
                  
                  
                  
                  402,326Total
      revenue
                  
                  
                  33,030
                  
                  
                  
                  441,595
                  
                  
                  
                  69,262
                  
                  
                  $
                  441,595Operating
      expenses:Cost
      of sales
                  
                  
                  940
                  
                  
                  
                  151,800
                  
                  
                  
                  5,499
                  
                  
                  
                  151,800Lease
      operating costs
                  
                  
                  5,072
                  
                  
                  
                  2,457
                  
                  
                  
                  47,164
                  
                  
                  
                  2,457Depreciation
      and depletion
                  
                  
                  6,943
                  
                  
                  
                  5,753
                  
                  
                  
                  13,885
                  
                  
                  
                  5,753General
      and administrative
                  
                  
                  41,765
                  
                  
                  
                  50,558
                  
                  
                  
                  280,925
                  
                  
                  
                  168,489Total
      operating expenses
                  
                  
                  54,720
                  
                  
                  
                  210,568
                  
                  
                  
                  347,473
                  
                  
                  
                  328,499Net
      operating income
                  
                  
                  (21,690
                  )
                  
                  
                  231,027
                  
                  
                  
                  (278,211
                  )
                  
                  
                  113,096Other
      income (expense)Interest
      expense
                  
                  
                  (1,194
                  )
                  
                  
                  -
                  
                  
                  
                  (4,185
                  )
                  
                  
                  (94
                  )Total
      other income (expense)
                  
                  
                  (1,194
                  )
                  
                  
                  -
                  
                  
                  
                  (4,185
                  )
                  
                  
                  (94
                  )Net
      Income / (Loss)
                  
                  $
                  (22,884
                  )
                  
                  $
                  231,027
                  
                  
                  $
                  (282,396
                  )
                  
                  $
                  113,002Basic
      and diluted income (loss) per share
                  
                  $
                  0.00
                  
                  
                  $
                  0.01
                  
                  
                  $
                  (0.01
                  )
                  
                  $
                  0.00Weighted
      average shares outstanding:Basic
      and diluted
                  
                  
                  52,180,260
                  
                  
                  
                  39,732,869
                  
                  
                  
                  52,168,548
                  
                  
                  
                  29,655,043










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








3


Freestones
      Resources, Inc.Consolidated
      Statement of Shareholders' Equity(Unaudited)Common
      Stock
                                                    
                                                    
                                                    Additional
                                                    
                                                    
                                                    AccumulatedShares
                                                    
                                                    
                                                    Amount
                                                    
                                                    
                                                    paid
      in capital
                                                    
                                                    
                                                    Deficit
                                                    
                                                    
                                                    
                                                    TotalBalance,
      June 30, 2008
                                                    
                                                    
                                                    50,025,260
                                                    
                                                    
                                                    $
                                                    50,025
                                                    
                                                    
                                                    $
                                                    13,964,084
                                                    
                                                    
                                                    $
                                                    (13,718,255
                                                    )
                                                    
                                                    
                                                    $
                                                    295,854Common
      stock issued for Services
                                                    
                                                    
                                                    2,155,000
                                                    
                                                    
                                                    
                                                    2,155
                                                    
                                                    
                                                    
                                                    213,345
                                                    
                                                    
                                                    $
                                                    -
                                                    
                                                    
                                                    
                                                    
                                                    215,500Net
      Loss
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    (282,396
                                                    )
                                                    
                                                    
                                                    
                                                    (282,396
                                                    )Balance,
      December 31, 2008
                                                    
                                                    
                                                    52,180,260
                                                    
                                                    
                                                    $
                                                    52,180
                                                    
                                                    
                                                    $
                                                    14,177,429
                                                    
                                                    
                                                    $
                                                    (14,000,651
                                                    )
                                                    
                                                    
                                                    $
                                                    228,958





















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












4












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




Six
      Months Ended December 31,2008
                
                
                2007CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      income (loss)
                
                $
                (282,396
                )
                
                $
                113,002Adjustments
      to reconcile net loss from continuing operations to net cash used in
      operating activities:Depreciation
      and amortization
                
                
                13,885
                
                
                
                5,753Shares
      issued for services
                
                
                215,500
                
                
                
                136,000Change
      in account receivable
                
                
                37,077
                
                
                
                (286,297
                )Change
      in note receivable
                
                
                16,468
                
                
                
                -Change
      in inventory of Petrozene
                
                
                (90,771
                )
                
                
                -Change
      in other assets
                
                
                (11,300
                )
                
                
                (1,000
                )Change
      in accounts payable
                
                
                39,962
                
                
                
                36,391Change
      in accounts payable - related party
                
                
                95,914
                
                
                
                -Net
      cash provided by operating activities
                
                
                34,339
                
                
                
                3,849CASH
      FLOWS FROM INVESTING ACTIVITIES:Purchases
      of fixed assets
                
                
                (36,463
                )
                
                
                -Net
      cash used in investing activities
                
                
                (36,463
                )
                
                
                -CASH
      FLOWS FROM FINANCING ACTIVITES:Proceeds
      from note payable
                
                
                13,279
                
                
                
                -Payments
      on long-term debt
                
                
                (2,062
                )
                
                
                -Net
      cash provided by financing activities
                
                
                11,217
                
                
                
                -NET
      CHANGE IN CASH
                
                
                9,093
                
                
                
                3,849CASH
      AT BEGINNING OF PERIOD
                
                
                13,548
                
                
                
                -CASH
      AT END OF PERIOD
                
                $
                22,641
                
                
                $
                3,849Supplemental
      cash flow information:Cash
      paid for interest
                
                $
                4,185
                
                
                $
                612Non-cash
      investing activities:Acquisition
      of oil and gas interests and fixed assets for stock
                
                $
                -
                
                
                $
                330,989Assumption
      of accounts payable and note payable
                
                $
                -
                
                
                $
                181,412










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








5







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 December 31, 2008 and six months ended
December 31, 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 unproven properties were purchased in order to test
the Company’s keystone product Petrozene, and allow the Company to continue
research and development of this product.





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.














6






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
December 31, 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





On July
2, 2008 Freestone issued 2,155,000 shares of common stock valued at $215,500 to
consultants for services.





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





Note
5 – Freestone Technologies, LLC





On
October 24, 2008 Freestone established and incorporated Freestone Technologies,
LLC (the “Subsidiary”) in the state of Texas.  The Subsidiary is
wholly owned by Freestone and has certain assets and liabilities relating to the
purchase of oil wells.  These wells were purchased as additional test
wells for Petrozene.  The assets and liabilities of the Subsidiary are
included in the consolidated financial statements of Freestone.






Note
6 – Subsequent Events





On April
17, 2009 the Company entered into an agreement with Lloyd Lane, Tom Bonner, Mike
Doran, Jimmy Carter, Clayton Carter and Capital Financial Consultants to
liquidate their investments in Freestone.  Each  surrendered
his Freestone common stock issued to him (an aggregate of 27,865,000 shares)
upon forming Freestone in exchange for a building, certain oil and gas assets,
the assumption of certain liabilities related to those assets and assignment of
a Petrozene supply contract.





On April
21, 2009 the Company issued 2,000,000 restricted shares of common stock to Dona
Doran in payment of a $50,000 loan.




On April
22, 2009 the Company issued 3,000,000 restricted shares of common stock to Mike
Doran, 3,000,000 restricted shares of common stock to Clayton Carter, 1,500,000
restricted shares of common stock to Don Edwards as compensation for past
services rendered in lieu of salary.





7










Item
2.   Management’s
Discussion and Analysis of Financial Condition and Results of
Operations





This
report contains forward looking statements within the meaning of Section 27A of
the Securities Act of 1933, as amended and Section 21E of the Securities
Exchange Act of 1934, as amended. The Company’s actual results could differ
materially from those set forth on the forward looking statements as a result of
the risks set forth in the Company’s filings with the Securities and Exchange
Commission, general economic conditions, and changes in the assumptions used in
making such forward looking statements.





General





Freestone
Resources, Inc. was involved in the operation of an internet computer supply
business until its operations were discontinued in 2001. It had no business
until November of 2007 when it entered the oil and gas business when it
purchased certain oil and gas properties, related fixed assets and a Petrozene
contract which gives the Company the right to purchase Petrozene. The Company
was incorporated as Para-Link, Inc. in the State of Texas on January 22, 1997
and on March 10, 1999, Para-Link acquired 100% of the outstanding capital stock
of iChargeit Inc. ("iChargeit"). iChargeit was incorporated on January 6, 1999
in the State of Nevada. On March 17, 1999, the Company changed its name to
iChargeit. On November 5, 1999 the Company was reincorporated in Delaware. On
August 22, 2007, the Company was reincorporated in Nevada and changed its name
to Freestone Resources, Inc. in anticipation of going into the oil and gas
business.





Results
of Operations





Three
months Ended December 31, 2008 and December 31, 2007.  Compared
to six months ended December 31, 2008 and December 31, 2007





Revenue- Our revenue for the
three months December 31, 2008 was $33,030, compared to $441,595 revenue for the
same period in 2007. Revenue increased in the second quarter due to increased in
oil and gas sales from wells acquired on November 1, 2007.  Our
revenue for the six months December 31, 2008 was $69,262, compared to $441,595
revenue for the same period in 2007.





Operating Expense- Cost of
Petrozene sales was negligible for the three months ended December 31,
2008.  Cost of Petrozene sales for the three months ended December 31,
2008 was $940, compared to $151,800 for the same period of
2007.  There were no Petrozene sales in the three months ended
December 31, 2008 and six months ended December 31, 2008. Petrozene sales in the
three months ended and six months ended December 31, 2007 were
$402,326.  Cost of Petrozene sales for the three months
and  six months ended December 31, 2007 were $151,800.





Lease
operating expense for the three months ended December 31, 2008 was $5,072
compared to $2,457for the same period in 2007. Lease operating expense increased
due to cost associated with wells acquired on November 1, 2007.  Lease
operating expense for the six months ended December 31, 2008 was $47,164
compared to $2,457 for the same period in 2007.





Operating Expense- Total
operating expenses for the three months ended December 31, 2008 were $6,943 of
depreciation and depletion expense and $41,765 of general and administrative
expenses respectively, compared to $5,753 depreciation and depletion expense and
$50,558 of general and administrative expenses for the same period in
2007.  Total operating expenses for the six months ended December 31,
2008 were $13,885 of depreciation and depletion expense and $280,925 of general
and administrative expenses respectively, compared to $5,753 depreciation and
depletion expense and $168,489 of general and administrative expenses for the
same period in 2007.  General and administrative expenses for the six
months ended December 31, 2008 include a non-cash expense of $215,500, see Note
3, Common Stock.





Net Income (Loss)- Net loss
for the three months ended December 31, 2008 was $22,884 compared to net income
of $231,027 for the same period in 2007.  - Net loss for the six
months ended December 31, 2008 was $282,396 compared to a net income of $113,002
for the same period in 2007.








Liquidity
and Capital Resources





We have
little cash reserves and liquidity to the extent we receive it from
operations.








8







During
the six months ended December 31, 2008, our cash and cash equivalent increased
by $9,093 from $13,548 at June 30, 2008.





Net cash
provided by operating activities was $34,339 for the six months ended December
31, 2008 compared to $3,849 provided by operating activities for the same period
in 2007.





Employees





As of
December 31, 2008, Freestone only employees are officers of the
Company.





Need
for Additional Financing








No
commitments to provide additional funds have been made by management or other
stockholders.  Our independent auditors included a going concern
qualification in their report included in our annual report on Form
10-K for the year ended June 30, 2008, which raises substantial doubt about
our ability to continue as a going concern.





Further,
there exist no agreements or understandings with regard to loan agreements by or
with the Officers, Directors, principals, affiliates or shareholders of the
Company.







9











ITEM
3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK




Not
applicable.








ITEM
4: CONTROLS AND PROCEDURES





Evaluation
of Disclosure Controls and Procedures





Disclosure
controls and procedures include, without limitation, controls and procedures
designed to ensure that information required to be disclosed by an issuer in the
reports that it files or submits under the Securities Exchange Act of 1934, as
amended (the "Act") is accumulated and communicated to the issuer's management,
including its principal executive and principal financial officers, or persons
performing similar functions, as appropriate to allow timely decisions regarding
required disclosure. It should be noted that the design of any system of
controls is based in part upon certain assumptions about the likelihood of
future events, and there can be no assurance that any design will succeed in
achieving its stated goals under all potential future conditions, regardless of
how remote.  As of the end of the period covered by this Quarterly Report,
we carried out an evaluation, under the supervision and with the participation
of our President, also serving as our Chief Financial Officer, of the
effectiveness of the design and operation of our disclosure controls and
procedures.  Based on this evaluation, our President has concluded that the
Company’s disclosure controls and procedures are not effective because of the
identification of a material weakness in our internal control over financial
reporting which is identified below, which we view as an integral part of our
disclosure controls and procedures.





The
material weakness relates to the lack of segregation of duties in financial
reporting, as our financial reporting and all accounting functions are performed
by an external consultant with no oversight by a professional with accounting
expertise.  Our President does not possess accounting expertise and our
Company does not have an audit committee.  This weakness is due to the
Company’s lack of working capital to hire additional staff.  To remedy this
material weakness, we intend to engage another accountant to assist with
financial reporting as soon as our finances will allow.







Changes
in Internal Controls over Financial Reporting





We have
not yet made any changes in our internal controls over financial reporting that
occurred during the period covered by this report on Form 10-Q that has
materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting.
















10









PART
II – Other Information





Item
      No.2    Unregistered Sales of Equity Securities and
      use of Proceeds.





During
the three months ended December 31, 2008, Freestone issued 2,155,000 restricted
shares of common stock valued at $215,500 to consultants for services. The
consultants agreed to acquire the shares for investment purposes only and not
for resale. The certificates representing the shares carry a legend that the
shares may not be sold or transferred without compliance with the registration
requirements of the Securities Act of 1933, as amended (the “Act”) or in
reliance upon an applicable exemption there from. In connection with the issue
of these shares, the Company relied upon the private offering exemption found in
section 4(2) of the Act.








Item No.
6 – Exhibits





Exhibit
Number







31.1
              Certification
      of Chief Executive Officer, pursuant to Rule 13a-14(a) of the Exchange
      Act, as enacted by Section 302 of the Sarbanes-Oxley Act of
      2002.





31.2
                Certification
      of Chief Financial Officer, pursuant to Rule 13a-14(a) of the Exchange
      Act, as enacted by Section 302 of the Sarbanes-Oxley Act of
      2002.





32.1
                Certification
      of Chief Executive Officer and Chief Financial Officer, pursuant to 18
      United States Code Section 1350, as enacted by Section 906 of the
      Sarbanes-Oxley Act of
2002.














SIGNATURES





In
accordance with the requirements 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.





FREESTONE
RESOURCES, INC.





By /s/ Mike
Doran





Mike
Doran, CEO





Date: May
18, 2009


11