Unassociated Document
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 September 30, 2011
 
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (No fee required)
 
For the transition period from _________ to                   
 
Commission file number l-9224
    
Arrow Resources Development, Inc.
(Exact Name of Registrant as Specified in its Charter)
     
DELAWARE
 
56-2346563
(State or Other Jurisdiction of Incorporation or
Organization)
 
(I.R.S. Employer Identification No.)
 
Carnegie Hall Tower, 152 W. 57th Street, New York, NY 10019
(Address of Principal Executive Offices) (Zip Code)
   
212-262-2300
(Issuer's Telephone Number, including Area Code)
 
Securities registered under Section 12(b) of the Exchange Act:
  
Title of Each Class
 
Name of Each Exchange on Which Registered
Common stock - par value $0.00001
 
OTC: Bulletin Board
 
Securities registered under Section 12(g) of the Exchange Act: None

 (Title of Class)
 

  (Title of Class)
 
Check whether the issuer; (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     x        No      ¨
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ¨   No   x
 
The number of shares outstanding of each of the issuer's classes of common equity, as of November 1, 2011.
 
Class
 
Outstanding at November 1, 2011
Common stock - par value $0.00001
 
737,368,911
 
 

 
 
ARROW RESOURCES DEVELOPMENT, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
 
TABLE OF CONTENTS
 
PART I - FINANCIAL INFORMATION
   
       
Item 1.
Financial Statements:
   
       
 
Consolidated Balance Sheets at September 30, 2011 (Unaudited) and December 31, 2010
 
1
       
 
Consolidated Statements of Operations for the three and nine months ended September 30, 2011 and 2010 (Unaudited), and from inception (November 15, 2005) to September 30, 2011
 
2
       
 
Consolidated Statements of Changes in Stockholders' (Deficit) Equity for the nine months ended September 30, 2011 (Unaudited) and for the period from inception (November 14, 2005) to December 31, 2005 and the years ended December 31, 2006, 2007, 2008, 2009 and 2010.
 
3
       
 
Consolidated Statements of Cash Flows for the nine months ended September 30, 2011 (Unaudited) and September 30, 2010 (Unaudited) and from inception (November 15, 2005) to September 30, 2011
 
4
       
 
Notes to the Consolidated Financial Statements (Unaudited)
 
5-25
       
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
 
26
       
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
 
31
       
Item 4.
Controls and Procedures
 
32
       
PART II - OTHER INFORMATION
   
       
Item 1.
Legal Proceedings
 
33
       
Item 1A.
Risk Factors
 
33
       
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
 
33
       
Item 3.
Defaults Upon Senior Securities
 
33
       
Item 4.
Submission of Matters to a Vote of Security Holders
 
33
       
Item 5.
Other Information
 
34
       
Item 6.
Exhibits
 
35
       
Signatures
   
36

 
 

 
 
PART I - FINANCIAL INFORMATION
 
Item 1.        Financial Statements
 
ARROW RESOURCES DEVELOPMENT, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
 
Consolidated Balance Sheets (During the Development Stage)
 
   
September 30, 2011
   
December 31, 2010
 
   
Unaudited
       
ASSETS
           
Current:
           
Cash
  $ 62     $ 12  
                 
Total current assets
    62       12  
                 
Total assets
  $ 62     $ 12  
                 
LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY
               
Current:
               
Accounts and accrued expenses payable, including $9,276,791 and $8,059,291 due to Company shareholders and directors at September 30, 2011 and December 31, 2010, respectively, respectively
    14,133,356     $ 11,439,957  
Estimated liability for legal judgment obtained by predecessor entity shareholder
    1,377,302       1,329,898  
Due to related parties
    12,484,665       10,447,373  
Notes payable, including accrued interest of $184,591 and $164,554 at September 30, 2011 and December 31, 2010, respectively
    2,743,931       2,135,554  
                 
Total liabilities
    30,739,254       25,352,782  
                 
Commitments and contingencies
    -       -  
                 
STOCKHOLDERS’ (DEFICIT) EQUITY
               
Preferred stock, $0.00001 par value, 6 million shares authorized, no shares issued or outstanding at September 30, 2011 and December 31, 2010
    -       -  
Preferred stock Series A, $0.00001 par value, 2 million shares authorized, no shares issued or outstanding at September 30, 2011 and December 31, 2010, respectively
    -       -  
Preferred stock Series C, $0.00001 par value, 2 million shares authorized, no shares issued or outstanding at September 30, 2011 and December 31, 2010, respectively
    -       -  
Common stock, $0.00001 par value, 1 billion shares authorized, 737,368,911 and 704,952,244 issued and outstanding at September 30, 2011 and December 31, 2010, respectively
    7,375       7,050  
Common stock to be issued, $0.00001 par value, 34,617,184 and 33,554,684 shares to be issued at September 30, 2011 and December 31, 2010, respectively
    347       336  
Additional paid-in capital
    131,529,016       130,251,102  
Accumulated deficit
    (162,275,930 )     (155,611,258 )
                 
Total stockholders’ (deficit) equity
    (30,739,192 )     (25,352,770 )
                 
Total liabilities and stockholders’ (deficit) equity
  $ 62     $ 12  

See accompanying notes to the unaudited consolidated financial statements.

 
1

 
 
ARROW RESOURCES DEVELOPMENT, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
 
Unaudited Consolidated Statements of Operations (During the Development Stage)
 
   
For the Three
Months Ended
September 30,
2011
   
For the Three
Months Ended
September 30,
2010
 
For the Nine
Months Ended
September 30,
2011
   
For the Nine
Months Ended
September 30,
2010
   
Accumulated During
the Development
Stage for the Period
From Inception
(November 15, 2005)
to September 30,
2011
 
                             
Revenue
  $ -     $ -   $ -     $ -       52,000  
Operating expenses:
                                     
Consulting fees and services, including $1,392,974, $1,127,077, $3,855,865, $3,387,875, and $24,355,827 incurred to related parties, respectively
    1,407,974       1,127,077     3,870,865       3,406,560       25,583,766  
General and administrative
    29,892       12,456     63,443       118,566       1,092,571  
Directors' compensation
    41,250       50,625     123,750       129,375       1,098,928  
Delaware franchise taxes
    105       105     315       315       186,576  
                                       
Total operating expenses
    1,479,221       1,190,263     4,058,373       3,654,816       27,961,841  
                                       
Loss from operations during the development stage
    (1,479,221 )     (1,190,263 )   (4,058,373 )     (3,654,816 )     (27,909,841 )
                                       
Other income (expense):
                                     
Income from spin-off
    -       -     -       -       52,491  
Income from forgiveness of debt
    -       -     -       -       5,000  
Gain on write off of liabilities associated with predecessor entity not to be paid
    -       -     -       -       395,667  
Loss on legal judgment obtained by predecessor entity shareholder
    (15,801 )     (15,801 )   (47,403 )     (47,403 )     (1,377,301 )
Penalty for default of notes payable
    (506,000 )     (506,000 )   (1,501,500 )     (1,501,500 )     (4,087,000 )
Loss on write-off of marketing agreement
    -       -     -       -       (125,000,000 )
Loss on settlement of predecessor entity stockholder litigation
    -       -     -       -       (2,000 )
Loss on debt conversion
    -             (1,000,000 )     -       (2,432,500 )
Expenses incurred as part of recapitalization transaction
    -       -     -       -       (249,252 )
Debt issue costs including interest expense, of which $10,000, none, none, none, and $1,346,320 is to be satisfied in Company Common Stock and none, none, none, none, and $32,000 incurred to related parties
    (49,747 )     (3,831 )   (57,396 )     (8,223 )     (1,671,194 )
      (571,548 )     (525,632 )   (2,606,299 )     (1,557,126 )     (134,366,089 )
                                       
Net loss
    (2,050,769 )     (1,715,895 ) $ (6,664,672 )     (5,211,942 )     (162,275,930 )
                                       
NET LOSS PER COMMON SHARE:
    (0.003 )     (0.003 ) $ (0.009 )     (0.008 )     (0.254 )
Basic and Diluted
                                     
                                       
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING - Basic and Diluted
    735,616,918       678,452,244     721,549,863       678,452,244       638,143,394  

See accompanying notes to the unaudited consolidated financial statements.
 
 
2

 
 
ARROW RESOURCES DEVELOPMENT, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
 
Unaudited Consolidated Statements of Changes in Stockholders' (Deficit) Equity (During the Development Stage)

   
Series A Convertible Preferred
Stock
   
Series C Convertible Preferred
Stock
   
Common Stock
   
Common Stock
   
Additional
   
Accumulated
       
   
Shares to be
issued
   
Amount
   
Shares to be
issued
   
Amount
   
Shares to be
issued
   
Amount
   
Shares issued
   
Amount
   
Paid-in Capital
   
Deficit
   
Total
 
Balance, November 14, 2005 pursuant to recapitalization transaction
        $           $           $       25,543,240     $ 255     $ (2,674,761 )   $     $ (2,674,506 )
Common stock conversion and settlement of senior note pursuant to recapitalization transaction
                                        624,000,000       6,240       125,907,967             125,914,207  
Net loss for the period from November 15, 2005 to December 31, 2005
                                                          (1,272,258 )     (1,272,258 )
Balance, December 31, 2005
    -     $ -       -     $ -       -     $ -       649,543,240     $ 6,495     $ 123,233,206     $ (1,272,258 )   $ 121,967,443  
Common stock to be issued for cash received by Company
                            985,000       10                   984,990             985,000  
Net loss for the year
                                                          (3,514,445 )     (3,514,445 )
Balance, December 31, 2006
    -     $ -       -     $ -       985,000     $ 10       649,543,240     $ 6,495     $ 124,218,196     $ (4,786,703 )   $ 119,437,998  
Common stock to be issued for cash received by Company
                            500,000       5                   499,995             500,000  
Series A Convertible Preferred Stock to be issued for cash received by Company
    280,000       280,000                                                       280,000  
Common stock issued in settlement of predecessor entity stockholder litigation
                            -       -       200,000       2       11,998             12,000  
Common stock to be issued for directors' compensation
                            1,000,685       10                   60,031             60,041  
Net loss for the year
                                                          (130,076,689 )     (130,076,689 )
Balance, December 31, 2007
    280,000     $ 280,000       -     $ -       2,485,685     $ 25       649,743,240     $ 6,497     $ 124,790,220     $ (134,863,392 )   $ (9,786,650 )
Series A Convertible Preferred Stock to be issued for cash received by Company
    75,000       75,000                                                       75,000  
Series C Convertible Preferred Stock to be issued for cash received by Company
                25,000       25,000                                           25,000  
Common Stock issued and to be issued for cash received by Company
                            305,000       x 3       250,000       3       104,996             105,002  
Common stock to be issued for directors' compensation
                            1,000,000       x 10                   77,490             77,500  
Debt issue costs to be satisfied in Company Common Stock
                            4,704,000       x 47       3,000,000       30       536,243             536,320  
Common stock to be issued for purchase of common stock
                            1,000,000       x 10                   49,990             50,000  
Common stock to be issued for consulting and marketing services
                            2,700,000       27                   245,969             245,996  
Common stock issued for consulting and marketing services
                                        2,250,000       23       122,481             122,504  
Net loss for twelve months ended December 31, 2008
                                                          (5,360,576 )     (5,360,576 )
Balance, December 31, 2008
    355,000     $ 355,000       25,000     $ 25,000       12,194,685     $ 122       655,243,240     $ 6,552     $ 125,927,389     $ (140,223,968 )   $ (13,909,905 )
Series A Convertible Preferred Stock converted into common stock
    (355,000 )     (355,000 )     -       -                   7,100,000       71       354,929             -  
Series C Convertible Preferred Stock converted into common stock
    -       -       (25,000 )     (25,000 )                 500,000       5       24,995             -  
Common Stock to be issued for cash received by Company
                            2,500,000       25                   249,975             250,000  
Common stock to be issued for directors' compensation
                            1,000,000       10                   34,990             35,000  
Debt issue costs to be satisfied in Company Common Stock
                            16,000,000       160                   719,840             720,000  
Debt issue costs satisfied in Company Common Stock
                            -       -       1,000,000       10       79,990             80,000  
Common stock issued for reset of previous subscription agreement
                                        138,095       2       5,523             5,525  
Common stock to be issued for reset of previous subscription agreement
                            1,109,999       11                   44,389             44,400  
Common stock issued for debt conversion
                                        14,470,909       145       771,855             772,000  
Net loss for the year ended December 31, 2009
                                                          (6,520,053 )     (6,520,053 )
Balance, December 31, 2009
    0     $ 0       0     $ 0       32,804,684     $ 328       678,452,244     $ 6,785     $ 128,213,875     $ (146,744,021 )   $ (18,523,033 )
Common stock to be issued for directors' compensation
                            750,000       8                   52,492             52,500  
Common stock issued for consulting services, in lieu of cash payment
                                        6,500,000       65       584,935             585,000  
Common stock issued for debt conversion
                                        20,000,000       200       1,399,800             1,400,000  
Net loss for the year ended December 31, 2010
                                                          (8,867,237 )     (8,867,237 )
Balance, December 31, 2010
    -     $ -       -     $ -       33,554,684     $ 336       704,952,244     $ 7,050     $ 130,251,102     $ (155,611,258 )   $ (25,352,770 )
Common stock to be issued for directors' compensation
                            187,500       2                   5,623             5,625  
Net loss for the three month period ended March 31, 2011
                                                          (1,784,384 )     (1,784,384 )
Balance, March 31, 2011
    -     $ -       -     $ -       33,742,184     $ 338       704,952,244     $ 7,050     $ 130,256,725     $ (157,395,642 )   $ (27,131,529 )
Common stock to be issued for directors' compensation
                            187,500       2                   1,873             1,875  
Common stock issued for debt conversion
                                        30,000,000       300       1,199,700             1,200,000  
Subsccription shares of common stock purchased
                            1,066,667       11                   29,989             30,000  
Net loss for the three month period ended June 30, 2011
                                                                (2,829,519 )     (2,829,519 )
Balance, June 30, 2011
    -     $ -       -     $ -       34,996,351     $ 351       734,952,244     $ 7,350     $ 131,488,287     $ (160,225,161 )   $ (28,729,173 )
                                                                                         
Common stock to be issued for directors' compensation
                            187,500       2                   3,748             3,750  
Subsccription shares of common stock purchased, issued to investor
                            (1,066,667 )     (11 )     1,066,667       11                   -  
Common stock to be issued as interest on loans
                                        1,350,000       14       26,986             27,000  
Common stock issued as interest on loans
                            500,000       5                   9,995             10,000  
Net loss for the three month period ended September 30, 2011
                                                          (2,050,769 )     (2,050,769 )
                                                                                         
Balance, September 30, 2011
    -     $ -       -     $ -       34,617,184     $ 347       737,368,911     $ 7,375     $ 131,529,016     $ (162,275,930 )   $ (30,739,192 )
 
See accompanying notes to the unaudited consolidated financial statements.

 
3

 

ARROW RESOURCES DEVELOPMENT, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
 
Unaudited Consolidated Statements of Cash Flows (During the Development Stage)

   
For the Nine
Months ended
September 30,
2011
   
For the Nine
Months ended
September 30,
2010
   
Accumulated During
the Development
Stage for the Period
From Inception
(November 15, 2005)
to September 30,
2011
 
                   
Net loss
  $ (6,664,672 )   $ (5,211,942 )   $ (162,275,930 )
Adjustments to reconcile net loss to net cash used in operating activities:
                       
Net non-cash change in stockholders’ equity due to recapitalization transaction
    -       -       1,264,217  
Loss on write-off of marketing and distribution agreement
    -       -       125,000,000  
Common stock issued for reset of previous subscription agreement
    -       -       5,525  
Common stock to be issued for reset of previous subscription agreement
    -       -       44,400  
Common stock issued for note payable interest
    27,000               27,000  
Common stock to be issued for note payable interest
    10,000       -       10,000  
Debt issue costs to be satisfied in Company common stock
    -       -       1,256,320  
Debt issue costs satisfied in Company common stock
    -       -       80,000  
Loss on common stock issued for debt conversion
    1,000,000       -       2,954,500  
Common stock issued for conversion due to related party
    -       -       (39,000 )
Debt issue costs paid in cash
    -       -       50,000  
Common stock issued for marketing services
    -       -       122,500  
Common stock to be issued for consulting services
    -       -       246,007  
Expense related to common stock issued for consulting services, in lieu of cash
    -       -       585,000  
Stock-based directors' compensation to be issued
    11,250       16,875       236,291  
Changes in operating asset and liabilities:
                       
Increase in accounts and accrued expenses payable
    2,853,797       2,782,039       13,650,040  
Estimated liability for legal judgment obtained by predecessor entity shareholder
    47,403       47,403       1,377,301  
Net cash used in operating activities
    (2,715,222 )     (2,365,625 )     (15,405,829 )
                         
Cash flows from investing activities:
                       
Cash acquired as part of merger transaction
    -       -       39,576  
Advances to related party
    (20,000 )     (32,500 )     (957,775 )
Net cash used in investing activities
    (20,000 )     (32,500 )     (918,199 )
                         
Cash flows from financing activities:
                       
Proceeds of issuance of  note payable
    80,000       252,000       2,201,000  
Proceeds of loans received from related parties
    587,980       -       2,462,980  
Repayment towards loan from related party
    -       -       (179,425 )
Cash proceeds from common stock subscription sale
    30,000       -       30,000  
Net increase in due to related parties attributed to operating expenses paid on the Company’s behalf by the related party
    2,037,292       2,146,840       9,527,535  
Net increase in investments/capital contributed
    -       -       2,232,000  
Advances from senior advisor
    -       -       50,000  
Net cash provided by financing activities
    2,735,272       2,398,840       16,324,090  
                         
Net change in cash
    50       715       62  
Cash balance at beginning of period
    12       91       -  
Cash balance at end of period
  $ 62       806     $ 62  
                         
Supplemental disclosures of cash flow information:
                       
                         
Cash paid during the period for:
                       
Income taxes
  $ -     $ -     $ -  
Interest expense
  $ -     $ -     $ -  
Non-cash investing and financing activities:
                       
Non-cash purchase of marketing and distribution agreement
  $ -     $ -     $ 125,000,000  
 Settlement of senior note payable through issuance of convertible preferred stock
  $ -     $ -     $ 125,000,000  
Non-cash acquisition of accrued expenses in recapitalization
  $ -     $ -     $ 421,041  
Non-cash acquisition of notes payable in recapitalization
  $ -     $ -     $ 220,000  

See accompanying notes to the unaudited consolidated financial statements.
 
 
4

 
 
ARROW RESOURCES DEVELOPMENT, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 
NOTE 1 - NATURE OF BUSINESS / ORGANIZATION
 
Business Description
 
Arrow Resources Development, Inc. and Subsidiaries (“the Company”), was subject to a change of control transaction that was accounted for as a recapitalization of CNE Group, Inc. (“CNE”) in November 2005. Arrow Resources Development, Ltd., (“Arrow Ltd.”) the Company's wholly-owned subsidiary, was incorporated in Bermuda in May 2005. Arrow Ltd. provides marketing and distribution services for natural resource products.
 
In April of 2006, Arrow Ltd. entered into an agency agreement with Arrow Pacific Resources Group Limited (“APR”) that provides marketing and distribution services for timber resource products and currently has an exclusive marketing and sales agreement with APR to market lumber and related products from land leased by GMPLH which is operated by APR and its subsidiaries, located in Indonesia. Under the agreement Arrow Ltd. will receive a commission of 10% of gross sales derived from lumber and related products. The consideration to be paid to APR will be in the form of a to-be-determined amount of the Company's common stock, subject to the approval of the Board of Directors.
 
As of December 31, 2005, the Company also had a wholly-owned subsidiary, Career Engine, Inc. (“Career Engine”) for which operations were discontinued prior to the recapitalization transaction. The net assets of Career Engine had no value as of December 31, 2005.
 
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
BASIS OF PRESENTATION
 
Interim Financial Statements
 
In the opinion of management, the accompanying consolidated financial statements reflect all adjustments (consisting of normal recurring accruals) necessary to present fairly the Company's financial position as of September 30, 2011 and the results of its operations, changes in stockholders' (deficit) equity , and cash flows for the three and nine month periods ended September 30, 2011 and 2010,  respectively and for the period from the commencement of the development stage (November 15, 2005) to September 30, 2011, and for the period from the commencement of the development stage (November 15, 2005) to December 31, 2010. Although management believes that the disclosures in these consolidated financial statements are adequate to make the information presented not misleading, certain information and footnote disclosures normally included in financial statements that have been prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to the rules and regulations of the Securities Exchange Commission.
 
The results of operations for the three and nine months ended September 30, 2011 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2011. The accompanying consolidated financial statements should be read in conjunction with the more detailed consolidated financial statements, and the related footnotes thereto, filed with the Company’s Amended Annual Report on Form 10K-A for the year ended December 31, 2010 filed on May 23, 2011.
 
Going-Concern Status
 
These consolidated financial statements are presented on the basis that the Company is a going concern. Going concern contemplates the realization of assets and the satisfaction of liabilities in the normal course of business over a reasonable period of time.
 
As shown in the accompanying consolidated financial statements, the Company incurred a net loss of $6,664,672 for the nine months ended September 30, 2011 and a net loss during the development stage from inception in November 15, 2005 through September 30, 2011 of $162,275,930. The Company’s operations are in the development stage, and the Company has not substantially generated any material revenue since inception. The Company’s existence in the current period has been dependent upon advances from related parties and other individuals, and proceeds from the issuance of senior notes payable.

 
5

 
 
ARROW RESOURCES DEVELOPMENT, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
 
BASIS OF PRESENTATION CONTINUED
 
Going-Concern Status continued
 
One of the principal reasons for the Company’s substantial doubt regarding its ability to continue as a going concern involves the fact that as of December 31, 2007, the Company’s principal asset, a marketing and distribution intangible asset in the amount of $125,000,000, was written off as impaired as discussed in Note 6 due to the fact that environmental laws affecting timber harvesting became more restrictive in Papua, New Guinea.
 
The condensed consolidated financial statements do not include any adjustments relating to the carrying amounts of recorded assets or the carrying amounts and classification of recorded liabilities that may be required should the Company be unable to continue as a going concern.
 
Principles of Consolidation:
 
The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Arrow Ltd. All significant inter-company balances and transactions have been eliminated.
 
Development Stage Company:
 
The accompanying financial statements have been prepared in accordance with the FASB Accounting Standards Codification No 915,  Development Stage Entities.  A development stage enterprise is one in which planned and principal operations have not commenced or, if its operations have commenced, there has been no significant revenue there from.  Development-stage companies report cumulative costs from the enterprise’s inception.
 
Income Taxes:
 
The Company follows FASB Accounting Standards Codification No 740, Income Taxes. Deferred tax assets or liabilities are recorded to reflect the future tax consequences of temporary differences between the financial reporting basis of assets and liabilities and their tax basis at each year-end. These amounts are adjusted, as appropriate, to reflect enacted changes in tax rates expected to be in effect when the temporary differences reverse.
 
The Company records deferred tax assets and liabilities based on the differences between the financial statement and tax bases of assets and liabilities and on operating loss carry forwards using enacted tax rates in effect for the year in which the differences are expected to reverse. A valuation allowance is provided when it is more likely than not that some portion or all of a deferred tax asset will not be realized.
 
Fair Value of Financial Instruments:
 
For financial statement purposes, financial instruments include cash, accounts and accrued expenses payable, notes payable and amounts due to related parties (as discussed in Notes 5 and 7) for which the carrying amounts approximated fair value because of their short maturity.
 
Use of Estimates:
 
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates.
 
 
6

 
 
ARROW RESOURCES DEVELOPMENT, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
 
Loss Per Share:
 
The Company complies with the requirements of the FASB Accounting Standard Codification No 260, Earnings Per Share. FASB No. 260 specifies the compilation, presentation and disclosure requirements for earning per share for entities with publicly held common stock or potentially common stock. Net loss per common share, basic and diluted, is determined by dividing the net loss by the weighted average number of common shares outstanding.
 
Net loss per diluted common share does not include potential common shares derived from stock options and warrants because they are anti-dilutive for the periods ended September 30, 2011 and September 30, 2010. As of September 30, 2011, there are no dilutive equity instruments outstanding.
 
Acquired Intangibles:
 
Intangible assets were comprised of an exclusive sales and marketing agreement. In accordance with FASB Accounting Standard Codification No 350, Intangibles-Goodwill and Other, the Company assesses the impairment of identifiable intangibles whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors the Company considers to be important which could trigger an impairment review include the following:
 
 
1.
Significant underperformance relative to expected historical or projected future operating results;
 
 
2.
Significant changes in the manner of use of the acquired assets or the strategy for the overall business; and
 
 
3.
Significant negative industry or economic trends.
 
When the Company determines that the carrying value of intangibles may not be recoverable based upon the existence of one or more of the above indicators of impairment and the carrying value of the asset cannot be recovered from projected undiscounted cash flows, the Company records an impairment charge. The Company measures any impairment based on a projected discounted cash flow method using a discount rate determined by management to be commensurate with the risk inherent in the current business model. Significant management judgment is required in determining whether an indicator of impairment exists and in projecting cash flows.
 
The sales and marketing agreement was to be amortized over 99 years, utilizing the straight-line method. Amortization expense had not been recorded since the acquisition occurred as the company had not yet made any sales.
 
The value of the agreement was assessed to be fully impaired by the Company and it recorded a loss on the write off of the Marketing and Distribution agreement of $125,000,000 at December 31, 2007 (See Note 6).
 
Consideration of Other Comprehensive Income Items:
 
FASB Accounting Standard Codification No 220, Comprehensive Income, requires companies to present comprehensive income (consisting primarily of net income plus other direct equity changes and credits) and its components as part of the basic financial statements. For the period from inception (November 15, 2005) to September 30, 2011, the Company’s consolidated financial statements do not contain any changes in equity that are required to be reported separately in comprehensive income.

 
7

 
 
ARROW RESOURCES DEVELOPMENT, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
 
Stock Based Compensation
 
The Company applies ASC 718-10 and ASC 505-50 (formerly SFAS 123R) in accounting for stock options issued to employees. For stock options and warrants issued to non-employees, the Company applies the same standard, which requires the recognition of compensation cost based upon the fair value of stock options at the grant date using the Black-Scholes option pricing model.
 
Recent Accounting Pronouncements:
 
Management does not believe that any recently issued accounting standards if currently adopted would have a material effect on the Company’s condensed consolidated financial statements or the Company’s future results of operations.

 
8

 
 
ARROW RESOURCES DEVELOPMENT, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
  
NOTE 3 - AGREEMENT AND PLAN OF MERGER BETWEEN ARROW RESOURCES DEVELOPMENT, LTD. AND CNE GROUP, INC.
 
In August 2005, the Company entered into an Agreement and Plan of Merger (“the Agreement”) with CNE Group, Inc. (“CNE”) under which, CNE was required to issue 10 million shares of Series AAA convertible preferred stock (“the Preferred Stock”) to the Company, representing 96% of all outstanding equity of CNE on a fully diluted basis for the Marketing and Distribution Agreement provided to the Company, Empire Advisory, LLC (“Empire”), as agent. Under the Agreement, the Company changed its name to Arrow Resources Development, Inc. and divested all operations not related to Arrow Ltd. The Preferred Stock contained certain liquidation preferences and each share of the Preferred Stock was convertible to 62.4 shares of common stock.
 
The transaction was consummated upon the issuance of the Preferred Stock on November 14, 2005, which was used to settle the senior secured note payable for $125,000,000 and $1,161,000 of cash advances from Empire. The Preferred Stock was subsequently converted to common stock on December 2, 2005, for a total of approximately 649 million shares of common stock outstanding. This was recorded as a change of control transaction that was accounted for as a recapitalization of CNE.
 
The operations of the Company's wholly-owned subsidiary, Career Engine, Inc. were discontinued prior to the recapitalization transaction. The net assets of Career Engine had no value as of December 31, 2005.
 
During the period from inception (November 15, 2005) to December 31, 2005, the Company incurred $249,252 of expenses incurred as part of recapitalization transaction.

 
9

 
 
ARROW RESOURCES DEVELOPMENT, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 
NOTE 4 - INCOME TAXES
 
In August 2005, the Company entered into an Agreement and Plan of Merger (“the Agreement”) with CNE Group, Inc. (“CNE”). Under the Agreement, the Company changed its name to Arrow Resources Development, Inc. and divested all operations not related to Arrow Ltd. The transaction was consummated upon the issuance of the Preferred Stock on November 14, 2005. (See Note 3 for a detailed description of the transaction.)
 
Consequently, as of November 14, 2005 the predecessor CNE entity had a net operating loss carryforward available to reduce future taxable income for federal and state income tax purposes of the successor entity of approximately zero, because those losses arose from the predecessor CNE exiting previous business lines that had generated operating losses.
 
For tax purposes, all expenses incurred by the re-named entity now known as Arrow Resources Development, Inc. after November 14, 2005 have been capitalized as start up costs in accordance with Internal Revenue Code Section (“IRC”) No. 195. Pursuant to IRC 195, the Company will be able to deduct these costs by amortizing them over a period of 15 years for tax purposes once the Company commences operations. Accordingly for tax purposes none of the Company’s post November 14, 2005 losses are as yet reportable in Company income tax returns to be filed for either the years ended December 31, 2005, 2006, 2007, 2008, 2009, 2010 or 2011.
 
The significant components of the Company’s deferred tax assets are as follows:
  
Net operating loss carryforward
 
$
186,576
 
Differences resulting from use of cash basis for tax purposes
   
-
 
Tax Rate
   
35
%
Total deferred tax assets
   
65,300
 
Less valuation allowance
   
(65,300
)
         
Net deferred tax assets
 
$
 
         
The net operating losses expire as follows:
       
December 31, 2026
 
$
127,349
 
December 31, 2027
   
57,652
 
December 31, 2028
   
420
 
December 31, 2029
   
420
 
December 31, 2030
   
420
 
September 30, 2031
   
315
 
Net Operating Loss Carryover
 
$
186,576
 
 
Reconciliation of the differences between the statutory tax rate and the effective tax rate is:
 
  
 
September 30,
2011
 
         
Federal statutory tax rate
   
35.0
%
Effective Tax Rate
   
35.0
%
Valuation Allowance
   
(35.0
)%
Net Effective Tax Rate
   
0
%
 
Reconciliation of net loss for income tax purposes to net loss per financial statement purposes:
 
Costs capitalized under IRC Section 195 which will be amortizable over 15 years for tax purposes once the Company commences operations
 
$
(162,089,354
)
Delaware franchise taxes deductible on Company's tax return
   
186,576
 
Net loss for the period from inception (November 15, 2005) to September 30, 2011
 
(162,275,930
)

 
10

 
 
ARROW RESOURCES DEVELOPMENT, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
  
NOTE 5 - NOTES PAYABLE
 
As of September 30, 2011 and December 31, 2010, the Company had notes payable outstanding as follows: 
 
       
September 30,
   
December 31,
 
Holder
 
Terms
 
2011
   
2010
 
                 
Barry Blank (1)
 
Due on demand, 10% interest
 
$
200,000
   
$
200,000
 
Accrued interest (1)
       
50,000
     
50,000
 
John Marozzi (2)
 
Due 30 days after $750,000 funded to company, 4% interest
   
587,980
     
-
 
John Marozzi (2)
 
Due on demand, non-interest bearing
   
-
     
200,000
 
Accrued interest (2)
       
25,632
     
12,054
 
James R. McConnaughy (3)
 
Due on demand, non-interest bearing
   
53,000
     
53,000
 
Christopher T. Joffe (4)
 
Due on demand, non-interest bearing
   
63,000
     
63,000
 
Frank Ciolli (5)
 
Due on demand, non-interest bearing
   
550,000
     
550,000
 
John Frugone (6)
 
Due on demand, non-interest bearing
   
255,000
     
255,000
 
Scott Neff (7)
 
Due on demand, non-interest bearing
   
50,000
     
50,000
 
Cliff Miller (8)
 
Due on 10/11/09, interest bearing
   
450,000
     
450,000
 
Accrued interest (8)
       
100,000
     
100,000
 
John McConnaughy (9)
 
Due on demand, 10% interest
   
25,000
     
25,000
 
Accrued interest (9)
       
2,500
     
2,500
 
Greg and Lori Popke (10)
 
Due on 12/11/09
   
100,000
     
100,000
 
H. Lawrence Logan (11)
 
Due on demand, non-interest bearing
   
25,000
     
25,000
 
Aaron Hiller (12)
 
Due October 17, 2011, 20% interest & shares
   
30,000
     
-
 
Charles Strauss (13)
 
Due October 20, 2011, 20% interest & shares
   
50,000
     
-
 
Ferandell Tennis Courts (14)
 
Due October 26, 2011, 20% interest & shares
   
45,000
     
-
 
Michael Hannegan (15)
 
Due October 10, 2011, 20% interest & shares
   
75,000
     
-
 
Accrued interest (16)
       
6,819
     
-
 
Total
     
$
2,743,931
   
$
2,135,554
 
 
(1)
The Company has a note payable outstanding for $200,000, plus $20,000 in accrued interest. Although the predecessor company (CNE) reserved 456,740 shares of its common stock to retire this debt pursuant to a settlement agreement, the stock could not be issued until the party to whom the note was assigned by its original holder emerged from bankruptcy or reorganization. In March 2010, the note holder emerged from bankruptcy and the note was settled. During the year ended December 31, 2009, an additional $30,000 in interest expense was recorded for a total of $50,000 accrued interest outstanding on the note.
 
(2)
On March 31, 2008, the Company received a $150,000 non-interest bearing advance from John Marozzi (“Marozzi”) which is due on demand. As payment for his services, the Company was to repay the full amount of the note plus 1,000,000 shares of unregistered restricted common stock. The Company recorded $40,000 of debt issue costs related to the 1,000,000 shares of common stock that were issuable to Marozzi as of March 31, 2008 (See Note 8). On May 5, 2008, Marozzi received repayment of $50,000 from the Company. On October 13, 2008, the Company received another $50,000 interest bearing advance from Marozzi.  The Company was to repay the full amount of the October 31, 2008 $50,000 note in cash within 60 calendar days from the date the note was executed plus interest paid in the form of 1,000,000 shares of unregistered Company common stock. The Company recorded $60,000 of debt issue costs related to the 1,000,000 shares of common stock which were issuable to Marozzi as of December 31, 2008.
 
On March 5, 2009, the Company received another $50,000 interest bearing advance from Marozzi. The Company was to repay the full amount of the March 5, 2009 $50,000 note in cash within 60 calendar days from the date the note was executed plus interest paid in the form of 1,000,000 shares of unregistered Company common stock.  This left a balance of $200,000 unpaid principal as of June 30, 2009.  On August 12, 2009, the Company and Marozzi entered into a six month extension for the Senior Note and Purchase Agreement for the amount of $200,000.  The principal amount was payable on February 5, 2010.  On April 17, 2009, the Company received a $12,500 non-interest bearing advance from Marozzi. The Company was to repay the full amount of the April 17, 2009 $ 12,500 note in cash within 60 calendar days from the date the note was executed. On May 8, 2009, the Company received a $ 20,000 non- interest bearing advance from Marozzi.  On August 13, 2009, the Company and Marozzi entered into a six month extension for the Senior Note and Purchase Agreement for the amount of $32,500. The principal amount was payable on February 5, 2010.  On August 7, 2009, the Company received a $33,000 non-interest bearing advance from Marozzi. In repayment, the Company was to repay the full amount of the note in cash within 60 calendar days from the date the note was executed. On November 5, 2009, the Company entered into a thirty day loan extension agreement with Marozzi for the $33,000 loan to the Company. The principal amount and interest was payable on December 5, 2009. This left a total balance of $265,500 of unpaid principal as of December 31, 2009 which was in default.
 
On March 3, 2010, the Company received an $110,000 interest bearing advance from Marozzi. The Company was to pay interest at the interest rate of 10% payable at the time of repayment due March 3, 2011. As of March 3, 2011, the advance was not repaid by the Company, and is currently in default.  On April 21, 2010, the Company received a $42,000 interest bearing advance from Marozzi. The Company will pay interest at the interest rate of 10% which shall be payable at the time of repayment due April 21, 2011.  The Company had the option to repay the loan in Company stock at a price based on a 50% discount off the market price, calculated on the average closing price five days prior to delivery of the stock.  On December 14, 2010 the Company agreed to issue 20 million shares of its common stock in settlement of $217,500 of the older debt instruments owed to Marozzi.  The Company recorded a loss on debt conversion of $1,182,500 in connection with this transaction.  This left a total balance of $200,000 of unpaid principal as of December 31, 2010.
 
On April 1, 2011, the Company executed a loan agreement with Marozzi, whereas Marozzi will provide funding for up to $750,000.  When the entire $750,000 has been funded to the Company, the principal amount and accrued interest is due 30 days thereafter.  Interest will accrue at 4% per annum until all principal amounts are repaid.  If the entire $750,000 loan is not repaid in 30 days by cash or stock, the entire unpaid balance will be due and payable on demand at the option of the holder.  Of the $750,000 total commitment, Marozzi has advanced $587,980 through September 30, 2011.  Interest incurred on the amounts funded through September 30, 2011 totaled $8,830.

On April 25, 2011, the Company and its Board of Directors agreed to issue to Marozzi 30,000,000 shares of the Company’s common stock as settlement for the outstanding principal balance payable to Marozzi of $200,000.  The Company’s stock price on April 25, 2011 was $0.04; therefore, the value of the 30,000,000 issued was $1,200,000, resulting in a loss on debt conversion of $1,000,000 that has been reflected in the Company’s Statements of Operations during the second quarter of 2011.

 
11

 
 
(3)
On April 24, 2008, the Company received a $38,000 non-interest bearing advance from James R. McConnaughy (“McConnaughy”), which is due on demand. In repayment, the Company was to repay the full amount of the note plus 304,000 shares of the Company’s unregistered restricted common stock. The Company recorded $24,320 in debt issue costs related to the 304,000 shares of common stock that were issuable to McConnaughy as of December 31, 2008. On December 23, 2008, the Company received another $15,000 non-interest bearing advance from McConnaughy, which is due on demand. James McConnaughy is a relative of John E. McConnaughy Jr., a Company Director discussed in Note 7 [3].
 
(4)
On April 24, 2008, the Company received a $38,000 non-interest bearing advance from Christopher T. Joffe (“Joffe,”) which is due on demand. In repayment, the Company will repay the full amount of the note plus 304,000 shares of the Company’s unregistered restricted common stock. The Company recorded $24,320 in debt issue costs related to the 304,000 shares of common stock that are issuable to Joffe as of December 31, 2008. On June 13, 2008, the Company received another $25,000 non-interest bearing advance from Joffe, which is due on demand.

(5)
On April 30, 2008, the Company received a $500,000 non-interest bearing advance from Frank Ciolli (“Ciolli.”) In repayment, the Company promised to pay Ciolli the principal sum of $550,000 on or before October 31, 2008.  On October 31, 2008, the Company entered into a 60 day loan extension with Ciolli.  In payment, the Company issued 1,000,000 shares of the Company’s unregistered restricted common stock to Ciolli and 1,000,000 shares of the Company’s unregistered restricted common stock to Donna Alferi on behalf of Michael Alferi as designated by Ciolli.  The Company recorded $100,000 and $100,000, respectively, in debt issue costs related to the 1,000,000 and 1,000,000, respectively, of shares of common stock that were issued to Ciolli and Donna Alferi as of December 31, 2008.  On January 15, 2009, the Company entered into the thirty-one day extension from December 31, 2008 for the Convertible Loan Agreement and Convertible Note with Ciolli for the loan amount of $550,000 dated as of April 30, 2008. The Company issued 500,000 shares of restricted, unregistered common stock each for Michael Alferi and  Ciolli, which resulted in Company debt issue costs of $80,000 as of September 30, 2009.  On August 12, 2009, the Company and Ciolli entered into a six month extension for the Senior Note and Purchase Agreement for the principal sum of $550,000. The principal amount was payable on February 12, 2010.  The balance of $550,000 note payable is currently in default.
 
(6)
On September 10, 2008, the Company received a $100,000 non-interest bearing advance from John Frugone, which was due on demand. In repayment, the Company will repay the full amount of the note in cash over two years from the date the note is executed.  On February 25, 2009, the Company received a $30,000 non-interest bearing advance from John Frugone, which is due on demand. In repayment, the Company will repay the full amount of the note in cash over two years from the date the note is executed.   On July 30, 2009, the Company repaid $75,000 to John Frugone as a partial payment on the outstanding balance. On November 6, 2009, the Company received a $100,000 non-interest bearing advance from John Frugone. The Company will repay the loan amount in cash over two years from the date the note is executed.  This left a balance of $155,000 unpaid principal as of December 31, 2009. On March 30, 2010, the Company received a $100,000 non-interest bearing advance from John Frugone. The principal of this loan is mature and payable no later than March 30, 2012.  This leaves a balance of $255,000 unpaid principal as of September 30, 2011 and December 31, 2010.  John Frugone is a relative of Peter Frugone, the Company’s CEO and also a Company Director.
 
(7)
On October 13, 2008, the Company received a $50,000 interest bearing advance from Scott Neff (“Neff”).  The Company was to repay the full amount of the note in cash within 60 calendar days from the date the note is executed plus interest expense paid in the form of 1,000,000 shares of Company common stock.  During the period ended December 31, 2008, the Company recorded $60,000 in debt issue costs related to the 1,000,000 shares of common stock that are issuable to Neff as of December 31, 2008. On August 12, 2009, the Company and Neff entered into a six month extension for the Senior Note and Purchase Agreement for the principal sum of $50,000. The principal amount was payable on February 5, 2010. This note payable is currently in default.
 
(8)
On June 29, 2009, the Company received a $100,000 interest bearing advance from Cliff Miller (“Miller.”)   In repayment, the Company will repay the full amount of the note in cash not later than July 29, 2009. During the period ended September 30, 2009, the Company recorded $70,000 in debt issue costs related to the 1,000,000 shares of restricted common stock that were issuable to Miller for interest expense as of July 29, 2009.  On July 30, 2009, the Company received a $100,000 interest bearing advance from Miller. In repayment, the Company was to repay the full amount of the note in cash not later than August 30, 2009. During the period ended September 30, 2009, the Company recorded $60,000 in debt issue costs related to the 1,000,000 shares of restricted common stock that are issuable to Miller for interest expense as of August 30, 2009.  On August 11, 2009, the Company received a $250,000 interest bearing advance from Miller. In repayment, the Company was to repay the full amount of the note in cash not later than October 11, 2009. The Company shall pay interest in the form of 10,000,000 shares of the Company’s restricted stock and a $100,000 cash payment due at maturity. During the year ended December 31, 2009, the Company recorded accrued interest of $100,000 and debt issue costs of $400,000 for interest expense.  On November 11, 2009, the Company entered into a thirty day loan extension agreement with Miller for the $100,000 loan on June 29, 2009, the $100,000 loan on July 30, 2009 and the $250,000 loan on August 11, 2009. In consideration of the extending the term of the loan, the Company was to issue 2,000,000 shares of the Company’s common stock on January 4, 2010.  During the year ended December 31, 2009, the Company recorded debt issue costs of $60,000 related to the 2,000,000 shares for interest expense.  The total unpaid principal balance of $450,000 is currently in default.  For the nine months ended September 30, 2011 and the year ended December 31, 2010, the Company accrued $1,228,500 and $1,642,500 of default penalty in interest expense, respectively, and has accrued cumulative default penalties of $3,347,000 and accrued interest of $100,000 as of September 30, 2011, and accrued cumulative default penalties of $2,118,500 and accrued interest of $100,000 as of December 31, 2010.
 
 
12

 

(9)
On June 2, 2009, the Company received a $25,000 10% interest bearing advance from John E. McConnaughy Jr. In repayment, the Company was to repay the full amount of the note and accrued interest in cash by September 1, 2009. On November 5, 2009, the Company entered into a thirty day loan extension agreement with John E. McConnaughy Jr. for this $25,000 loan. The principal amount and interest was payable on December 5, 2009 and the loan is currently in default.

(10)
On July 20, 2009, the Company received a $100,000 interest bearing advance from Greg and Lori Popke (“Popke.”) In repayment, the Company was to repay the full amount of the note in cash not later than September 19, 2009. During the period ended September 30, 2009, the Company recorded $60,000 in debt issue costs related to the 1,000,000 shares of restricted common stock that are issuable to Popke for interest expense as of September 19, 2009. On November 12, 2009, the Company entered into a thirty day loan extension agreement with Popke to extend this $100,000 loan. The principal amount was payable on December 11, 2009 and the loan is currently in default.  For the nine months ended September 30, 2011 and the year ended  December 31, 2010, the Company accrued $273,000 and $365,000 of default penalty in interest expense, respectively, and has accrued cumulative default penalties of $740,000 and $467,000 as of September 30, 2011 and December 31, 2010, respectively.
 
(11)
During the fiscal year 2007, the Company received a $25,000 non-interest bearing advance from Lawrence Logan.  The advance is due on demand.

(12)
On July 19, 2011, the Company received a $30,000 loan that bears 20% interest.  Principal and interest are due in 90 days.  The Lender was also given 10 shares of common stock for every $1 loaned, for a total of 300,000 shares.  The value of the shares at issuance was $6,000 and has been recorded as interest expense.

(13)
On July 22, 2011, the Company received a $50,000 loan that bears 20% interest.  Principal and interest are due in 90 days.  The Lender was also given 10 shares of common stock for every $1 loaned, for a total of 500,000 shares.  The shares were not issued as of September 30, 2011.  The value of the shares recorded was $10,000 and has been recorded as interest expense.

(14)
On July 28, 2011, the Company’s CEO received a $45,000 loan on behalf of the Company that bears 20% interest.  Principal and interest are due in 90 days.  The Lender was also given 10 shares of common stock for every $1 loaned, for a total of 450,000 shares.  The value of the shares at issuance was $9,000 and has been recorded as interest expense.

(15)
On July 28, 2011, the Company’s CEO received a $75,000 loan on behalf of the Company that bears 20% interest.  Principal and interest are due in 90 days.  The Lender was also given 8 shares of common stock for every $1 loaned, for a total of 600,000 shares.  The value of the shares at issuance was $12,000 and has been recorded as interest expense.

(16)
The total interest accrued for the loans listed above for items #12-#15 above at 20%, was $6,819 during the three and nine months ended 2011 was $6,819.  This amount is expected to be paid in cash.

NOTE 6 – IMPAIRMENT OF MARKETING AND DISTRIBUTION AGREEMENT AND RELATED SENIOR NOTE PAYABLE DUE TO EMPIRE ADVISORY, LLC
 
As discussed in Note 1, in August 2005, the Company executed a marketing and distribution agreement with Arrow Pte. This agreement was valued at fair value as determined based on an independent appraisal, which approximates the market value of 96% of the CNE public stock issued in settlement of the note.
 
The marketing and distribution agreement would have been amortized over the remainder of 99 years (the life of the agreement) once the Company commenced sales. As of December 31, 2005, the Company had recorded a $125,000,000 amortizable intangible asset for this agreement and corresponding credits to common stock and additional paid-in capital in conjunction with the stock settlement of the senior secured note payable to Empire and related cash advances in the same aggregate amount. The senior secured note payable was non-interest bearing and was repaid in the form of the preferred stock, which was subsequently converted to common stock (See Note 3). Any preferred stock issued under the senior secured note payable is considered restricted as to the sale thereof under SEC Rule 144 as unregistered securities.
 
The Company’s only intangible asset was comprised of this marketing and distribution agreement with Arrow Pte.  In accordance with ASC 350, “Goodwill and Other Intangible Assets” this intangible agreement is no longer amortized; instead the intangible is tested for impairment on an annual basis. The Company assesses the impairment of identifiable intangibles and goodwill whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors the Company considers to be important which could trigger an impairment review include the following:
 
 
·
Significant inability to achieve expected projected future operating results;
 
 
·
Significant changes in the manner in which the work is able to be performed what increases costs;
 
 
·
Significant negative impact on the environment.
 
We perform goodwill impairment tests on an annual basis and on an interim basis if an event or circumstance indicates that it is more likely than not that impairment has occurred. We assess the impairment of other amortizable intangible assets and long-lived assets whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors we consider important that could trigger an impairment review include significant underperformance to historical or projected operating results, substantial changes in our business strategy and significant negative industry or economic trends.
 
The World Bank and World Wildlife Federation have adopted forest management guidelines to ensure economic, social and environmental benefits from timber and non-timber products and the environmental services provided by forests. Most countries, including Indonesia as of 2007, have adopted these guidelines as law in order to promote economical development while combating the ongoing crisis of worldwide deforestation.

 
13

 
 
ARROW RESOURCES DEVELOPMENT, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 
NOTE 6 – IMPAIRMENT OF MARKETING AND DISTRIBUTION AGREEMENT AND RELATED SENIOR NOTE PAYABLE DUE TO EMPIRE ADVISORY, LLC, CONTINUED
 
It has always been the policy of Arrow Pte to follow the international guidelines for the harvesting of timber in virgin forests. In December 2007, Arrow Pte. assessed that it would be unable to harvest the timber products in Papua, New Guinea due to the fact that the widely accepted international guidelines of the World Wildlife Federation had not been adopted by Papua, New Guinea. This fact is adverse to the economic, social and environmental goals of Arrow Pte. because with the amount of land that the project was allotted combined with the agreed upon previous guidelines of the marketing and distribution agreement, yields would be significantly reduced. Given the significant change in the economics of the harvesting of the timber in Papua, New Guinea, Arrow Pte. has decided not to pursue any further operations in Papua, New Guinea given that the above restrictions cause a significant reduction in the volume of harvesting, which results in a disproportionate cost to yield ration at the Papua, New Guinea site which makes the project not economically feasible in the foreseeable future.
 
Based on the fact that Arrow Pte. is unable to fulfill their part of the agreement, the Company reached the conclusion that the marketing and distribution agreement had no value. Therefore, the Company fully impaired the value of the agreement and recorded a loss on write-off of the marketing and distribution agreement of $125,000,000 at December 31, 2007.
 
NOTE 7 - RELATED PARTY TRANSACTIONS
 
[1] Management Agreement with Empire Advisory, LLC:
 
Effective August 1, 2005, the Company entered into a Management Agreement with Empire under which Empire provides chief executive officer and administrative services to the Company in exchange for a) an annual fee of $300,000 for overhead expenses, b) $1,000,000 per annum (subject to increases in subsequent years) for executive services, and c) a one-time fee of $150,000 for execution of the proposed transaction which was incurred in 2005. In addition, the Board authorized a one-time payment of $500,000 to Empire upon closing the transaction.  The term of the agreement was five years. On May 18, 2011, the agreement was extended through December 31, 2016, and will follow the terms of the original agreement, and is automatically renewable thereafter unless notice by both parties are sent within 120 days prior to the end of said agreement.
 
As of September 30, 2011 and December 31, 2010, the Company had short-term borrowings of $10,554,665 and $8,517,313, respectively, due to Empire, consisting of cash advances to the Company and working capital raised by Empire, as agent, on behalf of the Company. These amounts are non-interest bearing and due on demand.
 
Peter Frugone is a member of the Board of Directors of the Company and is the owner of Empire. Empire, as agent, was the holder of the $125 million senior secured note payable settled in December 2005.
 
Management consulting fees and services charged in the Statement of Operations for the nine months period ended September 30, 2011 and 2010 totaled $2,730,865 and $2,262,875, respectively.
 
Consulting fees and services (which includes management consulting fees) charged to the Statement of Operations for the nine month periods ended September 30, 2011 and 2010 were $3,870,865 and $3,406,560, and for the period from inception (November 15, 2005) to September 30, 2011 $25,583,766.
 
During the nine months ended September 30, 2011, the Company also incurred Director’s compensation expense of $41,250 to Peter Frugone, consisting of cash compensation of $37,500 and stock based compensation of $3,750 based upon the Company’s share trading price on the date of the grant on September 30, 2011. During the nine months ended September 30, 2010, the Company incurred Director’s compensation expense of $43,125 to Peter Frugone, consisting of cash compensation of $37,500 and stock based compensation of $5,625 based upon the Company’s share trading price on September 30, 2010.   At September 30, 2011 the Company is obligated to issue 1,187,500 Common Stock shares to him, and “Accounts payable and accrued liabilities” includes $237,500 due to him for the cash based portion of his 2007 – 2011 director’s compensation (See Note 7[4]).
 
During the nine months ended September 30, 2011, the Company made cash payments of $696,862 to Empire under the agreement. During the nine months ended September 30, 2010, the Company made cash payments of $202,973 to Empire under the agreement.

 
14

 
 
ARROW RESOURCES DEVELOPMENT, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 
NOTE 7 - RELATED PARTY TRANSACTIONS, CONTINUED
 
[2] Engagement and Consulting Agreements entered into with individuals affiliated with Arrow Pacific:
 
Consulting fees and services charged in the Statement of Operations for the nine months ended September 30, 2011 and 2010 incurred to Hans Karundeng and Rudolph Karundeng under Engagement and Consulting Agreements totaled $1,125,000 and $1,125,000, respectively. In addition, as of September 30, 2011 and December 31, 2010, the Company owed them a total of $8,801,791 and $7,659,291, respectively, under these agreements. These agreements are discussed in detail in Note 10.
 
During the nine months ended September 30, 2011, the Company also incurred Director’s compensation expense of $41,250 to Rudolph Karundeng, consisting of cash compensation of $37,500 and stock based compensation of $3,750 based upon the Company’s share trading price on the date of the grant on September 30, 2011. During the nine months ended September 30, 2010, the Company incurred Director’s compensation expense of $43,125 to Rudolph Karundeng, consisting of cash compensation of $37,500 and stock based compensation of $5,625 based upon the Company’s share trading price on September 30, 2010.   At September 30, 2011 the Company is obligated to issue to issue 1,187,500 Common Stock shares to him, and “Accounts payable and accrued liabilities” includes $237,500 due to him for the cash based portion of his 2007 – 2011 director’s compensation (See Note 7[4]).
 
On May 18, 2011 the  engagement and consulting agreements with Hans Karundeng and Rudolph Karundeng (See Note 10) were extended through December 31, 2016 , and will follow the terms of the original agreements, and are automatically renewable thereafter unless notice by both parties are sent within 120 days prior to the end of said agreements.
 
[3] Advance Received from Company Director:
 
In July 2006, the Company received a $150,000 non-interest bearing advance from John E. McConnaughy, Jr., a Director of the Company, which is due on demand. In October 2006, the Company received an additional $200,000 non-interest bearing advance from Mr. McConnaughy, Jr. which is also due on demand. In February and March 2007, the Company received an additional $200,000 non-interest bearing advance from John E. McConnaughy, Jr., which is due on demand. In May and June 2007, the Company received an additional $250,000 non-interest bearing advance from John E. McConnaughy, Jr., which is due on demand. In July 2007, the Company received $250,000 of additional non-interest bearing advances from John E. McConnaughy, Jr., which is due on demand. In August 2007, the Company received a $50,000 non-interest bearing advance from John E.McConnaughy, Jr., which is due on demand. In October 2007 the Company received a $200,000 non-interest bearing advance from John E. McConnaughy, Jr., which is due on demand. In December 2007, the Company received a $250,000 non-interest bearing advance from John E. McConnaughy, Jr., which is due on demand. In March 2008, the Company received an additional $110,000 non-interest bearing advance from John E. McConnaughy, Jr.   In May and June 2008, the Company received $75,000 non-interest bearing advance from John E. McConnaughy, Jr, which is due on demand. In July 2008, the Company received $90,000 non-interest bearing advance from John E. McConnaughy, Jr, which is due on demand.   In August 2008, the Company received $240,000 non-interest bearing advance from John E. McConnaughy, Jr, which is due on demand. In September 2008, the Company received $90,000 non-interest bearing advance from John E. McConnaughy, Jr, which is due on demand. In October 2008, the Company received $5 0,000 non-interest bearing advance from John E. McConnaughy, Jr, which is due on demand. In November 2008, the Company received $10,000 non-interest bearing advance from John E. McConnaughy, Jr, which is due on demand. In December 2008, the Company received $5,000 non-interest bearing advance from John E. McConnaughy, Jr, which is due on demand.   On January 15, 2009, the Company received a $5,000 non-interest bearing advance from John E. McConnaughy Jr. In repayment, the Company will repay the full amount of the note in cash over two years from the date the note is executed. On January 27, 2009, the Company repaid $5,000 to John E. McConnaughy, Jr against the outstanding balance owed to him.  On September 28, 2009, John E. McConnaughy, Jr. converted $9,000 of non-interest bearing advance owed to him by the Company into 180,000 shares of restricted, unregistered common stock at $0.05 per share into the name of Roberta Konrad. On September 28, 2009, John E. McConnaughy, Jr. converted $30,000 of non-interest bearing advance owed to him by the Company into 600,000 shares of restricted, unregistered common stock at $0.05 per share into the name of Jacqueline Rowen.  As of December 31, 2009, John E. McConnaughy III assigned a $12,000 advance to John McConnaughy, Jr.  As of September 30, 2011 and December 31, 2010, the Company had $1,955,000 and $1,955,000 left to be repaid to Mr. McConnaughy, which is included in “Due to Related Parties.”
 
On June 2, 2009, the Company received a $25,000 10% interest bearing advance from John E. McConnaughy Jr. In repayment, the Company will repay the full amount of the note and accrued interest in cash by September 1, 2009. As of September 30, 2011, the outstanding principal and accrued interest of $2,500 has been included in “Notes Payable”. On November 5, 2009, the Company entered into a thirty day loan extension agreement with John E. McConnaughy Jr. for this $25,000 loan. The principal amount and interest was payable on December 5, 2009. This note is currently in default.

 
15

 
 
ARROW RESOURCES DEVELOPMENT, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 
NOTE 7 - RELATED PARTY TRANSACTIONS, CONTINUED
 
[3] Advance Received from Company Director continued:
 
During the nine months ended September 30, 2011, the Company also incurred Director’s compensation expense of $41,250 to John McConnaughy, consisting of cash compensation of $37,500 and stock based compensation of $3,750 based upon the Company’s share trading price on the date of the grant on September 30, 2011. During the nine months ended September 30, 2010, the Company incurred Director’s compensation expense of $43,125 to John McConnaughy, consisting of cash compensation of $37,500 and stock based compensation of $5,625 based upon the Company’s share trading price on September 30, 2010.   At September 30, 2011 the Company is obligated to issue 1,187,500 Common Stock shares to him, and “Accounts payable and accrued liabilities” includes $237,500 due to him for the cash based portion of his 2007 – 2011 director’s compensation (See Note 7[4]).
 
[4] Directors’ Compensation:
 
On December 3, 2007, the Board of Directors approved a plan to compensate all members of the Board of Directors at a rate of $50,000 per year and 250,000 shares of Company common stock effective January 1, 2007. This compensation plan applies to any board member that belonged to the Board as of and subsequent to January 1, 2007. Those board members that were only on the Board for part of the year will received pro-rata compensation based on length of service. As of September 30, 2011 and December 31, 2010, none of the shares under this plan have been issued and the Company has an accrued liability of $862,637 and $750,137, respectively, of cash-based compensation and recorded additional paid-in capital through those dates of $236,277 and $225,033, respectively, for stock-based compensation based on the fair value of 4,313,185 and 3,750,685 shares to be issued to the members of the Board, respectively.
 
NOTE 8 - STOCKHOLDERS' EQUITY
 
Arrow Ltd. was incorporated in May 2005 as a Bermuda corporation. Upon incorporation, 1,200,000 shares of $.01 par value common stock were authorized and issued to CNE.
 
On November 14, 2005, the Company increased its authorized shares to 1 billion and reduced the par value of its common stock to $0.00001 per share, resulting in a common stock conversion rate of 1 to 62.4.
 
On November 14, 2005, the Company completed a reverse merger with CNE Group, Inc. by acquiring 96% of the outstanding shares of CNE's common stock in the form of convertible preferred stock issued in settlement of the senior note payable.
 
During 2005, CNE divested or discontinued all of its subsidiaries in preparation for the reverse merger transaction. Accordingly, the results of operations for the divested or discontinued subsidiaries are not included in the consolidated results presented herein. In conjunction with the divestitures, CNE repurchased and retired all preferred stock and made certain payments to related parties.
  
In conjunction with the reverse merger transaction, the Company retired 1,238,656 shares of Treasury Stock.
 
On August 2, 2006, the Company entered into a stock purchase agreement with APR wherein APR agreed to purchase up to an aggregate amount of 15,000,000 shares of common stock in the Company for $1.00 per share, making this a capital contribution of $15,000,000 in total. The stock will be delivered at the time the Company files for registration. During the third and fourth quarters of 2006, the Company received a total of $985,000 in capital contribution towards the stock purchase agreement with APR to purchase up to an aggregate amount of 15,000,000 shares of common stock in the Company for $1.00 per share. During the year ended December 31, 2007, the Company received an additional $500,000 in capital contribution towards the stock purchase agreement with APR to purchase up to an aggregate amount of 15,000,000 shares of common stock in the Company for $1.00 per share.

 
16

 
 
ARROW RESOURCES DEVELOPMENT, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 
NOTE 8 - STOCKHOLDERS' EQUITY, CONTINUED
 
On November 20, 2007, the Board of Directors approved a private placement offering (the "Offering") approximating $2,000,000 to accredited investors at $1.00 per share of Series A Convertible Preferred Stock. The Offering will consist of the Company's Series A Convertible Preferred Stock that will be convertible into our common stock. These securities are not required to be and will not be registered under the Securities Act of 1933. Shares issued under this placement will not be sold in the United States, absent registration or an applicable exemption from registration.  As of December 31, 2009, the Company had received $355,000 from investors towards 355,000 Series A Convertible Preferred Stock shares issuable under subscription agreements covering the placement offering. Each Series A Convertible Preferred Stock is convertible into 20 shares of the Company’s Common Stock. The holders of the preferred stock have no voting rights except as may be required by Delaware law, no redemption rights, and no liquidation preferences over the Common Stock holders.  On November 3, 2009, the 355,000 Series A Convertible Preferred Stock were converted into 7,100,000 Common shares.  As of September 30, 2011 and December 31, 2010, there were no Series A Convertible Preferred Stock outstanding.
 
On December 3, 2007, the Board of Directors approved a plan to compensate all members of the Board of Directors at a rate of $50,000 per year and 250,000 shares of Company common stock effective January 1, 2007. This compensation plan applies to any board member that belonged to the Board as of and subsequent to January 1, 2007. Those board members that were only on the Board for part of the year will received pro-rata compensation based on length of service.  As of September 30, 2011 and December 31, 2010, none of the shares under this plan have been issued and the Company has an accrued liability of $862,637 and $750,137, respectively, of cash-based compensation and recorded additional paid-in capital through those dates of $236,277 and $225,033, respectively, for stock-based compensation based on the fair value of 4,313,185 and 3,750,685 shares to be issued to the members of the Board, respectively.
 
On February 1, 2008, the Company entered into Independent Contractor Agreement with Charles A. Moskowitz of MoneyInfo. Inc. to provide consulting services to the Company in the lumber market development, ethanol market development, and compilation of market prices associated with lumber and ethanol and development of a database for the ongoing analysis of these markets. The term of this agreement is February 1, 2008 through July 31, 2008. As payment for the Consultant’s services, the Company will issue 2,600,000 shares of common stock to Charles A. Moskowitz. During the year ended December 31, 2008 the Company recorded consulting fees and services of $208,000 related to the 2,600,000 shares of common stock that are now issuable to Charles A. Moskowitz. As of September 30, 2011, none of these shares have been issued to Charles A. Moskowitz.
 
On March 13, 2008, the Company and Micro-Cap Review, Inc. (“Micro-Cap”) executed an Advertising Agreement wherein the Company will pay Micro-Cap Review, Inc. 1,000,000 of restricted common shares to display advertisements and advertorial in the Micro-cap Review magazine and on  http://www.microcapreview.com  website on a rotating basis. The services began on March 13, 2008 and expired on June 30, 2008.  On April 29, 2008, the Company issued 1,000,000 shares of unregistered restricted common stock to Micro-Cap Review, Inc. The Company recorded a marketing expense of $70,000 in General and Administration Expenses related to the issuance of the 1,000,000 shares of common stock as of December 31, 2008.
 
On March 15, 2008, the Company and Seapotter Corporation (“Seapotter”) executed a Consulting Agreement wherein Seapotter would provide information technology support from March 15, 2008 to July 15, 2008 in exchange for $9,000 per month and 250,000 shares of common stock. On April 29, 2008, the Company issued 250,000 shares of unregistered restricted common stock to Charles Potter per the Consulting Agreement entered into by the Company on March 15, 2008. The Company recorded consulting fees and services of $17,500 related to the 250,000 shares of common stock that were issued to Seapotter on April 29, 2008.
 
On April 30, 2008, the Company entered into Independent Contractor Agreement with Ciolli Management Consulting, Inc. to provide advisory services in the land development, construction management, equipment acquisition and project management industries. As payment for the Consultant’s services, the Company issued a one-time, non-refundable fee of 1,000,000 unrestricted shares of common stock.  As of December 31, 2008, the Company has expensed $60,000 for the 1,000,000 shares of common stock that were issued to Ciolli Management Consulting, Inc.
 
On April 30, 2008, the Company received a $500,000 non-interest bearing advance from Frank Ciolli. In repayment, the Company promised to pay Frank Ciolli the principal sum of $550,000 on or before October 31, 2008.

 
17

 

ARROW RESOURCES DEVELOPMENT, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 
NOTE 8 - STOCKHOLDERS' EQUITY, CONTINUED
 
On October 31, 2008, the Company entered into a 60 day loan extension with Frank Ciolli related to the $550,000 in principal loan incurred by the Company on April 30, 2008.  The Company issued 1,000,000 shares of the Company’s unregistered restricted common stock to Frank Ciolli and 1,000,000 shares of the Company’s unregistered restricted common stock to Donna Alferi on behalf of Michael Alferi as Frank Ciolli’s designee. The Company recorded $200,000 in debt issue costs related to the 1,000,000 of shares of common stock that were issued to Frank Ciolli and Donna Alferi as of December 31, 2008 (See Note 5).  
 
On January 15, 2009, the Company entered into the thirty-one day extension December 31, 2008 for the Convertible Loan Agreement and Convertible Note with Frank Ciolli for the loan amount of $550,000 dated as of April 30, 2008. The Company issued 500,000 shares of restricted, unregistered common stock each for Michael Alferi and Frank Ciolli, which resulted in Company debt issue costs of $80,000 as of June 30, 2009).  On August 12, 2009, the Company and Frank Ciolli entered into a six month extension for the Senior Note and Purchase Agreement for the principal sum of $550,000. The principal amount was payable on February 12, 2010.  The note is currently in default.
 
On March 31, 2008, the Company received a $ 150,000 non-interest bearing advance from John Marozzi, which is due on demand. As payment for his services, the Company will repay the full amount of the note plus 1,000,000 shares of unregistered restricted common stock. The Company recorded $40,000 of debt issue costs related to the 1,000,000 shares of common stock that are now issuable John Marozzi as of March 31, 2008 (See Note 5). On May 5, 2008, John Marozzi received repayment of $50,000 from the Company. On October 13, 2008, the Company received another $50,000 interest bearing advance from John Marozzi. The Company was to repay the full amount of the note in cash within 60 calendar days from the date the note is executed plus interest expense paid in the form of 1,000,000 shares of unregistered Company common stock. The Company recorded $60,000 of debt issue costs related to the 1,000,000 shares of common stock that were issuable John Marozzi as of December 31, 2008 (See Note 5).  On March 5, 2009, the Company received another $50,000 interest bearing advance from John Marozzi.  The Company is to repay the full amount of the March 5, 2009 $50,000 note in cash within 60 calendar days from the date the note was executed plus interest paid in the form of 1,000,000 shares of unregistered Company common stock.  The Company recorded $70,000 of debt issue costs related to the 1,000,000 shares of common stock that are now issuable John Marozzi as of June 30, 2009 (See Note 5).  On August 12, 2009, the Company and John Marozzi entered into a six month extension for the Senior Note and Purchase Agreement for the amount of $200,000. The principal amount was payable on February 5, 2010. On April 17, 2009, the Company received a $12,500 non-interest bearing advance from John Marozzi. The Company is to repay the full amount of the April 17, 2009 $12,500 note in cash within 60 calendar days from the date the note was executed. On May 8, 2009, the Company received a $ 20,000 non- interest bearing advance from John Marozzi. The Company is to repay the full amount of the May 8, 2009 $20,000 note in cash within 30 calendar days from the date the note was executed.  On August 13, 2009, the Company and John Marozzi entered into a six month extension for the Senior Note and Purchase Agreement for the amount of $32,500. The principal amount was payable on February 5, 2010. On August 7, 2009, the Company received a $33,000 non-interest bearing advance from John Marozzi. In repayment, the Company will repay the full amount of the note in cash within 60 calendar days from the date the note is executed. On November 5, 2009, the Company entered into a thirty day loan extension agreement with John Marozzi for the $33,000 loan to the Company.  The principal amount and interest was payable on December 5, 2009.  The $265,500 note payable is currently in default.  On March 3, 2010, the Company received a $110,000 interest bearing advance from John Marozzi.  The Company was to pay interest at the interest rate of 10% payable at the time of repayment due March 3, 2011. As of March 3, 2011, the advance was not repaid by the Company, and is currently in default.  On April 21, 2010, the Company received a $42,000 interest bearing advance from Marozzi. The Company will pay interest at the interest rate of 10% which shall be payable at the time of repayment due April 21, 2011.  The Company had the option to repay the loan in Company stock at a price based on a 50% discount off the market price, calculated on the average closing price five days prior to delivery of the stock.  On December 14, 2010 the Company agreed to issue 20 million shares of its common stock in settlement of $217,500 of the older debt instruments owed to Marozzi.  The Company recorded a loss on debt conversion of $1,182,500 in connection with this transaction.  This left a total balance of $200,000 of unpaid principal as of December 31, 2010.
 
On April 25, 2011, the Company and its Board of Directors agreed to issue to Marozzi 30,000,000 shares of the Company’s common stock as settlement for the outstanding principal balance payable to Marozzi of $200,000.  The Company’s stock price on April 25, 2011 was $0.04; therefore, the value of the 30,000,000 issued was $1,200,000, resulting in a loss on debt conversion of $1,000,000 that has been reflected in the Company’s Statements of Operations during the second quarter of 2011.
 
On April 8, 2008, the Company received a $50,000 non-interest bearing advance from Barry Weintraub, which was due on demand. In repayment, the Company repaid the full amount of the note on April 30, 2008 and is obligated to issue 2,000,000 shares of the Company’s unregistered restricted common stock to Barry Weintraub. The Company recorded $120,000 in debt issue costs related to the 2,000,000 shares of common stock that were issuable to Barry Weintraub as of December 31, 2008 (See Note 5).
 
On April 24, 2008, the Company received a $38,000 non-interest bearing advance from Christopher T. Joffe, which is due on demand. In repayment, the Company will repay the full amount of the note plus 304,000 shares of the Company’s unregistered restricted common stock. The Company recorded $24,320 in debt issue costs related to the 304,000 shares of common stock that are issuable to Christopher T. Joffe as of December 31, 2008 (See Note 5).
 
On April 24, 2008, the Company received another $38,000 non-interest bearing advance from James R. McConnaughy, which is due on demand. In repayment, the Company will repay the full amount of the note plus 304,000 shares of the Company’s unregistered restricted common stock.  The Company recorded $24,320 in debt issue costs related to the 304,000 shares of common stock that are issuable to James R. McConnaughy as of December 31, 2008 (See Note 5).

 
18

 
 
ARROW RESOURCES DEVELOPMENT, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 
NOTE 8 - STOCKHOLDERS' EQUITY, CONTINUED
 
On April 25, 2008, the Company received a $12,000 non-interest bearing advance from John E. McConnaughy, III, which is due on demand. In repayment, the Company would repay the full amount of the note plus 96,000 shares of unregistered restricted common stock.  The Company recorded $7,680 in debt issue costs related to the 96,000 shares of common stock that are issuable to John E. McConnaughy, III as of December 31, 2008 (See Note 5).  As of December 31, 2009, John E. McConnaughy III assigned the $12,000 advance to John McConnaughy, Jr.
 
On May 15, 2008, the Board of Directors approved a private placement offering (the "Offering") approximating $2,000,000 to accredited investors at $1.00 per share of Series C Convertible Preferred Stock. The Offering will consist of the Company's Series C Convertible Preferred Stock that will be convertible into our common stock. These securities are not required to be and will not be registered under the Securities Act of 1933. Shares issued under this placement will not be sold in the United States, absent registration or an applicable exemption from registration. As of September 30, 2009, the Company received $25,000 from investors towards the fulfillment of the financing agreement.  On November 3, 2009, the 25,000 Series C Convertible Preferred Stock were converted into 500,000 Common shares.  As of September 30, 2011 and December 31, 2010, there was no Series C Convertible Preferred Stock outstanding.
 
Also on May 15, 2008, the Board of Directors approved the issuance of 50,000 shares of unregistered restricted common stock to Sheerin Alli and 50,000 shares of unregistered restricted common stock to Lori McGrath for consulting services provided. As of March 31, 2011 and December 31, 2010, the Company has not yet issued these shares.  The Company recorded $6,500 and $6,500, respectively in consulting fees related to the 100,000 shares of common stock that are issuable to Sheerin Alli and Lori McGrath as of September 30, 2008.
 
On June 24, 2008, Arrow Resources Development, Inc. entered into a Subscription Agreement with Timothy J. LoBello (“Purchaser”) in which the Purchaser subscribed for and agreed to purchase 1,000,000 shares of the Company’s common stock on June 13, 2008 for the purchase price of $50,000 ($0.05 per share). As of March 31, 2011 and December 31, 2010, the Company has not yet issued these shares to the Purchaser. On the date of the purchase, the fair value of these shares was $140,000.  As of December 31, 2008, the Company recorded 49,990 to Additional Paid-in Capital to be issued related to this transaction.
 
On October 13, 2008, the Company received a $50,000 interest bearing advance from Scott Neff. The Company was to repay the full amount of the note in cash within 60 calendar days from the date the note is executed plus interest expense paid in the form of 1,000,000 shares of unregistered Company common stock. The Company recorded $60,000 in costs related to the 1,000,000 shares of common stock that are issuable to Scott Neff as of December 31, 2008. On August 12, 2009, the Company and Scott Neff entered into a six month extension for the Senior Note and Purchase Agreement for the principal sum of $50,000. The principal amount was payable on February 5, 2010. The note is currently in default.
 
On October 29, 2008, the Company entered into a Subscription Agreement with James Fuchs by which he purchased 250,000 shares of common stock in the amount of $0.10 per share for total of $25,000. On November 24, 2008, the Company issued 250,000 shares of restricted, unregistered common stock to James Fuchs.
 
On November 14, 2008, the Company entered into a Subscription Agreement with Peter Benolie Lane, Jacques Benolie Lane, and Christopher Benoliel Lane for the purchase of 250,000 shares of common stock in the amount of $0.10 per share for total of $25,000.
 
On December 11, 2008, the Company received $55,000 from Han Karundeng and Arrow Pacific Resources Group Limited for the purchase of 55,000 shares of common stock at $1.00 per share pursuant to the Stock Purchase Agreement that was executed on August 2, 2006.
 
On January 15, 2009, the Company entered into a stock purchase agreement with APR wherein APR agreed to purchase up to an aggregate amount of 15,000,000 shares of common stock in the Company for $.10 per share.  On January 15, 2009, the Company received $85,000 from Hans Karundeng and Arrow Pacific Resources Group Limited for the purchase of 850,000 shares of common stock at $.10 per share pursuant to the APR to purchase up to an aggregate amount of 15,000,000 shares of common stock in the Company for $.10 per share.  On January 20, 2009, the Company received $165,000 from Hans Karundeng and Arrow Pacific Resources Group Limited for the purchase of 1,650,000 shares of common stock at $.10 per share pursuant to the APR to purchase up to an aggregate amount of 15,000,000 shares of common stock in the Company for $.10 per share.  (See Note 10 [5] - Stock Purchase Agreement.)

 
19

 
 
ARROW RESOURCES DEVELOPMENT, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
  
NOTE 8 - STOCKHOLDERS' EQUITY. CONTINUED

On December 14, 2005 Empire entered into a non interest bearing note agreement with Butler Ventures for $250,000. The cash from this note was invested in the Company. On June 17, 2009, the Company assumed the non interest bearing note from Empire for $250,000 to Butler Ventures. In repayment, the Company was to repay the full amount of the note not later than July 29, 2009. On July 14, 2009, the Company issued 9,690,909 shares of common stock to Butler Ventures, LLC with a market value on the date of issuance of $533,000 in full settlement of the $250,000 note payable.

On June 29, 2009, the Company received a $100,000 interest bearing advance from Cliff Miller. In repayment, the Company will repay the full amount of the note in cash not later than July 29, 2009. During the period ended September 30, 2009, the Company recorded $70,000 in debt issue costs related to the 1,000,000 shares of restricted common stock that are issuable to Cliff Miller for interest expense as of July 29, 2009.  On July 30, 2009, the Company received a $100,000 interest bearing advance from Cliff Miller. In repayment, the Company will repay the full amount of the note in cash not later than August 30, 2009. During the period ended September 30, 2009, the Company recorded $60,000 in debt issue costs related to the 1,000,000 shares of restricted common stock that are issuable to Cliff Miller for interest expense as of August 30, 2009.  On August 11, 2009, the Company received a $250,000 interest bearing advance from Cliff Miller. In repayment, the Company will repay the full amount of the note in cash not later than October 11, 2009. The Company shall pay interest in the form of 10,000,000 shares of the Company’s restricted stock and a $100,000 cash payment due at maturity.  During the year ended December 31, 2009, the Company recorded accrued interest of $100,000 and debt issue costs of $400,000 for interest expense.  On November 11, 2009, the Company entered into a thirty day loan extension agreement with Cliff Miller for the $100,000 loan on June 29, 2009, the $100,000 loan on July 30, 2009 and the $250,000 loan on August 11, 2009. In consideration of the extending the term of the loan, the Company will issue 2,000,000 shares of the Company’s common stock on January 4, 2010.  The shares have not been issued yet, but $60,000 debt issue cost was recorded as of December 31, 2009.  The total unpaid principal balance of $450,000 is in default.  For the nine months ended September 30, 2011 and the year ended December 31, 2010, the Company accrued $1,228,500 and $1,642,500 of default penalty in interest expense, respectively, and has accrued cumulative default penalties of $3,347,000 and accrued interest of $100,000 as of September 30, 2011, and accrued cumulative default penalties of $2,118,500 and accrued interest of $100,000 as of December 31, 2010.

On July 20, 2009, the Company received a $100,000 interest bearing advance from Greg and Lori Popke. In repayment, the Company will repay the full amount of the note in cash not later than September 19, 2009. During the period ended September 30, 2009, the Company recorded $60,000 in debt issue costs related to the 1,000,000 shares of restricted common stock that are issuable to Greg and Lori Popke for interest expense as of September 19, 2009. On November 12, 2009, the Company entered into a thirty day loan extension agreement with Greg and Lori Popke to extend this $100,000 loan. The principal amount was payable on December 11, 2009 and the loan is currently in default.  For the nine months ended September 30, 2011 and the year ended December 31, 2010, the Company accrued $273,000 and $365,000 of default penalty in interest expense, respectively, and has accrued cumulative default penalties of $740,000 as of September 30, 2011.

On September 28, 2009, John E. McConnaughy, Jr. converted $9,000 of non-interest bearing advance owed to him by the Company into 180,000 shares of restricted, unregistered common stock at $0.05 per share into the name of Roberta Konrad. On September 28, 2009, John E. McConnaughy, Jr. converted $30,000 of non-interest bearing advance owed to him by the Company into 600,000 shares of restricted, unregistered common stock at $0.05 per share into the name of Jacqueline Rowen.

On November 3, 2009, Hans Karundeng converted $100,000 of non-interest bearing advance owed to him by the Company into 2,000,000 shares of common stock.

On November 3, 2009, Empire converted $100,000 of non-interest bearing advance owed to them by the Company into 2,000,000 shares of common stock.

On May 26, 2011, the Company executed a subscription agreement with a third party and under that agreement 1,066,667 shares of common stock, par value $.00001, was purchased for $30,000.  The purchased shares were issued in August 2011.

Reset of 2005 Subscription Agreement

On February 5, 2009 the Company agreed to issue 1,248,094 shares of common stock to certain investors as settlement for the reset of their August 3, 2005 subscription agreements.  As of September 30, 2011, 138,095 shares had been issued.

NOTE 9 - GAIN ON WRITE OFF OF PREDECESSOR ENTITY LIABILITIES

During the fourth quarter of 2006, the Company wrote off accounts payable and accrued expenses in the amount of $395,667 associated with CNE, the predecessor entity in the reverse merger transaction, which will not be paid. This resulted in the recognition of a gain reflected in the Statement of Operations for the year ended December 31, 2006 in the same amount.

 
20

 

ARROW RESOURCES DEVELOPMENT, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
  
NOTE 10 - COMMITMENTS AND OTHER MATTERS

[1] Engagement and Consulting Agreements entered into with individuals affiliated with APR

Effective May 20, 2005, the Company entered into an Engagement Agreement with Hans Karundeng for business and financial consulting services for fees of $1,000,000 per annum. The term of the agreement was five years. Payments under the agreement are subject to the Company's cash flow. On May 18, 2011 the agreement was extended through December 31, 2016 and is automatically renewable thereafter unless notice by both parties is sent within 120 days prior to the end of said agreement.

Effective August 1, 2005, the Company entered into a Consulting Agreement with Rudolph Karundeng for his services as Chairman of the Board of the Company for fees of $1,000,000 per annum. The term of the agreement was five years. On May 18, 2011 the agreement was extended through December 31, 2016, and will follow the terms of the original agreement, and is automatically renewable thereafter unless notice by both parties are sent within 120 days prior to the end of said agreement.  Rudolph Karundeng is a son of Hans Karundeng. However, on May 1, 2006, the Company accepted the resignation of Rudolph Karundeng as Chairman of the Board, but he continues to be a director of the Company. Peter Frugone has been elected as Chairman of the Board until his successor is duly qualified and elected. Subsequent to his resignation, it was agreed that Rudolph Karundeng's annual salary is to be $500,000 as a director.

During the nine months ended September 30, 2011, the Company made cash payments to Hans Karundeng of $20,000 under his agreement. During the nine months ended September 30, 2011, the Company made no cash payments to Rudolph Karundeng under his agreement. During the year ended December 31, 2010, the Company made cash payments to Hans Karundeng of $37,500 under his agreement. During the year ended December 31, 2010, the Company made no cash payments to Rudolph Karundeng under his agreement.  During the year ended December 31, 2009, the Company made cash payments to Hans Karundeng of $122,700 under his agreement. During the year ended December 31, 2009, the Company made no cash payments to Rudolph Karundeng under his agreement. During the year ended December 31, 2008, the Company made cash payments to Hans Karundeng of $320,000 under his agreement.  During the year ended December 31, 2008, the Company made no cash payments to Rudolph Karundeng under his agreement.  During the year ended December 31, 2007, the Company received additional advances of $100,000 from Hans Karundeng under his agreement and made cash payments to him of $556,000. During the year ended December 31, 2007, the Company made cash payments of $7,000 to Rudolph Karundeng under his agreement. During the year ended December 31, 2006, the Company received additional advances of $61,787 from Hans Karundeng under his agreement. During the year ended December 31, 2006, the Company made cash payments of $62,174 to Rudolph Karundeng under his agreement. During the period from inception (November 15, 2005) to December 31, 2010, the Company made cash payments to Hans Karundeng and Rudolph Karundeng of $1,267,161 under the agreements.  During the period from inception (November 15, 2005) to September 30, 2011, the Company made cash payments to Hans Karundeng and Rudolph Karundeng of $1,287,161 under the agreements.

[2] Management Agreement with Empire Advisory, LLC

Effective August 1, 2005, the Company entered into a Management Agreement with Empire Advisory, LLC (“Empire”) under which Empire provides chief executive officer and administrative services to the Company in exchange for a) an annual fee of $300,000 for overhead expenses, b) $1,000,000 per annum (subject to increases in subsequent years) for executive services, and c) a one-time fee of $150,000 for execution of the proposed transaction which was incurred in 2005.  The term of the agreement was for five years. On May 18, 2011 the agreement was extended through December 31, 2016, and will follow the terms of the original agreement, and is automatically renewable thereafter unless notice by both parties are sent within 120 days prior to the end of said agreement.

During the nine months ended September 30, 2011, the Company made cash payments of $696,862 to Empire under the agreement. During the year ended December 31, 2010, the Company made cash payments of $276,043 to Empire under the agreement.  During the year ended December 31, 2009, the Company made cash payments of $992,570 to Empire under the agreement.  During the year ended December 31, 2008, the Company made cash payments of $1,319,216 to Empire under the agreement.  During the year ended December 31, 2007, the Company made cash payments of $1,140,529 to Empire under the agreement. During the year ended December 31, 2006, the Company made cash payments of $562,454 to Empire under the agreement. During the period from inception (November 15, 2005) to December 31, 2005, the Company made cash payments of approximately $364,000 to Empire under this agreement.

[3] Litigation - predecessor entity stock holders

The Company was a party to a lawsuit where the plaintiff alleged that he was entitled to $60,000 and 1,300,000 of common stock based upon CNE’s failure to compensate him for services related to identifying financing for CNE, based upon an agreement that was entered into between CNE and the plaintiff in April 2005. On November 28, 2007, the Company settled the lawsuit with the plaintiff. In full and final settlement of the claims asserted in the action, the Company has paid the plaintiff $10,000 in cash and issued the plaintiff 200,000 shares of the Company’s common stock having a fair value of $12,000, based on the public traded share price on December 21, 2007. The settlement resulted in a loss on debt conversion of $2,000 during the year ended December 31, 2007 because an estimated liability had been recognized prior to 2007.

 
21

 

ARROW RESOURCES DEVELOPMENT, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
  
NOTE 10 - COMMITMENTS AND OTHER MATTERS, CONTINUED

[3] Litigation - predecessor entity stock holders continued

In May 2006, the Company was advised that it was alleged to be in default of a settlement agreement entered into in January of 2005 by CNE, its predecessor company, related to the release of unrestricted, freely-tradable, non-legend shares of stock. In August 2006, the plaintiffs, alleging the default, obtained a judgment in the 17th Judicial Circuit Court Broward County, Florida for approximately $1,000,000. On November 13, 2007, legal counsel engaged by Management commenced an action on the Company’s behalf in the above Circuit Court seeking to vacate and set aside the 2006 judgment asserting claims under Rule 1.540(b) of the Florida Rules of Civil Procedure. Our counsel’s evaluation is that the Company has only a limited chance of having the 2006 judgment opened by the Court because Florida law provides very narrow grounds for opening a judgment once a year has passed from its entry. The Courts are generally reluctant to disturb final judgments and the Company’s grounds for opening the judgment depend on the Court’s adopting a somewhat novel argument regarding such matters. If, however, the Court does open the default judgment, the Company will then have the opportunity to defend the 2006 action and, in such event, our counsel believes that the Company has a reasonable chance of succeeding in defending that claim, at least in part, based on the documents he has reviewed.   As of September 30, 2011 and December 31, 2010, the Company has accrued $1,377,302 and $1,329,898, including accrued interest of $323,917, related to this matter.

On December 14, 2005, Empire Advisory received a $250,000 non-interest bearing advance from Butler Ventures, LLC the proceeds of which were used for the benefit of the Company and for which the liability was transferred to the Company.  In repayment, the Company would repay the full amount of the note in converted securities and U.S. dollars on the earlier of March 31, 2006, without further notice or demand, or immediate payment in the event of default. On December 8, 2008, Butler filed a motion for summary judgment in lieu of complaint against Empire in the Supreme Court of the State of New York for failing to repay the loan on the maturity date. On January 29, 2009, Empire Advisory, LLC and Butler Ventures, LLC entered into Settlement Agreement and Mutual Release where the parties had agreed to resolve amicable the amounts due and owing to Butler by issuing to Butler common stock in Empire’s affiliated company, Arrow Resources Development, Inc. as well as by payment of all attorneys’ fees and expenses accrued to date. Empire Advisor shall cause the Company to issue to Butler shares of common stock in the Company. Butler agreed to extend until on or prior to March 31, 2009 for performance of all of Empire’s obligations. In consideration for this extension, Empire Advisor agreed to cause the Company to issue to Butler an additional 100,000 shares of the Company common stock. The Company defaulted on this extension.  On June 17, 2009, Empire Advisory transferred the loan obligations to the Company, and the Company agreed to assume the loan obligations. On July 14, 2009, the Company issued 9,690,909 shares of common stock to Butler Ventures, LLC with a market value on the date of issuance of $533,000 in full settlement of the $250,000 note payable. 9,090,909 shares were issued in exchange for a senior note payable that has been assumed by the Company.  100,000 shares were issued in accordance with the aforementioned extension, and 500,000 shares were issued to Butler in consideration of Butler’s agreement to forego its remedies related to the aforementioned default of the extension.

[4] Consulting/Marketing and Agency Agreements

On April 4, 2006, the Company entered into a consulting agreement with Dekornas GMPLH (“Dekornas”) (a non-profit organization in Indonesia responsible for reforestation in areas that were destroyed by illegal logging) in which the Company will provide financial consultancy services to Dekornas for an annual fee of $1.00 for the duration of the agreement. The term of the agreement is effective upon execution, shall remain in effect for ten (10) years and shall not be terminated until the expiration of at least one (1) year. As of September 30, 2011, the Company has not recovered any revenue from this agreement.

In April of 2006, Arrow Resources Development, Ltd. entered into an agency agreement with APR to provides marketing and distribution services for timber resource products and currently has an exclusive marketing and sales agreement with APR to market lumber and related products from land leased by GMPLH which is operated by APR and its subsidiaries, located in Indonesia. Under the agreement Arrow Ltd. will receive a commission of 10% of gross sales derived from lumber and related products. As of September 30, 2011, the Company has recovered $52,000 of revenue from this agreement.

On April 14, 2006, the Company entered into a consulting agreement with P.T. Eucalyptus Alam Lestari (“Lestari”) in which the Company will provide financial consultancy services to P.T. Eucalyptus for an annual fee, payable quarterly, equal to 10% of P.T. Eucalyptus' gross revenue payable commencing upon execution. The term of the agreement is effective upon execution, shall remain in effect for ninety-nine (99) years and shall not be terminated until the expiration of at least ten (10) years. As of September 30, 2011, the Company has not recovered any revenue from this agreement.

 
22

 

ARROW RESOURCES DEVELOPMENT, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
  
NOTE 10 - COMMITMENTS AND OTHER MATTERS, CONTINUED

[4] Consulting/Marketing and Agency Agreements continued

On February 1, 2008, the Company entered into Independent Contractor Agreement with Charles A. Moskowitz of MoneyInfo. Inc. to provide consulting services to the Company in the lumber market development, ethanol market development, and compilation of market prices associated with lumber and ethanol and development of a database for the ongoing analysis of these markets. The term of this agreement is February 1, 2008 through July 31, 2008. As payment for the Consultant’s services, the Company will issue 2,600,000 shares of common stock to Charles A. Moskowitz. The Company recorded consulting fees and services of $208,000 related to the 2,600,000 shares of common stock that are issuable to Charles A. Moskowitz as of December 31, 2008.  As of September 30, 2011, none of these shares have been issued to Charles A. Moskowitz.

On March 13, 2008, the Company and Micro-Cap Review, Inc. (“Micro-Cap”) executed an Advertising Agreement wherein the Company will pay Micro-Cap Review, Inc. 1,000,000 of restricted common shares to display advertisements and advertorial in the Micro-cap Review magazine and on  http://www.microc apreview.com  website on a rotating basis. The services began on March 13, 2008 and expire on June 30, 2008.  On April 29, 2008, the Company issued 1,000,000 shares of unregistered restricted common stock to Micro-Cap Review, Inc. The Company recorded a marketing expense of $70,000 in consulting fees and services related to the issuance of the 1,000,000 shares of common stock as of December 31, 2008.

On March 15, 2008, the Company and Seapotter Corporation (“Seapotter”) executed a Consulting Agreement wherein Seapotter would provide information technology support from March 15, 2008 to July 15, 2008 in exchange for $9,000 per month and 250,000 shares of common stock. On April 29, 2008, the Company issued 250,000 shares of unregistered restricted common stock to Charles Potter per the Consulting Agreement entered into by the Company on March 15, 2008. The Company recorded consulting fees and services of $17,500 related to the 250,000 shares of common stock that were issued to Seapotter on April 20, 2008.

On April 30, 2008, the Company entered into Independent Contractor Agreement with Ciolli Management Consulting, Inc. to provide advisory services in the land development, construction management, equipment acquisition and project management industries. As payment for the Consultant’s services, the Company will issue a one-time, non-refundable fee of 1,000,000 unrestricted shares of common stock.  As of December 31, 2008, the Company has expensed $60,000 related to the 1,000,000 shares of common stock that are were issued to Ciolli Management Consulting, Inc. on November 26, 2008.

On September 15, 2008, the Company entered into a Consulting Agreement with Infrastructure Financial Services, Inc. to assist and advise the Company in obtaining equity financing up to $5,000,000.  As payment for the Consultant’s services, the Company will pay a cash transaction fee of 7% upon closing of any equity financing the Consultants assist in obtaining.

On November 22, 2010, the Company entered into a Consulting Agreement with Franco, Inc. to provide market research and analysis services in the lumber and corn markets of Indonesia and Asia.  As payment for the Consultant’s services, the Company paid 6.5 million shares of Company common stock.  As of December 31, 2010, the Company expensed $585,000 related to the market value of the 6.5 million shares using the Company’s closing market price on November 22, 2010.

[5] Stock Purchase Agreement

On August 2, 2006, the Company entered into a stock purchase agreement with APR wherein APR agreed to purchase up to an aggregate amount of 15,000,000 shares of common stock in the Company for $1.00 per share, making this a capital contribution of $15,000,000 in total. The stock will be delivered at the time the Company files for registration. APR is currently the principal shareholder of the Company, owning 352,422,778 shares or 52%. As of March 31, 2010, the Company has received $1,540,000 from APR towards the fulfillment of this agreement.  As of September 30, 2011, the Company has received no additional funds.

On January 15, 2009, the Company entered into a stock purchase agreement with APR wherein APR agreed to purchase up to an aggregate amount of 15,000,000 shares of common stock in the Company for $.10 per share.  On January 15, 2009, the Company received $85,000 from Hans Karundeng and Arrow Pacific Resources Group Limited for the purchase of 850,000 shares of common stock at $.10 per share pursuant to the APR to purchase up to an aggregate amount of 15,000,000 shares of common stock in the Company for $.10 per share.  On January 20, 2009, the Company received $165,000 from Hans Karundeng and Arrow Pacific Resources Group Limited for the purchase of 1,650,000 shares of common stock at $.10 per share pursuant to the APR to purchase up to an aggregate amount of 15,000,000 shares of common stock in the Company for $.10 per share.

 
23

 

ARROW RESOURCES DEVELOPMENT, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
  
NOTE 10 - COMMITMENTS AND OTHER MATTERS, CONTINUED

[5] Stock Purchase Agreement Continued

(b) Private Placement Offering- Series A Convertible Preferred Stock

On November 20, 2007, the Board of Directors approved a private placement offering (the "Offering") approximating $2,000,000 to accredited investors at $1.00 per share of Series A Convertible Preferred Stock. The Offering consisted of the Company's Series A Convertible Preferred Stock that will be convertible into our common stock. These securities were not required to be and will not be registered under the Securities Act of 1933. Shares issued under this placement were sold in the United States, absent registration or an applicable exemption from registration. As of September 30, 2009, the Company received $355,000 from investors towards 355,000 Series A Convertible Preferred Stock shares issuable under subscription agreements covering the placement offering. Each Series A Convertible Preferred Stock was convertible into 20 shares of the Company’s Common Stock. The holders of the preferred stock had no voting rights except as was required by Delaware law, no redemption rights, and no liquidation preferences over the Common Stock holders.  On November 3, 2009, the 355,000 Series A Convertible Preferred Stock were converted into 7,100,000 Common shares.  As of September 30, 2011 and December 31, 2010, respectively, there were no Series A Convertible Preferred Stock outstanding.

(c) Private Placement Offering- Series C Convertible Preferred Stock

On April 20, 2008, the Board of Directors approved a private placement offering (the "Offering") approximating $2,000,000 to accredited investors at $1.00 per share of Series C Convertible Preferred Stock. The Offering consisted of the Company's Series C Convertible Preferred Stock that was convertible into our common stock. These securities were not required to be and were not registered under the Securities Act of 1933. Shares issued under this placement were sold in the United States, absent registration or an applicable exemption from registration. As of September 30, 2009, the Company received $25,000 from investors towards 25,000 Series C Convertible Preferred Stock shares issuable under subscription agreements covering the placement offering. Each Series C Convertible Preferred Stock is convertible into 20 shares of the Company’s Common Stock. The holders of the preferred stock have no voting rights except as may be required by Delaware law, no redemption rights, and no liquidation preferences over the Common Stock holders. On November 3, 2009, the 25,000 Series C Convertible Preferred Stock were converted into 500,000 Common shares.  As of September 30, 2011 and December 31, 2010, respectively, there was no Series C Convertible Preferred Stock outstanding.

[6] Delaware Corporate Status

The Company is delinquent in its filing and payment of the Delaware Franchise Tax Report and, accordingly, is not in good standing.

At September 30, 2011, the Company has accrued an additional $315 for estimated unpaid Delaware franchise taxes incurred to date reportable during the year ending December 31, 2011. The Company had estimated unpaid Delaware franchise taxes for the years ended December 31, 2010, 2009, 2008, 2007, 2006 and 2005 in the amount of $420, $420, $420, $57,650, $57,650 and $69,699, respectively. Accordingly, as of September 30, 2011, accounts and accrued expenses payable includes aggregate estimated unpaid Delaware Franchise taxes of $186,576.

[7] Table of annual obligations under [1] and [2] above:

The minimum future obligations for consulting fees and services under agreements outlined in [1] and [2] are as follows:

Years Ending September 30,
 
Amounts
 
2012
 
$
6,073,643
 
2013
   
6,467,053
 
2014
   
7,708,817
 
2015
   
9,261,021
 
2016
   
11,201,276
 
Thereafter
   
3,410,383
 
   
$
44,122,193
 

The Company also engages certain consultants to provide services including management of the corporate citizenship program and investor relation services. These agreements contain cancellation clauses with notice periods ranging from zero to sixty days.

 
24

 

ARROW RESOURCES DEVELOPMENT, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
  
NOTE 11 – SPIN OFF AGREEMENT

On March 12, 2009, the Company entered into an agreement with a third party company to reinstate a Letter Agreement dated March 13, 2006 (the “Original Agreement”) and extend time to close on a contemplated spin-off.  Pursuant to the Original Agreement, the Company will incorporate a new 100% owned Bermudan subsidiary that will be spun out to the Company’s shareholders.  The third party company will put assets into the new subsidiary and assume 90% of the new subsidiary.  The third party company paid the Company $250,000 for anticipated closing and transactional costs in March 2006 pursuant to the Original Agreement.  It costs $50,000 to the Company to reinstate the Letter Agreement and to disclose reinstatement in its public filings by amendment. Therefore, the third party company paid the Company an additional $25,000 upon acceptance of the agreement and $25,000 on March 30, 2009.

NOTE 12 - SUBSEQUENT EVENTS

None. 

 
25

 

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

GENERAL

We are a holding company whose only operating subsidiary as of September 30, 2011 is Arrow Ltd. The principal business of Arrow is to provide marketing, sales, distribution, corporate operations and corporate finance services for the commercial exploitation of natural resources around the world. Prior to November 2005, we used to be a telecommunications and recruiting company formally known as CNE Group, Inc. The company elected to shift its business focus to the worldwide commercial exploitation of natural resources.

ARROW RESOURCES DEVELOPMENT, LTD.

In August 2005, Arrow entered into an Agreement and Plan of Merger (“the Agreement”) with its wholly-owned subsidiary, Arrow Ltd., in which Arrow (formerly CNE) was required to issue 10 million shares of Series AAA convertible preferred stock (“the Preferred Stock”) to Arrow Ltd.'s designees, representing 96% of all outstanding equity of CNE on a fully diluted basis in exchange for the Marketing and Distribution Agreement provided to the Company by Arrow. Under the Agreement, the Company discontinued all former operations (CareerEngine, Inc., SRC and US Commlink.) and changed its name to Arrow Resources Development, Inc.

On August 1, 2005, Arrow Ltd. entered into the Marketing Agreement with Arrow Pte. and its subsidiaries in consideration for Arrow issuing a non-interest bearing note (the “Note”) in the principal amount of $125,000,000 to Empire Advisory, LLC, (“Empire”), acting as agent, due on or before December 31, 2005. Empire is Arrow Pte.'s merchant banker. The Note permitted the Company, as Arrow's sole stockholder, to cause Arrow to repay the Note in cash or with 10,000,000 shares of the Company's non