Edgar Filing: ARROW RESOURCES DEVELOPMENT INC

Unassociated Document

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 June 30, 2010

¨	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.

(Name of Small Business Issuer 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. 57 th 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 August 23, 2010.

Class		Outstanding at August 23, 2010
Common stock - par value $0.00001		678,452,244

ARROW RESOURCES DEVELOPMENT, INC. AND SUBSIDIARIES

(A DEVELOPMENT STAGE COMPANY)

FORM 10-Q

SIX MONTHS ENDED JUNE 30, 2010

TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION

Item 1.	Financial Statements:

	Consolidated Balance Sheets at June 30, 2010 (Unaudited) and December 31, 2009 (Audited)	1

	Consolidated Statement of Operations for the three and six months ended June 30, 2010 and 2009 (Unaudited), and for the periods from inception (November 15, 2005) to December 31, 2009 and from inception (November 15, 2005) to June 30, 2010	2

	Consolidated Statement of Changes in Stockholders' (Deficit) Equity for the six months ended June 30, 2010 (Unaudited) and for the period from inception (November 14, 2005) to December 31, 2005 and the years ended December 31, 2006, 2007, 2008 and 2009 (Audited)	3-4

	Consolidated Statement of Cash Flows for the six months ended June 30, 2010 (Unaudited) and June 30, 2009 (Unaudited) and for the periods from inception (November 15, 2005) to December 31, 2009 and from inception (November 15, 2005) to June 30, 2010	5

	Notes to the Consolidated Financial Statements (Unaudited)	6-28

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	29-36

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	36

Item 4.	Controls and Procedures	37

PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	38
Item 1A.	Risk Factors	38

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	38

Item 3.	Defaults Upon Senior Securities	38

Item 4.	Submission of Matters to a Vote of Security Holders	38-39

Item 5.	Other Information	39

Item 6.	Exhibits	40

Signatures		41

PART I - FINANCIAL INFORMATION

Item 1.

Financial Statements

ARROW RESOURCES DEVELOPMENT, INC. AND SUBSIDIARIES

(A DEVELOPMENT STAGE COMPANY)

Consolidated Balance Sheets

	June 30, 2010			December 31, 2009
	Unaudited
ASSETS
Current:
Cash	$	2		$	91

Total current assets		2			91

Total assets	$	2		$	91

LIABILITIES AND STOCKHOLDERS’ (DEFICIT)
Current:
Accounts and accrued expenses payable, including $7,247,291 and $6,446,791 due to Company shareholders and directors, respectively	$	9,619,163		$	7,765,910
Estimated liability for legal judgment obtained by predecessor entity shareholder		1,298,297			1,266,695
Due to related parties		8,752,482			7,401,519
Notes payable, including accrued interest of $156,893 and $152,500 at June 30, 2010 and December 31, 2009, respectively		2,345,393			2,089,000

Total liabilities		22,015,335			18,523,124

Commitments and contingencies		-			-

STOCKHOLDERS’ (DEFICIT)
Preferred stock, $0.00001 par value, 6 million shares authorized, no shares issued or outstanding at June 30, 2010 and December 31, 2009		-			-
Preferred stock Series A, $0.00001 par value, 2 million shares authorized, none and none shares to be issued at June 30, 2010 and December 31, 2009, respectively		-			-
Preferred stock Series C, $0.00001 par value, 2 million shares authorized, none and none shares to be issued at June 30, 2010 and December 31, 2009, respectively		-			-
Common stock, $0.00001 par value, 1 billion shares authorized, 678,452,244 and 678,452,244 issued and outstanding at June 30, 2010 and December 31, 2009, respectively		6,785			6,785
Common stock to be issued, $0.00001 par value, 33,179,684 and 32,804,684 shares to be issued at June 30, 2010 and December 31, 2009, respectively		332			328
Additional paid-in capital		128,217,621			128,213,875
Accumulated deficit		(150,240,071	)		(146,744,021	)

Total stockholders’ (deficit)		(22,015,333	)		(18,523,033	)

Total liabilities and stockholders’ (deficit)	$	2		$	91

See accompanying notes to the consolidated financial statements.

ARROW RESOURCES DEVELOPMENT, INC. AND SUBSIDIARIES

(A DEVELOPMENT STAGE COMPANY)

Unaudited Consolidated Statement of Operations (During the Development Stage)

													Accumulated			Accumulated
													During the			During the
													Development			Development
													Stage for the			Stage for the
													Period From			Period From
	For the			For the			For the			For the			Inception			Inception
	Three Months			Three Months			Six Months			Six Months			(November 15,			(November 15,
	Ended			Ended			Ended			Ended			2005) to			2005) to
	June 30,			June 30,			June 30,			June 30,			December 31,			June 30,
	2010			2009			2010			2009			2009			2010
Revenue	$	-		$	-		$	-		$	-		$	52,000		$	52,000
Operating expenses:
Consulting fees and services, including $1,109,334, $989,519, $2,225,798, $1,979,038, $15,440,707 and $17,666,505 incurred to related parties, respectively		1,109,334			1,032,578			2,244,483			2,043,804			16,481,694			18,726,177
General and administrative		125,944			23,129			141,112			42,552			861,275			1,002,387
Directors' compensation		35,625			60,000			78,750			115,000			772,678			851,428
Delaware franchise taxes		105			105			210			210			185,841			186,051

Total operating expenses		1,271,008			1,115,812			2,464,555			2,201,566			18,301,488			20,766,043

Loss from operations during the
development stage		(1,271,008	)		(1,115,812	)		(2,464,555	)		(2,201,566	)		(18,249,488	)		(20,714,043	)

Other income (expense):
Income from spin-off		-			2,491			-			52,491			52,491			52,491
Income from forgiveness of debt		-			-			-			-			5,000			5,000
Gain on write off of liabilities associated with predecessor entity not to be paid		-			-			-			-			395,667			395,667
Loss on legal judgment obtained by predecessor entity shareholder		(15,801	)		(15,801	)		(31,602	)		(31,602	)		(1,266,695	)		(1,298,297	)
Penalty for default of notes payable		(506,000	)					(995,500	)		-			(578,000	)		(1,573,500	)
Loss on write-off of marketing agreement		-			-			-			-			(125,000,000	)		(125,000,000	)
Loss on settlement of predecessor entity stockholder litigation		-			-			-			-			(2,000	)		(2,000	)
Loss on debt conversion		-			-			-			-			(250,000	)		(250,000	)
Expenses incurred as part of recapitalization transaction		-			-			-			-			(249,252	)		(249,252	)
Debt issue costs including interest expense, of which none, none, none, $150,000, $1,336,320 and $1,336,320 is to be satisfied in Company Common Stock and none, none, none, none, $32,000, and $32,000 incurred to related parties		(3,549	)		(769	)		(4,393	)		(200,693	)		(1,601,744	)		(1,606,137	)
		(525,350	)		(14,079	)		(1,031,495	)		(179,804	)		(128,494,533	)		(129,526,028	)

Net loss	$	(1,796,358	)	$	(1,129,891	)	$	(3,496,050	)		(2,381,370	)	$	(146,744,021	)	$	(150,240,071	)

Basic and diluted net loss per weighted-average shares common stock outstanding	$	(0.003	)	$	(0.002	)	$	(0.005	)		(0.004	)	$	(0.232	)	$	(0.237	)

Weighted-average number of shares of common stock outstanding		678,452,244			656,381,335			678,452,244			656,232,322			633,667,055			634,146,361

See accompanying notes to the consolidated financial statements.

ARROW RESOURCES DEVELOPMENT, INC. AND SUBSIDIARIES

(A DEVELOPMENT STAGE COMPANY)

Unaudited Consolidated Statement of Changes in Stockholders' (Deficit) Equity (During the Development Stage)

	Series A Convertible Preferred Stock						Series C Convertible Preferred Stock						Common Stock				Common Stock
	Shares to be issued			Amount			Shares to be issued			Amount			Shares to be issued		Amount		Shares issued		Amount
Balance, November 14, 2005 pursuant to recapitalization transaction		—		$	—			—		$	—			—	$	—		25,543,240	$	255
Common stock conversion and settlement of senior note pursuant to recapitalization transaction		—			—			—			—			—		—		624,000,000		6,240
Net loss for the period from November 15, 2005 to December 31, 2005		—			—			—			—			—		—		—		—
Balance, December 31, 2005		-		$	-			-		$	-			-	$	-		649,543,240	$	6,495
Common stock to be issued for cash received by Company		—			—			—			—			985,000		10		—		—
Net loss for the year		—			—			—			—			—		—		—		—
Balance, December 31, 2006		-		$	-			-		$	-			985,000	$	10		649,543,240	$	6,495
Common stock to be issued for cash received by Company		—			—			—			—			500,000		5		—		—
Series A Convertible Preferred Stock to be issued for cash received by Company		280,000			280,000			-			-			—		—		—		—
Common stock issued in settlement of predecessor entity stockholder litigation		—			—			—			—			-		-		200,000		2
Common stock to be issued for directors' compensation		—			—			—			—			1,000,685		10		—		—
Net loss for the year		—			—			—			—			—		—		—		—
Balance, December 31, 2007		280,000		$	280,000			-		$	-			2,485,685	$	25		649,743,240	$	6,497
Series A Convertible Preferred Stock to be issued for cash received by Company		75,000			75,000			—			—			—		—		—		—
Series C Convertible Preferred Stock to be issued for cash received by Company		—			—			25,000			25,000			—		—		—		—
Common Stock issued and to be issued for cash received by Company		—			—			—			—			305,000		3		250,000		3
Common stock to be issued for directors' compensation		—			—			—			—			1,000,000		10		—		—
Debt issue costs to be satisfied in Company Common Stock		—			—			—			—			4,704,000		47		3,000,000		30
Common stock to be issued for purchase of common stock		—			—			—			—			1,000,000		10		—		—
Common stock to be issued for consulting and marketing services		—			—			—			—			2,700,000		27		—		—
Common stock issued for consulting and marketing services		—			—			—			—			—		—		2,250,000		23
Net loss for twelve months ended December 31, 2008		—			—			—			—			—		—		—		—
Balance, December 31, 2008		355,000		$	355,000			25,000		$	25,000			12,194,685	$	122		655,243,240	$	6,552
Series A Convertible Preferred Stock converted into common stock		(355,000	)		(355,000	)		-			-			—		—		7,100,000		71
Series C Convertible Preferred Stock converted into common stock		-			-			(25,000	)		(25,000	)		—		—		500,000		5
Common Stock to be issued for cash received by Company		—			—			—			—			2,500,000		25		—		—
Common stock to be issued for directors' compensation		—			—			—			—			1,000,000		10		—		—
Debt issue costs to be satisfied in Company Common Stock		—			—			—			—			16,000,000		160		—		—
Debt issue costs satisfied in Company Common Stock		—			—			—			—			-		-		1,000,000		10
Common stock issued for reset of previous subscription agreement		—			—			—			—			—		—		138,095		2
Common stock to be issued for reset of previous subscription agreement		—			—			—			—			1,109,999		11		-		-
Common stock issued for debt conversion		—			—			—			—			-		-		14,470,909		145
Net loss for the year ended December 31, 2009		—			—			—			—			—		—		—		—
Balance, December 31, 2009		0		$	0			0		$	0			32,804,684	$	328		678,452,244	$	6,785
Common stock to be issued for directors' compensation		—			—			—			—			375,000		4		—		—
Net loss for the period ended June 30, 2010		—			—			—			—			—		—		—		—
Balance, June 30, 2010		0		$	0			0		$	0			33,179,684	$	332		678,452,244	$	6,785

See accompanying notes to the consolidated financial statements.

ARROW RESOURCES DEVELOPMENT, INC. AND SUBSIDIARIES

(A DEVELOPMENT STAGE COMPANY)

Unaudited Consolidated Statement of Changes in Stockholders' (Deficit) Equity (During the Development Stage)

	Additional Paid-in Capital			Accumulated Deficit			Total
Balance, November 14, 2005 pursuant to recapitalization transaction	$	(2,674,761	)	$	—		$	(2,674,506	)
Common stock conversion and settlement of senior note pursuant to recapitalization transaction		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	$	123,233,206		$	(1,272,258	)	$	121,967,443
Common stock to be issued for cash received by Company		984,990			—			985,000
Net loss for the year		—			(3,514,445	)		(3,514,445	)
Balance, December 31, 2006	$	124,218,196		$	(4,786,703	)	$	119,437,998
Common stock to be issued for cash received by Company		499,995			—			500,000
Series A Convertible Preferred Stock to be issued for cash received by Company		—			—			280,000
Common stock issued in settlement of predecessor entity stockholder litigation		11,998			—			12,000
Common stock to be issued for directors' compensation		60,031			—			60,041
Net loss for the year		—			(130,076,689	)		(130,076,689	)
Balance, December 31, 2007	$	124,790,220		$	(134,863,392	)	$	(9,786,650	)
Series A Convertible Preferred Stock to be issued for cash received by Company		—			—			75,000
Series C Convertible Preferred Stock to be issued for cash received by Company		—			—			25,000
Common Stock issued and to be issued for cash received by Company		104,996			—			105,002
Common stock to be issued for directors' compensation		77,490			—			77,500
Debt issue costs to be satisfied in Company Common Stock		536,243			—			536,320
Common stock to be issued for purchase of common stock		49,990			—			50,000
Common stock to be issued for consulting and marketing services		245,969			—			245,996
Common stock issued for consulting and marketing services		122,481			—			122,504
Net loss for twelve months ended December 31, 2008		—			(5,360,576	)		(5,360,576	)
Balance, December 31, 2008	$	125,927,389		$	(140,223,968	)	$	(13,909,905	)
Series A Convertible Preferred Stock converted into common stock		354,929			—			-
Series C Convertible Preferred Stock converted into common stock		24,995			—			-
Common Stock to be issued for cash received by Company		249,975			—			250,000
Common stock to be issued for directors' compensation		34,990			—			35,000
Debt issue costs to be satisfied in Company Common Stock		719,840			—			720,000
Debt issue costs satisfied in Company Common Stock		79,990			—			80,000
Common stock issued for reset of previous subscription agreement		5,523			—			5,525
Common stock to be issued for reset of previous subscription agreement		44,389			—			44,400
Common stock issued for debt conversion		771,855			—			772,000
Net loss for the year ended December 31, 2009		—			(6,520,053	)		(6,520,053	)
Balance, December 31, 2009	$	128,213,875		$	(146,744,021	)	$	(18,523,033	)
Common stock to be issued for directors' compensation		3,746			—			3,750
Net loss for the period ended June 30, 2010		—			(3,496,050	)		(3,496,050	)
Balance, June 30, 2010	$	128,217,621		$	(150,240,071	)	$	(22,015,333	)

See accompanying notes to the consolidated financial statements.

ARROW RESOURCES DEVELOPMENT, INC. AND SUBSIDIARIES

(A DEVELOPMENT STAGE COMPANY)

Unaudited Consolidated Statement of Cash Flows (During the Development Stage)

	For the Six Months ended June 30, 2010			For the Six Months ended June 30, 2009			Accumulated During the Development Stage for the Period From Inception (November 15, 2005) to December 31, 2009			Accumulated During the Development Stage for the Period From Inception (November 15, 2005) to June 30, 2010
Net loss	$	(3,496,050	)	$	(2,381,370	)	$	(146,744,021	)	$	(150,240,071	)
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			1,264,217
Loss on write-off of marketing and distribution agreement		-			-			125,000,000			125,000,000
Common stock issued for reset of previous subscription agreement		-			5,525			5,525			5,525
Common stock to be issued for reset of previous subscription agreement		-			44,400			44,400			44,400
Debt issue costs to be satisfied in Company Common Stock		-			70,000			1,256,320			1,256,320
Debt issue costs satisfied in Company Common Stock		-			80,000			80,000			80,000
Common stock issued for debt conversion		-			-			772,000			772,000
Common stock issued for conversion of due to Related party		-						(39,000	)		(39,000	)
Debt issue costs paid in cash		-			-			50,000			50,000
Common stock issued for marketing services		-			-			122,500			122,500
Common stock to be issued for consulting services		-			-			246,007			246,007
Increase in prepaid expenses		-			-			-			-
Stock-based directors' compensation to be issued		3,750			15,000			172,541			176,291
Changes in operating asset and liabilities:
Increase in accounts and accrued expenses payable		1,882,146			915,128			7,072,050			8,954,196
Estimated liability for legal judgment obtained by predecessor entity shareholder		31,602			31,602			1,266,695			1,298,297
Net cash (used in) operating activities		(1,578,552	)		(1,219,715	)		(9,430,766	)		(11,009,319	)

Cash flows from investing activities:
Cash acquired as part of merger transaction		-			-			39,576			39,576
Advances to related party		(24,500	)		(27,000	)		(900,275	)		(924,775	)
Net cash (used in) investing activities		(24,500	)		(27,000	)		(860,699	)		(885,199	)

Cash flows from financing activities:
Proceeds of issuance of note payable		252,000			488,269			1,869,000			2,121,000
Proceeds of loans received from related parties		-			30,000			1,875,000			1,875,000
Repayment towards loan from related party		-			(5,000	)		(179,425	)		(179,425	)
Net increase in due to related parties attributed to operating expenses paid on the Company’s behalf by the related party		1,350,963			483,520			4,444,981			5,795,944
Net increase in investments/capital contributed		-			250,000			2,232,000			2,232,000
Advances from senior advisor		-			-			50,000			50,000
Net cash provided by financing activities		1,602,963			1,246,789			10,291,556			11,894,519

Net change in cash		(89	)		74			91			2
Cash balance at beginning of period		91			16			-			-
Cash balance at end of period	$	2			90		$	91		$	2

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		$	125,000,000
Settlement of senior note payable through issuance of convertible preferred stock	$	-		$	-		$	125,000,000		$	125,000,000
Non-cash acquisition of accrued expenses in recapitalization	$	-		$	-		$	421,041		$	421,041
Non-cash acquisition of notes payable in recapitalization	$	-		$	-		$	220,000		$	220,000

See accompanying notes to the consolidated financial statements.

ARROW RESOURCES DEVELOPMENT, INC. AND SUBSIDIARIES

(A DEVELOPMENT STAGE COMPANY)

NOTES TO THE 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.

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.

Effective July 1, 2009, the Company adopted The “FASB Accounting Standards Codification” and the Hierarchy of Generally Accepted Accounting Principles (ASC 105-10), (formerly SFAS No. 168, The “FASB Accounting Standards Codification” and the Hierarchy of Generally Accepted Accounting Principles). This standard establishes only two levels of U.S. generally accepted accounting principles (“GAAP”), authoritative and nonauthoritative. The Financial Accounting Standard Board (“FASB”) Accounting Standards Codification (the “Codification”) became the source of authoritative, nongovernmental GAAP, except for rules and interpretive releases of the SEC, which are sources of authoritative GAAP for SEC registrants. All other non-grandfathered, non-SEC accounting literature not included in the Codification became nonauthoritative. The Company began using the new guidelines and numbering system prescribed by the Codification when referring to GAAP in the third quarter of fiscal 2009. As the Codification was not intended to change or alter existing GAAP, it did not have any impact on the Company’s condensed consolidated financial statements.

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 June 30, 2010 and the results of its operations, changes in stockholders' (deficit) equity , and cash flows for the three and six month periods ended June 30, 2010 and 2009 , respectively and for the period from the commencement of the development stage (November 15, 2005) to June 30, 2010, and for the period from the commencement of the development stage (November 15, 2005) to December 31, 2009. 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 six months ended June 30, 2010 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2010. 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 Annual Report on Form 10K for the year ended December 31, 2009 filed on April 15, 2010.

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 $3,496,050 for the six months ended June 30, 2010 and a net loss during the development stage from inception in November 15, 2005 through June 30, 2010 of $150,240,071. 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.

ARROW RESOURCES DEVELOPMENT, INC. AND SUBSIDIARIES

(A DEVELOPMENT STAGE COMPANY)

NOTES TO THE 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 environment laws affecting timber harvesting have become 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, and amounts due to Empire Advisory, LLC (“Empire”) (as discussed in Note 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.

ARROW RESOURCES DEVELOPMENT, INC. AND SUBSIDIARIES

(A DEVELOPMENT STAGE COMPANY)

NOTES TO THE 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 period from November 15, 2005 to December 31, 2009 and for the period ended June 30, 2010. As of June 30, 2010, there are no dilutive equity instruments outstanding.

Acquired Intangibles:

Intangible assets are 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:

Significant underperformance relative to expected historical or projected future operating results;

Significant changes in the manner of use of the acquired assets or the strategy for the overall business; and

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 June 30, 2010, the Company’s consolidated financial statements do not contain any changes in equity that are required to be reported separately in comprehensive income.

ARROW RESOURCES DEVELOPMENT, INC. AND SUBSIDIARIES

(A DEVELOPMENT STAGE COMPANY)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED

Recent Accounting Pronouncements:

In January 2010, the Company adopted FASB ASU No. 2010-06, Fair Value Measurement and Disclosures (Topic 820) - Improving Disclosures about Fair Value Measurements (“ASU 2010-06”). These standards require new disclosures on the amount and reason for transfers in and out of Level 1 and 2 fair value measurements. The standards also require new disclosures of activities, including purchases, sales, issuances, and settlements within the Level 3 fair value measurements. The standard also clarifies existing disclosure requirements on levels of disaggregation and disclosures about inputs and valuation techniques. These new disclosures are effective beginning with the first interim filing in 2010. The disclosures about the roll forward of information in Level 3 are required for the Company with its first interim filing in 2011. The Company does not believe this standard will impact their financial statements. Other ASU’s that have been issued or proposed by the FASB ASC that do not require adoption until a future date and are not expected to have a material impact on the financial statements upon adoption.

In June 2009, the FASB issued FASB Accounting Standards Codification No 810, Consolidation. FASB Accounting Standards Codification No 810 improves financial reporting by enterprises involved with variable interest entities. FASB Accounting Standards Codification No 810 is effective as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period, and for interim and annual reporting periods thereafter. The Company is evaluating the impact the adoption of FASB Accounting Standards Codification No 810 will have on its financial statements.

In June 2009, the FASB issued FASB Accounting Standards Codification No 860, Transfers and Servicing. FASB Accounting Standards Codification No 860 improves the relevance, representational faithfulness, and comparability of the information that a reporting entity provides in its financial statements about a transfer of financial assets; the effects of a transfer on its financial position, financial performance, and cash flows; and a transferor’s continuing involvement, if any, in transferred financial assets. FASB Accounting Standards Codification No 860 is effective as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period and for interim and annual reporting periods thereafter. The Company is evaluating the impact the adoption of FASB Accounting Standards Codification No 860 will have on its financial statements.

Effective for the interim reporting period ending June 30, 2009, the Company adopted two new accounting standard updates which were intended to provide additional application guidance and enhanced disclosures regarding fair value measurements and impairments of securities as codified in ASC 820 “Interim Disclosures about Fair Value of Financial Instruments”. ASC 820 requires disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. ASC 820 requires related disclosures in summarized financial information at interim reporting periods. ASC 820 was effective for the interim reporting period ending June 30, 2009. The adoption of ASC 820 did not have a material impact on the Company’s condensed consolidated financial statements.