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, 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. 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 17, 2010.
Class
|
|
Outstanding at November
17, 2010
|
Common
stock - par value $0.00001
|
|
678,452,244
|
ARROW
RESOURCES DEVELOPMENT, INC. AND SUBSIDIARIES
(A
DEVELOPMENT STAGE COMPANY)
FORM
10-Q
NINE
MONTHS ENDED SEPTEMBER 30, 2010
TABLE OF
CONTENTS
PART
I - FINANCIAL INFORMATION
|
|
|
|
|
|
|
|
Item
1.
|
|
Financial
Statements:
|
|
|
|
|
|
|
|
|
|
Consolidated
Balance Sheets at September 30, 2010 (Unaudited) and December 31,
2009 (Audited)
|
|
1
|
|
|
|
|
|
|
|
Consolidated
Statement of Operations for the three and nine months ended September 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
September 30, 2010
|
|
2
|
|
|
|
|
|
|
|
Consolidated
Statement of Changes in Stockholders' (Deficit) Equity for the nine months
ended September 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
|
|
|
|
|
|
|
|
Consolidated
Statement of Cash Flows for the nine months ended September 30, 2010
(Unaudited) and September 30, 2009 (Unaudited) and for the
periods from inception (November 15, 2005) to December 31, 2009 and from
inception (November 15, 2005) to September 30, 2010
|
|
4
|
|
|
|
|
|
|
|
Notes
to the Consolidated Financial Statements (Unaudited)
|
|
5-27
|
|
|
|
|
|
Item
2.
|
|
Management's
Discussion and Analysis of Financial Condition and Results of
Operations
|
|
28-36
|
|
|
|
|
|
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
|
Item
1.
|
Financial
Statements
|
ARROW
RESOURCES DEVELOPMENT, INC. AND SUBSIDIARIES
(A
DEVELOPMENT STAGE COMPANY)
Consolidated
Balance Sheets
|
|
September
30, 2010
|
|
|
December
31, 2009
|
|
|
|
Unaudited
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
Current:
|
|
|
|
|
|
|
Cash
|
|
$ |
806 |
|
|
$ |
91 |
|
|
|
|
|
|
|
|
|
|
Total
current assets
|
|
|
806 |
|
|
|
91 |
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$ |
806 |
|
|
$ |
91 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ (DEFICIT)
|
|
|
|
|
|
|
|
|
Current:
|
|
|
|
|
|
|
|
|
Accounts
and accrued expenses payable, including $7,651,791 and $6,446,791 at
September 30, 2010 and December 31, 2009 due to Company shareholders and
directors, respectively
|
|
|
10,507,223 |
|
|
$ |
7,765,910 |
|
Estimated
liability for legal judgment obtained by predecessor entity
shareholder
|
|
|
1,314,098 |
|
|
|
1,266,695 |
|
Due
to related parties
|
|
|
9,548,362 |
|
|
|
7,401,519 |
|
Notes
payable, including accrued interest of $160,723 and $152,500 at September
30, 2010 and December 31, 2009, respectively
|
|
|
2,349,223 |
|
|
|
2,089,000 |
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
23,718,906 |
|
|
|
18,523,124 |
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’
(DEFICIT)
|
|
|
|
|
|
|
|
|
Preferred
stock, $0.00001 par value, 6 million shares authorized, no shares issued
or outstanding at September 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 September 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 September 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 September 30, 2010 and
December 31, 2009, respectively
|
|
|
6,785 |
|
|
|
6,785 |
|
Common
stock to be issued, $0.00001 par value, 33,367,184 and 32,804,684 shares
to be issued at September 30, 2010 and December 31, 2009,
respectively
|
|
|
334 |
|
|
|
328 |
|
Additional
paid-in capital
|
|
|
128,230,744 |
|
|
|
128,213,875 |
|
Accumulated
deficit
|
|
|
(151,955,963 |
) |
|
|
(146,744,021 |
) |
|
|
|
|
|
|
|
|
|
Total
stockholders’ (deficit)
|
|
|
(23,718,100 |
) |
|
|
(18,523,033 |
) |
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders’ (deficit)
|
|
$ |
806 |
|
|
$ |
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)
|
|
For the Three
Months Ended
September 30,
2010
|
|
|
For the Three
Months Ended
September 30,
2009
|
|
|
For the Nine
Months Ended
September 30,
2010
|
|
|
For the Nine
Months Ended
September 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 September 30,
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
52,000 |
|
|
$ |
52,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consulting
fees and services, including $1,127,077, $1,070,899, $3,387,875,
$3,049,937, $15,440,707 and $18,828,582 incurred to related parties,
respectively
|
|
|
1,127,077 |
|
|
|
1,119,767 |
|
|
|
3,406,560 |
|
|
|
3,163,571 |
|
|
|
16,481,694 |
|
|
|
19,888,254 |
|
General
and administrative
|
|
|
12,456 |
|
|
|
9,800 |
|
|
|
118,566 |
|
|
|
52,351 |
|
|
|
861,275 |
|
|
|
979,841 |
|
Directors'
compensation
|
|
|
50,625 |
|
|
|
62,500 |
|
|
|
129,375 |
|
|
|
177,500 |
|
|
|
772,678 |
|
|
|
902,053 |
|
Delaware
franchise taxes
|
|
|
105 |
|
|
|
105 |
|
|
|
315 |
|
|
|
315 |
|
|
|
185,841 |
|
|
|
186,156 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
operating expenses
|
|
|
1,190,263 |
|
|
|
1,192,172 |
|
|
|
3,654,816 |
|
|
|
3,393,737 |
|
|
|
18,301,488 |
|
|
|
21,956,304 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from operations during the development
stage
|
|
|
(1,190,263 |
) |
|
|
(1,192,172 |
) |
|
|
(3,654,816 |
) |
|
|
(3,393,737 |
) |
|
|
(18,249,488 |
) |
|
|
(21,904,304 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from spin-off
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
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 |
|
Financing
cost for common stock issued for reset of subscription
agreement
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
- |
|
Loss
on legal judgement obtained by predecessor entity
shareholder
|
|
|
(15,801 |
) |
|
|
(15,801 |
) |
|
|
(47,403 |
) |
|
|
(47,403 |
) |
|
|
(1,266,695 |
) |
|
|
(1,314,098 |
) |
Penalty
for default of notes payable
|
|
|
(506,000 |
) |
|
|
- |
|
|
|
(1,501,500 |
) |
|
|
|
|
|
|
(578,000 |
) |
|
|
(2,079,500 |
) |
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 |
) |
|
|
(250,000 |
) |
|
|
(250,000 |
) |
Expenses
incurred as part of recapitalization transaction
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
(249,252 |
) |
|
|
(249,252 |
) |
Debt
issue costs including interest expense, of which none, $517,869, none,
$667,869, $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
|
|
|
(3,831 |
) |
|
|
(634,567 |
) |
|
|
(8,223 |
) |
|
|
(835,260 |
) |
|
|
(1,601,744 |
) |
|
|
(1,609,967 |
) |
|
|
|
(525,632 |
) |
|
|
(900,368 |
) |
|
|
(1,557,126 |
) |
|
|
(1,080,172 |
) |
|
|
(128,494,533 |
) |
|
|
(130,051,659 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$ |
(1,715,895 |
) |
|
$ |
(2,092,540 |
) |
|
$ |
(5,211,942 |
) |
|
$ |
(4,473,909 |
) |
|
$ |
(146,744,021 |
) |
|
$ |
(151,955,963 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted net loss per weighted-average shares common stock
outstanding
|
|
$ |
(0.003 |
) |
|
$ |
(0.003 |
) |
|
$ |
(0.008 |
) |
|
$ |
(0.007 |
) |
|
$ |
(0.232 |
) |
|
$ |
(0.240 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average
number of shares of common stock outstanding
|
|
|
678,452,244 |
|
|
|
666,852,244 |
|
|
|
678,452,244 |
|
|
|
659,057,084 |
|
|
|
633,667,055 |
|
|
|
632,461,606 |
|
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
|
|
|
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 predecesor 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 |
|
|
|
3 |
|
|
|
250,000 |
|
|
|
3 |
|
|
|
104,996 |
|
|
|
— |
|
|
|
105,002 |
|
Common
stock to be issued for directors' compensation
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,000,000 |
|
|
|
10 |
|
|
|
— |
|
|
|
— |
|
|
|
77,490 |
|
|
|
— |
|
|
|
77,500 |
|
Debt
issue costs to be satisfied in Company Common Stock
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
4,704,000 |
|
|
|
47 |
|
|
|
3,000,000 |
|
|
|
30 |
|
|
|
536,243 |
|
|
|
— |
|
|
|
536,320 |
|
Common
stock to be issued for purchase of common stock
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,000,000 |
|
|
|
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
|
|
|
- |
|
|
$ |
- |
|
|
|
- |
|
|
$ |
- |
|
|
|
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
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
562,500 |
|
|
|
6 |
|
|
|
— |
|
|
|
— |
|
|
|
16,869 |
|
|
|
— |
|
|
|
16,875 |
|
Net
loss for the period ended September 30, 2010
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(5,211,942 |
) |
|
|
(5,211,942 |
) |
Balance,
September 30, 2010
|
|
|
- |
|
|
$ |
- |
|
|
|
- |
|
|
$ |
- |
|
|
|
33,367,184 |
|
|
$ |
334 |
|
|
|
678,452,244 |
|
|
$ |
6,785 |
|
|
$ |
128,230,744 |
|
|
$ |
(151,955,963 |
) |
|
$ |
(23,718,100 |
) |
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 nine
Months ended
September 30,
2010
|
|
|
For the nine
Months ended
September 30,
2009
|
|
|
During the
Development
Stage for the
Period From
Inception
(November 15,
2005) to
December 31,
2009
|
|
|
During the
Development
Stage for the
Period From
Inception
(November 15,
2005) to
September 30,
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$ |
(5,211,942 |
) |
|
$ |
(4,473,909 |
) |
|
$ |
(146,744,021 |
) |
|
$ |
(151,955,963 |
) |
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 scubscription agreement
|
|
|
- |
|
|
|
5,525 |
|
|
|
5,525 |
|
|
|
5,525 |
|
Common
stock to be issued for reset of previous scubscription
agreement
|
|
|
- |
|
|
|
44,400 |
|
|
|
44,400 |
|
|
|
44,400 |
|
Debt
issue costs to be satisfied in Company Common Stock
|
|
|
- |
|
|
|
587,869 |
|
|
|
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
|
|
|
- |
|
|
|
572,000 |
|
|
|
772,000 |
|
|
|
772,000 |
|
Common
stock issued for conversion of due to Related party
|
|
|
- |
|
|
|
(39,000 |
) |
|
|
(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 |
|
Stock-based
directors' compensation to be issued
|
|
|
16,875 |
|
|
|
27,499 |
|
|
|
172,541 |
|
|
|
189,416 |
|
Changes
in operating asset and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
in accounts and accrued expenses payable
|
|
|
2,782,039 |
|
|
|
1,344,908 |
|
|
|
7,072,050 |
|
|
|
9,854,089 |
|
Estimated
liability for legal judgement obtained by predecessor entity
shareholder
|
|
|
47,403 |
|
|
|
47,403 |
|
|
|
1,266,695 |
|
|
|
1,314,098 |
|
Net
cash (used in) operating activities
|
|
|
(2,365,625 |
) |
|
|
(1,803,305 |
) |
|
|
(9,430,766 |
) |
|
|
(11,796,391 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
acquired as part of merger transaction
|
|
|
- |
|
|
|
- |
|
|
|
39,576 |
|
|
|
39,576 |
|
Advances
to related party
|
|
|
(32,500 |
) |
|
|
(54,000 |
) |
|
|
(900,275 |
) |
|
|
(932,775 |
) |
Net
cash (used in) investing activities
|
|
|
(32,500 |
) |
|
|
(54,000 |
) |
|
|
(860,699 |
) |
|
|
(893,199 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
of issuance of note payable
|
|
|
252,000 |
|
|
|
729,967 |
|
|
|
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
|
|
|
2,146,840 |
|
|
|
877,433 |
|
|
|
4,444,981 |
|
|
|
6,591,821 |
|
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
|
|
|
2,398,840 |
|
|
|
1,882,400 |
|
|
|
10,291,556 |
|
|
|
12,690,396 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
change in cash
|
|
|
715 |
|
|
|
25,095 |
|
|
|
91 |
|
|
|
806 |
|
Cash
balance at beginning of period
|
|
|
91 |
|
|
|
16 |
|
|
|
- |
|
|
|
- |
|
Cash
balance at end of period
|
|
$ |
806 |
|
|
|
25,111 |
|
|
$ |
91 |
|
|
$ |
806 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
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, 2010 and the
results of its operations, changes in stockholders' (deficit) equity , and cash
flows for the three and nine month periods ended September 30, 2010 and 2009 ,
respectively and for the period from the commencement of the development stage
(November 15, 2005) to September 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 three and nine months ended September 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 $1,715,895 and $5,211,942 for the three and nine months ended
September 30, 2010 and a net loss during the development stage from inception in
November 15, 2005 through September 30, 2010 of $151,955,963. 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 September 30,
2010. As of September 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:
|
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, 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 April
2010, the FASB issued ASC Update No. 2010-17, Milestone Method of Revenue
Recognition (ASU 2010-17). ASU 2010-17 provides guidance on
defining a milestone and determining when it may be appropriate to apply the
milestone method of revenue recognition for research or development
transactions. ASU 2010-17 is effective for interim and annual reporting
periods beginning after June 15, 2010, with early adoption permitted. The
adoption of this standard will not have a material impact on our consolidated
financial position or results of operations.
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.
Effective
for the interim reporting period ending December 31, 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 820-10-65 (formerly FASB Staff
Position Financial Accounting Standard 107-1 and Accounting Principles Board
28-1 and “Interim Disclosures about Fair Value of Financial Instruments”. ASC
820-10-65 requires disclosures about fair value of financial instruments
for interim reporting periods of publicly traded companies as well as in annual
financial statements. ASC 820-10-65 requires related disclosures in summarized
financial information at interim reporting periods. ASC 820-10-65 was effective
for the interim reporting period ending December 31, 2009. The adoption of ASC
820-10-65 did not have a material impact on the Company’s condensed consolidated
financial statements.
Effective
December 31 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 non-authoritative. 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 non authoritative.
The Company began using the new guidelines and numbering system prescribed by
the Codification when referring to GAAP in the third quarter of fiscal 2010. 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.
Effective
December 31, 2009, the Company adopted a new accounting standard for subsequent
events, as codified in ASC 855-10 (formerly SFAS No. 165, Subsequent
Events). The update modifies the names of the two types of subsequent events
either as recognized subsequent events (previously referred to in practice as
Type I subsequent events) or non-recognized subsequent events (previously
referred to in practice as Type II subsequent events). In addition, the standard
modifies the definition of subsequent events to refer to events or transactions
that occur after the balance sheet date, but before the financial statements are
issued (for public entities) or available to be issued (for nonpublic entities).
It also requires the disclosure of the date through which subsequent events have
been evaluated. The update did not result in significant changes in the practice
of subsequent event disclosures, and therefore the adoption did not have any
impact on our condensed consolidated financial statements. In accordance
with ASC 855-10, the Company evaluated all events or transactions that occurred
after December 2009, the date the Company issued these condensed consolidated
financial statements.
In
December 2009, the Company adopted ASC 805, Business Combinations (“ASC 805”).
ASC 805 retains the fundamental requirements that the acquisition method of
accounting be used for all business combinations and for an acquirer to be
identified for each business combination. ASC 805 defines the acquirer as the
entity that obtains control of one or more businesses in the business
combination and establishes the acquisition date as the date that the acquirer
achieves control. ASC 805 will require an entity to record separately from
the business combination the direct costs, where previously these costs were
included in the total allocated cost of the acquisition. ASC 805 will
require an entity to recognize the assets acquired, liabilities assumed, and any
non-controlling interest in the acquired at the acquisition date, at their fair
values as of that date. ASC 805 will require an entity to recognize as an
asset or liability at fair value for certain contingencies, either contractual
or non-contractual, if certain criteria are met. Finally, ASC 805 will
require an entity to recognize contingent consideration at the date of
acquisition, based on the fair value at that date. This will be effective
for business combinations completed on or after the first annual reporting
period beginning on or after December 15, 2008. Early adoption is not
permitted and the ASC is to be applied prospectively only. Upon adoption
of this ASC, there would be no impact to the Company’s results of operations and
financial condition for acquisitions previously completed. The adoption of
ASC 805 is not expected to have a material effect on the Company’s financial
position, results of operations or cash flows.
In
September 2009, the FASB ratified ASC Update No. 2009-13, Multiple-Deliverable Revenue
Arrangements (ASU 2009-13). ASU 2009-13 amends existing revenue
recognition accounting pronouncements that are currently within the scope of
FASB ASC Subtopic 605-25. This consensus provides for two significant
changes to the existing multiple element revenue recognition guidance.
First, this guidance deletes the requirement to have objective and reliable
evidence of fair value for undelivered elements in an arrangement and will
result in more deliverables being treated as separate units of accounting.
The second change modifies the manner in which the transaction consideration is
allocated across the separately identified deliverables. These changes may
result in entities recognizing more revenue up-front, and entities will no
longer be able to apply the residual method and defer the fair value of
undelivered elements. Upon adoption of these new rules, each separate unit
of accounting must have a selling price, which can be based on management’s
estimate when there is no other means to determine the fair value of that
undelivered item, and the arrangement consideration is allocated based on the
relative selling price. This accounting guidance is effective no later
than fiscal years beginning on or after June 15, 2010 but may be adopted early
as of the first quarter of an entity’s fiscal year. Entities may elect to
adopt this accounting guidance either through prospective application to all
revenue arrangements entered into or materially modified after the date of
adoption or through a retrospective application to all revenue arrangements for
all periods presented in the financial statements. We adopted this
standard effective April 4, 2010, and its adoption did not have a material
impact on our consolidated financial position or results of
operations.
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.
Effective
June 15, 2009, the Company adopted a new accounting standard for subsequent
events, as codified in ASC 855. The update modifies the names of the two types
of subsequent events either as recognized subsequent events (previously referred
to in practice as Type I subsequent events) or non-recognized subsequent events
(previously referred to in practice as Type II subsequent events). In addition,
the standard modifies the definition of subsequent events to refer to events or
transactions that occur after the balance sheet date, but before the financial
statements are issued (for public entities) or available to be issued (for
nonpublic entities). It also requires the disclosure of the date through which
subsequent events have been evaluated. The update did not result in significant
changes in the practice of subsequent event disclosures, and therefore the
adoption did not have any impact on our condensed consolidated financial
statements. In accordance with ASC 855, the Company evaluated all events
or transactions that occurred after June 30, 2010 up through August
23, 2010, the date the Company issued these condensed consolidated financial
statements. During this period, there were no subsequent event
transactions.
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 continued:
In June
2008, FASB ratified Accounting Standards Codification No 815, “Determining
Whether an Instrument (or Embedded Feature) Is Indexed to an Entity's Own
Stock”. ASC 815 mandates a two-step process for evaluating whether an
equity-linked financial instrument or embedded feature is indexed to the
entity's own stock. Warrants that a company issues that contain a strike price
adjustment feature, upon the adoption of ASC 815, results in the instruments no
longer being considered indexed to the company's own stock. On January 1,
2009, the Company adopted ASC 815 and re-evaluated its issued and outstanding
warrants that contain a strike price adjustment feature. The Company
reclassified certain warrants from equity to a derivative liability and used the
Black-Scholes valuation model to determine the fair market value of the
warrants. Based upon the Company’s re-evaluation, ASC 815 has had no
material impact on the Company’s condensed consolidated financial
statements.
In June
2008, the FASB issued FASB Accounting Standards Codification No 260 “Determining
Whether Instruments Granted in Share-Based Payment Transactions Are
Participating Securities.” Under the FSP, unvested share-based payment awards
that contain rights to receive nonforfeitable dividends (whether paid or unpaid)
are participating securities, and should be included in the two-class method of
computing EPS. The FSP is effective for fiscal years beginning after December
15, 2008, and interim periods within those years, and did not expect to have a
significant impact on the Company’s results of operations, financial condition
or cash flows.
In May
2008, the FASB issued FASB Accounting Standards Codification No 944-605, Financial Guarantee Insurance
Contracts. Diversity exists in practice in accounting for financial
guarantee insurance contracts by insurance enterprise in FASB Accounting
Standards Codification No 944-605. This results in inconsistencies in the
recognition and measurement of claim liabilities. This Statement requires that
an insurance enterprise recognize a claim liability prior to an event of default
(insured event) when there is evidence that credit deterioration has occurred in
an insured financial obligation. This Statement requires expanded disclosures
about financial guarantee insurance contracts. The accounting and disclosure
requirements of the Statement will improve the quality of information provided
to users of financial statements. The adoption of FASB Accounting Standards
Codification No 944-605 is not expected to have a material impact on the
Company’s financial position.
In March
2008, ASC issued ASC 815,
Disclosures about Derivative Instruments and Hedging Activities”, (“ASC
815”). ASC 815 requires enhanced disclosures about an entity’s derivative and
hedging activities. These enhanced disclosures will discuss: how and why an
entity uses derivative instruments; how derivative instruments and related
hedged items are accounted for and its related interpretations; and how
derivative instruments and related hedged items affect an entity’s financial
position, financial performance, and cash flows. ASC 815 is effective for
financial statements issued for fiscal years and interim periods beginning after
November 15, 2008. The Company does not believe that ASC 815 will have an impact
on their results of operations or financial position.
In
December 2007, the FASB issued FASB Accounting Standards Codification No
810-10-65, “Noncontrolling Interests in Consolidated Financial Statements - an
amendment of ARB No. 51”. FASB Accounting Standards Codification No
810-10-65 requires that the ownership interests in subsidiaries held by parties
other than the parent be clearly identified, labeled, and presented in the
consolidated statement of financial position within equity, in the amount of
consolidated net income attributable to the parent and to the noncontrolling
interest on the face of the consolidated statement of income, and that entities
provide sufficient disclosures that clearly identify and distinguish between the
interests of the parent and the interests of the noncontrolling owners.
FASB Accounting Standards Codification No 810-10-65 is effective for fiscal
years, beginning on or after December 15, 2008 and cannot be applied
earlier.
In
December 2007, the Company adopted ASC 805, Business Combinations (“ASC
805”). ASC 805 retains the fundamental requirements that the acquisition method
of accounting be used for all business combinations and for an acquirer to be
identified for each business combination. ASC 805 defines the acquirer as the
entity that obtains control of one or more businesses in the business
combination and establishes the acquisition date as the date that the acquirer
achieves control. ASC 805 will require an entity to record separately from
the business combination the direct costs, where previously these costs were
included in the total allocated cost of the acquisition. ASC 805 will
require an entity to recognize the assets acquired, liabilities assumed, and any
non-controlling interest in the acquired at the acquisition date, at their fair
values as of that date. ASC 805 will require an entity to recognize as an
asset or liability at fair value for certain contingencies, either contractual
or non-contractual, if certain criteria are met. Finally, ASC 805 will
require an entity to recognize contingent consideration at the date of
acquisition, based on the fair value at that date. This will be effective
for business combinations completed on or after the first annual reporting
period beginning on or after December 15, 2008. Early adoption is not
permitted and the ASC is to be applied prospectively only.
Upon adoption of this ASC, there would be no impact to the Company’s
results of operations and financial condition for acquisitions previously
completed. The adoption of ASC 805 is not expected to have a material
effect on the Company’s financial position, results of operations or cash
flows.
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 (continued):
The
Company does not anticipate that the adoption of FASB Accounting Standards
Codification No 805 and FASB Accounting Standards Codification No 810-10-65 will
have an impact on the Company's overall results of operations or financial
position, unless the Company makes a business acquisition in which there is a
non-controlling interest.
In
February 2007, ASC issued 825-10, The Fair Value Option for Financial
Assets and Financial Liabilities – Including an amendment of ASC 320-10,
(“ASC 825-10”) which permits entities to choose to measure many financial
instruments and certain other items at fair value at specified election dates. A
business entity is required to report unrealized gains and losses on items for
which the fair value option has been elected in earnings at each subsequent
reporting date. This statement is expected to expand the use of fair value
measurement. ASC 825-10 is effective for financial statements issued for fiscal
years beginning after November 15, 2007, and interim periods within those fiscal
years. The Company does not expect that the adoption of FASB Accounting
Standards Codification No 825 will have a material effect on the Company's
consolidated financial statements.
In
September 2006, the FASB issued ASC 820. ASC 820 defines fair value, establishes
a framework for measuring fair value under GAAP and expands disclosures about
fair value measurements. ASC 820 applies under other accounting
pronouncements that require o r permit fair value measurements.
Accordingly, ASC 820 does not require any new fair value measurements.
However, for some entities, the application of ASC 820 will change current
practice. The changes to current practice resulting from the application
of ASC 820 relate to the definition of fair value, the methods used to
measure fair value and the expanded disclosures about fair value
measurements. The provisions of ASC 820 are effective as of January 1,
2008, with the cumulative effect of the change in accounting principle recorded
as an adjustment to opening retained earnings. However, delayed
application of this statement is permitted for nonfinancial assets and
nonfinancial liabilities, except for items that are recognized or disclosed at
fair value in the financial statements on a recurring basis (at least annually),
until fiscal years beginning after November 15, 2008, and interim periods within
those fiscal years. The Company adopted ASC 820 effective January 1, 2008
for financial assets and the adoption did not have a significant effect on its
financial statements. The Company has adopted the remaining provisions of
ASC 820 beginning in 2009. The adoption of ASC 820 did not have a material
impact on the Company’s consolidated results of operations or financial
condition.
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, 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 November 15, 2005 to December 31, 2005, the Company incurred
$249,252 of expenses incurred as part of recapitalization
transaction.
ARROW
RESOURCES DEVELOPMENT, INC. AND SUBSIDIARIES
(A
DEVELOPMENT STAGE COMPANY)
NOTES TO
THE 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
carry forward 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, except for Delaware
franchise taxes, none of the Company's post November 14, 2005 losses are as yet
reportable in Company income tax returns to be filed for the years ended
December 31, 2005, 2006, 2007, 2008 or 2009 .
The
significant components of the Company's deferred tax assets are as
follows:
Net
operating loss carry forward
|
|
$
|
63,293
|
|
Differences
resulting from use of cash basis for tax purposes
|
|
|
-
|
|
|
|
|
|
|
Total
deferred tax assets
|
|
|
63,293
|
|
Less
valuation allowance
|
|
|
(63,293
|
)
|
|
|
|
|
|
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
|
|
|
315
|
|
Net
Operating Loss Carryover
|
|
$
|
186,156
|
|
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
|
|
$
|
151,769,807
|
|
Delaware
franchise taxes deductible on Company's tax return
|
|
|
186,156
|
|
Net
loss for the period from inception (November 15, 2005) to September 30,
2010
|
|
$
|
151,955,963
|
|
ARROW
RESOURCES DEVELOPMENT, INC. AND SUBSIDIARIES
(A
DEVELOPMENT STAGE COMPANY)
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 -
NOTES PAYABLE
As of
September 30, 2010 and December 31, 2009, the Company had notes payable
outstanding as follows:
|
|
|
|
September 30,
|
|
|
December 31,
|
|
Holder
|
|
Terms
|
|
2010
|
|
|
2009
|
|
Barry
Blank (1)
|
|
Due
on demand, 10% interest
|
|
$ |
200,000 |
|
|
$ |
200,000 |
|
Accrued
interest (1)
|
|
|
|
|
50,000 |
|
|
|
50,000 |
|
H.
Lawrence Logan
|
|
Due
on demand, non-interest bearing
|
|
|
25,000 |
|
|
|
25,000 |
|
John
Marozzi (2)
|
|
Due
on demand, non-interest bearing
|
|
|
265,500 |
|
|
|
265,500 |
|
John
Marozzi (2)
|
|
Due
on 3/11/11, 10% interest bearing
|
|
|
152,000 |
|
|
|
- |
|
Accrued
interest (2)
|
|
|
|
|
8,223 |
|
|
|
- |
|
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 |
|
John
E. McConnaughy III (5)
|
|
Due
on demand, non-interest bearing
|
|
|
- |
|
|
|
- |
|
Frank
Ciolli (6)
|
|
Due
on demand, non-interest bearing
|
|
|
550,000 |
|
|
|
550,000 |
|
John
Frugone (7)
|
|
Due
on demand, non-interest bearing
|
|
|
255,000 |
|
|
|
155,000 |
|
Scott
Neff (8)
|
|
Due
on demand, non-interest bearing
|
|
|
50,000 |
|
|
|
50,000 |
|
Cliff
Miller (9)
|
|
Due
on 10/11/09, interest bearing
|
|
|
450,000 |
|
|
|
450,000 |
|
Accrued
interest (9)
|
|
|
|
|
100,000 |
|
|
|
100,000 |
|
John
McConnaughy (10)
|
|
Due
on demand, 10% interest
|
|
|
25,000 |
|
|
|
25,000 |
|
Accrued
interest (10)
|
|
|
|
|
2,500 |
|
|
|
2,500 |
|
Greg
and Lori Popke (11)
|
|
Due
on 12/11/09
|
|
|
100,000 |
|
|
|
100,000 |
|
Total
|
|
|
|
$ |
2,349,223 |
|
|
$ |
2,089,000 |
|
ARROW
RESOURCES DEVELOPMENT, INC. AND SUBSIDIARIES
(A
DEVELOPMENT STAGE COMPANY)
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 -
NOTES PAYABLE, CONTINUED
(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 emerges 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, 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 are now issuable John Marozzi as of March 31, 2008 (See
Note 8). 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 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. During
the year ended December, 31, 2008, the Company recorded $60,000 of debt
issue costs related to the 1,000,000 shares of common stock that were
issuable to 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 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 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 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 John Marozzi. 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 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 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 an $110,000 interest bearing advance from John Marozzi. The
Company will pay interest at the interest rate of 10% which shall be
payable at the time of repayment due March 3, 2011. On April 21, 2010, the
Company received a $42,000 interest bearing advance from John 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. As of September 30,
2010, the Company accrued $8,223 in interest expense. The Company
has 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. The Company has a total
of $417,500 unpaid principal owed to John Marozzi as of September 30,
2010.
|
(3)
|
On
April 24, 2008, the Company received $38,000 non-interest bearing advance
from James R. 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 are issuable to James R. McConnaughy as of December 31, 2008. On
December 23, 2008, the Company received $15,000 non-interest bearing
advance from James R. 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, 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 are issuable to Christopher T. Joffe as of December 31,
2008. On June 13, 2008, the Company received another $25,000 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.
|
ARROW
RESOURCES DEVELOPMENT, INC. AND SUBSIDIARIES
(A
DEVELOPMENT STAGE COMPANY)
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 -
NOTES PAYABLE, CONTINUED
(5)
|
On
April 25, 2008, the Company received $12,000 non-interest bearing advance
from John E. McConnaughy III, which is due on demand. In repayment, the
Company will repay the full amount of the note plus 96,000 shares of the
Company’s 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. As of December 31, 2009, John E. McConnaughy III assigned the
$12,000 advance to John McConnaughy, Jr. This amount is now included
in “Due to Related Parties” (See Note 7, item number 3, “Advance
Received from Company Director.”
|
(6)
|
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.
On October 31, 2008, the Company entered into a 60 day loan extension with
Frank Ciolli. In payment, 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 designated by Frank
Ciolli. As of December 31, 2008, 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
Frank 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
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 September 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 balance of
$550,000 note payable is currently in
default.
|
(7)
|
On
September 10, 2008, the Company received a $100,000 non-interest bearing
advance from John Frugone, which is due on demand. In repayment, the
Company was to repay the full amount of the note in cash over two years
from the date the note was 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. 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,
2010. John Frugone is a relative of Peter Frugone, the Company’s CEO
and also a Company Director.
|
(8)
|
On
October 13, 2008, the Company received a $50,000 interest bearing advance
from Scott Neff, for which the Company was to repay the full amount of the
note in cash within 60 calendar days from the date the note was 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 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.
|
(9)
|
On
June 29, 2009, the Company received a $100,000 interest bearing advance
from Cliff Miller. In repayment, the Company was to repay the full amount
of the note in cash no 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 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 were
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 was to repay the full
amount of the note in cash not later than October 11, 2009. The Company
was to 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 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 in
default. As of September 30, 2010 and December 31, 2009, the
Company accrued $1,804,500 and a $476,000 default penalty in interest
expense, respectively.
|
ARROW
RESOURCES DEVELOPMENT, INC. AND SUBSIDIARIES
(A
DEVELOPMENT STAGE COMPANY)
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 -
NOTES PAYABLE, CONTINUED
(10)
|
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.
|
(11)
|
On
July 20, 2009, the Company received a $100,000 interest bearing advance
from Greg and Lori 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 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 Popkes to extend this
$100,000 loan. The principal amount was payable on December 11, 2009 and
the loan is currently in default. As of September 30, 2010 and
December 31, 2009, the Company accrued $375,000 and a $102,000 default
penalty in interest expense,
respectively.
|
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 Advisory, LLC 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.
ARROW
RESOURCES DEVELOPMENT, INC. AND SUBSIDIARIES
(A
DEVELOPMENT STAGE COMPANY)
NOTES TO
THE 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
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) $25,000 per month for rent, c) $1,000,000 per
annum (subject to increases in subsequent years) for executive services, and d)
a one-time fee of $150,000 for execution of the proposed transaction. In
addition, the Board authorized a one-time payment of $500,000 to Empire upon
closing the transaction.
As of
September 30, 2010 and December 31, 2009, the Company had short-term borrowings
of $4,667,735 and $4,548,271, 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.
Consulting
fees and services charged in the Statement of Operations for the nine months
ended September 30, 2010 and 2009 incurred to Empire totaled $2,262,875 and
$1,924,937, respectively. Consulting fees and services charged to the Statement
of Operations for the years ended December 31, 2009, December 31, 2008, December
31, 2007, December 31, 2006 and for the period from November 15, 2005 to
December 31, 2005 incurred to Empire totaled $2,661,526, $2,223,711, $1,858,386,
$1,591,016 and $698,834, respectively.
During
the nine months ended September 30, 2010, the Company incurred Director’s
compensation expense of $43,125 to Mr. 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. During the year ended December 31, 2009,
the Company also incurred Director’s compensation expense of
$58,750 to Mr. Frugone, consisting of cash compensation of
$50,000 and stock based compensation of $8,750 based upon the Company’s
share trading price on the date of the grant. During the year ended
December 31, 2008, the Company also incurred Director’s compensation expense of
$69,375 to Mr. Frugone, consisting of cash compensation of $50,000 and stock
based compensation of $19,375 based upon the Company’s share trading price on
the date of the grant. During the year ended December 31, 2007, the
Company also incurred Director’s compensation expense of $65,000 to Mr. Frugone,
consisting of cash compensation of $50,000 and stock based compensation of
$15,000 based upon the Company’s share trading price on the date of the grant of
December 3, 2007. At September 30, 2010, the Company is obligated to issue
937,500 Common Stock shares to him, and “Accounts payable and accrued
liabilities” includes $187,500 due to him for the cash based portion of his
2007, 2008, 2009 and 2010 director’s compensation (See Note 7[4]).
During
the nine months ended September 30, 2010, the Company made cash payments of
$202,973 to Empire under the agreement. During the nine months ended September
30, 2009 the Company made cash payments of $841,960 to Empire under the
agreement.
ARROW
RESOURCES DEVELOPMENT, INC. AND SUBSIDIARIES
(A
DEVELOPMENT STAGE COMPANY)
NOTES TO
THE 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, 2010 and 2009 incurred to Hans Karundeng and Rudolph
Karundeng under Engagement and Consulting Agreements totaled $1,125,000 and
$1,125,000, respectively. As of September 30, 2010 and December 31, 2009, the
Company owed them a total of $7,276,791 and $6,146,791, respectively, under
these agreements. These agreements are discussed in detail in Note
11.
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. During the year ended
December 31, 2009, the Company also incurred Director’s compensation expense
$58,750 to Rudolph Karundeng, consisting of cash compensation of $8,750 and
stock based compensation of $50,000 based upon the Company’s share trading price
on the date of the grant. During the year ended December 31, 2008, the
Company also incurred Director’s compensation expense of $69,375 to Rudolph
Karundeng, consisting of cash compensation of $19,375 and stock based
compensation of $50,000 based upon the Company’s share trading price on the date
of the grant. During the year ended December 31, 2007, the Company
also incurred Director’s compensation expense of $65,000 to Rudolph Karundeng,
consisting of cash compensation of $50,000 and stock based compensation of
$15,000 based upon the Company’s share trading price on the date of the grant of
December 3, 2007. At September 30, 2010, the Company is obligated to issue
937,500 Common Stock shares to him, and “Accounts payable and accrued
liabilities” includes $187,500 due to him for the cash based portion of his
2007, 2008, 2009 and 2010 director’s compensation (See Note 7[4]).
[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 $1 0,000 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, 2010 and December 31, 2009, 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,
2010, 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.
ARROW
RESOURCES DEVELOPMENT, INC. AND SUBSIDIARIES
(A
DEVELOPMENT STAGE COMPANY)
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 -
RELATED PARTY TRANSACTIONS, CONTINUED
[3] Advance Received from
Company Director continued:
During
the nine months ended September 30, 2010, the Company incurred Director’s
compensation expense of $43,125 to Mr. 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. During the year ended
December 31, 2009, the Company also incurred Director’s compensation expense of
$58,750 to Mr. McConnaughy, consisting of cash compensation of $50,000 and stock
based compensation of $8,750 based upon the Company’s share trading price on the
date of grant. During the year ended December 31, 2008, the Company also
incurred Director’s compensation expense $69,375 to Mr. McConnaughy, consisting
of cash compensation of $50,000 and stock based compensation of $19,375 based
upon the Company’s share trading price on the date of grant. At September
30, 2010, the Company is obligated to issue 937,500 Common Stock shares to him,
and “Accounts payable and accrued liabilities” includes $187,500 due to him for
the cash based portion of his 2007, 2008, 2009 and 2010 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, 2010 and December 31, 2009, none of the shares under this plan
have been issued and the Company has an accrued liability of $712,637 and
$600,137, respectively, of cash-based compensation and recorded additional
paid-in capital of $189,416 and $172,541, respectively, for stock-based
compensation based on the fair value of 3,563,185 and 3,000,685 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.
ARROW
RESOURCES DEVELOPMENT, INC. AND SUBSIDIARIES
(A
DEVELOPMENT STAGE COMPANY)
NOTES TO
THE 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, 2010 and December 31, 2009,
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, 2010 and December 31, 2009, none of the shares under this plan
have been issued and the Company has an accrued liability of $712,637 and
$600,137, respectively, of cash-based compensation and recorded additional
paid-in capital of $189,416 and $172,541, respectively, for stock-based
compensation based on the fair value of 3,563,185 and 3,000,685 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, 2010, 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.
ARROW
RESOURCES DEVELOPMENT, INC. AND SUBSIDIARIES
(A
DEVELOPMENT STAGE COMPANY)
NOTES TO
THE 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 an $110,000 interest bearing advance from John
Marozzi. The Company will pay interest at the interest rate of 10% which shall
be payable at the time of repayment due March 3, 2011. On April 21, 2010, the
Company received a $42,000 interest bearing advance from John 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. As of September 30, 2010, the Company
accrued $4,393 in interest expense. The Company has 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. This Company has a total of $417,500 unpaid principal owed to
John Marozzi as of September 30, 2010.
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).
ARROW
RESOURCES DEVELOPMENT, INC. AND SUBSIDIARIES
(A
DEVELOPMENT STAGE COMPANY)
NOTES TO
THE 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 a $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, 2010 and December 31, 2009,
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 September 30, 2008, 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 September 30, 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.)
ARROW
RESOURCES DEVELOPMENT, INC. AND SUBSIDIARIES
(A
DEVELOPMENT STAGE COMPANY)
NOTES TO
THE 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 will
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. As of September 30, 2010 and December 31, 2009,
the Company accrued $1,804,500 and $476,000 of default penalty in interest
expense, respectively.
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 Popkes
to extend this $100,000 loan. The principal amount was payable on December 11,
2009 and the loan is currently in default. As of September 30, 2010 and
December 31, 2009, the Company accrued $375,000 and $102,000 default penalty in
interest expense, respectively.
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.
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 June 30, 2010, 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.
ARROW
RESOURCES DEVELOPMENT, INC. AND SUBSIDIARIES
(A
DEVELOPMENT STAGE COMPANY)
NOTES TO
THE 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 is five years. Payments under the agreement
are subject to the Company's cash flow.
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. 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, 2010, the Company made cash payments to Hans
Karundeng of $32,500 under his agreement. During the nine months ended September
30, 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
November 15, 2005 to December 31, 2007, the Company made cash payments to Hans
Karundeng and Rudolph Karundeng of $563,000 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) $25,000 per month for reimbursable expenses,
c) $1,000,000 per annum (subject to increases in subsequent years) for executive
services, and d) a one-time fee of $150,000 for execution of the proposed
transaction.
During
the nine months ended September 30, 2010, the Company made cash payment of
$202,973 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 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.
ARROW
RESOURCES DEVELOPMENT, INC. AND SUBSIDIARIES
(A
DEVELOPMENT STAGE COMPANY)
NOTES TO
THE 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, 2010, the Company has accrued $1,314,097, including accrued
interest of $260,713, related to this matter.
On
December 14, 2005, Empire Advisory received a $250,000 non-interest bearing
advance from Butler Ventures, LLC. 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. 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 and 600,000 shares were issued as consideration for
certain other obligations assumed by the Company.
[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, 2010, 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, 2010, 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 revenu