Indicate by check mark if the registrant is a well-known seasoned
issuer, as defined in Rule 405 of the Securities Act.
Indicate by check mark if the registrant is not required to
file reports pursuant to Section 13 or Section 15(b) of the Act.
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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:
x
Yes
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No
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained in this form, and no disclosure will be contained, to the best of Registrant’s
knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K/A or any amendment
to this Form 10-K.
¨
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant
to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files).
Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large
accelerated filer,” an “accelerated filer,” a “non-accelerated filer,” and “smaller reporting
company” in Rule 12b-2 of the Exchange Act. (Check one):
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Act). Yes
¨
No
x
Issuer’s revenues for 2012, its most recent fiscal year,
were $0 from continuing operations.
As of June 11, 2013, the number of freely tradable shares
not held by affiliates was 188,048,237.
As of June 11, 2013, the aggregate market value of voting
stock held by non-affiliates of the Issuer was approximately $3,291,000.
The number of shares outstanding of each of the issuer’s
classes of common equity, as of June 11, 2013, is as follows:
Arrow Resources Development, Inc. (the
“Company”) is filing this Amendment No. 1 on Form 10-K/A (“Amended 10-K”) to the Company’s Annual
Report on Form 10-K for the fiscal year ended December 31, 2012 filed with the U.S. Securities and Exchange Commission on May 9,
2013 (the “Original Filing”), due to the presence of several typographical, punctuation, numerical transposition and
text errors in the Company’s Originally Filing.
The accompanying consolidated balance sheet,
statement of operations, stockholders’ deficit and cash flows for the year ended December 31, 2012, along with the period
of inception from November 15, 2005 to December 31, 2012 10-K/A have been updated to reflect an additional $76,045 of expenses
recorded in the Statement of Operations that were brought to the Company’s attention subsequent to the Original Filing.
PART I
Forward Looking Statements
Certain statements in this amended
Annual Report on Form 10-K/A constitutes “forward-looking statements” relating to the Company within the meaning
of the Private Securities Litigation Reform Act of 1995. All statements regarding future events, our financial performance
and operating results, our business strategy and our financing plans are forward-looking statements. In some cases, you can
identify forward-looking statements by terminology, such as
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the negative of such terms or other comparable
terminology. These statements are only predictions. Known and unknown risks, uncertainties and other factors could cause actual
results to differ materially from those contemplated by the statements. In evaluating these statements, you should specifically
consider various factors, including the risks outlined under the Risk Factors set forth herein. These factors may cause our actual
results to differ materially from any forward-looking statements.
Although we believe that the expectations
reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance
or achievements. We are under no duty to update any of the forward-looking statements after the date of this report to conform
those statements to actual results or to changes in our expectations.
Glossary
“Arrow” - Arrow Resources Development,
Inc. (also referred to as the “Company”), formerly known as CNE Group, Inc. prior to the name change that occurred
on or around December 1, 2005.
“Arrow Ltd.” - Arrow Resources
Development, Ltd., a company organized under the laws of Bermuda and a 100% owned subsidiary of Arrow. Arrow Ltd. was acquired
by Arrow on or around August 1, 2005.
“APR”
- Arrow Pacific Resources Group Limited, a British Virgin Islands company, is currently the principal shareholder of the Company,
owning 342,072,778 shares or approximately 45%.
“GMPLH”
- Gerakan Masyarakat Pelestari Lingkungan Hidup, is a non-profit organization in Indonesia founded by A. H. Moerdani and Hans Karundeng.
GMPLH is an educational organization that acts as project developer, fundraiser, and project expeditor for agricultural and environmental
projects throughout Indonesia.
“P.T. Eucalyptus”
- P.T. Eucalyptus Alam Lestari is an Indonesian registered company owned by Hans Karundeng and is a wholly owned subsidiary of
Arrow Pacific Resources Group Limited (“APR”). This company is the Indonesian operating company that is the interface
between GMPLH and all of the operating units and joint venture partners. P.T. Eucalyptus is responsible for the supervision of
the planning of all harvesting, land preparation, and the planning of both the eucalyptus tree plantation and a large-scale agricultural
operation.
“Arrow Pte.” - Arrow Pacific
Resources (s) Pte. Ltd. is organized under the laws of Singapore and is a wholly owned subsidiary of Arrow Pacific Resources
Group Limited (“APR”).
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Item 1.
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Description of Business.
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We used to be a telecommunications and
recruiting company formally known as CNE Group, Inc. CNE Group, Inc. was incorporated under the laws of the State
of Delaware in 1968. We changed our name to Arrow Resources Development, Inc. on or around December 1, 2005. The Company elected
to shift its business focus from telecommunications and recruiting to the worldwide commercial exploitation of natural resources.
GENERAL
The principal business of Arrow is to provide
marketing, sales, distribution, corporate operations and corporate finance services for the commercial exploitation of natural
resources around the world.
Our corporate executive offices are located
at Carnegie Hall Tower, 152 W. 57th Street, 27th Floor, New York, NY 10019 (212-262-2300) and our web site is www.arrowrd.com.
INTRODUCTION
Arrow Resources Development Inc. (herein
“ARD,” “Arrow Inc.” or “the Company”) was established in 2005, to serve as the corporate finance
and management infrastructure developer for large scale plantation/farming operations and ethanol plants in Indonesia. These projects
are first and foremost environmental restorations and social engineering projects, being done in cooperation with the central and
local governments of Indonesia, in partnership with Gerakan Masyarakat Pelestari Lingkungan Hidup (GMPLH), the largest nonprofit
organization in Indonesia, as well a group of Indonesian joint venture partners that includes Arrow Pacific Resources Group Limited;
a British Virgin Islands registered company, PT Wika Realty Inc. an Indonesian publicly traded construction and land development
company and PT Mitrasarana Infrakomindo, a public pension manager and natural resource development company. The government of Indonesia
has declared that 55,000,000 hectares (approximately 6% of the country) to be “critical land”. Critical land is classified
as land that has been illegally harvested over last 50 years by approximately 25 million local “farmers” who earn their
living by cutting old-growth trees for their own use or for sale, at a fraction of its value to local lumber companies. The goal
of the Arrow development team is to restore 3,000,000 hectares of this critical land in Indonesia through the creation of eucalyptus/corn
plantations, ethanol plants, several large-scale farming (eucalyptus, corn, soy, rice, fish and chickens) operations, and possibly
several ethanol blending plants. It is anticipated that these development will require approximately 6 - 8 years and when completed,
will create approximately 200,000 local jobs, along with many small local business opportunities. Arrow has developed and maintains
the corporate operating structure, financial operations, sales and marketing infrastructure and the administrative group to oversee
its’ corporate citizenship programs. Arrow has outlined the necessary public relations and communications programs to sustain
these rapidly growing operations. Arrow Resources, along with all of its joint venture partners, are collectively referred to in
this document as "the Companies".
Arrow Pacific Resources Group Limited (herein
“Arrow Pacific” or “APR”), a British Virgin Islands registered company, was founded by Hans Karundeng,
an Indonesian industrialist and financier, for the purpose of developing natural resource assets controlled by his group of local
Indonesian Companies that are developing plantation/farming operations and ethanol production plants in Indonesia. Mr. Karundeng
is the principal stockholder of Arrow Inc., a member of the advisory board of GMPLH and a board member of several prominent
Indonesian Companies. Arrow Pacific, through its local subsidiary Companies, has developed and will manage these opportunities
in Indonesia.
Arrow Inc., along with its partners GMPLH
and PT Eucalyptus Alam, an Indonesian registered wholly owned subsidiary of Arrow Pacific Resources Group Limited, have developed
a synergy of agro-biotechnology and cutting edge forestry/agricultural practices in response to the growing demand for timber and
farming products. When these practices are performed in a conscientious manner, it provides humankind with one of the greatest
sources for renewable and ecologically sustainable resources. Paper, dimensional lumber, fiberboard, particleboard, furniture,
utensils, recreational areas, animal habitat, and clean air are some of the many benefits that will be realized through the implementation
of these programs in Indonesia.
The Companies are executing their plantation/farming
operating plan through the implementation of a sound land management system, promote and/or establish infrastructural development
programs and provide provisions for financial, economic and social growth to the people in the development areas. It is essential
for these developments to take into consideration local bio-physical environment conditions as well as the traditional and cultural
beliefs of the local villagers. In conjunction with local inhabitants, the Companies have developed a plan that will maximize profits
to the greatest potential of the area, while increasing employment and constantly re-evaluating their administrative and management
programs. The Companies are working to achieve superior safety performance, implement reliable harvesting, replanting and farming
processes, and become a leader in the industries of sustainable forestry and farming as well as leaders in the development of socially
conscious and environmentally sensitive land development throughout the world.
Arrow Pacific has entered into Marketing
and Distribution Agreement with Arrow Resources Development Ltd. (a Bermuda Limited Company), which is a wholly-owned subsidiary
of Arrow Resources Development Inc., that provides for Arrow to receive 10% of the gross sales generated by all plantation operations
from any and all derivative products (e.g. corn, paper, pulp, chips), 5% of gross sales generated from all ethanol plants and a
50% ownership interest in all ethanol plants. Under this agreement, Arrow acts as collection and disbursement consultant and agent
for all operations. In the case of each plantation, Arrow retains 10% and disburses the remaining 90% to Arrow Pacific's various
business units which becomes their gross revenues. In the case of the ethanol plants, Arrow retains 5%, disburses all expensive
tool suppliers and labor and develops audited accounting to determine operating income for distribution on a 50-50 basis.
The Companies’ Asian offices are in Singapore, Jakarta and Kendari Indonesia and satellite offices at each plantation
or plant location. The following is a brief description of these transactions and relationships.
THE COMPANIES
Arrow Pacific, through its Indonesian operating
division, PT Tiga Daun Nusantara (a locally registered Sulawesi company) is the principal operating company for the initial plantation
and ethanol plant location in Tenggara, Sulawesi. Gerakan Masyarakat Pelestari Lingkungan Hidup (GMPLH), a large nonprofit organization
based in Indonesia, for the development of a plantation/farming operation that will include 3 million hectares (ha) on the islands
of Kalimantan and Sulawesi in Indonesia. PT Wika Realty Inc. and Indonesian publicly traded construction and land development company
and PT Mitrasarana Infrakomindo, a public pension manager and natural resource development company.
This program of reforestation is built
around the development of eucalyptus and corn plantations, the development of ethanol plants as well as farming operations designed
to create a sustainable forestry and agricultural program. This program will include local subsistence farming operations at each
plantation for the purpose of increasing and sustaining the income for local farmers. Through the development these subsistence
farms, which will be funded by revenue from the programs, thousands of local farmers will plant and manage corn, rice and soybean
crops for local consumption and national distribution as well as fish farms and chicken farms for local consumption and sale throughout
the country.
Arrow Pacific and all its subsidiary Companies
in Indonesia, along with GMPLH, have executed Agency Agreements in August 2006 with Arrow Resources Development Ltd. (the Bermuda
registered wholly-owned subsidiary of our Resource Development Inc. herein referred to as "Arrow Ltd.") providing that
the Company will advise the Companies on matters related to structured corporate finance, financial administration, corporate management
practice, marketing and distribution and infrastructure. The Agency Agreements are for a term of 99 years while granting the Company
10% of gross revenue.
PT Tiga Daun Nusantara, a wholly owned
subsidiary of Arrow Pacific Resources Group Limited, has opened its research and development office in Ujung Pandang for the purpose
of developing genetically engineered eucalyptus tree saplings and corn seedlings to be used at the initial plantation/farming sites.
By synthesizing aspects of American-style forestry and agricultural practices with these new advances in bio-engineering, the Company's
methodology produces a significant increase in both quantity and quality of tree and corn, production. The accelerated growth cycle
for the eucalyptus trees produced by these processes yield a continually renewable timber resource. Makassar, formerly known as
Ujung Pandang, is the provincial capital of South Sulawesi, Indonesia.
The Companies are poised to capitalize on the increasing demand
of the raw materials for the manufacturing of paper, timber products, and agricultural products as well as the demand for ethanol
in the local market and all the regional developing international markets, most notably China. The region’s rising
standards of living have created a demand for larger quantities of printed material, packaging, personal care paper products, industrial
paper supplies, corn, rice, soy and the production of energy such as ethanol. The proximity of the Companies’ operations
to these local and principal markets enables them to supply these markets in a highly competitive manner due to significantly reduce
transportation costs.
The Companies have two significant timing
factors that enhance their competitive advantage for the production of eucalyptus. The first of these factors is the application
of newly developed agro-biotechnology. The growth cycle of the eucalyptus trees in the Companies plantation areas is significantly
faster than those of its competitors; 3 to 4 years, as opposed to a typical 10 to 12 years on average. The technology also offers
several other biological advantages. The bio-engineered trees are more resistant to adverse weather and infestation, more successful
at growing in poor soil and are able to sustain growth without the use of any toxic agro-chemicals. Several other lumbering operations
in the Pacific have been heavily scrutinized in the past for their heavy use of such environmentally-degrading chemicals. The second
factor is the proximity of the operations to the equator. This unique geographical position provides a growing season that lasts
a full 12 months of each year, in comparison to the 7 to 8 month seasons of many of its competitors.
These significant advantages are also applicable
to the production of the company's agricultural products, most notably corn. The climate and rainfall enable the growth of approximately
2-3 crops of corn annually. This significant increase in land usage lowers cost of the raw material and increases productivity
while reducing storage requirements and the amortization of fixed expenses associated with a single crop.
The Companies understand that any large-scale
timber and agricultural operation faces environmental and wildlife conservation concerns. In the interest of good corporate citizenship,
a plan has been developed to ensure that all operations are sensitive to the environmental and ecological importance of transforming
the critical land into a sustainable and renewable timber resource in a responsible manner. The Companies have consulted with their
joint-venture partners GMPLH, to develop socially sensitive and environmentally friendly programs for developing these sustainable
resources and large-scale farming operations. The Companies have also assembled its own local team of highly qualified scientists,
bio-engineers and environmentalists for the development of its technology Center. This team has also examined methods proposed
to establish a preserve for the relocation of wildlife, the preservation of biodiversity, the investigation of potential medical
benefit and the replanting of several noble species.
On August 1, 2005, Arrow Pacific Resources
(s) Pte. Ltd. (“Arrow Pte.”) entered into a Marketing and Distribution Agreement with Arrow Resources Development
Ltd. (“Arrow Ltd.”) (a Bermuda Limited Company), which is a wholly-owned subsidiary of Arrow, that provided for both
Companies to receive 10% of the gross sales generated by all plantation and mining operations and any and all derivative products
(e.g. corn, paper, pulp, chips). Under this agreement, Arrow was to act as a consultant and agent for all operations. Arrow was
to retain 10% of their gross revenues.
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.
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. was unable
to fulfill their part of the agreement, the Company has reached the conclusion that the marketing and distribution agreement has
no value. Therefore, the Company has 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.
In April of 2006, Arrow Ltd. entered into
an agency agreement with APR to provide marketing and distribution services for natural resource products. Arrow Ltd. currently
has an exclusive marketing and sales agreement with APR to market corn, lumber and related products from land leased by GMPLH located
in Indonesia which is operated by APR and its subsidiaries. Under the agreement Arrow Ltd. will receive a commission of 10% of
gross sales derived from corn, lumber and related products.
The Companies’ Asian offices are
in Singapore, Jakarta and Kendari Indonesia and their plantation/farming activities are in Indonesia. Hans Karundeng is a director
of the nonprofit organization GMPLH and is the principal stockholder of Arrow, the principal stockholder on APR and principal stockholder
of all the Indonesian registered companies.
THE ARROW COMPANIES - GENERAL
Arrow, as part of the Management Agreement,
has built and maintains all of the companies’ corporate finance activities, corporate operations structure, financial management
activities, international banking activities, supervision of all accounting and auditing activities, corporate research and development
activities, maintenance of the companies’ global MIS, direction of all marketing and sales activities and all the general
administrative functions. Arrow has also developed and maintained the companies’ scientific advisory team and corporate citizenship
programs. Additionally, the Company supervises all legal and accounting activities necessary to retain its public listing.
Arrow Pacific Resources Group Limited,
a British Virgin Islands registered company, was founded by Hans Karundeng in 2002, an Indonesian industrialist and financier,
for the purpose of developing natural resource assets controlled by a non-profit organization through a group of Companies that
are developing plantation/farming operations in Indonesia.
Arrow Pacific has, through their wholly-owned
subsidiaries PT Tiga Daun Nusantara (local operating company in Kendari), PT Eucalyptus Alam Lestari, PT Nusa Alam Sejahtera ,
PT Sumbur Utama Alam, and PT Tunas Hamparan Hijau, (all Indonesian registered Companies) have entered into agency agreements with
Arrow Resources Development Ltd. (a Bermuda Ltd. Company and wholly-owned subsidiary of Arrow Resources Development, Inc.) to act
as its corporate finance, financial administration, corporate management practice, marketing and distribution and infrastructure
agent in Indonesia. These agreements provide for the Company to receive 10% of the gross sales generated by all plantation/farming
operations and by any and all derivative products (e.g. paper, pulp, chips). Under this agreement, ARD acts as the collection
and disbursement agent for all operations. ARD retains 10% of gross revenues and disburses the remaining 90% to Arrow
Pacific's various business units which becomes their gross revenue. In the case of the ethanol plants, Arrow collects all gross
revenue from operations, retains 5% of the gross revenue as part of its fee, then covers expenses to all suppliers through an audited
accounting system to determine net revenue for distribution on a 50-50 basis.
Arrow Pacific Resources Group Limited operates,
with its joint-venture partners, all of the on-the-ground, day-to-day plantation operations, all infrastructural development operations
and all shipping operations as they relate to the overall plan. Arrow Pacific is led by a team of highly qualified professionals
with experience in the fields of plantation management, material science and analysis, agriculture, forestry and agro-law. The
team has contracted all labor, heavy equipment, transportation and shipping. Several members of the team hold close
affiliations with organizations such as the Timber Association of Sabah, the National Sub-committee on Fiscal Incentives of Forest
Plantations in Malaysia and the Scientific and Technical Committee of The Association Technique Internationale des Bois Tepicaux.
PT Tiga Daun Nusantara is an Indonesian
registered company owned by Hans Karundeng that is registered and licensed to operate in Kendari, Sulawesi. This company
is the Indonesian operating company acting as the local interface between all of the operating units and joint venture partners. Tiga
Daun is responsible for the supervision and planning of all harvesting, land preparation, and planning for both the eucalyptus
tree plantation and a large-scale agricultural operation. The Ministry Of Forestry in Indonesia requires that local Companies receive
operating licenses on each island. The local Companies that will hold the licenses are P.T. Eucalyptus Alam Lestari, which has
formed PT Nusa Alam Sejahtera, PT Sumbur Utama Alam, PT Tiga Daun Nusantara and PT Tunas Hamparan Hijau.
GMPLH is one of the largest non-profit
organizations in Indonesia. Founded by A. H. Moerdani and Hans Karundeng being a director, GMPLH is an educational organization
that acts as a project developer, fundraiser, and project expeditor for agricultural and environmental projects throughout Indonesia. Since
its inception in 1993, GMPLH has sponsored and completed more than 25 large-scale agricultural and educational projects resulting
in the planting of more than 600 million trees throughout Indonesia. GMPLH has been initially granted land licenses
by the Indonesian government for more than 1.8 million hectares (ha) (3.75 million acres) for a program that will include 3 million
ha as part of large-scale reforestation and farming efforts.
INDUSTRY
The planet’s consumption of forestry
products has more than doubled over the last 30 years as global population continues to grow. The increased demand for forestry
products has also led to the need for increased protection of forests and wildlife, and a more public participation in forestry
management. The demand for imported raw material for China’s low-cost timber manufacturing industries is increasing sharply
and establishing a more expansive market for international suppliers. The forestry community in the Asia-Pacific region, where
the Companies’ plantation will be located, possesses an advantage in the industry of greater periods of harvesting and re-growth
in comparison to other countries that experience periods of dormancy. This is primarily caused by adverse weather and seasonal
conditions. This enables growers in the region to cope with the ever shifting goals and expectations associated with the rapid
evolution of social, economic and environmental issues that impact policies, legislation, and institutions. The increase in demand
was rapidly exploited in many areas by timbering operations that stripped forests bare with no regard for their environmental damage,
or replenishing the timber resources being consumed. This mercenary behavior was responded to with strict and immediate regulation
and monitoring of the industry by government environmental agencies and consumer advocacy groups on lumbering operations worldwide.
Despite the increase in demand, the shortage of suppliers who are able to meet environmental standards has caused the forestry
industry to shrink by an estimated 9.4 million ha per annum.
The forestry industry involves harvesting, silviculture (the
growing and cultivation of trees), milling, value-added processing and manufacturing. Globally, the industry is being pressured
from many directions. Governments have attempted to improve the forestry industry with privatizing measures, which transfer the
property rights through the sale of natural forests or planned forests. Only a limited number of countries were involved in this
practice in the 1970s and 1980s, and among them were Chile and China. In New Zealand, privatization began in the late 1980s with
the sale of 550,000 ha and in 2000, was shown to have 94% of planted forests owned privately. Between 2000 and 2002, South Africa
saw the benefits of this system and estimated that 90,000 had become privatized. Privatization typically consists of the management
of natural forest concessions or leases, volume permits or standing timber sales, outsourcing and community-based approaches. Global
paper consumption trends continue to edge higher, confirming its utility as a low cost, high- performance and flexible material.
Paper has been labeled by many as “essential” for development and modern living. Global consumption has increased by
at least 25% during the 20th century and by a factor of three in the last three decades alone.
The Asian demand for timber and pulp supply
has increased due to the rapid expansion of its economy and one of the largest population densities. These increases have led also
to the increase in usage of computers requiring more printing paper, higher living standards, and the usage of more books, magazines
and packing boxes. These same factors also drive the increased demand for Eucalyptus Oil, which China uses over 70% of the world’s
production, and is projected to increase as well as the demand for the wood chips, which is one of the principal ingredients for
manufacturing chipboard. Many experts believe China’s demand for such material will continue for the next 30 years.
The international market’s demand
for timber derivative products continues to rise as economic factors drive the consumption of such goods forward. Household production
levels directly impact the consumption levels of chipboards. A nationwide study in China determined 80% of the finished products
available to the market are developed in household processing level mills which cannot meet the market demand. The insufficient
rate in correlation with the high demand for timber raw material is so great that outside sources need to be employed. Aside from
the growing demand for corn products in the Asian market, Indonesia is currently importing 1.5 million metric tons of corn annually
to sustain its ever-growing production of ethanol and demand for animal feed products.
OPERATING MODEL
The Companies have developed a synergy
of agro-biotechnology and cutting edge forestry/agricultural practices in response to the growing demand for timber and farming
products. When these practices are performed in a conscientious manner, it provides humankind with one of the greatest sources
for renewable and ecologically sustainable energy. Paper, dimensional lumber, fiberboard, particleboard, furniture, utensils, hydrocarbon
fuel, recreational areas, animal habitat, and clean air are some of the many benefits resulting from bio-diverse forests.
The Companies will execute their plantation/farming
operating plan through the implementation of a sound land management system, promote and/or establish infrastructural development
programs and provide provisions for financial, economic and social growth to the people in the development areas. It is essential
for the development to take into consideration local bio-physical environment conditions as well as the traditional and cultural
beliefs of the local villagers. In conjunction with local inhabitants, the Companies have developed a plan that will maximize profits
to the greatest potential of the area, while increasing employment and constantly re-examining their administrative and management
programs. The Companies will work to achieve superior safety performance, implement reliable harvesting, replanting and farming
processes, and become a leader of the industries of sustainable forestry and farming as well as leaders in the development of socially
conscious and environmentally sensitive land development throughout the world.
The Companies believe the effectiveness
of any forest management system hinges on the accuracy of obtaining pre-development information. They have commissioned qualified
and highly experienced foresters, surveyors and enumerators to conduct surveys that will map out the harvestable area before the
commencement of development activities. The data obtained from these surveys will provide a framework for the development of the
infrastructure of the plantations. Local inhabitants will be employed to operate the plantation/farming operations as laborers
and managers. There will also be teams of trainee plantation employees, field doctors, security personnel, cooks and other basic
labor to support the large scale of operations being undertaken.
Possessing a strong commitment to responsible
environmental management practices, the Companies will continuously monitor and improve the environmental outcomes of its operations.
In the interest of good corporate citizenship, a plan has been developed to ensure that all operations are sensitive to the environmental
and ecological importance of transforming the virgin forests territories into a sustainable and renewable timber resource in a
responsible manner. The Companies have consulted with the scientific and environmental communities regarding the establishment
of a preserve for the relocation of wildlife, the preservation of biodiversity, the investigation of potential medical benefits
and the replanting of several noble species.
APR plans to construct a large number of
roads to connect the project areas with the proposed factory area, harbor, camp site, local inhabitant living areas, and other
major sites that require transportation to and from on a frequent basis. Throughout this phase, inventory and tree marking will
take place. The data obtained from these surveys will provide a framework for the development of the infrastructure of the plantations.
Local inhabitants will be employed to participate in the operations of the plantation and, in some cases as specialized loggers.
There will also be teams of back-up plantation employees, field doctors, security personnel, cooks and other basic labor to support
the large scale of operations being undertaken. In conjunction with the local inhabitants, equipment specialists, as well as labor
force specialist from Indonesia and Singapore, APR has developed a fully operational on-the-ground team ready to begin the first
phase.
The near-equatorial position of Indonesia
ensures a good supply of rainwater for the tree crops year-round with little or no seasonal change, aiding in maintaining the consistent
growth cycle of only 3-4 years. The specific location of the government granted timberland concessions in Indonesia enables the
trees to grow with minimal interference from open-ocean earthquakes and large storms. The concessions are protected from such conditions
by the large islands, which act as barriers at sea. Thus, the timberlands are all located in the areas most conducive to growth,
maintenance, transportation, and sale. The areas of Southeast Asia allow eucalyptus tree and farming production to thrive due to
the steady weather patterns and no real winter season.
PRODUCTS
The forestland that will be the site of
APR’s plantation in Indonesia are lands that have been classified by the government as "critical land" meaning
land that has been partially harvested illegally during the past 50 years and the Companies have commissioned physical surveys
on the target sites. The majority of the noble species and selected hardwoods have been removed by illegal logging during the past
half-century. The general composition of the remaining species included on the development sites are primarily whole new growth
bushes, heavy brush and some small little grove saplings which all are somewhat suitable for the manufacture of paper and paper
products.
Due to the fact that all of the plantation
and plant sites are considered "critical land," the Companies have commissioned physical surveys on the target sites.
The majority of the noble species and selected hardwoods have been removed by illegal logging during the past half-century. The
general composition of the remaining species included on the development sites are primarily whole new growth bushes, heavy brush
and some small little grove saplings which all are somewhat suitable for the manufacture of paper and paper products.
LEGAL
The Company was a party to a lawsuit where
the plaintiff is 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 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.
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 December 31, 2012 and 2011, the Company
has accrued $1,456,304 and $1,393,101, including accrued interest of $402,920 and $339,717 respectively, related to this matter.
On December 14, 2005, Empire Advisory received
a $250,000 non-interest bearing advance from Butler Ventures, LLC the proceeds of which were used for the benefit of the Company
and for which the liability was transferred to the Company. In repayment, the Company would repay the full amount of
the note in converted securities and U.S. dollars on the earlier of March 31, 2006, without further notice or demand, or immediate
payment in the event of default. On December 8, 2008, Butler filed a motion for summary judgment in lieu of complaint against Empire
in the Supreme Court of the State of New York for failing to repay the loan on the maturity date. On January 29, 2009, Empire Advisory,
LLC and Butler Ventures, LLC entered into Settlement Agreement and Mutual Release where the parties had agreed to resolve amicable
the amounts due and owing to Butler by issuing to Butler common stock in Empire’s affiliated company, Arrow Resources Development,
Inc. as well as by payment of all attorneys’ fees and expenses accrued to date. Empire Advisor shall cause the Company to
issue to Butler shares of common stock in the Company. Butler agreed to extend until on or prior to March 31, 2009 for performance
of all of Empire’s obligations. In consideration for this extension, Empire Advisor agreed to cause the Company to issue
to Butler an additional 100,000 shares of the Company common stock. The Company defaulted on this extension. On June
17, 2009, Empire Advisory transferred the loan obligations to the Company, and the Company agreed to assume the loan obligations.
On July 14, 2009, the Company issued 9,690,909 shares of common stock to Butler Ventures, LLC with a market value on the date of
issuance of $533,000 in full settlement of the $250,000 note payable. 9,090,909 shares were issued in exchange for a senior note
payable that has been assumed by the Company. 100,000 shares were issued in accordance with the aforementioned extension,
and 500,000 shares were issued to Butler in consideration of Butler’s agreement to forego its remedies related to the aforementioned
default of the extension.
HUMAN RESOURCES
As of December 31, 2012, our workforce
consists of consultants. The majority of our consultants are professional, technical or administrative personnel who possess training
and experience in finance, information management, and business management. We have no union contracts. We believe that our relations
with our consultants are satisfactory. In addition we rely on the personnel of APR, described below.
APR has already assembled the necessary
senior management and field operations personnel required to initiate the project. The initial senior staff of APR and its supporting
clerical personnel are sufficient for operations in the first five years. The initial senior management and field operations personnel
of APR is sufficient for operations for at least three years. During the initial three-year period, APR will conduct an executive
search for additional field operations personnel and eventually the requisite personnel for the operation of the paper mill. APR
will be responsible for staffing field and production operations.
Since the projects in Indonesia are first
and foremost an environmental restorations and social engineering projects, the emphasis is on maximizing the use of local labor
and job creation. APR is developing its technical/agricultural production center on Sulawesi Island which is staffed by highly
qualified Indonesian based professionals. All manual operations will employ local resident farmers and their families and all hiring
will be coordinated by GMPLH. This approach is designed to reengineer large-scale farming communities and redeveloped long-term
farming infrastructure.
The Companies have assembled, through their
joint venture partners, the necessary senior management and field operations personnel required to initiate the project. The initial
senior staff and its supporting clerical personnel are sufficient for operations in the first five years. The initial senior management
and field operations personnel are sufficient for operations for approximately two years. During the initial two-year period, a
human resource acquisition and benefits program will be completed and structured to grow as the projects grow.
Since the health of the workers is not
only based on physical conditions, special attention also must be paid to safety, adequate standards of comfort, sanitation, nutrition
and general welfare. Adequate training, which is appropriate for job requirements and satisfactory working conditions, is viewed
by the companies as a primary and effective motivator since these considerations not only contribute to improved safety, but they
also contribute to improved efficiency. Plantation/farming projects normally place a high priority on landowners' participation
in resource development and give employment preference to landowners whose dedication reflects the investment they have in the
success of their local economies.
Training personnel will be required to
maintain the highest level of safety for the workers and the environment. The workers will receive training to identify various
tree species, measurement of trees, quality criteria for harvestable trees and field organization for the pre-harvesting inventory.
Training programs for harvesting crews will consist of harvesting safety, proper cutting and directional felling techniques, maintenance
of chainsaw and chain sharpening, field organization of harvesting activity, use of tree location maps and criteria for deciding
whether or not to fell a marked tree. Practical training for extraction crews will consist of field considerations for reducing
the damage to the remaining forest stand, field organization of the extraction activities, and use of tree location/extraction
maps. Training programs for farm workers will include proper soil tilling methods, proper seeding techniques, fertilizer techniques
and management, irrigation techniques, testing and allocations, harvesting techniques and proper use of crop rotation.
COMPETITION
APR principal plantation operations will
be located in Indonesia in close proximity to the Asian Pacific market enabling timber to be delivered with lower shipping costs,
and at higher profit. The distance for competitors to ship their products includes a much greater cost and longer shipping period.
These near-equatorial locations ensures a good supply of rainwater for the tree crops, which aids in developing a consistent growth
cycle of only 3-4 years. The specific location of the government granted timberland concessions, in Indonesia, enables the trees
to grow with minimal interference from open-ocean earthquakes and large storms. Thus, the location of this timberland makes easier
to transport and sell, and easier to maintain.
The existing forest industry is dominated
by large foreign logging companies, or landowning companies.
Australia currently exports approximately
6.5 million tons of woodchips annually from ports in Tasmania, Victoria and Western Australia. Australia’s stock in plantations
has risen rapidly over the past decade. Estimates show 455,000 hectares of new eucalyptus plantations have been established over
the past 7 years. The Australian market competitors have relatively high entrance costs and higher service fess with lower potential
return. Their harvesting cycles typically take 6 years or longer and environmental risks weigh heavily on the yield.
Brazil has 400 million hectares of tropical
forests, and 7 million hectares of exotic plantations comprised mainly of fast growing eucalyptus. The timber from these plantations
provides raw material for charcoal, and pulp and paper production. Brazil accounts for 60% of total charcoal production although
native woods are mostly used for timber production; with an annual consumption rate around 250 million cubic meters.
Chile has around 5.5 million hectares of
productive native forest, mainly Nothofagus hardwood species. Timber production from native hardwood amounts to 0.35 million, and
nearly 75% is used to produce chips for exports to Asian countries. Pine and eucalyptus plantations cover 1.8 million hectares,
with an annual expansion rate of 7-10%. Pinewood accounts for 78% of total plantations; eucalyptus is growing faster and a big
surplus is expected within the next decade.
DEMOGRAPHICS
The climate of Indonesia is reported to
be monsoonal in nature, characterized by high temperatures and humidity throughout the year. However, the specific location of
the timber concessions within these countries enables the trees to grow with minimal interference from open-ocean earthquakes and
large storms. Operations in Indonesia are located inland, not on annual flood plains, not on islands with historically high earthquake
activity and where there are active volcanoes present.
EMPLOYEES
As of December 31, 2012, our workforce
consists of consultants. The majority of our consultants are professional, technical or administrative personnel who possess training
and experience in finance, information management, and business management. We have no union contracts. We believe that our relations
with our consultants are satisfactory.
Our future success depends in large part on our ability to retain
key technical, marketing, and management personnel, and to attract and retain qualified employees and consultants. Competition
for such personnel is intense, and the loss of key consultants, as well as the failure to recruit and train additional technical
personnel in a timely manner, could have a material and adverse effect on our operating results.
Our success also depends, to a significant
extent, upon the contribution of our executive officers and other key consultants. We have agreements with our chief executive
officer, and maintain an informal stock plan whereby key personnel can participate in our success. All of our personnel are eligible
to participate in this plan.
The following discussion highlights certain
of the risks we currently face.
The following factors, in addition to those
discussed elsewhere in this document, should be carefully considered. Securities of the Company involve a high degree of risk and
should be regarded as speculative. In addition to matters set forth elsewhere in this Annual Report, potential investors should
carefully consider the risk factors described below relating to the business of the Company.
LIMITED OPERATING HISTORY
The success of the Company cannot be guaranteed
or accurately predicted. There is no assurance that the Company will be able to operate profitably. Such prospects must be considered
in light of the risks, expenses and difficulties frequently encountered in the establishment of a product and service.
Arrow began operations in September, 2005,
and to date has generated $52,000 in revenues. The Company has no significant operating history. There is no assurance that the
Company will be able to operate and manage on a profitable basis or that cash flow from operations will be sufficient to pay the
operating costs of the Company. The Company may need to raise additional capital to finance its continued operations. The Company
may seek additional financing through debt or equity financings. There is no assurance that additional financing will be available
to the Company, or if available, that the financing will be on terms acceptable to the Company. There is no assurance that the
Company’s estimate of its reasonably anticipated liquidity needs is accurate or that new business developments or other unforeseen
events will not occur that will result in the need to raise additional funds. In the event that the Company cannot raise needed
capital, it will have a material adverse affect on the Company. There is no assurance that the Company will achieve or sustain
profitability or positive cash flow from operating activities in the future or that it will generate sufficient cash flow to service
any debt requirements.
SIGNIFICANT CAPITAL REQUIREMENTS
& DILUTION
The Company’s capital requirements
are and will continue to be significant. The Company anticipates, based on management’s internal forecasts and assumptions
relating to its operations (including the costs associated with marketing), that unless at least $10,000,000 is raised for working
capital purposes, the Company’s cash resources will not be sufficient to satisfy the Company’s contemplated cash requirements
and that additional financing may be needed to support the Company. There can be no assurance that the Company will be able to
obtain additional financing on terms acceptable to the Company. To the extent that any financing involves the sale of the Company’s
equity securities, the interests of the Company’s then existing shareholders could be substantially diluted. Dilution will
also occur when and if options to be granted to employees, consultants and other third parties are exercised.
DEPENDENCE ON ARROW PACIFIC RESOURCES
GROUP LIMITED AND ITS OPERATING SUBSIDIARIES
Our revenues are currently entirely dependent
on the sales of APR and its operating subsidiaries products sales. APR will not be in a position to generate sustainable timber
sales until it has completed certain infrastructure improvements in Indonesia.
COMPETITION
The Company anticipates competition on
numerous fronts. Increased competition could require the Company to respond to competitive pressures by establishing pricing, marketing
and other programs, or seeking out additional strategic alliances or acquisitions, any of which could have a material adverse effect
on the business, prospects, financial condition and results of operations of the Company. The Company could potentially have competitors
with longer operating histories, larger customer bases, greater brand recognition, and significantly greater financial, marketing
and other resources than the Company. Increased competition may result in reduced operating margins, loss of market share, and
a diminished brand franchise, any of which would have a material adverse effect on the Company. There is no assurance that the
Company will be able to compete successfully.
ABSENCE OF DIVIDENDS & DIVIDEND POLICY
The Company has never paid dividends on
its Common Stock, but does anticipate paying dividends on its Common Stock in the foreseeable future. The declaration and payment
of dividends by the Company are subject to the discretion of the Company’s Board of Directors. Any determination as to the
payment of dividends in the future will depend upon results of operations, capital requirements, restrictions in loan agreements,
if any, and such other factors as the Board of Directors may deem relevant.
OWNERSHIP OF THE COMPANY
APR owns 45% of the Company’s stock.
Hans Karundeng is the Chairman of APR. His son, Rudolph, is a Director of the Company and is a 7% owner of the Company’s
stock.
DEPENDENCE ON MANAGEMENT
The success of the Company will largely
be dependent upon the active participation of its management. The Company does not currently have “Key Man” life insurance
on any of its current officers, although the Company intends to provide such insurance, based on availability of funds
in the future. The Company would pay all premiums for such “Key Man” life insurance. The time that the officers and
directors devote to the business affairs of the Company, and the skill with which they discharge their responsibilities, will substantially
impact the Company’s success. Loss of the services of certain executive officers of the Company could be expected to have
a material adverse effect upon the Company.
POSSIBLE LOSS OF OR INABILITY TO
ATTRACT KEY PERSONNEL
The Company’s success depends largely
on its ability to attract and retain highly qualified managerial and industry personnel. There can be no assurance that the Company
will be successful in attracting or retaining these key personnel. The loss of the services of key personnel could have a material
adverse effect on the Company.
GENERAL ECONOMIC AND OTHER CONDITIONS
The Company’s business may be adversely
affected from time to time by such matters as changes in economic, industrial and international conditions, changes in taxes, changes
in government regulations, prices and costs and other factors of a general nature and in particular those changes which have an
adverse material effect on the natural resources industry or other industries in which the Company becomes engaged to provide marketing,
sales, distribution, corporate operations and corporate finance services for the commercial exploitation of natural resources around
the world.
WE MAY BE UNABLE TO CONTINUE AS A
GOING CONCERN
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 $(8,628,134) for the year ended December 31, 2012 and a net loss during
the development stage from inception (November 15, 2005) through December 31, 2012 of $(173,056,225). The Company’s operations
are in the development stage, and the Company has generated revenue of $52,000 since inception. The Company’s existence in
the current period has been dependent upon advances from related parties and other individuals, and the sale of senior notes payable.
We cannot assure you when or if we will
ever be able to operate on a positive cash flow basis. If we are unable to achieve the level of revenues needed to attain a positive
cash flow, we may be required to take actions, including but not limited to reducing our operations, seeking an acquisition and/or
merging with another entity, that could materially change and/or adversely affect our business.
We have a history of losses and we cannot
assure you that we will be able to operate profitably in the foreseeable future, if at all.
Our inability to achieve or maintain profitability
or positive cash flow could:
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result in disappointing financial results,
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impede implementation of our growth strategy,
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cause the market price of our common stock to decrease,
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impede our ability to procure financing on acceptable terms or at all, and
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otherwise adversely affect our business and financial condition.
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We will require financing if our revenues do not meet our projections
or our expenses are greater than we anticipate, or to finance the further development of our business. Our inability to obtain
financing, if required, would have an adverse effect on our business.
We may need to obtain financing if our
actual costs are higher than projected or our contemplated future revenues fall below our current expectations, in order to
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finance more rapid expansion,
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increase marketing and sales,
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develop new or enhanced technology,
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respond to competitive pressures,
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establish strategic relationships, and/or
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provide for working capital.
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If we raise such financing by issuing equity
or convertible debt securities, the percentage ownership of our stockholders will be diluted. Any new debt or equity securities
could have rights, preferences and privileges senior to rights of our common stock holders. We currently have no commitments for
any such financing and, accordingly, cannot assure you that such financing will be available when and to the extent required or
that, if available, it will be on terms acceptable to us. If adequate financing is not available on acceptable terms, we may be
unable to finance the activities referred to above. In such event, our business may be adversely affected.
Recently enacted and proposed changes in
securities laws and regulations will increase our costs. The Sarbanes-Oxley Act of 2002 that became law in July 2002 has required
and will continue to require changes in some of our corporate governance practices. We expect that the Sarbanes-Oxley Act will
increase our legal and financial compliance costs, and make some activities more difficult, time consuming and/or more costly.
We also expect that the Sarbanes-Oxley Act will make it more costly to obtain director and officer liability insurance coverage,
and we may be required to accept reduced coverage or incur substantially higher costs to obtain it. We currently do not have this
coverage. These new rules and regulations could also make it more difficult for us to attract and retain qualified members of our
board of directors, particularly to serve on our audit committee, and qualified executive officers. In accordance with the Sarbanes-Oxley
Act, we have instituted a number of changes relating to corporate governance practices including the certification of our consolidated
financial statements pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act and adoption of certain internal controls. The
Sarbanes-Oxley Act has provisions that have implementation deadlines, including those related to Section 404 concerning internal
control procedures. Implementation of those procedures will require resources and a portion of our management’s time and
efforts.
Our reported financial results may be adversely
affected by changes in accounting principles generally accepted in the United States.
We prepare our financial statements in
conformity with accounting principles generally accepted in the United States. These accounting principles are subject to interpretation
by the Financial Accounting Standards Board, the American Institute of Certified Public Accountants, the SEC and various bodies
formed to interpret and create appropriate accounting policies. A change in these policies or interpretations could have a significant
effect on our reported financial results, and could affect the reporting of transactions completed before the announcement of a
change. For example, while current accounting rules allow us to exclude the expense of employee stock options from our financial
statements, influential business policy groups, including the Financial Accounting Standards Board, have suggested that the rules
be changed to require these options to be expensed.
Due to the change in business activities
of the Company in conjunction with the change in control, we are no longer able to realize any benefit from net operating losses
carried forward of CNE Group, Inc. of approximately $30,000,000. The Company currently has net operating losses of approximately
$187,000 related to development stage activity, which may be carried forward to future periods.
Companies generally rely heavily on stock
options as a major component of our employee compensation packages. If we are required to expense options granted to our officers
and employees, although our cash position would not be affected, our income from continuing operations and our stockholders’
equity would decrease and our stock price could be adversely affected. In such event, we may have to decrease or eliminate option
grants to our officers and employees, which could negatively impact our ability to attract and retain qualified employees and executive
personnel. While the Company does not currently have a stock option plan, such a plan may be established in the future.
In general, for purposes of the Code, an
ownership change occurs when 5% or more owners increase their ownership percentage by more than 50% over the lowest percentage
owned by those owners at any time during a testing period, which is generally the three years prior to the increase in ownership
by 5% or more owners. The IRS has authority to treat warrants, options, contracts to acquire stock, convertible debt interests
and other similar interests as if they are stock and stock as if it is not stock. In any event, it is possible that past and/or
future transactions affecting our equity could create an ownership change and trigger this limitation on the use of our net operating
loss.
RISKS RELATED TO OUR BUSINESS
Our business faces intense competition.
If we fail to adequately meet this competition, our business could be adversely affected.
Most of our competitors have substantially
greater financial, technical and marketing resources; longer operating histories and greater name recognition to apply to each
of these factors, and in some cases have built significant reputations with the customer base in the markets in which we compete.
If we are unable to successfully compete, our business, financial condition, and operating results could be materially and adversely
affected.
Our business may suffer if we lose the
services of our executive officers, or if we cannot recruit and retain additional skilled personnel. We depend on the
continued services and performance of Peter Frugone, our Chairman and Chief Executive Officer, Rudolph Karundeng, one of our Directors,
as well as Senior Advisor, Hans Karundeng and his subsidiary operations for our future success. If either Mr. Frugone or Mr. Rudolph
Karundeng becomes unable or unwilling to continue in his current position, our business and financial conditions could be damaged.
We are not the beneficiaries of any key person life insurance covering them or any other executive.
RISKS RELATED TO THE OWNERSHIP OF
OUR COMMON STOCK
Your ability to sell any common stock may
be restricted, because there is a limited trading market for these securities.
Although our common stock is currently
traded on the NASD OTC Bulletin Board, a liquid market in our stock has been sporadic. Accordingly, you may not be able to sell
shares of our common stock when you want or at the price you want, if at all.
In addition, depending on several factors
including, among others, the future market price of our common stock, these securities are subject to the so-called “penny
stock” rules that impose additional sales practice and market making requirements on broker-dealers who sell and/or make
a market in such securities. These factors could affect the ability or willingness of broker-dealers to sell and/or make a market
in our common stock and the ability of purchasers of our common stock to sell their shares in the secondary market. A delisting
could also negatively affect our ability to raise capital in the future.
The market price of our common stock may
be volatile, which could adversely affect the value of any common stock that you may own.
The market price of our common stock may
fluctuate significantly in response to the following factors:
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variation in our quarterly operating results;
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our announcements of significant contracts, milestones or acquisitions;
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our relationships with other companies;
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our ability to obtain capital commitments;
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additions or departures of our key personnel;
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sales of our common stock by others or termination of stock transfer restrictions;
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changes in estimates of our financial condition by securities analysts; and
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fluctuations in stock market price and volume.
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The last three factors are beyond our control.
In the past, following periods of volatility
in the market price of a company’s securities, securities class action litigation often has been instituted against that
company. Such litigation is expensive and diverts management’s attention and resources. Any one of the factors noted above
could have an adverse affect on the value of our common stock.
Anti-takeover provisions of the Delaware
General Corporation Law and in our Certificate of Incorporation could discourage a merger or other type of corporate reorganization
or a change in control, even if it could be favorable to the interests of our stockholders.
The Delaware General Corporation Law and
our Certificate of Incorporation contain provisions that may enable our management to retain control and resist a takeover of our
Company. These provisions generally prevent us from engaging in a broad range of business combinations with an owner of 15%, 20%
in the case of our Certificate of Incorporation, or more of our outstanding voting stock for a period of three years from the date
that this person acquires his stock. Our Certificate of Incorporation and our By Laws also require the affirmative vote of at least
60% or our voting stockholders to effect certain actions, including, under certain circumstances, the removal of directors, and
provide for the election of different classes of directors with the term of each class ending at different times. Accordingly,
these provisions could discourage or make more difficult a change in control or a merger or other type of corporate reorganization
even if it could be favorable to the interests of our stockholders.
Our officers and directors exercise significant
control over our affairs, which could result in their taking actions that other stockholders do not approve of.
We have never paid any cash dividends on
our common stock and currently intend to retain all future earnings, if any, to invest in our business.
If our Board issues common stock, which
it can do without stockholder approval, a purchaser of our common stock could experience substantial dilution.
Our Board of Directors has the authority
to issue up to 1 billion shares of common stock and 10,000,000 shares of preferred stock and to issue options and warrants to purchase
shares of our common stock without stockholder approval. In the future, we could issue additional shares of our common stock at
values substantially below the current market price for our common stock, which could substantially dilute the equity ownership
of holders of our common stock. In addition, our Board could issue large blocks of our common stock to prevent unwanted tender
offers or hostile takeovers without any stockholder approval. Our ability to issue preferred stock may adversely affect the rights
of common stockholders and be used as an anti-takeover device.
Our Certificate of Incorporation authorizes
our Board of Directors to issue up to 10 million shares of preferred stock without approval from our stockholders. Accordingly,
all of our common stock will be junior to any preferred stock issued by us, and our Board has the right, without the approval of
common stockholders, to fix the relative rights and preferences of such preferred stock. This could affect the rights of common
stockholders regarding, among other things, voting, dividends and liquidation. We could also use an issuance of preferred stock
to deter or delay a change in control that may be opposed by our management, even if the transaction might be favorable to the
common stockholders.
The Company might issue options and warrants
in the future. The exercise of all of the outstanding options and warrants would dilute the then-existing stockholders’ percentage
ownership of our common stock. Any sales resulting from the exercise of options and warrants in the public market, such as sales
by the selling stockholders pursuant to this prospectus, could adversely affect prevailing market prices for our common stock.
Moreover, our ability to obtain additional equity capital could be adversely affected since the holders of outstanding options
and warrants may exercise them at a time when we would also wish to enter the market to obtain capital on terms more favorable
than those provided by such options and warrants. We lack control over the timing of any exercise or the number of shares issued
or sold if exercises occur.
Our executive offices are located at Carnegie
Hall Tower, 152 W. 57th Street, 27th Floor, New York, NY 10019 where we use office space, under a management agreement with Empire
Advisory, LLC.
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Item 3.
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Legal Proceedings
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The Company was a party to a lawsuit where
the plaintiff is 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 on December 21, 2007. The settlement resulted in a loss on debt conversion of $2,000 during
the year ended December 31, 2008 because an estimated liability had been recognized prior to 2007.
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 December 31, 2012 and 2011, the Company
has accrued $1,456,304 and $1,393,101, including accrued interest of $402,920 and $339,717 respectively, related to this matter.
On December 14, 2005, Empire Advisory received
a $250,000 non-interest bearing advance from Butler Ventures, LLC the proceeds of which were used for the benefit of the Company
and for which the liability was transferred to the Company. In repayment, the Company would repay the full amount of
the note in converted securities and U.S. dollars on the earlier of March 31, 2006, without further notice or demand, or immediate
payment in the event of default. On December 8, 2008, Butler filed a motion for summary judgment in lieu of complaint against Empire
in the Supreme Court of the State of New York for failing to repay the loan on the maturity date. On January 29, 2009, Empire Advisory,
LLC and Butler Ventures, LLC entered into Settlement Agreement and Mutual Release where the parties had agreed to resolve amicable
the amounts due and owing to Butler by issuing to Butler common stock in Empire’s affiliated company, Arrow Resources Development,
Inc. as well as by payment of all attorneys’ fees and expenses accrued to date. Empire Advisor shall cause the Company to
issue to Butler shares of common stock in the Company. Butler agreed to extend until on or prior to March 31, 2009 for performance
of all of Empire’s obligations. In consideration for this extension, Empire Advisor agreed to cause the Company to issue
to Butler an additional 100,000 shares of the Company common stock. The Company defaulted on this extension. On June
17, 2009, Empire Advisory transferred the loan obligations to the Company, and the Company agreed to assume the loan obligations.
On July 14, 2009, the Company issued 9,690,909 shares of common stock to Butler Ventures, LLC with a market value on the date of
issuance of $533,000 in full settlement of the $250,000 note payable. 9,090,909 shares were issued in exchange for a senior note
payable that has been assumed by the Company. 100,000 shares were issued in accordance with the aforementioned extension,
and 500,000 shares were issued to Butler in consideration of Butler’s agreement to forego its remedies related to the aforementioned
default of the extension.
|
Item 4.
|
Submission of Matters to a Vote of Security Holders.
|
On November 20, 2007, the Board of Directors
approved a private placement offering (the "Offering") approximating $2,000,000 to accredited investors at $1.00 per
share of Series A Convertible Preferred Stock. The Offering consisted of the Company's Series A Convertible Preferred Stock that
will be convertible into our common stock. These securities were not required to be and will not be registered under the Securities
Act of 1933. Shares issued under this placement were sold in the United States, absent registration or an applicable exemption
from registration. As of September 30, 2009, the Company received $355,000 from investors towards 355,000 Series A Convertible
Preferred Stock shares issuable under subscription agreements covering the placement offering. Each Series A Convertible Preferred
Stock was convertible into 20 shares of the Company’s Common Stock. The holders of the preferred stock had no voting rights
except as was required by Delaware law, no redemption rights, and no liquidation preferences over the Common Stock holders. On
November 3, 2009, the 355,000 Series A Convertible Preferred Stock were converted into 7,100,000 Common shares. As of
December 31, 2012, there were no Series A Convertible Preferred Stock outstanding.
On April 20, 2008, the Board of Directors
approved a private placement offering (the "Offering") approximating $2,000,000 to accredited investors at $1.00 per
share of Series C Convertible Preferred Stock. The Offering consisted of the Company's Series C Convertible Preferred Stock that
was convertible into our common stock. These securities were not required to be and were not registered under the Securities Act
of 1933. Shares issued under this placement were sold in the United States, absent registration or an applicable exemption from
registration. As of September 30, 2009, the Company received $25,000 from investors towards 25,000 Series C Convertible Preferred
Stock shares issuable under subscription agreements covering the placement offering. Each Series C Convertible Preferred Stock
is convertible into 20 shares of the Company’s Common Stock. The holders of the preferred stock have no voting rights except
as may be required by Delaware law, no redemption rights, and no liquidation preferences over the Common Stock holders. On November
3, 2009, the 25,000 Series C Convertible Preferred Stock were converted into 500,000 Common shares. As of December 31,
2012, there was no Series C 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 December 31, 2012, none of the shares under this plan have been issued and the Company has accrued $1,050,137
of cash-based compensation and recorded additional paid-in capital of $255,017 for stock compensation based on the fair value of
5,250,685 shares to be issued to the members of the Board.
ARROW RESOURCES DEVELOPMENT, INC. AND SUBSIDIARIES
ARROW RESOURCES DEVELOPMENT, INC. AND SUBSIDIARIES
ARROW RESOURCES DEVELOPMENT, INC. AND SUBSIDIARIES
ARROW RESOURCES DEVELOPMENT, INC. AND SUBSIDIARIES
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 products.
In April of 2006, Arrow Ltd. entered into
an agency agreement with APR to provides marketing and distribution services for timber and natural resource products and currently
has an exclusive marketing and sales agreement with APR to market lumber and related plantation 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 plantation 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
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 $(8,628,134) for the year ended December 31, 2012, and a net loss during
the development stage from inception in November 15, 2005 through December 31, 2012 of $(173,056,225). The Company’s operations
are in the development stage, and the Company has substantially not generated any 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.
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.
ARROW RESOURCES DEVELOPMENT, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 carryforwards 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.
Pursuant to accounting guidance concerning
provision for uncertain income tax provisions contained in Accounting Standards Codification (“ASC”) 740-10, there
are no uncertain income tax positions. The federal and state income tax returns of the Company are subject to examination by the
IRS and state taxing authorities, generally for three years after they were filed.
Fair Value of Financial Instruments:
For financial statement purposes, financial
instruments include cash, accounts and accrued expenses payable, notes payable and amounts due to related parties 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.
Loss Per Share:
The Company complies with the requirements
of the FASB ASC No. 260,
Earnings Per Share
. ASC 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 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
inception (November 15, 2005) to December 31, 2012 and for the years ended December 31, 2012 and 2011. As of December 31, 2012,
there are no dilutive equity instruments outstanding.
Reclassification:
Certain prior
period amounts have been reclassified or adjusted to conform to the current presentation. These reclassifications and
adjustments had no material impact on the consolidated financial position, results of operations and net cash flows from
operations for all periods presented.
Acquired Intangibles:
Intangible assets were comprised of an
exclusive sales and marketing agreement. In accordance with FASB ASC 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.
|
ARROW RESOURCES DEVELOPMENT, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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).
Stock Based Compensation
The Company applies ASC 718-10 and ASC
505-50 in accounting for stock options issued to employees. For stock options and warrants issued to non-employees, the Company
applies the same standard, which requires the recognition of compensation cost based upon the fair value of stock options at the
grant date using the Black-Scholes option pricing model.
Recent Accounting Pronouncements
Accounting standards that have been issued
or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the consolidated
financial statements upon adoption.
ARROW RESOURCES DEVELOPMENT, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - AGREEMENT AND PLAN OF MERGER BETWEEN ARROW RESOURCES
DEVELOPMENT, LTD. AND CNE GROUP, INC
.
In August 2005, the Company entered into
an Agreement and Plan of Merger (“the Agreement”) with CNE Group, Inc. (“CNE”) under which, CNE was required
to issue 10 million shares of Series AAA convertible preferred stock (“the Preferred Stock”) to the Company, representing
96% of all outstanding equity of CNE on a fully diluted basis for the Marketing and Distribution Agreement provided to the Company,
Empire, as agent. Under the Agreement, the Company changed its name to Arrow Resources Development, Inc. and divested all operations
not related to Arrow Ltd. The Preferred Stock contained certain liquidation preferences and each share of the Preferred Stock was
convertible to 62.4 shares of common stock.
The transaction was consummated upon the
issuance of the Preferred Stock on November 14, 2005, which was used to settle the senior secured note payable for $125,000,000
and $1,161,000 of cash advances from Empire. The Preferred Stock was subsequently converted to common stock on December 2, 2005,
for a total of approximately 649 million shares of common stock outstanding. This was recorded as a change of control transaction
that was accounted for as a recapitalization of CNE.
The operations of the Company’s wholly-owned
subsidiary, Career Engine, Inc. were discontinued prior to the recapitalization transaction. The net assets of Career Engine had
no value as of December 31, 2005.
During the period from inception (November
15, 2005) to December 31, 2005, the Company incurred $249,252 of expenses incurred as part of recapitalization transaction.
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 carryforward available to reduce future taxable income for federal and state income
tax purposes of the successor entity of approximately zero, because those losses arose from the predecessor CNE exiting previous
business lines that had generated operating losses.
For tax purposes, all expenses incurred
by the re-named entity now known as Arrow Resources Development, Inc. after November 14, 2005 have been capitalized as start up
costs in accordance with Internal Revenue Code Section (“IRC”) No. 195. Accordingly
for tax purposes none of the Company’s post November 14, 2005 losses are as yet reportable in Company income tax returns
to be filed for any of the years ended December 31, 2005 through 2012.
The significant components of the Company’s deferred tax
assets are as follows:
|
Net operating loss carryforward
|
|
$
|
187,101
|
|
|
Differences resulting from use of cash basis for tax purposes
|
|
|
-
|
|
|
Tax Rate
|
|
|
35
|
%
|
|
Total deferred tax assets
|
|
|
65,485
|
|
|
Less valuation allowance
|
|
|
(65,485
|
)
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
-
|
|
|
|
|
|
|
|
|
The net operating losses expire as follows:
|
|
|
|
|
|
December 31, 2026
|
|
$
|
127,349
|
|
|
December 31, 2027
|
|
|
57,652
|
|
|
December 31, 2028
|
|
|
420
|
|
|
December 31, 2029
|
|
|
420
|
|
|
December 31, 2030
|
|
|
420
|
|
|
December 31, 2031
|
|
|
420
|
|
|
December 31, 2032
|
|
|
420
|
|
|
Net operating loss carryover
|
|
$
|
187,101
|
|
Reconciliation of the differences between the statutory tax
rate and the effective tax rate is:
|
|
|
December 31,
2012
|
|
|
Federal statutory tax rate
|
|
|
35.0
|
%
|
|
Effective tax rate
|
|
|
35.0
|
%
|
|
Valuation allowance
|
|
|
(35.0
|
)%
|
|
Net effective tax rate
|
|
|
0
|
%
|
Reconciliation of net loss for income tax purposes to net
loss per financial statement purposes:
|
Costs capitalized for tax purposes
|
|
$
|
(172,869,124
|
)
|
|
Delaware franchise taxes deductible on Company's tax return
|
|
|
187,101
|
|
|
Net loss for the period from inception (November 15, 2005) to December 31, 2012
|
|
$
|
(173,056,225
|
)
|
The Company is delinquent in its filing and payment of the
Delaware Franchise Tax report and, accordingly, is not in good standing.
ARROW RESOURCES DEVELOPMENT, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - NOTES PAYABLE
As of December 31, 2012 and December 31, 2011, the Company had
notes payable outstanding as follows:
|
Holder
|
|
Terms
|
|
December 31, 2012
|
|
|
December 31, 2011
|
|
|
Barry Blank (1)
|
|
Due on demand, 10% interest
|
|
$
|
200,000
|
|
|
$
|
200,000
|
|
|
Accrued interest (1)
|
|
|
|
|
50,000
|
|
|
|
50,000
|
|
|
John Marozzi (2)
|
|
Due 30 days after $750,000 funded to company, 4% interest
|
|
|
387,980
|
|
|
|
387,980
|
|
|
John Marozzi (2)
|
|
Due on demand, non-interest bearing
|
|
|
-
|
|
|
|
-
|
|
|
Accrued interest (2)
|
|
|
|
|
46,837
|
|
|
|
31,275
|
|
|
James R. McConnaughy (3)
|
|
Due on demand, non-interest bearing
|
|
|
53,000
|
|
|
|
53,000
|
|
|
Christopher T. Joffe (4)
|
|
Due on demand, non-interest bearing
|
|
|
63,000
|
|
|
|
63,000
|
|
|
Frank Ciolli (5)
|
|
Due on demand, non-interest bearing
|
|
|
550,000
|
|
|
|
550,000
|
|
|
John Frugone (6)
|
|
Due on demand, non-interest bearing
|
|
|
255,000
|
|
|
|
255,000
|
|
|
Scott Neff (7)
|
|
Due on demand, non-interest bearing
|
|
|
50,000
|
|
|
|
50,000
|
|
|
Cliff Miller (8)
|
|
Due on 10/11/09, interest bearing
|
|
|
450,000
|
|
|
|
450,000
|
|
|
Accrued interest (8)
|
|
|
|
|
100,000
|
|
|
|
100,000
|
|
|
John McConnaughy (9)
|
|
Due on demand, 10% interest
|
|
|
25,000
|
|
|
|
25,000
|
|
|
Accrued interest (9)
|
|
|
|
|
2,500
|
|
|
|
2,500
|
|
|
Greg and Lori Popke (10)
|
|
Due on 12/11/09
|
|
|
100,000
|
|
|
|
100,000
|
|
|
H. Lawrence Logan (11)
|
|
Due on demand, non-interest bearing
|
|
|
25,000
|
|
|
|
25,000
|
|
|
Aaron Hiller (12)
|
|
Due October 17, 2011, 20% interest & shares
|
|
|
30,000
|
|
|
|
30,000
|
|
|
Charles Strauss (13)
|
|
Due October 20, 2011, 20% interest & shares
|
|
|
50,000
|
|
|
|
50,000
|
|
|
Ferandell Tennis Courts (14)
|
|
Due October 26, 2011, 20% interest & shares
|
|
|
45,000
|
|
|
|
45,000
|
|
|
Michael Hannegan (15)
|
|
Due October 10, 2011, 20% interest & shares
|
|
|
75,000
|
|
|
|
75,000
|
|
|
Accrued interest (16)
|
|
|
|
|
57,012
|
|
|
|
16,902
|
|
|
Total
|
|
|
|
$
|
2,615,329
|
|
|
$
|
2,559,657
|
|
|
|
(1)
|
The Company has a note payable outstanding for $200,000, plus $20,000 in accrued interest. Although
the predecessor company (CNE) reserved 456,740 shares of its common stock to retire this debt pursuant to a settlement agreement,
the stock could not be issued until the party to whom the note was assigned by its original holder emerged from bankruptcy or reorganization.
In March 2010, the note holder emerged from bankruptcy and the note was settled. During the year ended December 31, 2009,
an additional $30,000 in interest expense was recorded for a total of $50,000 accrued interest outstanding on the note.
|
|
|
(2)
|
On March 31, 2008, the Company received a $150,000 non-interest bearing advance from John Marozzi
(“Marozzi”) which is due on demand. As payment for his services, the Company was to repay the full amount of the note
plus 1,000,000 shares of unregistered restricted common stock. The Company recorded $40,000 of debt issue costs related to the
1,000,000 shares of common stock that were issuable to Marozzi as of March 31, 2008 (See Note 8). On May 5, 2008, Marozzi received
repayment of $50,000 from the Company. On October 13, 2008, the Company received another $50,000 interest bearing advance
from Marozzi. The Company was to repay the full amount of the October 31, 2008 $50,000 note in cash within 60 calendar days
from the date the note was executed plus interest paid in the form of 1,000,000 shares of unregistered Company common stock.
The Company recorded $60,000 of debt issue costs related to the 1,000,000 shares of common stock which were issuable to Marozzi
as of December 31, 2008.
|
On March 5, 2009, the Company
received another $50,000 interest bearing advance from Marozzi. The Company was to repay the full amount of the March 5, 2009
$50,000 note in cash within 60 calendar days from the date the note was executed plus interest paid in the form of 1,000,000 shares
of unregistered Company common stock. This left a balance of $200,000 unpaid principal as of June 30, 2009. On
August 12, 2009, the Company and Marozzi entered into a six month extension for the Senior Note and Purchase Agreement for the
amount of $200,000. The principal amount was payable on February 5, 2010. On April 17, 2009, the Company
received a $12,500 non-interest bearing advance from Marozzi. The Company was to repay the full amount of the April 17, 2009
$ 12,500 note in cash within 60 calendar days from the date the note was executed. On May 8, 2009, the Company received a $ 20,000
non- interest bearing advance from Marozzi. On August 13, 2009, the Company and Marozzi entered into a six month extension
for the Senior Note and Purchase Agreement for the amount of $32,500. The principal amount was payable on February 5, 2010. On
August 7, 2009, the Company received a $33,000 non-interest bearing advance from Marozzi. In repayment, the Company was to repay
the full amount of the note in cash within 60 calendar days from the date the note was executed. On November 5, 2009, the Company
entered into a thirty day loan extension agreement with Marozzi for the $33,000 loan to the Company. The principal amount and interest
was payable on December 5, 2009. This left a total balance of $265,500 of unpaid principal as of December 31, 2009 which was in
default.
On March 3, 2010, the Company
received an $110,000 interest bearing advance from Marozzi. The Company was to pay interest at the interest rate of 10% payable
at the time of repayment due March 3, 2011. As of March 3, 2011, the advance was not repaid by the Company, and is currently in
default. On April 21, 2010, the Company received a $42,000 interest bearing advance from Marozzi. The Company will pay
interest at the interest rate of 10% which shall be payable at the time of repayment due April 21, 2011. The Company
had the option to repay the loan in Company stock at a price based on a 50% discount off the market price, calculated on the average
closing price five days prior to delivery of the stock. On December 14, 2010 the Company agreed to issue 20 million shares
of its common stock in settlement of $217,500 of the older debt instruments owed to Marozzi. The Company recorded a
loss on debt conversion of $1,182,500 in connection with this transaction. This left a total balance of $200,000 of
unpaid principal as of December 31, 2010.
On April 1, 2011, the Company
executed a loan agreement with Marozzi, whereas Marozzi will provide funding for up to $750,000. When the entire $750,000
has been funded to the Company, the principal amount and accrued interest is due 30 days thereafter. Interest will accrue
at 4% per annum until all principal amounts are repaid. If the entire $750,000 loan is not repaid in 30 days by cash
or stock, the entire unpaid balance will be due and payable on demand at the option of the holder. Of the $750,000 total
commitment, Marozzi had advanced $587,980 through September 30, 2011.
On April 25, 2011, the Company
and its Board of Directors agreed to issue to Marozzi 30,000,000 shares of the Company’s common stock as settlement for the
outstanding principal balance payable to Marozzi of $200,000. The Company’s stock price on April 25, 2011 was
$0.04; therefore, the value of the 30,000,000 issued was $1,200,000, resulting in a loss on debt conversion of $1,000,000 that
has been reflected in the Company’s Statements of Operations during the second quarter of 2011.
On December 19, 2011, the Company
and its Board of Directors agreed to issue to Marozzi 30,000,000 shares of the Company’s common stock as settlement for $200,000
of the $587,980 funded to date by Marozzi. The Company’s stock price on December 19, 2011 was $0.01; therefore,
the value of the 30,000,000 issued was $300,000, resulting in a loss on debt conversion of $100,000 that has been reflected in
the Company’s Statements of Operations during the fourth quarter of 2011. Total loss on debt conversions for the year ended
December 31, 2011 was $1,100,000. The 30,000,000 shares of the Company’s common stock were issued in January 2012, therefore,
the par value was recorded to common stock to be issued at December 31, 2011 and reclassified to issued common stock during the
first quarter of 2012. The balance due to Marrozzi was $387,980 as of December 31, 2012 and 2011, respectively.
Accrued interest due on all
Marozzi related loans was $46,837 and $31,275 as of December 31, 2012 and 2011, respectively.
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(3)
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On April 24, 2008, the Company received a $38,000 non-interest bearing advance from James R. McConnaughy
(“McConnaughy”), which is due on demand. In repayment, the Company was to repay the full amount of the note plus 304,000
shares of the Company’s unregistered restricted common stock. The Company recorded $24,320 in debt issue costs related to
the 304,000 shares of common stock that were issuable to McConnaughy as of December 31, 2008. On December 23, 2008, the Company
received another $15,000 non-interest bearing advance from McConnaughy, which is due on demand. James McConnaughy is a relative
of John E. McConnaughy Jr., a Company Director discussed in Note 7 [3].
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(4)
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On April 24, 2008, the Company received a $38,000 non-interest bearing advance from Christopher
T. Joffe (“Joffe,”) which is due on demand. In repayment, the Company will repay the full amount of the note plus 304,000
shares of the Company’s unregistered restricted common stock. The Company recorded $24,320 in debt issue costs related to
the 304,000 shares of common stock that are issuable to Joffe as of December 31, 2008. On June 13, 2008, the Company received another
$25,000 non-interest bearing advance from Joffe, which is due on demand.
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(5)
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On April 30, 2008, the Company received a $500,000 non-interest bearing advance from Frank Ciolli
(“Ciolli.”) In repayment, the Company promised to pay Ciolli the principal sum of $550,000 on or before October 31,
2008. On October 31, 2008, the Company entered into a 60 day loan extension with Ciolli. In payment, the
Company issued 1,000,000 shares of the Company’s unregistered restricted common stock to Ciolli and 1,000,000 shares of the
Company’s unregistered restricted common stock to Donna Alferi on behalf of Michael Alferi as designated by Ciolli. The
Company recorded $100,000 and $100,000, respectively, in debt issue costs related to the 1,000,000 and 1,000,000, respectively,
of shares of common stock that were issued to Ciolli and Donna Alferi as of December 31, 2008. On January 15, 2009,
the Company entered into the thirty-one day extension from December 31, 2008 for the Convertible Loan Agreement and Convertible
Note with Ciolli for the loan amount of $550,000 dated as of April 30, 2008. The Company issued 500,000 shares of restricted, unregistered
common stock each for Michael Alferi and Ciolli, which resulted in Company debt issue costs of $80,000 as of September
30, 2009. On August 12, 2009, the Company and Ciolli entered into a six month extension for the Senior Note and Purchase
Agreement for the principal sum of $550,000. The principal amount of $550,000 was payable on February 12, 2010 and remains due
at December 31, 2012. The note is currently in default.
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(6)
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On September 10, 2008, the Company received a $100,000 non-interest bearing advance from John Frugone,
which was due on demand. In repayment, the Company will repay the full amount of the note in cash over two years from the date
the note is executed. On February 25, 2009, the Company received a $30,000 non-interest bearing advance from John Frugone,
which is due on demand. In repayment, the Company will repay the full amount of the note in cash over two years from the date the
note is executed. On July 30, 2009, the Company repaid $75,000 to John Frugone as a partial payment on the outstanding
balance. On November 6, 2009, the Company received a $100,000 non-interest bearing advance from John Frugone. The Company will
repay the loan amount in cash over two years from the date the note is executed. This left a balance of $155,000 unpaid
principal as of December 31, 2009. On March 30, 2010, the Company received a $100,000 non-interest bearing advance from John Frugone.
The principal of this loan was due on March 30, 2012. This left an unpaid principal balance of $255,000 as of December 31,
2011 that remains outstanding at December 31, 2012 and is currently in default. John Frugone is a relative of Peter Frugone,
the Company’s CEO and also a Company Director.
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(7)
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On October 13, 2008, the Company received a $50,000 interest bearing advance from Scott Neff (“Neff”). The
Company was to repay the full amount of the note in cash within 60 calendar days from the date the note is executed plus interest
expense paid in the form of 1,000,000 shares of Company common stock. During the period ended December 31, 2008, the
Company recorded $60,000 in debt issue costs related to the 1,000,000 shares of common stock that are issuable to Neff as of December
31, 2008. On August 12, 2009, the Company and Neff entered into a six month extension for the Senior Note and Purchase Agreement
for the principal sum of $50,000. The principal amount was payable on February 5, 2010. This note payable is currently in default.
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(8)
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On June 29, 2009, the Company received a $100,000 interest bearing advance from Cliff Miller (“Miller.”) In
repayment, the Company will repay the full amount of the note in cash not later than July 29, 2009. During the period ended September
30, 2009, the Company recorded $70,000 in debt issue costs related to the 1,000,000 shares of restricted common stock that were
issuable to Miller for interest expense as of July 29, 2009. On July 30, 2009, the Company received a $100,000 interest
bearing advance from Miller. In repayment, the Company was to repay the full amount of the note in cash not later than August 30,
2009. During the period ended September 30, 2009, the Company recorded $60,000 in debt issue costs related to the 1,000,000 shares
of restricted common stock that are issuable to Miller for interest expense as of August 30, 2009. On August 11, 2009,
the Company received a $250,000 interest bearing advance from Miller. In repayment, the Company was to repay the full amount of
the note in cash not later than October 11, 2009. The Company shall pay interest in the form of 10,000,000 shares of the Company’s
restricted stock and a $100,000 cash payment due at maturity. During the year ended December 31, 2009, the Company recorded accrued
interest of $100,000 and debt issue costs of $400,000 for interest expense. On November 11, 2009, the Company entered
into a thirty day loan extension agreement with Miller for the $100,000 loan on June 29, 2009, the $100,000 loan on July 30, 2009
and the $250,000 loan on August 11, 2009. In consideration of the extending the term of the loan, the Company was to issue 2,000,000
shares of the Company’s common stock on January 4, 2010. During the year ended December 31, 2009, the Company
recorded debt issue costs of $60,000 related to the 2,000,000 shares for interest expense. The total unpaid principal
balance of $450,000 is currently in default. For the years ended December 31, 2012 and 2011, the Company incurred and
accrued $1,647,000 and $1,642,500 of default penalty interest expense, respectively, and has accrued cumulative default penalties
of $5,508,000 and $3,861,000, respectively, comprised of accrued interest of $100,000, and accrued cumulative default penalties
of $5,408,000 for the year ended December 31, 2012 and accrued interest of $100,000 and accrued cumulative default penalties of
$3,761,000 for the year ended December 31, 2011.
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(9)
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On June 2, 2009, the Company received a $25,000 10% interest bearing advance from John E. McConnaughy
Jr. For 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.
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(10)
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On July 20, 2009, the Company received a $100,000 interest bearing advance from Greg and Lori Popke
(“Popke.”) In repayment, the Company was to repay the full amount of the note in cash not later than September 19,
2009. During the period ended September 30, 2009, the Company recorded $60,000 in debt issue costs related to the 1,000,000 shares
of restricted common stock that are issuable to Popke for interest expense as of September 19, 2009. On November 12, 2009, the
Company entered into a thirty day loan extension agreement with Popke to extend this $100,000 loan. The principal amount was payable
on December 11, 2009 and the loan is currently in default. For the years ended December 31, 2012 and 2011, the Company
incurred and accrued $366,000 and $365,000 of default penalty interest expense, respectively, and has accrued cumulative default
penalties of $1,198,000 and 832,000, respectively.
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(11)
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During the fiscal year 2007, the Company received a $25,000 non-interest bearing advance from Lawrence
Logan. The advance is due on demand.
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(12)
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On July 19, 2011, the Company received a $30,000 loan that bears 20% interest. Principal
and interest were due in 90 days. The Lender was also given 10 shares of common stock for every $1 loaned, for a total of
300,000 shares. The value of the shares at issuance was $6,000 and has been recorded as interest expense. As
of the December 31, 2012, the Note has not been repaid and is currently in default.
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(13)
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On July 22, 2011, the Company received a $50,000 loan that bears 20% interest. Principal
and interest were due in 90 days. The Lender was also given 10 shares of common stock for every $1 loaned, for a total of
500,000 shares. The shares have not been issued as of December 31, 2012. The value of the shares recorded was $10,000
and has been recorded as interest expense. As of the December 31, 2012, the Note has not been repaid and is currently in
default.
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(14)
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On July 28, 2011, the Company’s CEO received a $45,000 loan on behalf of the Company that
bears 20% interest. Principal and interest were due in 90 days. The Lender was also given 10 shares of common stock
for every $1 loaned, for a total of 450,000 shares. The value of the shares at issuance was $9,000 and has been recorded
as interest expense. As of the December 31, 2012, the Note has not been repaid and is currently in default.
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(15)
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On July 28, 2011, the Company’s CEO received a $75,000 loan on behalf of the Company that
bears 20% interest. Principal and interest were due in 90 days. The Lender was also given 8 shares of common stock
for every $1 loaned, for a total of 600,000 shares. The value of the shares at issuance was $12,000 and has been recorded
as interest expense. As of the December 31, 2012, the Note has not been repaid and is currently in default.
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(16)
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The total accrued interest for the loans listed above for items #12-#15 above at 20% was $57,012
and $16,902 for the years ended December 31, 2012 and 2011, respectively. These amounts are expected to be paid in cash.
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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 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 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:
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•
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Significant inability to achieve expected projected future operating results;
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•
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Significant changes in the manner in which the work is able to be performed what increases costs;
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•
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Significant negative impact on the environment.
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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.
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 has reached the conclusion that the marketing and distribution agreement has
no value. Therefore, the Company has 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.
ARROW RESOURCES DEVELOPMENT, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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) $1,000,000 per
annum (subject to increases in subsequent years) for executive services, and c) a one-time fee of $150,000 for execution of the
proposed transaction which was incurred in 2005. The term of the agreement was for five years. On May 18th, 2011 the
agreement was extended through December 31st, 2016, and will follow the terms of the original agreement, and is automatically
renewable thereafter unless notice by both parties are sent within 120 days prior to the end of said agreement.
As of December 31, 2012 and December 31,
2011, the Company had short-term borrowings of $16,333,022 and $11,632,478, respectively, due to Empire, consisting of cash advances
to the Company and working capital raised by Empire, as agent, on behalf of the Company. These amounts are non-interest bearing
and due on demand.
Peter Frugone is a member of the Board
of Directors of the Company and is the owner of Empire. Empire, as agent, was the holder of the $125 million senior secured note
payable settled in December 2005.
Management fees incurred by Empire charged
to the Statement of Operations for the years ended December 31, 2012 and 2011 were $4,651,524 and $3,807,678, respectively.
During the year ended December 31, 2012,
the Company also incurred Director’s compensation expense of $55,000 to Mr. Frugone, consisting of cash compensation of $50,000
and stock based compensation of $5,000 based upon the Company’s share trading price on the date of the grant. During the
year ended December 31, 2011, the Company incurred Director’s compensation expense of $55,000 to Mr. Frugone, consisting
of cash compensation of $50,000 and stock based compensation of $5,000 based upon the Company’s share trading price on the
date of the grant. During the year ended December 31, 2010, the Company incurred Director’s compensation expense of $67,500
to Mr. Frugone, consisting of cash compensation of $50,000 and stock based compensation of $17,500 based upon the Company’s
share trading price on the date of the grant. During the year ended December 31, 2009, the Company 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. At December 31, 2012 the Company is obligated
to issue 1,500,000 company shares to him, and “Accounts payable and accrued liabilities” includes $300,000 due to him
for the cash based portion of his 2012, 2011, 2010, 2009, 2008 and 2007 director’s compensation (See Note 7[4]).
During the years ended December 31, 2012
and 2011, the Company made cash payments of $195 and $696,862, respectively, to Empire under the agreement.
[2]
Engagement and Consulting Agreements
entered into with individuals affiliated with Arrow PNG:
Consulting fees and services charged in
the Statement of Operations for the years ended December 31, 2012 and December 31, 2011 incurred to Hans Karundeng and Rudolph
Karundeng under Engagement and Consulting Agreements totaled $1,500,000 and $1,500,000, respectively. In addition, as of December
31, 2012 and 2011 the Company owed them a total of $10,739,291 and $9,189,291, respectively. These agreements are discussed in
detail in Note 11.
During the year ended December 31, 2012,
the Company also incurred Director’s compensation expense of $55,000 to Rudolph Karundeng, consisting of cash compensation
of $50,000 and stock based compensation of $5,000 based upon the Company’s share trading price on the date of the grant.
During the year ended December 31, 2011, the Company incurred Director’s compensation expense of $55,000 to Rudolph Karundeng,
consisting of cash compensation of $50,000 and stock based compensation of $5,000 based upon the Company’s share trading
price on the date of the grant. During the year ended December 31, 2010, the Company incurred Director’s compensation expense
$67,500 to Rudolph Karundeng, consisting of cash compensation of $50,000 and stock based compensation of $17,500 based upon the
Company’s share trading price on the date of the grant. During the year ended December 31, 2009, the Company incurred Director’s
compensation expense $58,750 to Rudolph Karundeng, 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. At December 31, 2012 the Company is obligated to issue
1,500,000 company shares to him, and “Accounts payable and accrued liabilities” includes $300,000 due to him for the
cash based portion of his 2012, 2011, 2010, 2009, 2008 and 2007 director’s compensation (See Note 7[4]).
On May 18, 2011 the engagement and consulting
agreements with Hans Karundeng and Rudolph Karundeng (See Note 10) were extended through December 31, 2016, and will follow
the terms of the original agreements, and is automatically renewable thereafter unless notice by both parties are sent within 120
days prior to the end of said agreements.
ARROW RESOURCES DEVELOPMENT, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - RELATED PARTY TRANSACTIONS (CONTINUED)
[3]
Non-Interest Bearing 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. This note was repaid
in October 2006. Also, in October 2006, the Company received an additional $200,000 non-interest bearing advance from
Mr. McConnaughy, Jr. which was also due on demand. Of this amount, $25,000 was repaid in March 2007 and $88,000 in April
and May 2008, leaving a balance due of $87,000 on this note. 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 $50,000
non-interest bearing advance from John E. McConnaughy, Jr, which is due on demand. In November 2008, the Company received $10,000
non-interest bearing advance from John E. McConnaughy, Jr, which is due on demand. In December 2008, the Company received $5,000
non-interest bearing advance from John E. McConnaughy, Jr, which is due on demand. On January 15, 2009, the Company received a
$5,000 non-interest bearing advance from John E. McConnaughy Jr. In repayment, the Company will repay the full amount of the note
in cash over two years from the date the note is executed. On January 27, 2009, the Company repaid $5,000 to John E. McConnaughy,
Jr against the outstanding balance owed to him. On September 28, 2009, John E. McConnaughy, Jr. converted $9,000 of
non-interest bearing advance owed to him by the Company into 180,000 shares of restricted, unregistered common stock at $0.05 per
share into the name of Roberta Konrad. On September 28, 2009, John E. McConnaughy, Jr. converted $30,000 of non-interest bearing
advance owed to him by the Company into 600,000 shares of restricted, unregistered common stock at $0.05 per share into the name
of Jacqueline Rowen. As of December 31, 2009, John E. McConnaughy III assigned a $12,000 advance to John McConnaughy,
Jr. As of December 31, 2012 and 2011, the Company had $1,955,000 and $1,955,000, respectively, left to
be repaid to Mr. John McConnaughy, Jr. 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. 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. As of December 31, 2012, the outstanding principal and accrued interest of $2,500 has been included in
“Notes Payable”.
During the year ended December 31, 2012,
the Company also incurred Director’s compensation expense $55,000 to Mr. McConnaughy, consisting of cash compensation of
$50,000 and stock based compensation of $5,000 based upon the Company’s share trading price on the date of the grant. During
the year ended December 31, 2011, the Company incurred Director’s compensation expense $55,000 to Mr. McConnaughy, consisting
of cash compensation of $50,000 and stock based compensation of $5,000 based upon the Company’s share trading price on the
date of the grant. During the year ended December 31, 2010, the Company incurred Director’s compensation expense $67,500
to Mr. McConnaughy, consisting of cash compensation of $50,000 and stock based compensation of $17,500 based upon the Company’s
share trading price on the date of the grant. During the year ended December 31, 2009, the Company incurred Director’s
compensation expense $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 the grant. At December 31, 2012 the Company is obligated
to issue 1,500,000 company shares to him, and “Accounts payable and accrued liabilities” includes $300,000 due to him
for the cash based portion of his 2012, 2011, 2010, 2009, 2008 and 2007 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 December 31, 2012 and December 31, 2011, none of the shares under this plan have been issued
and the Company has an accrued liability of $1,050,137 and $900,137, respectively, of cash-based compensation and recorded additional
paid-in capital through those dates of $255,017 and $240,025, respectively, for stock-based compensation based on the fair value
of 5,250,685 and 4,500,685 shares to be issued to the members of the Board, respectively.
ARROW RESOURCES DEVELOPMENT, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - STOCKHOLDER’S 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. (See Note 10 [5] - Stock Purchase Agreement.)
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
December 31, 2012, 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 December 31, 2012 and December 31, 2011, none of the shares under this plan have been issued
and the Company has an accrued liability of $1,050,137 and $900,137, respectively, of cash-based compensation and recorded additional
paid-in capital through those dates of $255,017 and $240,025, respectively, for stock-based compensation based on the fair value
of 5,250,685 and 4,500,685 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 was 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 December 31, 2012, none of these
shares have been issued to Charles A. Moskowitz.
ARROW RESOURCES DEVELOPMENT, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - STOCKHOLDER’S EQUITY (CONTINUED)
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 consulting fees and services related to the issuance of the 1,000,000 shares of common stock
as of December 31, 2008.
On March 15, 2008, the Company and Seapotter
Corporation (“Seapotter”) executed a Consulting Agreement wherein Seapotter would provide information technology support
from March 15, 2008 to July 15, 2008 in exchange for $9,000 per month and 250,000 shares of common stock. On April 29,
2008, the Company issued 250,000 shares of unregistered restricted common stock to Charles Potter per the Consulting Agreement
entered into by the Company on March 15, 2008. The Company recorded consulting fees and services of $17,500 related
to the 250,000 shares of common stock that were issued to Seapotter on April 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 will issue a one-time, non-refundable fee of 1,000,000 unrestricted shares of common stock. As of December
31, 2008, the Company has expensed $60,000 for the 1,000,000 shares of common stock that were issued to Ciolli Management
Consulting, Inc. as of December 31, 2008.
On April 30, 2008, the Company received
a $500,000 non-interest bearing advance from Frank Ciolli (“Ciolli.”) In repayment, the Company promised to pay Ciolli
the principal sum of $550,000 on or before October 31, 2008. On October 31, 2008, the Company entered into a 60 day
loan extension with Ciolli. In payment, the Company issued 1,000,000 shares of the Company’s unregistered restricted
common stock to Ciolli and 1,000,000 shares of the Company’s unregistered restricted common stock to Donna Alferi on behalf
of Michael Alferi as designated by Ciolli. The Company recorded $100,000 and $100,000, respectively, in debt issue costs
related to the 1,000,000 and 1,000,000, respectively, of shares of common stock that were issued to Ciolli and Donna Alferi as
of December 31, 2008. On January 15, 2009, the Company entered into the thirty-one day extension from December 31, 2008
for the Convertible Loan Agreement and Convertible Note with Ciolli for the loan amount of $550,000 dated as of April 30, 2008.
The Company issued 500,000 shares of restricted, unregistered common stock each for Michael Alferi and Ciolli, which
resulted in Company debt issue costs of $80,000 as of September 30, 2009. On August 12, 2009, the Company and Ciolli
entered into a six month extension for the Senior Note and Purchase Agreement for the principal sum of $550,000. The principal
amount was payable on February 12, 2010. The note payable balance of $550,000 is currently in default.
On March 31, 2008, the Company received
a $150,000 non-interest bearing advance from John Marozzi (“Marozzi”) which is due on demand. As payment for his services,
the Company was to repay the full amount of the note plus 1,000,000 shares of unregistered restricted common stock. The Company
recorded $40,000 of debt issue costs related to the 1,000,000 shares of common stock that were issuable to Marozzi as of March
31, 2008 (See Note 8). On May 5, 2008, Marozzi received repayment of $50,000 from the Company. On October 13, 2008, the Company
received another $50,000 interest bearing advance from Marozzi. The Company was to repay the full amount of the October
31, 2008 $50,000 note in cash within 60 calendar days from the date the note was executed plus interest paid in the form of
1,000,000 shares of unregistered Company common stock. The Company recorded $60,000 of debt issue costs related to the 1,000,000
shares of common stock which were issuable to Marozzi as of December 31, 2008 (See Note 5).
On March 5, 2009, the Company received
another $50,000 interest bearing advance from Marozzi. The Company was to repay the full amount of the March 5, 2009 $50,000
note in cash within 60 calendar days from the date the note was executed plus interest paid in the form of 1,000,000 shares of
unregistered Company common stock. This left a balance of $200,000 unpaid principal as of June 30, 2009. On
August 12, 2009, the Company and Marozzi entered into a six month extension for the Senior Note and Purchase Agreement for the
amount of $200,000. The principal amount was payable on February 5, 2010. On April 17, 2009, the Company
received a $12,500 non-interest bearing advance from Marozzi. The Company was to repay the full amount of the April 17, 2009
$ 12,500 note in cash within 60 calendar days from the date the note was executed. On May 8, 2009, the Company received a $ 20,000
non- interest bearing advance from Marozzi. On August 13, 2009, the Company and Marozzi entered into a six month extension
for the Senior Note and Purchase Agreement for the amount of $32,500. The principal amount was payable on February 5, 2010. On
August 7, 2009, the Company received a $33,000 non-interest bearing advance from Marozzi. In repayment, the Company was to repay
the full amount of the note in cash within 60 calendar days from the date the note was executed. On November 5, 2009, the Company
entered into a thirty day loan extension agreement with Marozzi for the $33,000 loan to the Company. The principal amount and interest
was payable on December 5, 2009. This left a total balance of $265,500 of unpaid principal as of December 31, 2009 which was in
default.
On March 3, 2010, the Company received
an $110,000 interest bearing advance from Marozzi. The Company was to pay interest at the interest rate of 10% payable at the time
of repayment due March 3, 2011. As of March 3, 2011, the advance was not repaid by the Company, and is currently in default. On
April 21, 2010, the Company received a $42,000 interest bearing advance from Marozzi. The Company will pay interest at the interest
rate of 10% which shall be payable at the time of repayment due April 21, 2011. The Company had the option to repay
the loan in Company stock at a price based on a 50% discount off the market price, calculated on the average closing price five
days prior to delivery of the stock. On December 14, 2010, the Company agreed to issue 20 million shares of its common stock
in settlement of $217,500 of the older debt instruments owed to Marozzi. The Company recorded a loss on debt conversion
of $1,182,500 in connection with this transaction. This left a total balance of $200,000 of unpaid principal as of December
31, 2010.
On April 25, 2011, the Company and its
Board of Directors agreed to issue to Marozzi 30,000,000 shares of the Company’s common stock as settlement for the outstanding
principal balance payable to Marozzi of $200,000. The Company’s stock price on April 25, 2011 was $0.04; therefore,
the value of the 30,000,000 shares to be issued was $1,200,000, resulting in a loss on debt conversion of $1,000,000 to be reflected
in the Company’s Statements of Operations during the second quarter of 2011.
On December 19, 2011, the Company and its
Board of Directors agreed to issue to Marozzi 30,000,000 shares of the Company’s common stock as settlement for $200,000
of the $587,980 funded to date by Marozzi. The Company’s stock price on December 19, 2011 was $0.01; therefore,
the value of the 30,000,000 issued was $300,000, resulting in a loss on debt conversion of $100,000 that has been reflected in
the Company’s Statements of Operations during the fourth quarter of 2011. Total loss on debt conversions for the year ended
December 31, 2011 was $1,100,000. The 30,000,000 shares of the Company’s common stock were issued in January 2012, therefore,
the par value was recorded to common stock to be issued at December 31, 2011 and reclassed to issued common stock during the first
quarter of 2012. The balance due to Marrozzi was $387,980 as of December 31, 2012 and 2011, respectively.
Accrued interest due on all Marozzi related
loans was $46,837 and $31,275 as of December 31, 2012 and 2011, respectively.
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).
ARROW RESOURCES DEVELOPMENT, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - STOCKHOLDER’S EQUITY (CONTINUED)
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).
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 will repay
the full amount of the note plus 96,000 shares of unregistered restricted common stock. The Company recorded $7,680
in debt issue costs related to the 96,000 shares of common stock that are issuable to John E. McConnaughy, III as of December 31,
2008 (See Note 5). As of December 31, 2009, John E. McConnaughy III assigned the $12,000 advance to John McConnaughy,
Jr.
On May 15, 2008, the Board of Directors
approved a private placement offering (the "Offering") approximating $2,000,000 to accredited investors at $1.00 per
share of Series C Convertible Preferred Stock. The Offering will consist of the Company's Series C Convertible Preferred Stock
that will be convertible into our common stock. These securities are not required to be and will not be registered under the Securities
Act of 1933. Shares issued under this placement will not be sold in the United States, absent registration or an applicable exemption
from registration. As of September 30, 2009, the Company received $25,000 from investors towards the fulfillment of
the financing agreement. On November 3, 2009, the 25,000 Series C Convertible Preferred Stock were converted into 500,000
Common shares. As of December 31, 2012 and 2011, 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 December 31, 2012, 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 December 31, 2010, the Company has not yet issued these shares to the Purchaser. On
the date of the purchase, the fair value of these shares was $140,000. During the year ended 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.
This note payable 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.
ARROW RESOURCES DEVELOPMENT, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - STOCKHOLDER’S 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 and 1,000,000, respectively, of
shares of common stock that were issued to Frank Ciolli and Donna Alferi as of December 31, 2008 (See Note 5). 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 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.)
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 (“Miller.”) In repayment, the Company will repay
the full amount of the note in cash not later than July 29, 2009. During the period ended September 30, 2009, the Company recorded
$70,000 in debt issue costs related to the 1,000,000 shares of restricted common stock that were issuable to Miller for interest
expense as of July 29, 2009. On July 30, 2009, the Company received a $100,000 interest bearing advance from Miller.
In repayment, the Company was to repay the full amount of the note in cash not later than August 30, 2009. During the period ended
September 30, 2009, the Company recorded $60,000 in debt issue costs related to the 1,000,000 shares of restricted common stock
that are issuable to Miller for interest expense as of August 30, 2009. On August 11, 2009, the Company received a $250,000
interest bearing advance from Miller. In repayment, the Company was to repay the full amount of the note in cash not later than
October 11, 2009. The Company shall pay interest in the form of 10,000,000 shares of the Company’s restricted stock and a
$100,000 cash payment due at maturity. During the year ended December 31, 2009, the Company recorded accrued interest of $100,000
and debt issue costs of $400,000 for interest expense. On November 11, 2009, the Company entered into a thirty day loan
extension agreement with Miller for the $100,000 loan on June 29, 2009, the $100,000 loan on July 30, 2009 and the $250,000 loan
on August 11, 2009. In consideration of the extending the term of the loan, the Company was to issue 2,000,000 shares of the Company’s
common stock on January 4, 2010. During the year ended December 31, 2009, the Company recorded debt issue costs of $60,000
related to the 2,000,000 shares for interest expense. The total unpaid principal balance of $450,000 is in default. For
the years ended December 31, 2012 and 2011, the Company incurred and accrued $1,647,000 and $1,642,500 of default penalty interest
expense, respectively, and has accrued cumulative default penalties of $5,508,000 and $3,861,000, respectively, comprised of accrued
interest of $100,000, and accrued cumulative default penalties of $5,408,000 for the year ended December 31, 2012 and accrued interest
of $100,000 and accrued cumulative default penalties of $3,761,000 for the year ended December 31, 2011.
On July 20, 2009, the Company received
a $100,000 interest bearing advance from Greg and Lori Popke (“Popke.”) In repayment, the Company was to repay the
full amount of the note in cash not later than September 19, 2009. During the period ended September 30, 2009, the Company recorded
$60,000 in debt issue costs related to the 1,000,000 shares of restricted common stock that are issuable to Popke for interest
expense as of September 19, 2009. On November 12, 2009, the Company entered into a thirty day loan extension agreement with Popke
to extend this $100,000 loan. The principal amount was payable on December 11, 2009 and the loan is currently in default. For
the years ended December 31, 2012 and 2011, the Company incurred and accrued $366,000 and $365,000 of default penalty interest
expense, respectively, and has accrued cumulative default penalties of $1,198,000 and 832,000, respectively.
ARROW RESOURCES DEVELOPMENT, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - STOCKHOLDER’S EQUITY (CONTINUED)
On September 28, 2009, John E. McConnaughy,
Jr. converted $9,000 of non-interest bearing advance owed to him by the Company into 180,000 shares of restricted, unregistered
common stock at $0.05 per share into the name of Roberta Konrad. On September 28, 2009, John E. McConnaughy, Jr. converted $30,000
of non-interest bearing advance owed to him by the Company into 600,000 shares of restricted, unregistered common stock at $0.05
per share into the name of Jacqueline Rowen.
On November 3, 2009, Hans Karundeng converted
$100,000 of non-interest bearing advance owed to him by the Company into 2,000,000 shares of common stock.
On November 3, 2009, Empire converted $100,000
of non-interest bearing advance owed to them by the Company into 2,000,000 shares of common stock.
On May 26, 2011, the Company executed a
subscription agreement with a third party and under that agreement 1,066,667 shares of common stock, par value $.00001, was purchased
for $30,000. The purchased shares were issued in August 2011.
On October 11, 2011, the Company’s
Board of Directors agreed to amend the May 26, 2011 subscription agreement so that 1,237,500 shares of common stock, par value
$.00001 was purchased for $30,000. The par value of the additional 170,833 shares of $1 was recorded to common stock to be issued
at December 31, 2011 and reversed to common stock issued and outstanding at June 30, 2012.
On June 19, 2012, the Company issued a
warrant to a third-party individual to purchase up to 800,000 shares of common stock at $.10 per share for donated consulting services
rendered. The warrant expires one year from issuance. Based on the Black Scholes calculation, the warrant had no value and therefore,
no expense was recorded for the donated services.
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 December 31, 2012, only 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.
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. On
May 18, 2011 the agreement was extended through December 31, 2016, and will follow the terms of the original agreement,
and are automatically renewable thereafter unless notice by both parties are send within 120 days prior to the end of said agreements.
Effective August 1, 2005, the Company entered
into a Consulting Agreement with Rudolph Karundeng for his services as Chairman of the Board of the Company for fees of $1,000,000
per annum. The term of the agreement was five years. On May 18, 2011 the agreement was extended through December 31, 2016,
and will follow the terms of the original agreement, and is automatically renewable thereafter unless notice by both parties are
sent within 120 days prior to the end of said agreement. Rudolph Karundeng is a son of Hans Karundeng. However, on May 1,
2006, the Company accepted the resignation of Rudolph Karundeng as Chairman of the Board, but he continues to be a director of
the Company. Peter Frugone has been elected as Chairman of the Board until his successor is duly qualified and elected. Subsequent
to his resignation, it was agreed that Rudolph Karundeng’s annual salary is to be $500,000 as a director.
During the year ended December 31, 2012,
the Company made no cash payments to Hans Karundeng under his agreement. During the year ended December 31, 2012, the Company
made no cash payments to Rudolph Karundeng under his agreement. During the year ended December 31, 2011, the Company made cash
payments to Hans Karundeng of $20,000 under his agreement. During the year ended December 31, 2011, the Company made no cash
payments to Rudolph Karundeng under his agreement. During the year ended December 31, 2010, the Company made cash payments to Hans
Karundeng of $37,500 under his agreement. During the year ended December 31, 2010, the Company made no cash payments to Rudolph
Karundeng under his agreement. During the year ended December 31, 2009, the Company made cash payments to Hans Karundeng of $122,700
under his agreement. During the year ended December 31, 2009, the Company made no cash payments to Rudolph Karundeng under his
agreement. During the year ended December 31, 2008, the Company made cash payments to Hans Karundeng of $320,000 under his agreement.
During the year ended December 31, 2008, the Company made no cash payments to Rudolph Karundeng under his agreement. During
the year ended December 31, 2007, the Company received additional advances of $100,000 from Hans Karundeng under his agreement
and made cash payments to him of $556,000. During the year ended December 31, 2007, the Company made cash payments of $7,000 to
Rudolph Karundeng under his agreement. During the year ended December 31, 2006, the Company received additional advances of $61,787
from Hans Karundeng under his agreement. During the year ended December 31, 2006, the Company made cash payments of $62,174 to
Rudolph Karundeng under his agreement. During the period from inception (November 15, 2005) to December 31, 2012, the Company made
cash payments to Hans Karundeng and Rudolph Karundeng of $1,125,374 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.
On May 18, 2011 the agreement was extended
through December 31, 2016, and will follow the terms of the original agreement, and is automatically renewable thereafter
unless notice by both parties are sent within 120 days prior to the end of said agreement.
During the year ended December 31, 2012,
the Company made cash payments of $195 to Empire under the agreement. During the year ended December 31, 2011, the Company made
cash payments of $696,862 to Empire under the agreement. During the year ended December 31, 2010, the Company made cash payments
of $276,043 to Empire under the agreement. During the year ended December 31, 2009, the Company made cash payment of $992,570 to
Empire under the agreement. During the year ended December 31, 2008, the Company made cash payments of $1,319,216 to Empire under
the agreement. During the year ended December 31, 2007, the Company made cash payments of $1,140,529 to Empire under the agreement.
During the year ended December 31, 2006, the Company made cash payments of $562,454 to Empire under the agreement. During the period
from inception (November 15, 2005) to December 31, 2005, the Company made cash payments of $364,000 to Empire under this agreement. During
the period from inception (November 15, 2005) to December 31, 2012, the Company made cash payments of $5,351,869 to Empire under
this agreement.
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
The Company was a party to a lawsuit where
the plaintiff is 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 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.
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 December 31, 2012 and 2011, the Company
has accrued $1,456,304 and $1,393,101, including accrued interest of $402,920 and $339,717 respectively, related to this matter.
On December 14, 2005, Empire Advisory received
a $250,000 non-interest bearing advance from Butler Ventures, LLC the proceeds of which were used for the benefit of the Company
and for which the liability was transferred to the Company. In repayment, the Company would repay the full amount of
the note in converted securities and U.S. dollars on the earlier of March 31, 2006, without further notice or demand, or immediate
payment in the event of default. On December 8, 2008, Butler filed a motion for summary judgment in lieu of complaint against Empire
in the Supreme Court of the State of New York for failing to repay the loan on the maturity date. On January 29, 2009, Empire Advisory,
LLC and Butler Ventures, LLC entered into Settlement Agreement and Mutual Release where the parties had agreed to resolve amicable
the amounts due and owing to Butler by issuing to Butler common stock in Empire’s affiliated company, Arrow Resources Development,
Inc. as well as by payment of all attorneys’ fees and expenses accrued to date. Empire Advisor shall cause the Company to
issue to Butler shares of common stock in the Company. Butler agreed to extend until on or prior to March 31, 2009 for performance
of all of Empire’s obligations. In consideration for this extension, Empire Advisor agreed to cause the Company to issue
to Butler an additional 100,000 shares of the Company common stock. The Company defaulted on this extension. On June
17, 2009, Empire Advisory transferred the loan obligations to the Company, and the Company agreed to assume the loan obligations.
On July 14, 2009, the Company issued 9,690,909 shares of common stock to Butler Ventures, LLC with a market value on the date of
issuance of $533,000 in full settlement of the $250,000 note payable. 9,090,909 shares were issued in exchange for a senior note
payable that has been assumed by the Company. 100,000 shares were issued in accordance with the aforementioned extension,
and 500,000 shares were issued to Butler in consideration of Butler’s agreement to forego its remedies related to the aforementioned
default of the extension.
[4]
Consulting/Marketing and Agency
Agreements
On April 4, 2006, the Company entered into
a consulting agreement with Dekornas GMPLH (“Dekornas”) (a nonprofit organization in Indonesia responsible for replanting
of trees in areas that were destroyed by other logging companies) 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 December
31, 2012 , 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 December 31, 2012, 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 in which the Company will provide financial consultancy services to P.T. Eucalyptus
for an annual fee, payable quarterly, equal to 10% of P.T. Eucalyptus’ gross revenue payable commencing upon execution. The
term of the agreement is effective upon execution, shall remain in effect for ninety-nine (99) years and shall not be terminated
until the expiration of at least ten (10) years. As of December 31, 2012, the Company has not recovered any revenue from this agreement.
ARROW RESOURCES DEVELOPMENT, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - COMMITMENTS AND OTHER MATTERS
(CONTINUED)
On February 1, 2008, the Company entered
into Independent Contractor Agreement with Charles A. Moskowitz of MoneyInfo. Inc. to provide consulting services to the Company
in the lumber market development, ethanol market development, and compilation of market prices associated with lumber and ethanol
and development of a database for the ongoing analysis of these markets. The term of this agreement is February 1, 2008 through
July 31, 2008. As payment for the Consultant’s services, the Company will issue 2,600,000 shares of common stock to Charles
A. Moskowitz. The Company recorded consulting fees and services of $208,000 related to the 2,600,000 shares of common stock that
are issuable to Charles A. Moskowitz as of December 31, 2008. As of December 31, 2012, the Company has not recovered any revenue
from this agreement.
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 consulting fees and services related to the issuance of the 1,000,000 shares of common stock
as of December 31, 2008.
On March 15, 2008, the Company and Seapotter
Corporation (“Seapotter”) executed a Consulting Agreement wherein Seapotter would provide information technology support
from March 15, 2008 to July 15, 2008 in exchange for $9,000 per month and 250,000 shares of common stock. On April 29,
2008, the Company issued 250,000 shares of unregistered restricted common stock to Charles Potter per the Consulting Agreement
entered into by the Company on March 15, 2008. The Company recorded consulting fees and services of $17,500 related
to the 250,000 shares of common stock that were issued to Seapotter on April 20, 2008.
On April 30, 2008, the Company entered
into Independent Contractor Agreement with Ciolli Management Consulting, Inc. to provide advisory services in the land development,
construction management, equipment acquisition and project management industries. As payment for the Consultant’s services,
the Company will issue a one-time, non-refundable fee of 1,000,000 unrestricted shares of common stock. As of December
31, 2008, the Company has expensed $60,000 related to the 1,000,000 shares of common stock that are were issued to Ciolli Management
Consulting, Inc. on November 26, 2008.
On September 15, 2008, the Company entered
into a Consulting Agreement with Infrastructure Financial Services, Inc. to assist and advise the Company in obtaining equity financing
up to $5,000,000. As payment for the Consultant’s services, the Company will pay a cash transaction fee of 7%
upon closing of any equity financing the Consultants assist in obtaining.
On November 22, 2010, the Company entered
into a Consulting Agreement with Franco, Inc. to provide market research and analysis services in the lumber and corn markets of
Indonesia and Asia. As payment for the Consultant’s services, the Company paid 6.5 million shares of Company common
stock. As of December 31, 2010, the Company expensed $585,000 related to the market value of the 6.5 million shares
using the Company’s closing market price on November 22, 2010.
[5]
(a) Stock Purchase Agreement
On August 2, 2006, the Company entered
into a stock purchase agreement with APR wherein APR agreed to purchase up to an aggregate amount of 15,000,000 shares of common
stock in the Company for $1.00 per share, making this a capital contribution of $15,000,000 in total. The stock will be delivered
at the time the Company files for registration. APR is currently the principal shareholder of the Company, owning 352,422,778 shares
or 52%. As of December 31, 2009, the Company has received $1,540,000 from APR towards the fulfillment of this agreement. As
of December 31, 2012, the Company has received no additional funds.
On January 15, 2009, the Company entered
into a stock purchase agreement with APR wherein APR agreed to purchase up to an aggregate amount of 15,000,000 shares of common
stock in the Company for $.10 per share. On January 15, 2009, the Company received $85,000 from Hans Karundeng and Arrow
Pacific Resources Group Limited for the purchase of 850,000 shares of common stock at $.10 per share pursuant to the APR to purchase
up to an aggregate amount of 15,000,000 shares of common stock in the Company for $.10 per share. On January 20, 2009,
the Company received $165,000 from Hans Karundeng and Arrow Pacific Resources Group Limited for the purchase of 1,650,000 shares
of common stock at $.10 per share pursuant to the APR to purchase up to an aggregate amount of 15,000,000 shares of common stock
in the Company for $.10 per share.
ARROW RESOURCES DEVELOPMENT, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - COMMITMENTS AND OTHER MATTERS
(CONTINUED)
(b) Private Placement Offering- Series
A Convertible Preferred Stock
On November 20, 2007, the Board of Directors
approved a private placement offering (the "Offering") approximating $2,000,000 to accredited investors at $1.00 per
share of Series A Convertible Preferred Stock. The Offering was to 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 and will not be sold in the United States.. 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 absent registration or an applicable exemption
from registration. On January 31, 2008, the Board of Directors approved an extension of the private placement offering until February
15, 2008, after which the offer was closed. As of September 30, 2009, the Company raised $355,000 from investors under
this financing agreement. On November 3, 2009, the 355,000 Series A Convertible Preferred Stock were converted into
7,100,000 Common shares. As of December 31, 2012 and 2011, there were no Series A Convertible Preferred Stock outstanding.
(c) Private Placement Offering- Series
C Convertible Preferred Stock
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 December 31, 2012 and 2011, there was no Series C Convertible Preferred Stock outstanding.
[6]
Delaware Corporate Status
The Company is delinquent in its filing
and payment of the Delaware Franchise Tax Report and, accordingly, is not in good standing.
At December 31, 2012 and 2011,
the Company has accrued an additional $420 each year for estimated unpaid Delaware franchise taxes. As of
December 31, 2012 accounts and accrued expenses payable includes aggregate estimated unpaid Delaware Franchise taxes of
$187,101.
[7]
5 Year Table of obligations
under [1] and [2] above:
The minimum future obligations for consulting
fees and services under agreements outlined in [1] and [2] are as follows:
|
Years Ending Dec. 31,
|
|
Amounts
|
|
|
2013
|
|
$
|
7,365,076
|
|
|
2014
|
|
|
8,081,346
|
|
|
2015
|
|
|
9,726,682
|
|
|
2016
|
|
|
11,783,352
|
|
|
|
|
|
|
|
|
|
|
$
|
36,956,456
|
|
NOTE 11 - SPIN OFF AGREEMENT
On March 12, 2009, the Company entered into an agreement with
a third party company to reinstate a Letter Agreement dated March 13, 2006 (the “Original Agreement”) and extend time
to close on a contemplated spin-off. Pursuant to the Original Agreement, the Company will incorporate a new 100% owned
Bermudan subsidiary that will be spun out to the Company’s shareholders. The third party company will put assets
into the new subsidiary and assume 90% of the new subsidiary. The third party company paid the Company $250,000 for
anticipated closing and transactional costs in March 2006 pursuant to the Original Agreement. It costs $50,000 to the
Company to reinstate the Letter Agreement and to disclose reinstatement in its public filings by amendment. Therefore, the third
party company paid the Company an additional $25,000 upon acceptance of the agreement and $25,000 on March 30, 2009.
ARROW RESOURCES DEVELOPMENT, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - RESTATEMENT OF CURRENT YEAR’S FINANCIAL
INFORMATION
There were several typographical, punctuation,
numerical transposition and text errors in the Company’s originally filed Form 10-k for the year ended December
31, 2012. The correction of the aforementioned items did not result in a material impact to the consolidated financial
statements. In addition, the amended Form 10-K/A includes an additional $76,045 of expenses recorded in the Statement of
Operations that were brought to the Company’s attention subsequent to the original filing.