SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



FORM 10-Q

(Mark One)



|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------



For the quarterly period ended June 30,
2012



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (No fee required)
|- | ----------------------------------------------------------------------------------------------------------



For the transition period from _________
to



Commission file number l-9224



Arrow Resources Development, Inc.

(Name of Small Business Issuer in Its
Charter)



|DELAWARE                                                       |  | 56-2346563                          
|-------------------------------------------------------------- |  | ------------------------------------
|(State or Other Jurisdiction of Incorporation or Organization) |  | (I.R.S. Employer Identification No.)



Carnegie Hall Tower, 152 W. 57th Street,
27th Floor, New York, NY 10019

(Address of Principal Executive Offices)
(Zip Code)



212-262-2300

(Issuer’s Telephone Number, including
Area Code)



Securities registered under Section 12(b)
of the Exchange Act:



|Title of Each Class               |  | Name of Each Exchange on Which Registered
|--------------------------------- |  | -----------------------------------------
|                                  |  |                                          
|Common stock - par value $0.00001 |  | OTC: Bulletin Board                      



Securities registered under Section 12(g)
of the Exchange Act: None



Check whether the issuer; (1) filed all reports required
to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes   x      No    o



Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act).

Yes  o   No  x



The number of shares outstanding of each of the issuer’s
classes of common equity, as of August 20, 2012 is as follows:



|Class                             |  | Outstanding
|--------------------------------- |  | -----------
|                                  |  |            
|Common stock - par value $0.00001 |  | 767,539,744













ARROW RESOURCES DEVELOPMENT, INC. AND SUBSIDIARIES

(A DEVELOPMENT STAGE COMPANY)

FORM 10-Q



TABLE OF CONTENTS



|PART I - FINANCIAL INFORMATION |  |                                                                                                                                                                                                                                                                         
|------------------------------ |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                               |  |                                                                                                                                                                                                                                                                         
|Item 1.                        |  | Financial Statements:                                                                                                                                                                                                                                                   
|                               |  |                                                                                                                                                                                                                                                                         
|                               |  | Consolidated Balance Sheets at June 30, 2012 (Unaudited) and December 31, 2011                                                                                                                                                                                          
|                               |  |                                                                                                                                                                                                                                                                         
|                               |  | Consolidated Statements of Operations for the three and six months ended June 30, 2012 and 2011 (Unaudited), and for the periods from inception (November 15, 2005) to June 30, 2012 (Unaudited)                                                                        
|                               |  |                                                                                                                                                                                                                                                                         
|                               |  | Consolidated Statements of Changes in Stockholders' (Deficit) Equity for the six months ended June 3, 2012 (Unaudited) and for the period from inception (November 14, 2005) to December 31, 2005 and the years ended December 31, 2006, 2007, 2008, 2009, 2010 and 2011
|                               |  |                                                                                                                                                                                                                                                                         
|                               |  | Consolidated Statements of Cash Flows for the six months ended June 30, 2012 (Unaudited) and June 30, 2011 (Unaudited) and for the periods from inception (November 15, 2005) to June 30, 2012 Unaudited)                                                               
|                               |  |                                                                                                                                                                                                                                                                         
|                               |  | Notes to the Consolidated Financial Statements (Unaudited)                                                                                                                                                                                                              
|                               |  |                                                                                                                                                                                                                                                                         
|Item 2.                        |  | Management's Discussion and Analysis of Financial Condition and Results of Operations                                                                                                                                                                                   
|                               |  |                                                                                                                                                                                                                                                                         
|Item 3.                        |  | Quantitative and Qualitative Disclosures About Market Risk                                                                                                                                                                                                              
|                               |  |                                                                                                                                                                                                                                                                         
|Item 4.                        |  | Controls and Procedures                                                                                                                                                                                                                                                 
|                               |  |                                                                                                                                                                                                                                                                         
|PART II - OTHER INFORMATION    |  |                                                                                                                                                                                                                                                                         
|                               |  |                                                                                                                                                                                                                                                                         
|Item 1.                        |  | Legal Proceedings                                                                                                                                                                                                                                                       
|                               |  |                                                                                                                                                                                                                                                                         
|Item 1A.                       |  | Risk Factors                                                                                                                                                                                                                                                            
|                               |  |                                                                                                                                                                                                                                                                         
|Item 2.                        |  | Unregistered Sales of Equity Securities and Use of Proceeds                                                                                                                                                                                                             
|                               |  |                                                                                                                                                                                                                                                                         
|Item 3.                        |  | Defaults Upon Senior Securities                                                                                                                                                                                                                                         
|                               |  |                                                                                                                                                                                                                                                                         
|Item 4.                        |  | Submission of Matters to a Vote of Security Holders                                                                                                                                                                                                                     
|                               |  |                                                                                                                                                                                                                                                                         
|Item 5.                        |  | Other Information                                                                                                                                                                                                                                                       
|                               |  |                                                                                                                                                                                                                                                                         
|Item 6.                        |  | Exhibits                                                                                                                                                                                                                                                                
|                               |  |                                                                                                                                                                                                                                                                         
|Signatures                     |  |                                                                                                                                                                                                                                                                         











Item 1.        Financial
Statements



ARROW RESOURCES DEVELOPMENT, INC. AND SUBSIDIARIES

(A DEVELOPMENT STAGE COMPANY)



Consolidated Balance Sheets (During the Development Stage)



|                                                                                                                                    |  | June 30, 2012 |              |   | December 31, 2011 |  
|----------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | ------------ | - | ----------------- | -
|                                                                                                                                    |  | Unaudited     |              |   |                   |  
|ASSETS                                                                                                                              |  |               |              |   |                   |  
|Current:                                                                                                                            |  |               |              |   |                   |  
|Cash                                                                                                                                |  | $             | 2            |   |                   | $
|                                                                                                                                    |  |               |              |   |                   |  
|Total current assets                                                                                                                |  |               | 2            |   |                   |  
|                                                                                                                                    |  |               |              |   |                   |  
|Total assets                                                                                                                        |  | $             | 2            |   |                   | $
|                                                                                                                                    |  |               |              |   |                   |  
|LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY                                                                                      |  |               |              |   |                   |  
|Current:                                                                                                                            |  |               |              |   |                   |  
|Accounts and accrued expenses payable, including $10,514,291 and $9,689,291 due to Company shareholders and directors, respectively |  |               | 16,884,981   |   |                   | $
|Estimated liability for legal judgment obtained by predecessor entity shareholder                                                   |  |               | 1,424,703    |   |                   |  
|Due to related parties                                                                                                              |  |               | 15,713,188   |   |                   |  
|Notes payable, including accrued interest of $228,360 and $200,677, respectively                                                    |  |               | 2,587,340    |   |                   |  
|                                                                                                                                    |  |               |              |   |                   |  
|Total liabilities                                                                                                                   |  |               | 36,610,212   |   |                   |  
|                                                                                                                                    |  |               |              |   |                   |  
|Commitments and contingencies                                                                                                       |  |               | -            |   |                   |  
|                                                                                                                                    |  |               |              |   |                   |  
|STOCKHOLDERS’ (DEFICIT) EQUITY                                                                                                      |  |               |              |   |                   |  
|Preferred stock, $0.00001 par value, 6 million shares authorized, no shares issued or outstanding, respectively                     |  |               | -            |   |                   |  
|Preferred stock Series A, $0.00001 par value, 2 million shares authorized, no shares issued or outstanding, respectively            |  |               | -            |   |                   |  
|Preferred stock Series C, $0.00001 par value, 2 million shares authorized, no shares issued or outstanding, respectively            |  |               | -            |   |                   |  
|Common stock, $0.00001 par value, 1 billion shares authorized, 767,539,744 and 737,368,911 issued and outstanding, respectively     |  |               | 7,676        |   |                   |  
|Common stock to be issued, $0.00001 par value, 35,179,684 and 64,975,517 shares to be issued, respectively                          |  |               | 353          |   |                   |  
|Additional paid-in capital                                                                                                          |  |               | 131,839,959  |   |                   |  
|Accumulated deficit                                                                                                                 |  |               | (168,458,198 | ) |                   |  
|                                                                                                                                    |  |               |              |   |                   |  
|Total stockholders’ (deficit) equity                                                                                                |  |               | (36,610,210  | ) |                   |  
|                                                                                                                                    |  |               |              |   |                   |  
|Total liabilities and stockholders’ (deficit) equity                                                                                |  | $             | 2            |   |                   | $



See accompanying notes to the unaudited consolidated financial
statements.





1







ARROW RESOURCES DEVELOPMENT, INC. AND SUBSIDIARIES

(A DEVELOPMENT STAGE COMPANY)



Unaudited Consolidated Statements of Operations (During the
Development Stage)



|                                                                                                                                                                                                                   |  | For the Three
    Months Ended June 30, 2012 |             |   | For the Three
    Months Ended June 30, 2011 |   |             | For the Six
    Months Ended June 30, 2012 |  |   | For the Six
    Months Ended June 30, 2011 |   |  | Accumulated During
    the Development Stage for the Period From Inception (November 15, 2005) 
    to June 30, 2012 |            
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | -------------------------------------------- | ----------- | - | -------------------------------------------- | - | ----------- | ------------------------------------------ |  | - | ------------------------------------------ | - |  | -------------------------------------------------------------------------------------------------------------------- | -----------
|                                                                                                                                                                                                                   |  |                                              |             |   |                                              |   |             |                                            |  |   |                                            |   |  |                                                                                                                      |            
|Revenue                                                                                                                                                                                                            |  | $                                            | -           |   |                                              | $ | -           |                                            |  | $ | -                                          |   |  | $                                                                                                                    | -          
|Operating expenses:                                                                                                                                                                                                |  |                                              |             |   |                                              |   |             |                                            |  |   |                                            |   |  |                                                                                                                      |            
|Consulting fees and services, including $1,428,285,
    1,249,952, $2,865,570, 2,462,891 and $29,892,149 incurred to related parties, respectively                                                                 |  |                                              | 1,428,285   |   |                                              |   | 1,249,952   |                                            |  |   | 2,856,570                                  |   |  |                                                                                                                      | 2,462,891  
|General and administrative                                                                                                                                                                                         |  |                                              | 15,266      |   |                                              |   | 18,849      |                                            |  |   | 30,541                                     |   |  |                                                                                                                      | 33,551     
|Directors' compensation                                                                                                                                                                                            |  |                                              | 43,125      |   |                                              |   | 39,375      |                                            |  |   | 82,500                                     |   |  |                                                                                                                      | 82,500     
|Delaware franchise taxes                                                                                                                                                                                           |  |                                              | 105         |   |                                              |   | 105         |                                            |  |   | 210                                        |   |  |                                                                                                                      | 210        
|                                                                                                                                                                                                                   |  |                                              |             |   |                                              |   |             |                                            |  |   |                                            |   |  |                                                                                                                      |            
|Total
    operating expenses                                                                                                                                                                                       |  |                                              | 1,486,781   |   |                                              |   | 1,308,281   |                                            |  |   | 2,969,821                                  |   |  |                                                                                                                      | 2,579,152  
|                                                                                                                                                                                                                   |  |                                              |             |   |                                              |   |             |                                            |  |   |                                            |   |  |                                                                                                                      |            
|Loss from operations during
    the development stage                                                                                                                                                              |  |                                              | (1,486,781  | ) |                                              |   | (1,308,281  | )                                          |  |   | (2,969,821                                 | ) |  |                                                                                                                      | (2,579,152 
|                                                                                                                                                                                                                   |  |                                              |             |   |                                              |   |             |                                            |  |   |                                            |   |  |                                                                                                                      |            
|Other income (expense):                                                                                                                                                                                            |  |                                              |             |   |                                              |   |             |                                            |  |   |                                            |   |  |                                                                                                                      |            
|Income from spin-off                                                                                                                                                                                               |  |                                              | -           |   |                                              |   | -           |                                            |  |   | -                                          |   |  |                                                                                                                      | -          
|Income from forgiveness of debt                                                                                                                                                                                    |  |                                              | -           |   |                                              |   | -           |                                            |  |   | -                                          |   |  |                                                                                                                      | -          
|Gain on write off of liabilities associated
    with predecessor entity not to be paid                                                                                                                             |  |                                              | -           |   |                                              |   | -           |                                            |  |   | -                                          |   |  |                                                                                                                      | -          
|Loss on legal judgment obtained by predecessor
    entity shareholder                                                                                                                                              |  |                                              | (15,801     | ) |                                              |   | (15,801     | )                                          |  |   | (31,602                                    | ) |  |                                                                                                                      | (31,602    
|Penalty for default of notes payable                                                                                                                                                                               |  |                                              | (500,500    | ) |                                              |   | (500,500    | )                                          |  |   | (1,001,000                                 | ) |  |                                                                                                                      | (995,500   
|Loss on write-off of marketing agreement                                                                                                                                                                           |  |                                              | -           |   |                                              |   | -           |                                            |  |   | -                                          |   |  |                                                                                                                      | -          
|Loss on settlement of predecessor entity stockholder
    litigation                                                                                                                                                |  |                                              | -           |   |                                              |   | -           |                                            |  |   | -                                          |   |  |                                                                                                                      | -          
|Loss on debt conversion                                                                                                                                                                                            |  |                                              | -           |   |                                              |   | (1,000,000  | )                                          |  |   | -                                          |   |  |                                                                                                                      | (1,000,000 
|Expenses incurred as part of recapitalization
    transaction                                                                                                                                                      |  |                                              | -           |   |                                              |   | -           |                                            |  |   | -                                          |   |  |                                                                                                                      | -          
|Debt issue costs including interest expense,
    of which none, none, none, none and $1,346,320 is to be satisfied in Company Common Stock and none, none, none, none, and
    $32,000 incurred to related parties |  |                                              | (13,842     | ) |                                              |   | (4,937      | )                                          |  |   | (27,684                                    | ) |  |                                                                                                                      | (7,649     
|                                                                                                                                                                                                                   |  |                                              | (530,143    | ) |                                              |   | (1,521,238  | )                                          |  |   | (1,060,286                                 | ) |  |                                                                                                                      | (2,034,751 
|                                                                                                                                                                                                                   |  |                                              |             |   |                                              |   |             |                                            |  |   |                                            |   |  |                                                                                                                      |            
|Net
    loss                                                                                                                                                                                                       |  | $                                            | (2,016,924  | ) |                                              | $ | (2,829,519  | )                                          |  | $ | (4,030,107                                 | ) |  | $                                                                                                                    | (4,613,903 
|                                                                                                                                                                                                                   |  |                                              |             |   |                                              |   |             |                                            |  |   |                                            |   |  |                                                                                                                      |            
|NET LOSS PER COMMON
    SHARE:                                                                                                                                                                                     |  | $                                            | (0.003      | ) |                                              | $ | (0.004      | )                                          |  | $ | (0.005                                     | ) |  | $                                                                                                                    | (0.006     
|Basic and Diluted                                                                                                                                                                                                  |  |                                              |             |   |                                              |   |             |                                            |  |   |                                            |   |  |                                                                                                                      |            
|                                                                                                                                                                                                                   |  |                                              |             |   |                                              |   |             |                                            |  |   |                                            |   |  |                                                                                                                      |            
|WEIGHTED AVERAGE COMMON SHARES                                                                                                                                                                                     |  |                                              |             |   |                                              |   |             |                                            |  |   |                                            |   |  |                                                                                                                      |            
|OUTSTANDING
    - Basic and Diluted                                                                                                                                                                                |  |                                              | 767,539,744 |   |                                              |   | 731,785,047 |                                            |  |   | 766,634,845                                |   |  |                                                                                                                      | 714,399,758





See accompanying notes to the unaudited
consolidated financial statements.



2







ARROW RESOURCES DEVELOPMENT, INC. AND SUBSIDIARIES

(A DEVELOPMENT STAGE COMPANY)



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



|                                                                                                           |  | Series A Convertible Preferred
    Stock |          |   | Series C Convertible Preferred
    Stock |   |          | Common Stock            |  |  | Common Stock |   |  |                         |         |   |        |  |             |               | 
|---------------------------------------------------------------------------------------------------------- |  | ---------------------------------------- | -------- | - | ---------------------------------------- | - | -------- | ----------------------- |  |  | ------------ | - |  | ----------------------- | ------- | - | ------ |  | ----------- | ------------- | 
|                                                                                                           |  | Shares to be
    issued                  |          |   | Amount                                   |   |          | Shares to be
    issued |  |  | Amount       |   |  | Shares to be
    issued |         |   | Amount |  |             | Shares issued | 
|Balance, November 14, 2005 pursuant to recapitalization
    transaction                                    |  |                                          | —        |   |                                          | $ | —        |                         |  |  | —            |   |  | $                       | —       |   |        |  | —           |               | 
|Common stock conversion and settlement of senior note pursuant to
    recapitalization transaction         |  |                                          | —        |   |                                          |   | —        |                         |  |  | —            |   |  |                         | —       |   |        |  | —           |               | 
|Net loss for the period from November 15, 2005 to December 31,
    2005                                    |  |                                          | —        |   |                                          |   | —        |                         |  |  | —            |   |  |                         | —       |   |        |  | —           |               | 
|Balance, December 31, 2005                                                                                 |  |                                          | -        |   |                                          | $ | -        |                         |  |  | -            |   |  | $                       | -       |   |        |  | -           |               | 
|Common stock to be issued for cash received by Company                                                     |  |                                          | —        |   |                                          |   | —        |                         |  |  | —            |   |  |                         | —       |   |        |  | 985,000     |               | 
|Net loss for the year                                                                                      |  |                                          | —        |   |                                          |   | —        |                         |  |  | —            |   |  |                         | —       |   |        |  | —           |               | 
|Balance, December 31, 2006                                                                                 |  |                                          | -        |   |                                          | $ | -        |                         |  |  | -            |   |  | $                       | -       |   |        |  | 985,000     |               | 
|Common stock to be issued for cash received by Company                                                     |  |                                          | —        |   |                                          |   | —        |                         |  |  | —            |   |  |                         | —       |   |        |  | 500,000     |               | 
|Series A Convertible Preferred Stock to be issued for cash received
    by Company                         |  |                                          | 280,000  |   |                                          |   | 280,000  |                         |  |  | —            |   |  |                         | —       |   |        |  | —           |               | 
|Common stock issued in settlement of predecessor entity stockholder
    litigation                         |  |                                          | —        |   |                                          |   | —        |                         |  |  | —            |   |  |                         | —       |   |        |  | -           |               | 
|Common stock to be issued for directors' compensation                                                      |  |                                          | —        |   |                                          |   | —        |                         |  |  | —            |   |  |                         | —       |   |        |  | 1,000,685   |               | 
|Net loss for the year                                                                                      |  |                                          | —        |   |                                          |   | —        |                         |  |  | —            |   |  |                         | —       |   |        |  | —           |               | 
|Balance, December 31, 2007                                                                                 |  |                                          | 280,000  |   |                                          | $ | 280,000  |                         |  |  | -            |   |  | $                       | -       |   |        |  | 2,485,685   |               | 
|Series A Convertible Preferred Stock to be issued for cash received
    by Company                         |  |                                          | 75,000   |   |                                          |   | 75,000   |                         |  |  | —            |   |  |                         | —       |   |        |  | —           |               | 
|Series C Convertible Preferred Stock to be issued for cash received
    by Company                         |  |                                          | —        |   |                                          |   | —        |                         |  |  | 25,000       |   |  |                         | 25,000  |   |        |  | —           |               | 
|Common Stock issued and to be issued for cash received by Company                                          |  |                                          | —        |   |                                          |   | —        |                         |  |  | —            |   |  |                         | —       |   |        |  | 305,000     |               | 
|Common stock to be issued for directors' compensation                                                      |  |                                          | —        |   |                                          |   | —        |                         |  |  | —            |   |  |                         | —       |   |        |  | 1,000,000   |               | 
|Debt issue costs to be satisfied in Company Common Stock                                                   |  |                                          | —        |   |                                          |   | —        |                         |  |  | —            |   |  |                         | —       |   |        |  | 4,704,000   |               | 
|Common stock to be issued for purchase of common stock                                                     |  |                                          | —        |   |                                          |   | —        |                         |  |  | —            |   |  |                         | —       |   |        |  | 1,000,000   |               | 
|Common stock to be issued for consulting and marketing services                                            |  |                                          | —        |   |                                          |   | —        |                         |  |  | —            |   |  |                         | —       |   |        |  | 2,700,000   |               | 
|Common stock issued for consulting and marketing services                                                  |  |                                          | —        |   |                                          |   | —        |                         |  |  | —            |   |  |                         | —       |   |        |  | —           |               | 
|Net loss for twelve months ended December 31, 2008                                                         |  |                                          | —        |   |                                          |   | —        |                         |  |  | —            |   |  |                         | —       |   |        |  | —           |               | 
|Balance, December 31, 2008                                                                                 |  |                                          | 355,000  |   |                                          | $ | 355,000  |                         |  |  | 25,000       |   |  | $                       | 25,000  |   |        |  | 12,194,685  |               | 
|Series A Convertible Preferred Stock converted into common stock                                           |  |                                          | (355,000 | ) |                                          |   | (355,000 | )                       |  |  | -            |   |  |                         | -       |   |        |  | —           |               | 
|Series C Convertible Preferred Stock converted into common stock                                           |  |                                          | -        |   |                                          |   | -        |                         |  |  | (25,000      | ) |  |                         | (25,000 | ) |        |  | —           |               | 
|Common Stock to be issued for cash received by Company                                                     |  |                                          | —        |   |                                          |   | —        |                         |  |  | —            |   |  |                         | —       |   |        |  | 2,500,000   |               | 
|Common stock to be issued for directors' compensation                                                      |  |                                          | —        |   |                                          |   | —        |                         |  |  | —            |   |  |                         | —       |   |        |  | 1,000,000   |               | 
|Debt issue costs to be satisfied in Company Common Stock                                                   |  |                                          | —        |   |                                          |   | —        |                         |  |  | —            |   |  |                         | —       |   |        |  | 16,000,000  |               | 
|Debt issue costs satisfied in Company Common Stock                                                         |  |                                          | —        |   |                                          |   | —        |                         |  |  | —            |   |  |                         | —       |   |        |  | -           |               | 
|Common stock issued for reset of previous subscription agreement                                           |  |                                          | —        |   |                                          |   | —        |                         |  |  | —            |   |  |                         | —       |   |        |  | —           |               | 
|Common stock to be issued for reset of previous subscription agreement                                     |  |                                          | —        |   |                                          |   | —        |                         |  |  | —            |   |  |                         | —       |   |        |  | 1,109,999   |               | 
|Common stock issued for debt conversion                                                                    |  |                                          | —        |   |                                          |   | —        |                         |  |  | —            |   |  |                         | —       |   |        |  | —           |               | 
|Net loss for the year ended December 31, 2009                                                              |  |                                          | —        |   |                                          |   | —        |                         |  |  | —            |   |  |                         | —       |   |        |  | —           |               | 
|Balance, December 31, 2009                                                                                 |  |                                          | 0        |   |                                          | $ | 0        |                         |  |  | 0            |   |  | $                       | 0       |   |        |  | 32,804,684  |               | 
|Common stock to be issued for directors' compensation                                                      |  |                                          | —        |   |                                          |   | —        |                         |  |  | —            |   |  |                         | —       |   |        |  | 750,000     |               | 
|Common stock issued for consulting services, in lieu of cash payment                                       |  |                                          | —        |   |                                          |   | —        |                         |  |  | —            |   |  |                         | —       |   |        |  | —           |               | 
|Common stock issued for debt conversion                                                                    |  |                                          | —        |   |                                          |   | —        |                         |  |  | —            |   |  |                         | —       |   |        |  | —           |               | 
|Net loss for the year ended December 31, 2010                                                              |  |                                          | —        |   |                                          |   | —        |                         |  |  | —            |   |  |                         | —       |   |        |  | —           |               | 
|Balance, December 31, 2010                                                                                 |  |                                          | -        |   |                                          | $ | -        |                         |  |  | -            |   |  | $                       | -       |   |        |  | 33,554,684  |               | 
|Common stock to be issued for directors' compensation                                                      |  |                                          | —        |   |                                          |   | —        |                         |  |  | —            |   |  |                         | —       |   |        |  | 187,500     |               | 
|Net loss for the three month period ended March 31, 2011                                                   |  |                                          | —        |   |                                          |   | —        |                         |  |  | —            |   |  |                         | —       |   |        |  | —           |               | 
|Balance, March 31, 2011                                                                                    |  |                                          | -        |   |                                          | $ | -        |                         |  |  | -            |   |  | $                       | -       |   |        |  | 33,742,184  |               | 
|Common stock to be issued for directors' compensation                                                      |  |                                          | —        |   |                                          |   | —        |                         |  |  | —            |   |  |                         | —       |   |        |  | 187,500     |               | 
|Common stock issued for debt conversion                                                                    |  |                                          | —        |   |                                          |   | —        |                         |  |  | —            |   |  |                         | —       |   |        |  | —           |               | 
|Subsccription shares of common stock purchased                                                             |  |                                          | —        |   |                                          |   | —        |                         |  |  | —            |   |  |                         | —       |   |        |  | 1,066,667   |               | 
|Net loss for the three month period ended June 30, 2011                                                    |  |                                          | —        |   |                                          |   | —        |                         |  |  | —            |   |  |                         | —       |   |        |  |             |               | 
|Balance, June 30, 2011                                                                                     |  |                                          | -        |   |                                          | $ | -        |                         |  |  | -            |   |  | $                       | -       |   |        |  | 34,996,351  |               | 
|                                                                                                           |  |                                          |          |   |                                          |   |          |                         |  |  |              |   |  |                         |         |   |        |  |             |               | 
|Common stock to be issued for directors' compensation                                                      |  |                                          | —        |   |                                          |   | —        |                         |  |  | —            |   |  |                         | —       |   |        |  | 187,500     |               | 
|Subsccription shares of common stock purchased, issued to investor                                         |  |                                          | —        |   |                                          |   | —        |                         |  |  | —            |   |  |                         | —       |   |        |  | (1,066,667  | )             | 
|Common stock to be issued as interest on loans                                                             |  |                                          | —        |   |                                          |   | —        |                         |  |  | —            |   |  |                         | —       |   |        |  | —           |               | 
|Common stock issued as interest on loans                                                                   |  |                                          | —        |   |                                          |   | —        |                         |  |  | —            |   |  |                         | —       |   |        |  | 500,000     |               | 
|Net loss for the three month period ended September 30, 2011                                               |  |                                          | —        |   |                                          |   | —        |                         |  |  | —            |   |  |                         | —       |   |        |  | —           |               | 
|                                                                                                           |  |                                          |          |   |                                          |   |          |                         |  |  |              |   |  |                         |         |   |        |  |             |               | 
|                                                                                                           |  |                                          |          |   |                                          |   |          |                         |  |  |              |   |  |                         |         |   |        |  |             |               | 
|Balance, September 30, 2011                                                                                |  |                                          | -        |   |                                          | $ | -        |                         |  |  | -            |   |  | $                       | -       |   |        |  | 34,617,184  |               | 
|                                                                                                           |  |                                          |          |   |                                          |   |          |                         |  |  |              |   |  |                         |         |   |        |  |             |               | 
|Common stock to be issued for directors' compensation                                                      |  |                                          | —        |   |                                          |   | —        |                         |  |  | —            |   |  |                         | —       |   |        |  | 187,500     |               | 
|Common stock issued for debt conversion                                                                    |  |                                          | —        |   |                                          |   | —        |                         |  |  | —            |   |  |                         | —       |   |        |  | 30,000,000  |               | 
|Adjustment to subscription agreement purchase of shares                                                    |  |                                          | —        |   |                                          |   | —        |                         |  |  | —            |   |  |                         | —       |   |        |  | 170,833     |               | 
|Net loss for the three month period ended December 31, 2011                                                |  |                                          | —        |   |                                          |   | —        |                         |  |  | —            |   |  |                         | —       |   |        |  | —           |               | 
|                                                                                                           |  |                                          |          |   |                                          |   |          |                         |  |  |              |   |  |                         |         |   |        |  |             |               | 
|Balance, December 31, 2011                                                                                 |  |                                          | -        |   |                                          | $ | -        |                         |  |  | -            |   |  | $                       | -       |   |        |  | 64,975,517  |               | 
|                                                                                                           |  |                                          |          |   |                                          |   |          |                         |  |  |              |   |  |                         |         |   |        |  |             |               | 
|Common stock to be issued for directors' compensation                                                      |  |                                          | —        |   |                                          |   | —        |                         |  |  | —            |   |  |                         | —       |   |        |  | 187,500     |               | 
|Issuance of common stock related to debt conversion                                                        |  |                                          | —        |   |                                          |   | —        |                         |  |  | —            |   |  |                         | —       |   |        |  | (30,000,000 | )             | 
|Issuance of common stock for additional shares related to subscription
    agreement to purchase of shares |  |                                          | —        |   |                                          |   | —        |                         |  |  | —            |   |  |                         | —       |   |        |  | (170,833    | )             | 
|Net loss for the three month period ended March 31, 2012                                                   |  |                                          | —        |   |                                          |   | —        |                         |  |  | —            |   |  |                         | —       |   |        |  | —           |               | 
|                                                                                                           |  |                                          |          |   |                                          |   |          |                         |  |  |              |   |  |                         |         |   |        |  |             |               | 
|Balance, March 31, 2012                                                                                    |  |                                          | -        |   |                                          | $ | -        |                         |  |  | -            |   |  | $                       | -       |   |        |  | 34,992,184  |               | 
|                                                                                                           |  |                                          |          |   |                                          |   |          |                         |  |  |              |   |  |                         |         |   |        |  |             |               | 
|Common stock to be issued for directors' compensation                                                      |  |                                          | —        |   |                                          |   | —        |                         |  |  | —            |   |  |                         | —       |   |        |  | 187,500     |               | 
|Issuance of common stock related to debt conversion                                                        |  |                                          | —        |   |                                          |   | —        |                         |  |  | —            |   |  |                         | —       |   |        |  | —           |               | 
|Issuance of common stock for additional shares related to subscription
    agreement to purchase of shares |  |                                          | —        |   |                                          |   | —        |                         |  |  | —            |   |  |                         | —       |   |        |  | —           |               | 
|Net loss for the three month period ended June 30, 2012                                                    |  |                                          | —        |   |                                          |   | —        |                         |  |  | —            |   |  |                         | —       |   |        |  | —           |               | 
|                                                                                                           |  |                                          |          |   |                                          |   |          |                         |  |  |              |   |  |                         |         |   |        |  |             |               | 
|Balance, June 30, 2012                                                                                     |  |                                          | -        |   |                                          | $ | -        |                         |  |  | -            |   |  | $                       | -       |   |        |  | 35,179,684  |               | 



See accompanying notes to the unaudited
consolidated financial statements.



3







ARROW RESOURCES DEVELOPMENT, INC. AND SUBSIDIARIES

(A DEVELOPMENT STAGE COMPANY)



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



|                                                                                                                          |  | For the Six Months Ended June 30, 2012 |            |   | For the Six Months Ended June 30, 2011 |   |            | Accumulated During the Development Stage for the Period From Inception (November 15, 2005) to June 30, 2012 | 
|------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------------- | ---------- | - | -------------------------------------- | - | ---------- | ----------------------------------------------------------------------------------------------------------- | 
|                                                                                                                          |  |                                        |            |   |                                        |   |            |                                                                                                             | 
|Net loss                                                                                                                  |  | $                                      | (4,030,107 | ) |                                        | $ | (4,613,903 | )                                                                                                           | 
|Adjustments to reconcile net loss to net cash used in operating activities:                                               |  |                                        |            |   |                                        |   |            |                                                                                                             | 
|Net non-cash change in stockholders’ equity due to recapitalization transaction                                           |  |                                        | -          |   |                                        |   | -          |                                                                                                             | 
|Loss on write-off of marketing and distribution agreement                                                                 |  |                                        | -          |   |                                        |   | -          |                                                                                                             | 
|Common stock issued for reset of previous subscription agreement                                                          |  |                                        | -          |   |                                        |   | -          |                                                                                                             | 
|Common stock to be issued for reset of previous subscription agreement                                                    |  |                                        | -          |   |                                        |   | -          |                                                                                                             | 
|Common stock issued for note payable interest                                                                             |  |                                        | -          |   |                                        |   | -          |                                                                                                             | 
|Common stock to be issued for note payable interest                                                                       |  |                                        | -          |   |                                        |   | -          |                                                                                                             | 
|Debt issue costs to be satisfied in Company common stock                                                                  |  |                                        | -          |   |                                        |   | -          |                                                                                                             | 
|Debt issue costs satisfied in Company common stock                                                                        |  |                                        | -          |   |                                        |   | -          |                                                                                                             | 
|Loss on common stock issued for debt conversion                                                                           |  |                                        | -          |   |                                        |   | 1,000,000  |                                                                                                             | 
|Common stock issued for conversion due to related party                                                                   |  |                                        | -          |   |                                        |   | -          |                                                                                                             | 
|Debt issue costs paid in cash                                                                                             |  |                                        | -          |   |                                        |   | -          |                                                                                                             | 
|Common stock issued for marketing services                                                                                |  |                                        | -          |   |                                        |   | -          |                                                                                                             | 
|Common stock to be issued for consulting services                                                                         |  |                                        | -          |   |                                        |   | -          |                                                                                                             | 
|Expense related to common stock issued for consulting services, in lieu of cash                                           |  |                                        | -          |   |                                        |   | -          |                                                                                                             | 
|Stock-based directors' compensation to be issued                                                                          |  |                                        | 7,500      |   |                                        |   | 7,500      |                                                                                                             | 
|Changes in operating asset and liabilities:                                                                               |  |                                        |            |   |                                        |   |            |                                                                                                             | 
|Increase in accounts and accrued expenses payable                                                                         |  |                                        | 1,840,235  |   |                                        |   | 1,800,694  |                                                                                                             | 
|Estimated liability for legal judgment obtained by predecessor entity shareholder                                         |  |                                        | 31,602     |   |                                        |   | 31,602     |                                                                                                             | 
|Net cash used in operating activities                                                                                     |  |                                        | (2,150,770 | ) |                                        |   | (1,774,107 | )                                                                                                           | 
|                                                                                                                          |  |                                        |            |   |                                        |   |            |                                                                                                             | 
|Cash flows from investing activities:                                                                                     |  |                                        |            |   |                                        |   |            |                                                                                                             | 
|Cash acquired as part of merger transaction                                                                               |  |                                        | -          |   |                                        |   | -          |                                                                                                             | 
|Advances to related party                                                                                                 |  |                                        | -          |   |                                        |   | (11,000    | )                                                                                                           | 
|Net cash used in investing activities                                                                                     |  |                                        | -          |   |                                        |   | (11,000    | )                                                                                                           | 
|                                                                                                                          |  |                                        |            |   |                                        |   |            |                                                                                                             | 
|Cash flows from financing activities:                                                                                     |  |                                        |            |   |                                        |   |            |                                                                                                             | 
|Proceeds of issuance of note payable                                                                                      |  |                                        | -          |   |                                        |   | -          |                                                                                                             | 
|Proceeds of loans received from related parties                                                                           |  |                                        | -          |   |                                        |   | 587,980    |                                                                                                             | 
|Repayment towards loan from related party                                                                                 |  |                                        | -          |   |                                        |   | -          |                                                                                                             | 
|Cash proceeds from common stock subscription sale                                                                         |  |                                        | -          |   |                                        |   | 30,000     |                                                                                                             | 
|Net increase in due to related parties attributed to operating expenses paid on the Company’s behalf by the related party |  |                                        | 2,150,710  |   |                                        |   | 1,169,341  |                                                                                                             | 
|Net increase in investments/capital contributed                                                                           |  |                                        | -          |   |                                        |   | -          |                                                                                                             | 
|Advances from senior advisor                                                                                              |  |                                        | -          |   |                                        |   | -          |                                                                                                             | 
|Net cash provided by financing activities                                                                                 |  |                                        | 2,150,710  |   |                                        |   | 1,787,321  |                                                                                                             | 
|                                                                                                                          |  |                                        |            |   |                                        |   |            |                                                                                                             | 
|Net change in cash                                                                                                        |  |                                        | (60        | ) |                                        |   | 2,214      |                                                                                                             | 
|Cash balance at beginning of period                                                                                       |  |                                        | 62         |   |                                        |   | 12         |                                                                                                             | 
|Cash balance at end of period                                                                                             |  | $                                      | 2          |   |                                        |   | 2,226      |                                                                                                             | 
|                                                                                                                          |  |                                        |            |   |                                        |   |            |                                                                                                             | 
|Supplemental disclosures of cash flow information:                                                                        |  |                                        |            |   |                                        |   |            |                                                                                                             | 
|Cash paid during the period for:                                                                                          |  |                                        |            |   |                                        |   |            |                                                                                                             | 
|Income taxes                                                                                                              |  | $                                      | -          |   |                                        | $ | -          |                                                                                                             | 
|Interest expense                                                                                                          |  | $                                      | -          |   |                                        | $ | -          |                                                                                                             | 
|Non-cash investing and financing activities:                                                                              |  |                                        |            |   |                                        |   |            |                                                                                                             | 
|Non-cash purchase of marketing and distribution agreement                                                                 |  | $                                      | -          |   |                                        | $ | -          |                                                                                                             | 
|Settlement of senior note payable through issuance of convertible preferred stock                                         |  | $                                      | -          |   |                                        | $ | -          |                                                                                                             | 
|Non-cash acquisition of accrued expenses in recapitalization                                                              |  | $                                      | -          |   |                                        | $ | -          |                                                                                                             | 
|Non-cash acquisition of notes payable in recapitalization                                                                 |  | $                                      | -          |   |                                        | $ | -          |                                                                                                             | 



See accompanying notes to the unaudited consolidated financial
statements.



4







ARROW RESOURCES DEVELOPMENT, INC. AND SUBSIDIARIES

(A DEVELOPMENT STAGE COMPANY)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



NOTE 1 - NATURE OF BUSINESS / ORGANIZATION



Business Description



Arrow Resources Development, Inc. and Subsidiaries
(“the Company”), was subject to a change of control transaction that was accounted for as a recapitalization of CNE
Group, Inc. (“CNE”) in November 2005. Arrow Resources Development, Ltd., (“Arrow Ltd.”) the Company's wholly-owned
subsidiary, was incorporated in Bermuda in May 2005. Arrow Ltd. provides marketing and distribution services for natural resource.



In April of 2006, Arrow Ltd. entered into
an agency agreement with Arrow Pacific Resources Group Limited (“APR”) that provides marketing and distribution services
for timber resource products and currently has an exclusive marketing and sales agreement with APR to market lumber and related
products from land leased by GMPLH which is operated by APR and its subsidiaries, located in Indonesia. Under the agreement Arrow
Ltd. will receive a commission of 10% of gross sales derived from lumber and related products. The consideration to be paid to
APR will be in the form of a to-be-determined amount of the Company's common stock, subject to the approval of the Board of Directors.



As of December 31, 2005, the Company also
had a wholly-owned subsidiary, Career Engine, Inc. (“Career Engine”) for which operations were discontinued prior to
the recapitalization transaction. The net assets of Career Engine had no value as of December 31, 2005.



NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES



BASIS OF PRESENTATION



Interim Financial Statements



In the opinion of management, the accompanying
consolidated financial statements reflect all adjustments (consisting of normal recurring accruals) necessary to present fairly
the Company's financial position as of June 30, 2012 and the results of its operations, changes in stockholders' (deficit) equity,
and cash flows for the three and six month periods ended June 30, 2012 and 2011,  respectively and for the period from
the commencement of the development stage (November 15, 2005) to June 30, 2012. Although management believes that the disclosures
in these consolidated financial statements are adequate to make the information presented not misleading, certain information and
footnote disclosures normally included in financial statements that have been prepared in accordance with accounting principles
generally accepted in the United States of America have been condensed or omitted pursuant to the rules and regulations of the
Securities Exchange Commission.



The results of operations for the three
and six month periods ended June 30, 2012 are not necessarily indicative of the results that may be expected for the full year
ending December 31, 2012. The accompanying consolidated financial statements should be read in conjunction with the more detailed
consolidated financial statements, and the related footnotes thereto, filed with the Company’s Amended Annual Report on Form
10K for the year ended December 31, 2011 filed on April 16, 2012.



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 $4,030,107 for the six months ended June 30, 2012 and a net loss during
the development stage from inception (November 15, 2005) through June 30, 2012 of $168,458,198. The Company’s operations
are in the development stage, and the Company has not substantially generated any material revenue since inception. The Company’s
existence in the current period has been dependent upon advances from related parties and other individuals, and proceeds from
the issuance of senior notes payable.



5







ARROW RESOURCES DEVELOPMENT, INC. AND SUBSIDIARIES

(A DEVELOPMENT STAGE COMPANY)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED



BASIS OF PRESENTATION CONTINUED



Going-Concern Status continued



One of the principal reasons for the Company’s
substantial doubt regarding its ability to continue as a going concern involves the fact that as of December 31, 2007, the Company’s
principal asset, a marketing and distribution intangible asset in the amount of $125,000,000 was written off as impaired as discussed
in Note 6 due to the fact that environment laws affecting timber harvesting have become more restrictive in Papua New Guinea.



The condensed consolidated financial statements
do not include any adjustments relating to the carrying amounts of recorded assets or the carrying amounts and classification of
recorded liabilities that may be required should the Company be unable to continue as a going concern.



Principles of Consolidation:



The accompanying consolidated financial
statements include the accounts of the Company and its wholly-owned subsidiary, Arrow Ltd. All significant inter-company balances
and transactions have been eliminated.



Development Stage Company:



The accompanying financial statements have
been prepared in accordance with the FASB ASC No. 915,Development Stage Entities.  A development stage enterprise
is one in which planned and principal operations have not commenced or, if its operations have commenced, there has been no significant
revenue there from.  Development-stage companies report cumulative costs from the enterprise’s inception.



Income Taxes:



The Company follows FASB ASC No. 740,Income Taxes. Deferred tax assets or liabilities are recorded to reflect the future tax consequences of temporary differences
between the financial reporting basis of assets and liabilities and their tax basis at each year-end. These amounts are adjusted,
as appropriate, to reflect enacted changes in tax rates expected to be in effect when the temporary differences reverse.



The Company records deferred tax assets
and liabilities based on the differences between the financial statement and tax bases of assets and liabilities and on operating
loss carry forwards using enacted tax rates in effect for the year in which the differences are expected to reverse. A valuation
allowance is provided when it is more likely than not that some portion or all of a deferred tax asset will not be realized.



Fair Value of Financial Instruments:



For financial statement purposes, financial
instruments include cash, accounts and accrued expenses payable, notes payable and amounts due to related parties (as discussed
in Notes 5 and 7) for which the carrying amounts approximated fair value because of their short maturity.



Use of Estimates:



The preparation of consolidated financial
statements in conformity with accounting principles generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.
Actual results may differ from those estimates.



6







ARROW RESOURCES DEVELOPMENT, INC. AND SUBSIDIARIES

(A DEVELOPMENT STAGE COMPANY)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED



Loss Per Share:



The Company complies with the
requirements of the FASB Accounting Standard Codification No 260,Earnings Per Share. ASC 260 specifies the
compilation, presentation and disclosure requirements for earning per share for entities with publicly held common stock or
potentially common stock. Net loss per common share, basic and diluted, is determined by dividing the net loss by the
weighted average number of common shares outstanding.



Net loss per diluted common share does
not include potential common shares derived from stock options and warrants because they are anti-dilutive for the period from
inception (November 15, 2005) to December 31, 2011 and for the period ended June 30, 2012. As of June 30, 2012, there are no dilutive
equity instruments outstanding.



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.
| | -- | -------------------------------------------------



When the Company determines that the carrying
value of intangibles may not be recoverable based upon the existence of one or more of the above indicators of impairment and the
carrying value of the asset cannot be recovered from projected undiscounted cash flows, the Company records an impairment charge.
The Company measures any impairment based on a projected discounted cash flow method using a discount rate determined by management
to be commensurate with the risk inherent in the current business model. Significant management judgment is required in determining
whether an indicator of impairment exists and in projecting cash flows.



The sales and marketing agreement was to
be amortized over 99 years, utilizing the straight-line method. Amortization expense had not been recorded since the acquisition
occurred as the company had not yet made any sales.



The value of the agreement was assessed
to be fully impaired by the Company and it recorded a loss on the write off of the Marketing and Distribution agreement of $125,000,000
at December 31, 2007 (See Note 6).



Consideration of Other Comprehensive Income
Items:



FASB ASC No. 220,Comprehensive Income,
requires companies to present comprehensive income (consisting primarily of net income plus other direct equity changes and credits)
and its components as part of the basic financial statements. For the period from inception (November 15, 2005) to June 30, 2012,
the Company’s consolidated financial statements do not contain any changes in equity that are required to be reported separately
in comprehensive income.



7







ARROW RESOURCES DEVELOPMENT, INC. AND SUBSIDIARIES

(A DEVELOPMENT STAGE COMPANY)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED



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.



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.



NOTE 4 - INCOME TAXES



In August 2005, the Company entered into
an Agreement and Plan of Merger (“the Agreement”) with CNE Group, Inc. (“CNE”). Under the Agreement, the
Company changed its name to Arrow Resources Development, Inc. and divested all operations not related to Arrow Ltd. The transaction
was consummated upon the issuance of the Preferred Stock on November 14, 2005. (See Note 3 for a detailed description of the transaction.)



Consequently, as of November 14, 2005 the
predecessor CNE entity had a net operating loss carryforward available to reduce future taxable income for federal and state income
tax purposes of the successor entity of approximately zero, because those losses arose from the predecessor CNE exiting previous
business lines that had generated operating losses.



For tax purposes, all expenses incurred
by the re-named entity now known as Arrow Resources Development, Inc. after November 14, 2005 have been capitalized as start up
costs in accordance with Internal Revenue Code Section (“IRC”) No. 195. Pursuant to IRC 195, the Company will be able
to deduct these costs by amortizing them over a period of 15 years for tax purposes once the Company commences operations. Accordingly
for tax purposes none of the Company’s post November 14, 2005 losses are as yet reportable in Company income tax returns
to be filed for either the years ended December 31, 2005, 2006, 2007, 2008, 2009, 2010, 2011 or 2012.



8







ARROW RESOURCES DEVELOPMENT, INC. AND SUBSIDIARIES

(A DEVELOPMENT STAGE COMPANY)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



The significant components of the Company’s
deferred tax assets are as follows:



|Net operating loss carryforward                               |  | $ | 186,891 |  
|------------------------------------------------------------- |  | - | ------- | -
|Differences resulting from use of cash basis for tax purposes |  |   | -       |  
|Tax rate                                                      |  |   | 34      | %
|Total deferred tax assets                                     |  |   | 63,543  |  
|Less valuation allowance                                      |  |   | (63,543 | )
|                                                              |  |   |         |  
|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     |  
|June 30, 2032                                                 |  |   | 210     |  
|Net Operating Loss Carryover                                  |  | $ | 186,891 |  



Reconciliation of the differences between the statutory tax
rate and the effective tax rate is:



|                           |  | June 30,  2012 |      
|-------------------------- |  | -------------- | -----
|                           |  |                |      
|Federal statutory tax rate |  |                | 34.0 
|Effective Tax Rate         |  |                | 34.0 
|Valuation Allowance        |  |                | (34.0
|Net Effective Tax Rate     |  |                | 0    



Reconciliation of net loss for income tax purposes to net
loss per financial statement purposes:



|Costs capitalized under IRC Section 195 which will be amortizable over 15 years for tax purposes once the Company commences operations |  | $ | (168,271,307 | )
|-------------------------------------------------------------------------------------------------------------------------------------- |  | - | ------------ | -
|Delaware franchise taxes deductible on Company's tax return                                                                            |  |   | 186,891      |  
|Net loss for the period from inception (November 15, 2005) to June 30, 2012                                                            |  | $ | (168,458,198 | )



9







ARROW RESOURCES DEVELOPMENT, INC. AND SUBSIDIARIES

(A DEVELOPMENT STAGE COMPANY)



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



NOTE 5 - NOTES PAYABLE



As of June 30, 2012 and December 31, 2011, the Company had notes
payable outstanding as follows:



|Holder                       |  | Terms                                                     |  | June 30, 2012 |           |  | December 31, 2011 |  
|---------------------------- |  | --------------------------------------------------------- |  | ------------- | --------- |  | ----------------- | -
|Barry Blank (1)              |  | Due on demand, 10% interest                               |  | $             | 200,000   |  |                   | $
|Accrued interest (1)         |  |                                                           |  |               | 50,000    |  |                   |  
|John Marozzi (2)             |  | Due 30 days after $750,000 funded to company, 4% interest |  |               | 387,980   |  |                   |  
|John Marozzi (2)             |  | Due on demand, non-interest bearing                       |  |               | -         |  |                   |  
|Accrued interest (2)         |  |                                                           |  |               | 39,013    |  |                   |  
|James R. McConnaughy (3)     |  | Due on demand, non-interest bearing                       |  |               | 53,000    |  |                   |  
|Christopher T. Joffe (4)     |  | Due on demand, non-interest bearing                       |  |               | 63,000    |  |                   |  
|Frank Ciolli (5)             |  | Due on demand, non-interest bearing                       |  |               | 550,000   |  |                   |  
|John Frugone (6)             |  | Due on demand, non-interest bearing                       |  |               | 255,000   |  |                   |  
|Scott Neff (7)               |  | Due on demand, non-interest bearing                       |  |               | 50,000    |  |                   |  
|Cliff Miller (8)             |  | Due on 10/11/09, interest bearing                         |  |               | 450,000   |  |                   |  
|Accrued interest (8)         |  |                                                           |  |               | 100,000   |  |                   |  
|John McConnaughy (9)         |  | Due on demand, 10% interest                               |  |               | 25,000    |  |                   |  
|Accrued interest (9)         |  |                                                           |  |               | 2,500     |  |                   |  
|Greg and Lori Popke (10)     |  | Due on 12/11/09                                           |  |               | 100,000   |  |                   |  
|H. Lawrence Logan (11)       |  | Due on demand, non-interest bearing                       |  |               | 25,000    |  |                   |  
|Aaron Hiller (12)            |  | Due October 17, 2011, 20% interest & shares               |  |               | 30,000    |  |                   |  
|Charles Strauss (13)         |  | Due October 20, 2011, 20% interest & shares               |  |               | 50,000    |  |                   |  
|Ferandell Tennis Courts (14) |  | Due October 26, 2011, 20% interest & shares               |  |               | 45,000    |  |                   |  
|Michael Hannegan (15)        |  | Due October 10, 2011, 20% interest & shares               |  |               | 75,000    |  |                   |  
|Accrued interest (16)        |  |                                                           |  |               | 36,847    |  |                   |  
|Total                        |  |                                                           |  | $             | 2,587,340 |  |                   | $



| | (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.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



10







ARROW RESOURCES DEVELOPMENT, INC. AND SUBSIDIARIES

(A DEVELOPMENT STAGE COMPANY)



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



NOTE 5 - NOTES PAYABLE (CONTINUED)



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 shares to be 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 of debt conversions for
the year ended December 31, 2011 was $1,100,000. The above 30,000,000 shares were issued in January 2012. Subsequent to the conversion
of debt, there remains $387,980 of funds due to Marozzi as of December 31, 2011 and June 30, 2012. Accrued interest due on all
Marozzi related loans was $39,013 and $31,275 as of June 30, 2012 and December 31, 2011, respectively.



11







ARROW RESOURCES DEVELOPMENT, INC. AND SUBSIDIARIES

(A DEVELOPMENT STAGE COMPANY)



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



NOTE 5 - NOTES PAYABLE (CONTINUED)



| | (3) | On April 24, 2008, the Company received a $38,000 non-interest bearing advance from James R. McConnaughy (McConnaughy”), which is due on demand. In repayment, the Company was to repay the full amount of the note plus 304,000 shares of the Company’s unregistered restricted common stock. The Company recorded $24,320 in debt issue costs related to the 304,000 shares of common stock that were issuable to McConnaughy as of December 31, 2008. On December 23, 2008, the Company received another $15,000 non-interest bearing advance from McConnaughy, which is due on demand. James McConnaughy is a relative of John E. McConnaughy Jr., a Company Director discussed in Note 7 [3].
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (4) | On April 24, 2008, the Company received a $38,000 non-interest bearing advance from Christopher T. Joffe (Joffe,”) which is due on demand. In repayment, the Company will repay the full amount of the note plus 304,000 shares of the Company’s unregistered restricted common stock. The Company recorded $24,320 in debt issue costs related to the 304,000 shares of common stock that are issuable to Joffe as of December 31, 2008. On June 13, 2008, the Company received another $25,000 non-interest bearing advance from Joffe, which is due on demand.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (5) | On April 30, 2008, the Company received a $500,000 non-interest bearing advance from Frank Ciolli (Ciolli.”) In repayment, the Company promised to pay Ciolli the principal sum of $550,000 on or before October 31, 2008.  On October 31, 2008, the Company entered into a 60 day loan extension with Ciolli.  In payment, the Company issued 1,000,000 shares of the Company’s unregistered restricted common stock to Ciolli and 1,000,000 shares of the Company’s unregistered restricted common stock to Donna Alferi on behalf of Michael Alferi as designated by Ciolli.  The Company recorded $100,000 and $100,000, respectively, in debt issue costs related to the 1,000,000 and 1,000,000, respectively, of shares of common stock that were issued to Ciolli and Donna Alferi as of December 31, 2008.  On January 15, 2009, the Company entered into the thirty-one day extension from December 31, 2008 for the Convertible Loan Agreement and Convertible Note with Ciolli for the loan amount of $550,000 dated as of April 30, 2008. The Company issued 500,000 shares of restricted, unregistered common stock each for Michael Alferi and  Ciolli, which resulted in Company debt issue costs of $80,000 as of September 30, 2009.  On August 12, 2009, the Company and Ciolli entered into a six month extension for the Senior Note and Purchase Agreement for the principal sum of the $550,000. The principal amount was payable on February 12, 2010.  The balance of the $550,000 note payable is currently in default.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | (6) | On September 10, 2008, the Company received a $100,000 non-interest bearing advance from John Frugone, which was due on demand. In repayment, the Company will repay the full amount of the note in cash over two years from the date the note is executed.  On February 25, 2009, the Company received a $30,000 non-interest bearing advance from John Frugone, which is due on demand. In repayment, the Company will repay the full amount of the note in cash over two years from the date the note is executed.   On July 30, 2009, the Company repaid $75,000 to John Frugone as a partial payment on the outstanding balance. On November 6, 2009, the Company received a $100,000 non-interest bearing advance from John Frugone. The Company will repay the loan amount in cash over two years from the date the note is executed.  This left a balance of $155,000 unpaid principal as of December 31, 2009. On March 30, 2010, the Company received a $100,000 non-interest bearing advance from John Frugone. The principal of this loan was due no later than March 30, 2012.  This left a balance of $255,000 unpaid principal as of December 31, 2011 and June 30, 2012 and the note payable is currently in default.  John Frugone is a relative of Peter Frugone, the Company’s CEO and also a Company Director.                                                                                                                                                                                                               



| | (7) | On October 13, 2008, the Company received a $50,000 interest bearing advance from Scott Neff ("Neff”).  The Company was to repay the full amount of the note in cash within 60 calendar days from the date the note is executed plus interest expense paid in the form of 1,000,000 shares of Company common stock.  During the period ended December 31, 2008, the Company recorded $60,000 in debt issue costs related to the 1,000,000 shares of common stock that are issuable to Neff as of December 31, 2008. On August 12, 2009, the Company and Neff entered into a six month extension for the Senior Note and Purchase Agreement for the principal sum of $50,000. The principal amount was payable on February 5, 2010. This note payable is currently in default.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | (8) | On June 29, 2009, the Company received a $100,000 interest bearing advance from Cliff Miller (Miller.”)   In repayment, the Company will repay the full amount of the note in cash not later than July 29, 2009. During the period ended September 30, 2009, the Company recorded $70,000 in debt issue costs related to the 1,000,000 shares of restricted common stock that were issuable to Miller for interest expense as of July 29, 2009.  On July 30, 2009, the Company received a $100,000 interest bearing advance from Miller. In repayment, the Company was to repay the full amount of the note in cash not later than August 30, 2009. During the period ended September 30, 2009, the Company recorded $60,000 in debt issue costs related to the 1,000,000 shares of restricted common stock that are issuable to Miller for interest expense as of August 30, 2009.  On August 11, 2009, the Company received a $250,000 interest bearing advance from Miller. In repayment, the Company was to repay the full amount of the note in cash not later than October 11, 2009. The Company shall pay interest in the form of 10,000,000 shares of the Company’s restricted stock and a $100,000 cash payment due at maturity. During the year ended December 31, 2009, the Company recorded accrued interest of $100,000 and debt issue costs of $400,000 for interest expense.  On November 11, 2009, the Company entered into a thirty day loan extension agreement with Miller for the $100,000 loan on June 29, 2009, the $100,000 loan on July 30, 2009 and the $250,000 loan on August 11, 2009. In consideration of the extending the term of the loan, the Company was to issue 2,000,000 shares of the Company’s common stock on January 4, 2010.  During the year ended December 31, 2009, the Company recorded debt issue costs of $60,000 related to the 2,000,000 shares for interest expense.  The total unpaid principal balance of $450,000 is currently in default.  For the six month period ended June 30, 2012 and the year ended December 31, 2011, the Company incurred and accrued $819,000 and $1,642,500 of default penalty interest expense, respectively, and has accrued cumulative default penalties of $4,680,000 and $3,861,000, respectively, comprised of accrued interest of $100,000, and accrued cumulative default penalties of $4,580,000 for the six months ended June 30, 2012 and accrued interest of $100,000 and accrued cumulative default penalties of $3,761,000 for the year ended December 31, 2011.



12







ARROW RESOURCES DEVELOPMENT, INC. AND SUBSIDIARIES

(A DEVELOPMENT STAGE COMPANY)



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



NOTE 5 - NOTES PAYABLE (CONTINUED)



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



| | (10) | On July 20, 2009, the Company received a $100,000 interest bearing advance from Greg and Lori Popke (Popke.”) In repayment, the Company was to repay the full amount of the note in cash not later than September 19, 2009. During the period ended September 30, 2009, the Company recorded $60,000 in debt issue costs related to the 1,000,000 shares of restricted common stock that are issuable to Popke for interest expense as of September 19, 2009. On November 12, 2009, the Company entered into a thirty day loan extension agreement with Popke to extend this $100,000 loan. The principal amount was payable on December 11, 2009 and the loan is currently in default.   For the six month period ended June 30, 2012 and the year ended December 31, 2011, the Company incurred and accrued $182,000 and $365,000 of default penalty interest expense, respectively, and has accrued cumulative default penalties of $1,014,000 and $832,000, respectively.
| | ---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (11) | During the fiscal year 2007, the Company received a $25,000 non-interest bearing advance from Lawrence Logan.  The advance is due on demand.
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------------



| | (12) | On July 19, 2011, the Company received a $30,000 loan that bears 20% interest.  Principal and interest are due in 90 days.  The Lender was also given 10 shares of common stock for every $1 loaned, for a total of 300,000 shares.  The value of the shares at issuance was $6,000 and has been recorded as interest expense.   As of the June 30, 2012, the Note has not been repaid and is currently in default.
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (13) | On July 22, 2011, the Company received a $50,000 loan that bears 20% interest.  Principal and interest are due in 90 days.  The Lender was also given 10 shares of common stock for every $1 loaned, for a total of 500,000 shares.  The shares were not issued as of September 30, 2011.  The value of the shares recorded was $10,000 and has been recorded as interest expense.  As of the June 30, 2012, the Note has not been repaid and is currently in default.
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (14) | On July 28, 2011, the Company’s CEO received a $45,000 loan on behalf of the Company that bears 20% interest.  Principal and interest are due in 90 days.  The Lender was also given 10 shares of common stock for every $1 loaned, for a total of 450,000 shares.  The value of the shares at issuance was $9,000 and has been recorded as interest expense. As of the June 30, 2012, the Note has not been repaid and is currently in default.
| | ---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (15) | On July 28, 2011, the Company’s CEO received a $75,000 loan on behalf of the Company that bears 20% interest.  Principal and interest are due in 90 days.  The Lender was also given 8 shares of common stock for every $1 loaned, for a total of 600,000 shares.  The value of the shares at issuance was $12,000 and has been recorded as interest expense.  As of the June 30, 2012, the Note has not been repaid and is currently in default.
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (16) | The total interest accrued for the loans listed above for items #12-#15 above at 20%, was $36,847 and $16,902 for the six month period ended June 30, 2012 and the year ended December 31, 2011, respectively.  This amount is expected to be paid in cash.
| | ---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



13







ARROW RESOURCES DEVELOPMENT, INC. AND SUBSIDIARIES

(A DEVELOPMENT STAGE COMPANY)



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



NOTE 6 - IMPAIRMENT OF MARKETING AND DISTRIBUTION AGREEMENT
AND RELATED SENIOR NOTE PAYABLE DUE TO EMPIRE ADVISORY, LLC



As discussed in Note 1, in August 2005, the Company executed
a marketing and distribution agreement with Arrow Pte. This agreement was valued at fair value as determined based on an independent
appraisal, which approximates the market value of 96% of the CNE public stock issued in settlement of the note.



The marketing and distribution agreement
would have been amortized over the remainder of 99 years (the life of the agreement) once the Company commenced sales. As of December
31, 2005, the Company had recorded a $125,000,000 amortizable intangible asset for this agreement and corresponding credits to
common stock and additional paid-in capital in conjunction with the stock settlement of the senior secured note payable to Empire
Advisory, LLC and related cash advances in the same aggregate amount. The senior secured note payable was non-interest bearing
and was repaid in the form of the preferred stock, which was subsequently converted to common stock (See Note 3). Any preferred
stock issued under the senior secured note payable is considered restricted as to the sale thereof under SEC Rule 144 as unregistered
securities.



The Company’s only intangible asset
was comprised of this marketing and distribution agreement with Arrow Pte. In accordance with ASC 350, Goodwill and Other Intangible
Assets” this intangible agreement is tested for impairment on an annual basis. The Company assesses the impairment of identifiable
intangibles and goodwill whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors
the Company considers to be important which could trigger an impairment review include the following:



| | • | Significant inability to achieve expected projected future operating results;
| | - | -----------------------------------------------------------------------------



| | • | Significant changes in the manner in which the work is able to be performed what increases costs;
| | - | -------------------------------------------------------------------------------------------------



| | • | Significant negative impact on the environment.
| | - | -----------------------------------------------



We perform goodwill impairment tests on
an annual basis and on an interim basis if an event or circumstance indicates that it is more likely than not that impairment has
occurred. We assess the impairment of other amortizable intangible assets and long-lived assets whenever events or changes in circumstances
indicate that the carrying value may not be recoverable. Factors we consider important that could trigger an impairment review
include significant underperformance to historical or projected operating results, substantial changes in our business strategy
and significant negative industry or economic trends.



The World Bank and World Wildlife Federation
have adopted forest management guidelines to ensure economic, social and environmental benefits from timber and non-timber products
and the environmental services provided by forests. Most countries, including Indonesia as of 2007, have adopted these guidelines
as law in order to promote economical development while combating the ongoing crisis of worldwide deforestation.



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.



14







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 June 30, 2012 and December 31, 2011,
the Company had short-term borrowings of $13,783,188 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 consulting fees and services
incurred by Empire charged to the Statement of Operations for the six months ended June 30, 2012 and 2011 were $2,856,570 and $2,462,891,
respectively.



During the six months ended June 30, 2012,
the Company also incurred Director’s compensation expense of $27,500 to Mr. Frugone, consisting of cash compensation of $25,000
and stock based compensation of $2,500 based upon the Company’s share trading price on the date of the grant. During the
six months ended June 30, 2011, the Company also incurred Director’s compensation expense of $27,500 to Mr. Frugone, consisting
of cash compensation of $25,000 and stock based compensation of $2,500 based upon the Company’s share trading price on the
date of the grant.  At June 30, 2012 the Company is obligated to issue 1,375,000 company shares to him, and Accounts
payable and accrued liabilities” includes $275,000 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 six months ended June 30, 2012
and 2011, the Company made cash payments of $195 and $616,564 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 six months ended June 30, 2012 and 2011 incurred to Hans Karundeng and Rudolph Karundeng
under Engagement and Consulting Agreements totaled $750,000 and $750,000, respectively. In addition, as of June 30, 2012 and December
31, 2011 the Company owed them a total of $9,964,291 and $9,189,291, respectively. These agreements are discussed in detail in
Note 11.



During the six months ended June 30, 2012,
the Company also incurred Director’s compensation expense of $27,500 to Rudolph Karundeng, consisting of cash compensation
of $25,000 and stock based compensation of $2,500 based upon the Company’s share trading price on the date of the grant.
During the six months ended June 30, 2011, the Company also incurred Director’s compensation expense of $27,500 to Rudolph
Karundeng, consisting of cash compensation of $25,000 and stock based compensation of $2,500 based upon the Company’s share
trading price on the date of the grant At June 30, 2012 the Company is obligated to issue 1,375,000 company shares to him, and
Accounts payable and accrued liabilities” includes $275,000 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 18th, 2011 the engagement and consulting
agreements with Hans Karundeng and Rudolph Karundeng (See Note 10) were extended through December 31st, 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.



15







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 June 30, 2012 and December 31, 2011, the Company had $1,955,000 and $1,955,000, respectively, left to be repaid
to Mr. McConnaughy, which is included in Due to Related Parties.”



On June 2, 2009, the Company received a
$25,000 10% interest bearing advance from John E. McConnaughy Jr. In repayment, the Company will repay the full amount of the note
and accrued interest in cash by September 1, 2009. As of December 31, 2010, the outstanding principal and accrued interest of $2,500
has been included in Notes Payable”. On November 5, 2009, the Company entered into a thirty day loan extension agreement
with John E. McConnaughy Jr. for this $25,000 loan. The principal amount and interest was payable on December 5, 2009. This note
is currently in default.



During the six months ended June 30, 2012,
the Company also incurred Director’s compensation expense of $27,500 to John. McConnaughy, consisting of cash compensation
of $25,000 and stock based compensation of $2,500 based upon the Company’s share trading price on the date of the grant.
During the six months ended June 30, 2011, the Company also incurred Director’s compensation expense of $27,500 to John McConnaughy,
consisting of cash compensation of $25,000 and stock based compensation of $2,500 based upon the Company’s share trading
price on the date of the grant.  At June 30, 2012 the Company is obligated to issue 1,375,000 company shares to him,
and Accounts payable and accrued liabilities” includes $275,000 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 June 30, 2012 and December 31, 2011, none of the shares under this plan have been issued and
the Company has an accrued liability of $975,137 and $900,137, respectively, of cash-based compensation and recorded additional
paid-in capital through those dates of $247,521 and $240,025, respectively, for stock-based compensation based on the fair value
of 4,875,685 and 4,500,685 shares to be issued to the members of the Board, respectively.



16







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
June 30, 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 June 30, 2012 and December 31, 2011, none of the shares under this plan have been issued and
the Company has an accrued liability of $975,137 and $900,137, respectively, of cash-based compensation and recorded additional
paid-in capital through those dates of $247,521 and $240,025, respectively, for stock-based compensation based on the fair value
of 4,875,685 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 June 30, 2012, none of these shares
have been issued to Charles A. Moskowitz.



17







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 balance of the $550,000 note payable 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 shares to be 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 of debt conversions for
the year ended December 31, 2011 was $1,100,000. The above 30,000,000 shares were issued in January 2012. Subsequent to the conversion
of debt, there remains $387,980 of funds due to Marozzi as of December 31, 2011 and June 30, 2012. Accrued interest due on all
Marozzi related loans was $39,013 and $31,275 as of June 30, 2012 and December 31, 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).



18







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 June 30, 2012 and December 31, 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, 2011, 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.



19







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 currently in
default.  For the six month period ended June 30, 2012 and the year ended December 31, 2011, the Company incurred and
accrued $819,000 and $1,642,500 of default penalty interest expense, respectively, and has accrued cumulative default penalties
of $4,680,000 and $3,861,000, respectively, comprised of accrued interest of $100,000, and accrued cumulative default penalties
of $4,580,000 for the six months ended June 30, 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 six month period ended June 30, 2012 and the year ended December 31, 2011, the Company incurred and accrued $182,000 and
$365,000 of default penalty interest expense, respectively, and has accrued cumulative default penalties of $1,014,000 and $832,000,
respectively.



20







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 thirdparty 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 June 30, 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 18th, 2011 the agreement was extended through December 31st, 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 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.  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 would be $500,000 as a director.



During the six months ended June 30, 2012,
the Company made no cash payments to Hans Karundeng under his agreement. During the six months ended June 30, 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 June 30, 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 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.



During the six months ended June 30, 2012,
the Company made $195 in cash payments 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 June 30, 2012, the Company made cash payments of $5,351,869 to Empire under this
agreement.



21







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 June 30, 2012 and December 31, 2011, the
Company has accrued $1,424,703 and $1,393,101, including accrued interest of $371,319 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 June
30, 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 June 30, 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 June 30, 2012, the Company has not recovered any revenue from this agreement.



22







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 June 30, 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 June 30, 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.



23







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 June 30, 2012 and December 31, 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 June 30, 2012 and December 31, 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 June 30, 2012 and December 31, 2011,
the Company has accrued an additional $210 and $420 for estimated unpaid Delaware franchise taxes incurred to date reportable for
the year ended December 31, 2012 and 2011, respectively.   As of June 30, 2012 accounts and accrued expenses payable
includes aggregate estimated unpaid Delaware Franchise taxes of $186,891.



[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:



|Periods ending June 30, |  | Amounts |           
|----------------------- |  | ------- | ----------
|2013                    |  | $       | 6,788,898 
|2014                    |  |         | 7,361,123 
|2015                    |  |         | 8,826,404 
|2016                    |  |         | 10,658,004
|2017                    |  |         | 6,376,740 
|                        |  |         |           
|                        |  | $       | 40,011,169



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



NOTE 11 - SPIN OFF AGREEMENT



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



NOTE 12 - SUBSEQUENT EVENT



The Company has evaluated events through the date that these
financial statements were available to be issued. There are no subsequent events that need to be recorded.



24







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



GENERAL



We are a holding company whose only operating
subsidiary as of June 30, 2012 is Arrow Ltd. The principal business of Arrow is to provide marketing, sales, distribution, corporate
operations and corporate finance services for the commercial exploitation of natural resources around the world. Prior to November
2005, we used to be a telecommunications and recruiting company formally known as CNE Group, Inc. The company elected to shift
its business focus to the worldwide commercial exploitation of natural resources.



ARROW RESOURCES DEVELOPMENT, LTD.



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



On August 1, 2005, Arrow Ltd. entered into
the Marketing Agreement with Arrow Pte. and its subsidiaries in consideration for Arrow issuing a non-interest bearing note (the
“Note”) in the principal amount of $125,000,000 to Empire Advisory, LLC, (“Empire”), acting as agent, due
on or before December 31, 2005. Empire is Arrow Pte.'s merchant banker. The Note permitted the Company, as Arrow's sole stockholder,
to cause Arrow to repay the Note in cash or with 10,000,000 shares of the Company's non-voting Series AAA Preferred Stock. However,
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. (See Note 6.)



On April 4, 2006 Arrow Resource Development
Ltd. (the Company's Bermuda subsidiary) entered into an agency agreement with APR in which the Company will provide financial consultancy
services to APR for an annual fee, payable as collected, equal to 10% of APR's gross revenue payable commencing upon execution.
This agreement provides for the company to collect all revenues from all operations, retain its 10% fee and disperse the remaining
90% to APR and its subsidiaries. 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 June 30, 2012, the Company has recovered
$52,000 of revenue under this agreement.



CRITICAL ACCOUNTING POLICIES AND ESTIMATES



The preparation of financial statements
in accordance with U.S. generally accepted accounting principles requires us to make estimates and assumptions that affect the
reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of net revenue and
expenses during the reporting period. On an ongoing basis, we evaluate our estimates, including those related to our allowance
for doubtful accounts, inventory reserves, and goodwill and purchased intangible asset valuations, and asset impairments. We base
our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances,
the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may
differ from these estimates under different assumptions or conditions. We believe the following critical accounting policies, among
others, affect the significant judgments and estimates we use in the preparation of our consolidated financial statements.



ALLOWANCE FOR DOUBTFUL ACCOUNTS, REVENUE
RECOGNITION



We evaluate the collectability of our accounts
receivable based on a combination of factors. In circumstances where we are aware of a specific customer's inability to meet its
financial obligations to us, we record a specific allowance to reduce the net receivable to the amount we reasonably believe will
be collected. For all other customers, we record allowances for doubtful accounts based on the length of time the receivables are
past due, the prevailing business environment and our historical experience. If the financial condition of our customers were to
deteriorate or if economic conditions were to worsen, additional allowances may be required in the future.



25







We recognize product revenue when persuasive
evidence of an arrangement exists, the sales price is fixed, the service is performed or products are shipped to customers, which
is when title and risk of loss transfers to the customers, and collectability is reasonably assured.



VALUATION OF GOODWILL, PURCHASED INTANGIBLE ASSETS AND LONG-LIVED
ASSETS



The Company’s only intangible asset
was comprised of a marketing and distribution agreement with Arrow Pte. In accordance with FASB Accounting Standard Codification
No 350, Intangibles-Goodwill and Other, this intangible agreement is no longer amortized; instead the intangible is tested for
impairment on an annual basis. The Company assesses the impairment of identifiable intangibles and goodwill whenever events or
changes in circumstances indicate that the carrying value may not be recoverable. Factors the Company considers to be important
which could trigger an impairment review include the following:



| | • | Significant inability to achieve expected projected future operating results;
| | - | -----------------------------------------------------------------------------



| | • | Significant changes in the manner in which the work is able to be performed what increases costs;
| | - | -------------------------------------------------------------------------------------------------



| | • | Significant negative impact on the environment.
| | - | -----------------------------------------------



We perform goodwill impairment tests on
an annual basis and on an interim basis if an event or circumstance indicates that it is more likely than not that impairment has
occurred. We assess the impairment of other amortizable intangible assets and long-lived assets whenever events or changes in circumstances
indicate that the carrying value may not be recoverable. Factors we consider important that could trigger an impairment review
include significant underperformance to historical or projected operating results, substantial changes in our business strategy
and significant negative industry or economic trends. If such indicators are present, we evaluate the fair value of the goodwill.
For other intangible assets and long-lived assets we determine whether the sum of the estimated undiscounted cash flows attributable
to the assets in question is less than their caring value. If less, we recognize an impairment loss based on the excess of the
carrying amount of the assets over their respective fair values.



Fair value of goodwill is determined by
using a valuation model based on market capitalization. Fair value of other intangible assets and long-lived assets is determined
by future cash flows, appraisals or other methods. If the long-lived asset determined to be impaired is to be held and used, we
recognize an impairment charge to the extent the anticipated net cash flows attributable to the asset are less than the asset's
carrying value. The fair value of the long-lived asset then becomes the asset's new carrying value, which we depreciate over the
remaining estimated useful life of the asset.



REVENUES



There was no revenue for the three and
six months ended June 30, 2012 and June 30, 2011 as the Company is in its development stage.



COST OF GOODS SOLD



There was no cost of goods sold for the
three and six months ended June 30, 2012 and June 30, 2011 as the Company is in its development stage.



OPERATING EXPENSES – THREE MONTHS
ENDED JUNE 30, 2012 AND JUNE 30, 2011



Compensation, consulting and related costs
increased to $1,428,285 for the three months ended June 30, 2012 as compared to $1,249,952 for the three months ended June 30,
2011. The increase was mostly due to consulting fees for services provided by the Management Agreement with Empire under which
Empire provides the services of Chief Executive Officer and administrative services to the Company and consulting services provided
by Hans Karundeng and Rudolph Karundeng under Engagement and Consulting Agreements that increases annually by 25%.



General and administrative expenses decreased
to $15,266 for the six months ended June 30, 2012 as compared to $18,849 for the three months ended June 30, 2011.



Directors’ compensation increased
to $43,125 for the three months ended June 30, 2012 compared to $39,375 for the three months ended June 30, 2011. Directors’
compensation is based on the company stock at the end of each reporting period.



Total operating expenses during the development
stage increased to $1,486,781 for the three months ended June 30, 2012 as compared to $1,308,281 for the three months ended June
30, 2011. The increase primarily related to the increased consulting fee charges.



OPERATING EXPENSES – SIX MONTHS
ENDED JUNE 30, 2012 AND JUNE 30, 2011



Compensation, consulting and
related costs increased to $2,856,570 for the six months ended June 30, 2012 as compared to $2,462,891 for the six months
ended June 30, 2011, and was $29,892,149 for the period from inception (November 15, 2005) to June 30, 2012. The increase was
mostly due to consulting fees for services provided by the Management Agreement with Empire under which Empire provides the
services of Chief Executive Officer and administrative services to the Company and consulting services provided by Hans
Karundeng and Rudolph Karundeng under Engagement and Consulting Agreements. Charges under the Management Agreement increase
25% on an annual basis.



General and administrative expenses decreased
to $30,541 for the six months ended June 30, 2012 as compared to $33,551 for the six months ended June 30, 2011, and was $1,144,579 for the period from inception (November 15, 2005) to June 30, 2012.



Directors’ compensation
remained the same at $82,500 for the six months ended June 30, 2012 and 2011, respectively and was $1,222,678 for the period
from inception (November 15, 2005) to June 30, 2012.



Delaware franchise taxes amount was $210
for the six months ended June 30, 2012 and June 30, 2011, $186,891 for the period from inception (November 15, 2005) to June 30,
2012. The Company is delinquent in its filing and payment of the Delaware Franchise Tax report and, accordingly, is not in good
standing. At June 30, 2012, and for the years ended December 31, 2011, 2010, 2009, 2008, 2007, 2006 and 2005 the Company has estimated
unpaid Delaware franchise taxes in the amount of $210, $420, $420, $420, $420, $57,652, $57,650 and $69,699, respectively. The
Company did not file their tax returns on time due to lack of funds available.



26







Total operating expenses during the development
stage increased to $2,969,821 for the six months ended June 30, 2012 as compared to $2,579,159 for the six months ended June 30,
2011, and increased to $32,446,297 for the period from inception (November 15, 2005) to June 30, 2012.



OTHER EXPENSES



On March 31, 2008, the Company received
a $150,000 non-interest bearing advance from John Marozzi, which is due on demand. In repayment, the Company will repay the full
amount of the note plus 1,000,000 shares of unregistered restricted common stock. The Company recorded $40,000 debt issue costs
related to the 1,000,000 shares of common stock that is now issuable to John Marozzi as of March 31, 2008.  On May 5, 2008,
John Marozzi received repayment of $50,000 from the Company. On October 13, 2008, the Company received another $50,000 interest
bearing advance from John Marozzi. The Company was to repay the full amount of the October 31, 2008 $50,000 note in cash within
60 calendar days from the date the note was executed plus interest paid in the form of 1,000,000 shares of unregistered Company
common stock. During the year ended December, 31, 2008, the Company recorded $60,000 of debt issue costs related to the 1,000,000
shares of common stock that were issuable to John Marozzi as of December 31, 2008 (See Note 5). On March 5, 2009, the Company received
another $50,000 interest bearing advance from John Marozzi.  The Company is to repay the full amount of the March 5, 2009,
$50,000 note in cash within 60 calendar days from the date the note was executed plus interest paid in the form of 1,000,000 shares
of unregistered Company common stock.  On April 17, 2009, the Company received a $12,500 non- interest bearing advance from
John Marozzi. The Company is to repay the full amount of the April 17, 2009 $ 12,500 note in cash within 60 calendar days from
the date the note was executed. On May 8, 2009, the Company received a $ 20,000 non- interest bearing advance from John Marozzi.
The Company is to repay the full amount of the May 8, 2009 $ 20,000 note in cash within 30 calendar days from the date the note
was executed. This leaves a balance of $200,000 unpaid principal as of June 30, 2009. On August 12, 2009, the Company and John
Marozzi entered into a six month extension for the Senior Note and Purchase Agreement for the amount of $200,000. The principal
amount was payable on February 5, 2010. On April 17, 2009, the Company received a $12,500 non-interest bearing advance from John
Marozzi. The Company is to repay the full amount of the April 17, 2009 $ 12,500 note in cash within 60 calendar days from the date
the note was executed. On May 8, 2009, the Company received a $ 20,000 non- interest bearing advance from John Marozzi.  The
Company is to repay the full amount of the May 8, 2009 $20,000 note in cash within 30 calendar days from the date the note was
executed. This leaves a balance of $32,500 unpaid principal as of June 30, 2009.  On August 13, 2009, the Company and John
Marozzi entered into a six month extension for the Senior Note and Purchase Agreement for the amount of $32,500. The principal
amount was payable on February 5, 2010. On August 7, 2009, the Company received a $33,000 non-interest bearing advance from John
Marozzi. In repayment, the Company will repay the full amount of the note in cash within 60 calendar days from the date the note
is executed. On November 5, 2009, the Company entered into a thirty day loan extension agreement with John Marozzi for this $33,000
loan to the Company. The principal amount and interest was payable on December 5, 2009.  This left a total unpaid principal
balance of $265,500 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 issued was $1,200,000, resulting in a loss on debt conversion of $1,000,000 recorded 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 shares to be 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 of debt conversions for
the year ended December 31, 2011 was $1,100,000. The above 30,000,000 shares were issued in January 2012. Subsequent to the conversion
of debt, there remains $387,980 of funds due to Marozzi as of December 31, 2011 and June 30, 2012. Accrued interest due on all
Marozzi related loans was $39,013 and $31,275 as of June 30, 2012 and December 31, 2011, respectively.



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. (See Note 6.)



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.



27







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 June 30, 2012 and December 31, 2011, the Company has
accrued $1,424,703 and $1,393,101, including accrued interest of $371,319 and $339,717 respectively, related to this matter.



LIQUIDITY AND CAPITAL RESOURCES



In November 2005, we discontinued and disposed
of our subsidiaries except for Arrow Ltd. in conjunction with the recapitalization of the Company. The Company was recapitalized
by the conversion of $125,000,000 preferred convertible note related to the purchase of the Marketing Agreement. As part of the
recapitalization plan, the Company settled all outstanding debt except for $220,000.



As of June 30, 2012 and December 31, 2011
the Company had $2 and $62 of cash, respectively. We had losses of $4,030,107 and $4,613,903 for the six months ended June 30,
2012 and 2011, respectively, and do not currently generate any revenue. In order for us to survive during the next twelve months
we will need to secure approximately $3 million of debt or equity financing. We expect to raise additional financing in the future
but there can be no guarantee that we will be successful.



OFF-BALANCE SHEET ARRANGEMENTS



At June 30, 2012, we had no off-balance sheet arrangements.



OPERATING ACTIVITIES



We used $2,150,770 of cash in our operating
activities during the six months ended June 30, 2012. We had a net loss of $4,030,107. We incurred stock-based directors’
compensation to be issued of $7,500, an increase in accounts payable and accrued expenses payable of $1,840,235, and an increase
in an estimated liability for legal judgment obtained by predecessor entity shareholder of $31,602. In addition, we had a working
capital deficiency of $36,610,210 at June 30, 2012. We did not have any material commitments for capital expenditures as of June
30, 2012.



We used $1,774,107 of cash in our operating
activities during the six months ended June 30, 2011. We had a net loss of $4,613,903. We had an increase in stock-based directors’
compensation to be issued of $7,500, an increase in accounts payable and accrued expenses payable of $1,800,694, an increase in
an estimated liability for legal judgment obtained by predecessor entity shareholder of $31,602, and a loss on debt conversion
of $1,000,000 for notes payable converted to common stock. In addition, we had a working capital deficiency of $28,729,173 at June
30, 2011. We did not have any material commitments for capital expenditures as of June 30, 2011.



INVESTING ACTIVITIES



During the six months ended June 30, 2012, we did not use or
receive any cash from investing activities. During the six months ended June 30, 2011, we used $11,000 towards payments to a related
party. We used $918,199 cash for the period from inception (November 15, 2005) to June 30, 2012



FINANCING ACTIVITIES



For the six months ended June 30, 2012 the Company's liability
due to related parties increased by $2,150,710, compared to an increase of $1,169,341 for the six months ended June 30, 2011.



On April 1, 2011, the Company executed
a loan agreement with Marozzi, whereas Marozzi will provide funding 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 entire $750,000 loan is not repaid in 30 days by cash or stock, the entire unpaid
balance will be due and payable on demand at the option of the holder.  Of the $750,000 total commitment, Marozzi has advanced
$587,980 through June 30, 2011.



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 not issued till August 2011, and are reflected in the common stock to be issued line on the balance sheet.



INFLATION



We believe that inflation does not significantly impact our
current operations.



28







RECENT TRANSACTIONS



None.



Item 3. Quantitative and Qualitative Disclosures About Market
Risk





Item 4. Controls and Procedures



Evaluation of Disclosure Controls and Procedures



The Company’s Chief Executive Officer
and acting Chief Financial Officer has evaluated the effectiveness of the Company’s disclosure controls and procedures (as
defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the fiscal period ending June 30, 2012 covered by this Quarterly
Report on Form 10-Q. Based upon such evaluation, the Chief Executive Officer and acting Chief Financial Officer has concluded that,
as of the end of such period, the Company’s disclosure controls and procedures were not effective as required under Rules
13a-15(e) and 15d-15(e) under the Exchange Act. The Company is currently in the process of evaluating its options to fix the deficiency
in internal controls.



Management’s Report on Internal Control Over Financial
Reporting



Management is responsible for establishing
and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange
Act) of the Company. Internal control over financial reporting is a process designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting
principles generally accepted in the United States of America.



The Company’s internal control over
financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance
that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles
generally accepted in the United States of America, and that receipts and expenditures of the Company are being made only in accordance
with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect
on the financial statements.



Because of its inherent limitations, internal
control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness
to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.



Management, under the supervision of the
Company’s Chief Executive Officer and acting Chief Financial Officer, conducted an evaluation of the effectiveness of internal
control over financial reporting based on the framework in Internal Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on this evaluation, management concluded that the Company’s internal control
over financial reporting was not effective as of June 30, 2012 under the criteria set forth in the in Internal Control-Integrated
Framework.



A material weakness is a deficiency, or
combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material
misstatement of the Company's annual or interim financial statements will not be prevented or detected on a timely basis. Management
has determined that material weaknesses exist due to a lack of segregation of duties, resulting from the Company's limited resources.



This quarterly report does not include
an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting.
Management’s report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of
the SEC that permit us to provide only management’s report in this Quarterly Report on Form 10-Q.



Changes in Internal Control Over Financial Reporting



No change in the Company’s internal
control over financial reporting occurred during the three month period ended June 30, 2012, that materially affected, or is reasonably
likely to materially affect, the Company’s internal control over financial reporting.



PART II - OTHER INFORMATION



Item 1. Legal Proceedings



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.



29







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 June 30, 2012 and December 31, 2011, the Company has
accrued $1,424,703 and $1,393,101, including accrued interest of $371,319 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 1A. Risk Factors



Item 1A. “Risk Factors” of
our Annual Report on Form 10-K for the year ended December 31, 2011 includes a detailed discussion of our risk factors. There have
been no significant changes to our risk factors as set forth in our 2011 Form 10-K.



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



None.



Item 3. Defaults Upon Senior Securities



None.



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 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 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 June 30,
2012 and December 31, 2011, 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 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 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 June 30, 2012 and December
31, 2011, there was no Series C Convertible Preferred Stock outstanding.



30







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 June 30, 2012 and December 31, 2011, none of the shares under this plan have been issued and
the Company has an accrued liability of $975,137 and $900,137, respectively, of cash-based compensation and recorded additional
paid-in capital through those dates of $247,521 and $240,025, respectively, for stock-based compensation based on the fair value
of 4,875,685 and 4,500,685 shares to be issued to the members of the Board, respectively.



Item 5. Other Information



None



Item 6. Exhibits



Exhibit Index



31.1  Rule 13a-14(a)/15d-14(a) Certification of Chief
Executive Officer



31.2  Rule 13a-14(a)/15d-14(a) Certification of the
Principal Accounting Officer



32.1  Certification Pursuant to 18 U.S.C. §1350
of Chief Executive Officer



32.2  Certification Pursuant to 18 U.S.C. §1350
of the Principal Accounting Officer



31







SIGNATURES



In accordance with Section 13(a) or 15(d)
of the Exchange Act, the registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



|                       | ARROW RESOURCES DEVELOPMENT, INC.
|---------------------- | ---------------------------------
|                       |                                  
|Dated: August 20, 2012 | By:                              
|                       |                                  
|                       |                                  
|                       |                                  
|Dated: August 20, 2012 | By:                              
|                       |                                  
|                       |                                  



32