SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ________ to ________
Commission File No. 33-55254-01
ARROW MANAGEMENT, INC.
(Exact name of Registrant as specified in its charter)
NEVADA 87-0467339
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
3098 SOUTH HIGHLAND DRIVE, SUITE 460
SALT LAKE CITY, UTAH 84106
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (801) 485-7775
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [X] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (ss.229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [X]
As of March, 1999, there is no aggregate market value of the voting stock held
by non-affiliates of the registrant.
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
Class Outstanding as of March, 1999
$.001 PAR VALUE CLASS A COMMON STOCK 5,580,700 SHARES
DOCUMENTS INCORPORATED BY REFERENCE
None
<PAGE>
PART I
ITEM 1. Business.
The Company was incorporated under the laws of Nevada on January 14,
1988. The Company was formed to look for investments, business opportunities and
assets in any industry. Initially the Company determined to acquire assets and
properties in real estate development, specifically the area of Idaho Falls,
Idaho.
In furtherance of its determination to acquire real properties for
development, on September 30, 1993, the Company entered into an agreement with
the principals of Panorama Industries, Inc. ("Panorama") to issue 5,250,700
shares of its common stock to acquire 99.45% of the outstanding stock of
Panorama, an affiliated Nevada corporation, which owned real properties near
Idaho Falls, Idaho and other areas in Idaho. In December, 1996, the Company
determinded that it was unable to complete the acquisition of 460,000 shares of
Panorama stock due to the failure of certain Panorama shareholders to complete
the terms of the acquisition. This reduced the shares of the Company issued to
acquire Panorama to 4,790,700 shares and the Company's ownership of Panorama to
90.73%.
At the time of the above mentioned acquisition, Panorama was a real
estate development company with its principal asset being approximately 300
acres of land located on the outskirts of Idaho Falls, Idaho, platted for 2.5
acre lot sites, which was the minimum allowed by the Bonneville County Planning
and Zoning Commission for subdivisions using septic tanks. Approximately 55 lots
had been sold by the previous owner, AMR Corporation, which filed a Chapter 11
bankruptcy and ceased development of the property for several years. AMR sold
the property to Panorama in 1991 as part of its resolving its bankruptcy
proceedings.
Upon its acquisition of the majority of the Panorama shares, the
Company determined that a significantly different approach to developing the
subdivision, i.e., installation of sewer lines and replatting of smaller lot
sizes, would achieve greater success. Although the Company began the design and
engineering for the changes, in 1996, it determined not to develop the land but
instead to list it for sale. One factor that lead to the change in plans was
the slowdown in economic development and related decrease in consumer demand for
new housing in the Idaho Falls area. The Company also rescinded its agreements
with ITEX Corporation and Haydon, Ives & Neal, Inc. for trade credits for
television advertising and travel which it intended to exchange for goods and
services in developing the land. See notes to financial statements respecting
sales of other real estate and securities. In December, 1997, the Panorama
subdivision was sold for $330,000.00.
At present the Company is still looking for business opportunities in
any industry. Until it finds one that management believes to be appropriate for
the Company, it plans to make various investments as may seem appropriate. For
example, during 1997, the Company loaned $1,000,000 at 8% to Fortune
Thoroughbred Farms, Inc. for the purchase of 960 acres of Southern Idaho
farmland (see Note 5 to the consolidated financial statements).
2
<PAGE>
ITEM 2. Properties.
See "Item 1" above, and also, the Company utilizes space on a rent-free
basis in the office of one of its principal shareholders, Capital General
Corporation. This arrangement is expected to continue until such time as the
Company becomes involved in a business venture which necessitates its relocation
or increased use of the available facilities. The Company has no agreements with
respect to the maintenance or future acquisition of office facilities.
ITEM 3. Legal Proceedings.
There are no pending legal proceedings involving the Company or its
subsidiary.
ITEM 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted to the Company's security holders for a vote
during the fiscal year ending December 31, 1998.
PART II
ITEM 5. Market for Registrant's Common Equity and Related Stockholders Matters.
There currently is not a trading market for the Company's $.001 par
value common stock nor has there been a trading market for the Company's stock
since its inception.
As of March, 1999, there were 425 record holders of the Company's
common stock. The Company has not previously declared or paid any dividends on
its common stock and does not anticipate declaring any dividends in the
foreseeable future.
ITEM 6. Selected Financial Data.
<TABLE>
<CAPTION>
ARROW MANAGEMENT, INC. AND SUBSIDIARY
SUMMARY OF OPERATIONS
DECEMBER 1998
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Total Assets........................... 2,124,251 2,060,428 617,513 630,357 3,987,178
Net Sales.............................. 2,335 424,561 - 0 - - 0 - 104,000
Operating Expenses..................... 7,118 23,290 8,983 1,975,111 84,945
Net Earnings (Loss).................... 65,620 1,492,918 11,826 (1,960,141) (41,004)
Per Share Data Earnings (Loss)......... .01 .27 .00 (.33) (.01)
Average Shares Outstanding............. 5,580,700 5,580,700 5,580,700 5,930,700 6,250,700
</TABLE>
3
<PAGE>
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results
of Operation.
The Company is not now, nor has it at any time, been engaged in any
regular business operations. Its activity has consisted of isolated transactions
in parcels of real estate, most of which have now been sold, and acquisition and
sale of securities, which have now also been sold. The Company presently is not
engaging in any significant or regular ongoing costs of operations or debt. It
can be said that the Company is relatively liquid under these circumstances.
However, in the event a business opportunity should become available and the
Company elects to embark on such, there is no assurance the funds of the Company
would be sufficient for such new endeavor. The Company has made no material
commitments for capital expenditures. Until the Company identifies a particular
business opportunity it wishes to pursue, it intends to continue to monitor its
investments and keep its liquid assets invested at reasonable interest rates.
Management is aware of the worldwide concern that Year 2000 technology
problems may wreak havoc on global economies and that no business, including the
Company, is immune from the potential far-reaching effects of Year 2000
problems. The Year 2000 problem arose because many existing computer programs
use only the last two digits to refer to a year. Therefore, these computer
programs do not properly recognize a year that begins with 20 instead of 19.
If not corrected, many computer applications could fail or create erroneous
results. The extent of the potential impact of the Year 2000 problem is not yet
known, and if not timely corrected, it could affect the global economy.
Although the Company doesn't own, lease or operate any computers, and
therefore does not in any way rely on computers or computer programs to handle
its own in house accounting and internal affairs, management has determined that
the Company may be adversely affected by third parties with whom it deals if
such parties have not properly assessed and addressed the Year 2000 problem.
Presently, and for the foreseeable future beyond January 1, 2000, the only
operations the Company is involved in are the collection of notes receivable
from third parties and depositing them in the Company's bank accounts.
Management has determined that failure on the part of these third parties,
including the bank, to solve their own Year 2000 issues could interfere with
the smooth collection and handling of the Company's funds with respect to said
notes and monies in the Company's bank accounts.
The Company's state of readiness for the Year 2000 problem is as
follows: Management has obtained written assurances from the Company's bank
that all of its systems are fully Year 2000 compliant.
The Company has not incurred any costs, and has projected no future
costs, in addressing its Year 2000 issues.
The Year 2000 problems pose the following potential risks to the
Company: (1) The Company's money in bank accounts could be tied up for a period
of time and not be readily accessible in the event the bank's computers
malfunction; (2) Debtors making payments to the Company could be unable to make
their payments when due if their monies are tied up for a period of time and not
available to them because of their banks' computer malfunctions; (3) If either
(1) or (2) should occur there is no assurance how long it would take to obtain
access to funds, and as a result the Company could be prevented from taking
advantage of a favorable business opportunity or investment if such should
become available; (4) Any failures of telecommunications companies,
transportation companies, utility companies and other service industries,
brought on by unsolved Year 2000 problems would adversely affect the Company
to the extent it needs such services for its operations (which as mentioned,
is presently minimal, however); and (5) The national and global economies could
become chaotic, ineffective and with financially disastrous affects on all
persons and segments of the economy, including a major economic depression, in
the event that a sufficient number of computer systems fail because of failure
to solve the Year 2000 problem.
4
<PAGE>
The Company has no contingency plans in the event any of the above, or
possibly other problems occur in connection with the Year 2000 problem.
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk.
The Company has no market risk sensitive instruments or market risk
exposures.
ITEM 8. Financial Statements and Supplementary Data.
See Item 14.
ITEM 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Not Applicable.
PART III
ITEM 10. Directors and Executive Officers of the Registrant.
The following table shows the positions held by the Company's officers
and directors. The directors were appointed and will serve until the next
annual meeting of the Company's stockholders, and until their successors
have been elected and have qualified. The officers were appointed to their
positions, and continue in such positions, at the discretion of the directors.
Name Age Position
- ---- --- --------
Krista Nielson 36 President, Director
Sasha Belliston 26 Secretary/Treasurer, Director
KRISTA NIELSON, has been Director of the Company since inception. In
addition to her management position with the Company, she has been since 1986 an
officer and director of Capital General Corporation, a Utah-based financial
consulting firm, and has been involved in the organization and promotion of
various shell companies. Ms. Nielson received a Business degree from Salt Lake
Community College in 1987. She serves as an officer and/or director in the
following private corporations: Yeaman Enterprises, Inc. and Universal
Associates, Inc., family holding companies, Four Star Ranch, Inc., a farmland
development company, and Visual Impact Corporation, a financial consulting
company. Ms. Nielson devotes her time primarily to her role as President of
Capital General and to the financial consulting activities in which Capital
General engages.
5
<PAGE>
SASHA BELLISTON, has been Director of the Company since April, 1997,
and in addition to her management position with the Company, she has been Vice
President of Capital General since April, 1997. For the past five years, Ms.
Belliston had devoted her time primarily as a cosmetologist and homemaker. Ms.
Belliston serves as an officer and/or director in the following private
corporations: Yeaman Enterprises, Inc. and Universal Associates, Inc, family
holding companies, Four Star Ranch, Inc., a farmland development company, Argon
Financial Corporation and Public Financial Corporation, investment companies.
Ms. Belliston dedicates her time primarily to her role as President of Four Star
Ranch and the farming activities in which Four Star engages.
The management of Capital General is essentially the same as that of
the Company and, as the Company's largest shareholder, Capital General exerts
considerable influence in the election of the Company's officers and directors.
Capital General is a private venture capital and financial consulting firm,
incorporated in Utah in 1971. Capital General is a closely held corporation with
eight shareholders and is not an investment company under The Investment
Companies Act of 1940. A majority of the stock of Capital General is owned by
Yeaman Enterprises, Inc., a private corporation which is, in turn, owned by
the adult children of the family of David R. Yeaman (formerly an officer and
director of the Company, Capital General and Yeaman Enterprises, Inc.) Sasha
Belliston, Mr. Yeaman's daughter, is the principal shareholder of Yeaman
Enterprises; Krista Nielson is also an officer and director of Yeaman
Enterprises, Inc.
Each of the above directors of the Company is a director of Saber
Capital, Inc., Longhorn, Inc., and Micro-Economics, Inc. which are companies
subject to the requirements of Section 15(d) of the Exchange Act. None of the
directors are directors or officers of any other company with a class of
securities registered pursuant to Section 12 of the Exchange Act or the
requirements of Section 15(d) of such Act or any company registered as an
investment company under the Investment Company Act of 1940.
In 1997 in the United States District Court for the Eastern District
of Pennsylvania, a former officer and director of the Company, David R. Yeaman,
was convicted of conspiracy, wire fraud and securities fraud and sentenced to 14
months imprisonment, fined $20,000.00 and subjected to supervised release for
three years following the prison term during which time he is required to not
commit another crime, not engage in the securities and insurance industries, and
various other standard conditions of supervised release. After serving ten
months of the prison term he was transferred on January 8, 1999 to a half way
house in Salt Lake City, Utah from which he was released March 5, 1999.
The U.S. Securities and Exchange Commission, Securities Act of 1933
Release No. 7008 and Securities Exchange Act of 1934 Release No. 32669 announced
that on July 23, 1993, it ordered David R. Yeaman and Capital General
Corporation to permanently cease and desist from committing or causing further
violations of Section 5(a) and (c) and 17(a) of the Securities Act of 1933 and
Sections 10(b) and 13(g) of the Securities Exchange Act of 1934 and Rules 10b-5,
12b-20 and 13d-1(c) thereunder.
6
<PAGE>
Krista Nielson was ordered to permanently cease and desist from
committing or causing further violations of Section 17(a) of the Securities Act
and Section 10(b) of the Exchange Act and Rules 10b-5 and 12b-20 thereunder. In
addition, the Commission ordered the revocation of the registration of the
common stock of Altara International, Inc., Arrow Management, Inc., Atlas
Equity, Inc., Dynamic Associates, Inc., Energy Systems, Inc., Four Star Ranch,
Inc., Panorama Industries, Inc., Partisan Corporation, Quiescent Corporation,
Saber, Inc., Upsilon, Inc., Vicuna, Inc., Why Not?, Inc., Xebec Galleon, Inc.,
Zebu, Inc., and Zeus Enterprises, Inc. pursuant to Section 12(j) of the Exchange
Act. The Commission found that each of the issuers had filed a registration
statement on Form 10 that contained materially false and misleading statements
in violation of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder.
Each of the respondents had submitted an Offer of Settlement consenting
to the entry of the Order without admitting or denying the allegations in the
Order. Prior to the submission of the Offers of Settlement, Capital General, on
behalf of the above mentioned companies, except for Panorama Industries, Inc.,
filed a registration statement on Form S-1 during December of 1992 to register
the common stock of those companies under the Securities Act of 1933.
Concurrently with the signing of the Offers of Settlement, the Registration
Statement was declared effective on June 30, 1993. A Post Effective Amendment
was filed and declared effective September 2, 1993. Although the registration of
the common stock under Section 12(g) of the 1934 Act was revoked on July 23,
1993, the companies are now registered and reporting under the Securities Act of
1933 by virtue of the filing of Form S-1 as indicated by Commission File No.
33-55254.
During 1986 and 1987, Capital General gifted very small percentages of
stock (usually 100 shares to each giftee) in the following companies, to
approximately 1,000 persons or entities: Amenity, Inc., Dogmatic, Inc., Mystic
Industries, Inc., Highland Mfg., Inc., Kowtow, Inc., Noble Industries, Inc.,
Oryan Capital Corporation, Pegasus Star Enterprise, Inc., Showstoppers, Inc.,
Hightide, Inc., Grandeur, Inc., Fantastic Industries, Inc., Jugglar, Inc., Xebec
Galleon, Inc., Golden Home Health Care Equipment Centers, Inc., Nighthawk
Capital, Inc., Instrument Development Corporation, Panther Industries, Inc., Owl
Enterprises, Inc., Quail, Inc., GBS Technologies Corporation, H & B Carriers,
Inc., Florida Growth Industries, Inc., Macaw, Inc., Longhorn Enterprise, Inc.,
Koala Corporation, Yahwe Corporation, Star Dolphin, Inc., Jackal, Inc., Hyena
Capital, Inc., Gopher, Inc., Flamingo Capital, Inc., Egret, Inc., Cetacean
Industries, Inc., Bonito, Inc., Alpaca, Inc., Zeus Enterprise, Inc., Tamarind,
Inc., Saber, Inc., Radar, Inc., Quiescent Corporation, Vanadium, Inc., Upsilon,
Inc., Why Not?, Inc., Bestmark, Inc., and Missouri Illinois Mining Co., Inc.
Capital General did not register the gifts of shares in these companies
with the Securities Division of the State of Utah or with the Securities
Exchange Commission because it believed these gifts to be outside the scope of
the Utah Uniform Securities Act and the Securities Act of 1933 in as much as
such acts require registration for sales and do not require registration of
gifts. Nevertheless, in connection with the distribution of shares of its
subsidiaries, Capital General was found by the Utah Securities Advisory Board,
in two decisions affirmed by the Utah State Courts, to have violated the
registration provisions of the Utah Uniform Securities Act. See In re Amenity
Inc., No. SD-86-11 (Utah Sec. Adv. Bd. February 18, 1987) aff'd C87-2625 (3d
Dist. Ct. September 18, 1987) aff'd sub nom Capital General Corp. v. Utah Dep't
of Business Reg., 777 P.2d 494, 498 (Utah Ct. App.) cert. denied, 781 P.2d 873
(Utah S. Ct. 1989); In re H&B Carriers Inc., No. 87-09-28-01 (Utah Sec. Adv.
Bd., Apr. 15, 1988) aff'd No. 88-5900053 (3d Dist. Ct. Sept 10, 1990) aff'd sub
nom Capital General Corp. v. Utah Dep't of Business Reg., Case No 91-196 (Utah
Ct. App. February 10, 1992.) All of the remaining companies listed above were
parties to the H&B Carriers order.
7
<PAGE>
Both of these actions sought suspension of transactional exemptions
respecting the shares of these companies pursuant to Section 14 (3) of the Utah
Uniform Securities Act. Capital General defended both actions on the grounds
that the Utah Uniform Securities Act did not apply to gifts of securities, that
the gifts were good faith gifts specifically exempted by the Act, and that in
any event even if it had "sold" shares in violation of the Act, suspension
of transactional exemptions was not an authorized remedy under the statute.
These defenses were rejected at the administrative agency level, and upon
judicial review at the District Court level and by the Utah Court of Appeals.
ITEM 11. Executive Compensation.
The Company has made no arrangements for the remuneration of its
officers and directors, except that they will be entitled to receive
reimbursement for actual, demonstrable out-of-pocket expenses, including travel
expenses if any, made on the Company's behalf in the investigation of business
opportunities. No remuneration has been paid to the Company's officers or
directors prior to the filing of this form. There are no agreements or
understandings with respect to the amount or remuneration that officers and
directors are expected to receive in the future. Management takes no salaries
from the Company and does not anticipate receiving any salaries in the
foreseeable future.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth, as of December 31, 1998, information
regarding the beneficial ownership of shares by each person known by the Company
to own five percent or more of the outstanding shares, by each of the directors
and by the officers and directors as a group.
<TABLE>
<CAPTION>
Name and address Amount of Percent
Title of class of beneficial owner beneficial ownership of class
<S> <C> <C> <C>
Common Stock David R. Yeaman(1,2,3) 1,534,000 27.49%
3098 So. Highland Drive, Suite 460
Salt Lake City, Utah 84106
Common Stock Capital General Corporation(1,2) 1,338,300 23.98%
3098 So. Highland Drive, Suite 460
Salt Lake City, Utah 84106
Common Stock Jack Kalaf 924,000 16.56%
Level 20, 56 Pitt Street
Sydney, NSW, 2000 Australia
Common Stock John Read 924,000 16.56%
Level 20, 56 Pitt Street
Sydney, NSW, 2000 Australia
Common Stock Gordon Crofts 528,000 9.46%
242 South 200 East
Salt Lake City, Utah 84111
Common Stock Krista Nielson(1,2) 80,000 1.43%
3098 So. Highland Drive, Suite 460
Salt Lake City, Utah 84106
Common Stock All Officers and Directors as a Group(1,2,3) 2,952,300 52.90%
</TABLE>
8
<PAGE>
(1)Capital General Corporation, Krista Nielson, David R. Yeaman and Sasha
Belliston may be deemed to be the Company's "parents" and "promoters," pursuant
to the Rules and Regulations promulgated under the 1933 Act.
(2)Capital General Corporation is a private corporation. The majority of its
shares (80%) are owned by another private corporation, Yeaman Enterprises, Inc.
Krista Nielson, the Company's President, owns approximately 18% of the
outstanding stock of Capital General. The stockholders of Yeaman Enterprises
are the adult children of the family of David Yeaman, who resigned as an officer
and director of the Company and simultaneously resigned as an officer and
director of Capital General and Yeaman Enterprises in April, 1997. Sasha
Belliston, Mr. Yeaman's daughter, is the principal shareholder of Yeaman
Enterprises.
Ms. Belliston's beneficial ownership of the securities of the Company is derived
from the shares directly owned by Capital General and Yeaman Enterprises. Ms.
Belliston beneficially owns shares of the Company which are owned by Yeaman
Enterprises and Capital General in that she has the power to vote or direct the
voting of the shares and the power to dispose of or to direct the disposition
of the shares. Ms. Belliston and Ms. Nielson control and have beneficial
ownership of the shares owned by Capital General and Yeaman Enterprises and
exercise shared voting power and shared investment power over those shares.
While Mr. Yeaman has resigned from his affiliation with the Company, Yeaman
Enterprises and Capital General, he may continue to be deemed an affiliate of
the Company by virtue of his familial and historical relationships with the
Company, its shareholders, officers and directors.
(3) Ms. Belliston has power of attorney over the shares owned by David Yeaman.
ITEM 13. Certain Relationships and Related Transactions.
No officer, director, nominee for election as a director, or associate
of such officer, director or nominee is or has been in debt to the Company
during the last fiscal year.
PART IV
ITEM 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
Financial Statements and Financial Statement Schedules.
-------------------------------------------------------
Financial Statements - December 31, 1998, 1997 and 1996.
Reports on Form 8-K.
--------------------
There were no reports on Form 8-K filed during the fourth quarter
of 1998.
9
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ARROW MANAGEMENT, INC.
Date: April 14, 1999 By: s\Krista Nielson
--------------------------------------------
Krista Nielson, President, CEO and Director
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: April 14, 1999 By: s\Krista Nielson
--------------------------------------------
Krista Nielson, President, CEO and Director
Date: April 14, 1999 By: s\Sasha Belliston
--------------------------------------------
Sasha Belliston, Secretary/Treasurer, CFO
and Director
10
<PAGE>
SMITH & COMPANY
A PROFESSIONAL CORPORATION OF
CERTIFIED PUBLIC ACCOUNTANTS
MEMBERS OF: 10 WEST 100 SOUTH, SUITE 700
AMERICAN INSTITUTE OF SALT LAKE CITY, UTAH 84101
CERTIFIED PUBLIC ACCOUNTANTS TELEPHONE: (801) 575-8297
UTAH ASSOCIATION OF FACSIMILE: (801) 575-8306
CERTIFIED PUBLIC ACCOUNTANTS EMAIL: [email protected]
- --------------------------------------------------------------------------------
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Arrow Management, Inc. and Subsidiary
We have audited the accompanying consolidated balance sheets of Arrow
Management, Inc. (a development stage company) and Subsidiary as of December 31,
1998 and 1997, and the related statements of operations, changes in
stockholders' equity, and cash flows for the years ended December 31, 1998,
1997, and 1996 and for the period of January 14, 1988 (date of inception) to
December 31, 1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Arrow Management,
Inc. (a development stage company) and Subsidiary as of December 31, 1998 and
1997 and the results of their operations, changes in stockholders' equity, and
their cash flows for the years ended December 31, 1998, 1997, and 1996 and for
the period of January 14, 1988 (date of inception) to December 31, 1998 in
conformity with generally accepted accounting principles.
s\Smith & Company
CERTIFIED PUBLIC ACCOUNTANTS
Salt Lake City, Utah
March 31, 1999
F - 1
<PAGE>
<TABLE>
<CAPTION>
ARROW MANAGEMENT, INC. AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
December 31,
1998 1997
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash in bank $ 682,740 $ 652,707
Current portion of note receivable (Note 5) 40,901 23,000
Current portion of contracts receivable (Note 8) 0 9,189
Accrued interest receivable 32,110 0
-------------- -------------
TOTAL CURRENT ASSETS 755,751 684,896
OTHER ASSETS
Real estate (Note 6) 30,000 30,000
Note receivable - related party (Note 5) 1,000,000 977,000
Long-term portion of contracts receivable (Note 8) 329,500 368,532
Deferred income taxes 9,000 0
-------------- -------------
1,368,500 1,375,532
-------------- -------------
$ 2,124,251 $ 2,060,428
============== =============
LIABILITIES & EQUITY
CURRENT LIABILITIES
Accrued expenses payable $ (582) $ 1,215
-------------- -------------
TOTAL CURRENT LIABILITIES (582) 1,215
Minority interest in subsidiary 196,000 191,000
STOCKHOLDERS' EQUITY
Common Stock $.001 par value:
Authorized - 50,000,000 shares
Issued and outstanding - 5,580,700 shares 5,581 5,581
Additional paid-in capital 2,375,667 2,380,667
Deficit accumulated during development stage (452,415) (518,035)
-------------- -------------
TOTAL STOCKHOLDERS' EQUITY 1,928,833 1,868,213
-------------- -------------
$ 2,124,251 $ 2,060,428
============== =============
See Notes to Consolidated Financial Statements.
</TABLE>
F - 2
<PAGE>
<TABLE>
<CAPTION>
ARROW MANAGEMENT, INC. AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
1/14/88
(Date of
Years ended December 31, inception) to
1998 1997 1996 12/31/98
<S> <C> <C> <C> <C>
Net sales $ 2,335 $ 424,561 $ 0 $ 574,896
Cost of sales 0 371,198 0 489,824
------------ ------------ ------------ --------------
GROSS PROFIT 2,335 53,363 0 85,072
Loss from impairment of land value 0 0 0 1,955,000
General and administrative expenses 7,118 23,290 8,983 232,934
------------ ------------ ------------ --------------
OPERATING (LOSS) (4,783) 30,073 (8,983) (2,102,862)
Other income
Sale of securities 0 1,443,680 0 1,443,680
Interest 61,403 12,108 8,550 152,477
Consulting 0 0 5,000 5,000
Government subsidy 0 7,057 7,259 40,290
------------ ------------ ------------ --------------
TOTAL OTHER INCOME 61,403 1,462,845 20,809 1,641,447
------------ ------------ ------------ --------------
NET INCOME (LOSS) BEFORE INCOME TAXES 56,620 1,492,918 11,826 (461,415)
Provision for income taxes 9,000 0 0 9,000
------------ ------------ ------------ --------------
NET INCOME (LOSS) $ 65,620 $ 1,492,918 $ 11,826 $ (452,415)
============ ============ ============ ==============
Net income (loss) per weighted average
common shares outstanding $ .01 $ .27 $ .00
============ ============ ============
Weighted average number of common shares
outstanding used to compute net income (loss) 5,580,700 5,580,700 5,580,700
============ ============ ============
See Notes to Consolidated Financial Statements.
</TABLE>
F - 3
<PAGE>
<TABLE>
<CAPTION>
ARROW MANAGEMENT, INC. AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Deficit
Accumulated
Common Stock Additional During
Par Value $.001 Paid-In Development
Shares Amount Capital Stage
----------- ----------- ------------- -------------
<S> <C> <C> <C> <C>
Balances at 1/14/88 (Date of inception) 0 $ 0 $ 0 $ 0
Issuance of common stock (restricted)
at $.002 per share, 1/14/88 1,000,000 1,000 1,000
Acquisition of subsidiary(1) 5,250,700 5,251 (3,251) (1,960)
Net loss for period (1,960)
--------- ----------- ------------- -------------
Balances at 12/31/88 6,250,700 6,251 (2,251) (3,920)
Net loss for year (20)
--------- ----------- ------------- -------------
Balances at 12/31/89 6,250,700 6,251 (2,251) (3,940)
Net loss for year (20)
--------- ----------- ------------- -------------
Balances at 12/31/90 6,250,700 6,251 (2,251) (3,960)
Assets acquired by subsidiary 4,420,000
Minority interest adjustment (12,000)
Net loss for year (20)
--------- ----------- ------------- -------------
Balances at 12/31/91 6,250,700 6,251 4,405,749 (3,980)
Debentures canceled (2,000,000)
Assets acquired by subsidiary 1,600,000
Minority interest adjustment (8,000)
Net loss for year (891)
--------- ----------- ------------- -------------
Balances at 12/31/92 6,250,700 6,251 3,997,749 (4,871)
Minority interest adjustment (2,000)
Net loss for year (16,763)
--------- ----------- ------------- -------------
Balances at 12/31/93 6,250,700 6,251 3,995,749 (21,634)
Net loss for year (41,004)
--------- ----------- ------------- -------------
Balances at 12/31/94 6,250,700 6,251 3,995,749 (62,638)
Trade and media credits canceled
(Note 7) (320,000) (320) (1,446,432)
Minority interest adjustment 19,000
Net loss for year (1,960,141)
--------- ----------- ------------- -------------
Balances at 12/31/95 5,930,700 5,931 2,568,317 (2,022,779)
Reissuance of erroneously canceled
shares during 1995 (Note 7) 110,000 110 (110)
Cancellation of previously issued
shares related to acquisition of
subsidiary (Note 4) (460,000) (460) 460
Minority interest adjustment (54,000)
Net income for year 11,826
--------- ----------- ------------- -------------
Balances at 12/31/96 5,580,700 5,581 2,514,667 (2,010,953)
Minority interest adjustment (134,000)
Net income for year 1,492,918
--------- ----------- ------------- -------------
Balances at 12/31/97 5,580,700 5,581 2,380,667 (518,035)
Minority interest adjustment (5,000)
Net income for year 65,620
--------- ----------- ------------- -------------
Balances at 12/31/98 5,580,700 5,581 $ 2,375,667 $ (452,415)
========= =========== ============= =============
(1) Acquisition actually occurred on September 30, 1993, but is reflected
earlier under the pooling-of-interests method of accounting.
See Notes to Consolidated Financial Statements.
</TABLE>
F - 4
<PAGE>
<TABLE>
<CAPTION>
ARROW MANAGEMENT, INC. AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
1/14/88
(Date of
Years ended December 31, inception) to
1998 1997 1996 12/31/98
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 65,620 $ 1,492,918 $ 11,826 $ (452,415)
Adjustments to reconcile net income (loss) to
cash provided (required) by operating
activities:
Amortization 0 0 0 100
Accrued interest (32,110) 0 0 (32,110)
Cost of land sold 0 365,000 0 470,000
Cost of securities sold 0 100,000 0 100,000
Non-cash income 0 0 (5,000) (5,000)
Itex Trade Dollars used 0 0 0 8,248
Loss from impairment of land
value (Note 6) 0 0 0 1,955,000
Deferred income taxes (9,000) 0 0 (9,000)
Changes in assets and liabilities:
Contracts receivable 7,320 (327,055) 13,349 (370,401)
Accrued expenses (1,797) 0 (7,999) (582)
------------- -------------- ------------- --------------
NET CASH PROVIDED (REQUIRED)
BY OPERATING ACTIVITIES 30,033 1,630,863 12,176 1,663,840
INVESTING ACTIVITIES
Purchase of real estate 0 0 0 (105,000)
Loan to related party 0 (1,000,000) 0 (1,000,000)
Organization costs 0 0 0 (100)
------------- -------------- ------------- --------------
NET CASH (USED) BY
INVESTING ACTIVITIES 0 (1,000,000) 0 (1,105,100)
FINANCING ACTIVITIES
Proceeds from sale of common stock (1) 0 0 0 124,000
Loans 0 0 0 10,417
Repayments 0 0 (8,337) (10,417)
------------- -------------- ------------- --------------
NET CASH PROVIDED (REQUIRED) BY
FINANCING ACTIVITIES 0 0 (8,337) 124,000
------------- -------------- ------------- --------------
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 30,033 630,863 3,839 682,740
Cash and cash equivalents at beginning
of year 652,707 21,844 18,005 0
------------- -------------- ------------- --------------
CASH AND CASH EQUIVALENTS
AT END OF YEAR $ 682,740 $ 652,707 $ 21,844 $ 682,740
============= ============== ============= ==============
SUPPLEMENTAL INFORMATION
Cash paid for interest $ 0 $ 0 $ 477 $ 676
============= ============== ============= ==============
In December, 1996, the Company canceled 460,000 shares of its common stock as
set forth in Note 4.
(1) Stock of subsidiary was $122,000.
See Notes to Consolidated Financial Statements.
</TABLE>
F - 5
<PAGE>
ARROW MANAGEMENT, INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
The Company's accounting policies reflect current accounting practices and
conform to generally accepted accounting principles. The following policies are
considered to be significant.
Accounting Method:
- ------------------
The accompanying financial statements have been prepared on the accrual method
using generally accepted accounting principles applicable to a going concern,
which contemplates the realization of assets and the liquidation of liabilities
in the normal course of business. All assets are listed at historical cost as
adjusted for asset impairment.
Revenue Recognition:
- --------------------
Revenue is recognized upon completion of sales, including adequate payment
arrangements to reasonably assure collection of related receivables, if any.
Dividend Policy:
- ----------------
The Company has not yet adopted any policy regarding payment of dividends.
Income Taxes:
- -------------
The Company utilizes the liability method of accounting for income taxes as set
forth in Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes" (SFAS 109). Under the liability method, deferred taxes are
determined based on the difference between the financial statement and tax bases
of assets and liabilities using enacted tax rates in effect in the years in
which the differences are expected to reverse. An allowance against deferred
assets is recorded when it is more likely than not that such tax benefits will
not be realized.
Basis of Presentation:
- ----------------------
The consolidated financial statements include the accounts of the Company and
Panorama Industries, Inc.("Panorama"), a subsidiary owned 90.73% by the Company.
All significant intercompany transactions and balances have been eliminated.
Earnings (Loss) per Share:
- --------------------------
Earnings (loss) per share are computed by dividing net income (loss) by the
weighted average common shares outstanding during each period.
Fair value of Financial Instruments:
- ------------------------------------
The carrying amount of cash and accrued expenses approximate fair value due to
the short maturity periods of these instruments. The fair value of $1,370,401
in notes receivable at December 31, 1998, based on the present value of the
receivable at interest rates of 8% and 9%, is $1,135,603
F - 6
<PAGE>
ARROW MANAGEMENT, INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Estimates:
- ----------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets, liabilities, revenues, and expenses
during the reporting period. Estimates also affect the disclosure of contingent
assets and liabilities at the date of the financial statements. Actual results
could differ from these estimates.
Cash and Cash Equivalents:
- --------------------------
For financial statement purposes, the Company considers all highly liquid
investments with an original maturity of three months or less when purchased to
be cash equivalents.
Concentration of Credit Risk:
- -----------------------------
The Company maintains deposits in excess of federally insured limits. Statement
of Financial Accounting Standards No. 105 identifies these items as a
concentration of credit risk requiring disclosure, regardless of the degree of
risk. The risk is managed by maintaining all deposits in high quality financial
institutions.
The Company requires collateral to support notes and contracts receivable.
Management considers the real property pledged as security for its notes and
contracts to be reasonable in the circumstances.
NOTE 2: DEVELOPMENT STAGE COMPANY AND BUSINESS ACTIVITY
The Company was incorporated under the laws of the State of Nevada on January
14, 1988 and has been in the development stage since incorporation. The Company
acquired a substantial amount of land through its acquisition of Panorama
(See Notes 4 and 6). The Company holds real estate for investment and possible
future development and sales. The Company also may acquire interests in various
other business opportunities which, in the opinion of management, will provide a
profit to the Company. Additional external financing or other capital may be
required to proceed with any business plan which may be developed by the
Company.
NOTE 3: CAPITALIZATION
On the date of incorporation, the Company sold 1,000,000 shares of its common
stock to Capital General Corporation for $2,000 cash for an average
consideration of $.002 per share. The Company's authorized common stock consists
of 50,000,000 shares at $.001 par value.
NOTE 4: ACQUISITION OF SUBSIDIARY
On September 30, 1993, the Company issued 5,250,700 shares of its common stock
to acquire 99.45% of the outstanding stock of Panorama, an affiliated company.
Panorama became a subsidiary of the Company. The transaction has been accounted
for under the pooling-of-interests method of accounting. Therefore, the
financial statements have been restated as if the Companies had been
consolidated for all periods presented. In December, 1996, the Company canceled
460,000 shares of its common stock held for issuance to a shareholder of
Panorama. As a result of this transaction, Arrow's ownership of Panorama was
reduced from 99.45% to 90.73%.
F - 7
<PAGE>
ARROW MANAGEMENT, INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 5: RELATED PARTY TRANSACTIONS
The Company neither owns or leases any real property, other than the land held
for development. Office services are provided, without charge, by Capital
General Corporation. Such costs are immaterial to the financial statements, and,
accordingly, have not been reflected therein. The officers and directors of the
Company are involved in other business activities and may, in the future, become
involved in other business opportunities. If a specific business opportunity
becomes available, such persons may face a conflict in selecting between the
Company and their other business interests. The Company has not formulated a
policy for the resolution of such conflicts.
In December 1997, the Company loaned $1,000,000 to Fortune Thoroughbred Farms,
Inc. The President of Fortune is the brother-in-law of the Company's majority
shareholder. The note bears interest at 8%. Annual payments of $103,000 were
scheduled to begin December 31, 1998, with a balloon payment due December 31,
2007. The note is secured by a mortgage on 960 acres of land near Twin Falls,
Idaho. The note was amended in 1998 to require no payments until December 31,
1999, and to forgive interest through December 31, 1999.
NOTE 6: CONTRACTS RECEIVABLE
During 1993, real estate was sold on contract. The contract requires monthly
payments of $451 at an interest rate of 9%. At December 31, 1998, the current
portion of the receivable was $3,473 and the long-term portion was $22,561 for a
total of $26,034.
In November 1997, a real estate parcel was sold on contract. The contract
requires quarterly payments of $2,500 at an interest rate of 9%. At December 31,
1998, the current portion of the receivable was $6,828, and the long-term
portion was $32,539 for a total of $39,367.
In December 1997, another real estate parcel was sold on contract. The contract
requires annual payments of $55,000 in 1999 and $50,000 each year thereafter at
an interest rate of 8%. At December 31, 1998, the current portion was $30,600,
and the long-term portion was $274,400, for a total of $305,000.
NOTE 7: NET OPERATING LOSS CARRYOVER
The Company and Panorama had a net operating loss carryover of $587,035 at
December 31, 1998, that if not used will expire as follows:
<TABLE>
<CAPTION>
Company's Panorama's
Year Ended Expiration Date Loss Loss
----------------- ----------------- -------------- --------------
<S> <C> <C> <C>
December 31, 1988 December 31, 2003 $ 1,950 $ 0
December 31, 1989 December 31, 2004 10 0
December 31, 1990 December 31, 2005 10 0
December 31, 1991 December 31, 2006 10 0
December 31, 1992 December 31, 2007 20 0
December 31, 1993 December 31, 2008 0 7,808
December 31, 1994 December 31, 2009 0 41,004
December 31, 1995 December 31, 2010 0 5,141
December 31, 1997 December 31, 2012 0 533,082
-------------- --------------
$ 2,000 $ 587,035
============== ==============
</TABLE>
Due to the Company's activities as a development stage company, there is not a
sufficient basis for making an estimate of future income. At December 31, 1998,
the Company has recorded a deferred tax asset of $9,000.
F - 8
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Arrow
Management, Inc. and Subsidiary December 31, 1998 financial statements
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000860401
<NAME> Arrow Management, Inc.
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 682,740
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 755,751
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,124,251
<CURRENT-LIABILITIES> (582)
<BONDS> 0
0
0
<COMMON> 5,581
<OTHER-SE> 1,923,252
<TOTAL-LIABILITY-AND-EQUITY> 2,124,251
<SALES> 2,335
<TOTAL-REVENUES> 63,738
<CGS> 0
<TOTAL-COSTS> 7,118
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 56,620
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,783)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 65,620
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
