U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2006.
[_] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
COMMISSION FILE NUMBER: 000-49672
THE BLACKHAWK FUND
(Name of small business issuer in its charter)
NEVADA 88-0408213
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1802 N. CARSON STREET, SUITE 212-3018
CARSON CITY, NEVADA 89701
(Address of principal executive offices) (Zip Code)
(775) 887-0670
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark whether the registrant is a shell company (as defined by
Rule 12b-2 of the Exchange Act). Yes [_] No [X]
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: As of April 24, 2006, the
issuer had 12,209,007 shares of its common stock issued and outstanding.
Transitional Small Business Disclosure Format (check one): Yes [_] No[X]
1
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements. . . . . . . . . . . . . . . . . . . . 3
Item 2. Management's Discussion and Analysis or Plan of Operation . 8
Item 3. Controls and Procedures . . . . . . . . . . . . . . . . . . 10
PART II - OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . 11
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 11
Item 3. Defaults Upon Senior Securities . . . . . . . . . . . . . . 11
Item 4. Submission of Matters to a Vote of Security Holders.. . . . 11
Item 5. Other Information . . . . . . . . . . . . . . . . . . . . . 11
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . 11
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002. 13
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002. 14
CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002. 15
CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002. 16
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
THE BLACKHAWK FUND
BALANCE SHEET
(unaudited)
March 31, December 31,
2006 2005
ASSETS
Cash $ 8,525 $ 12,709
Prepaid and other current assets 1,592 -
---------- ------------
Total current assets 10,117 12,709
---------- ------------
Property - held-for-sale 625,083 -
---------- ------------
TOTAL ASSETS $ 635,200 $ 12,709
========== ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
LIABILITIES
Accounts payable and accrued liabilities $ 4,779 $ 6,080
Notes payable-related party 212,496 77,495
---------- -----------
Total current liabilities 217,275 83,575
---------- -----------
Long term liability
Note payable 496,000 -
Total Liabilities 713,275 83,575
---------- -----------
Commitments and contingencies - -
STOCKHOLDERS' DEFICIT
Preferred stock, $.001 par value:
Series A: Authorized 20,000,000
9,000,000 issued and outstanding
at March 31, 2006 and December 31, 2005 9,000 9,000
Series B: Authorized 10,000,00
10,000,000 issued and outstanding
at March 31, 2006 and December 31, 2005 10,000 10,000
Series C: Authorized 20,000,000
10,000,000 issued and outstanding
at March 31, 2006 and December 31, 2005 10,000 10,000
Common stock, $.001 par value, 4,000,000,000
shares authorized, 12,209,007 and 3,209,007
shares issued and outstanding at March 31,
2006 and December 31, 2005 12,209 3,209
Additional paid in capital 34,457,057 34,457,058
Stock subscriptions receivable (20,000) (40,000)
Retained Deficit (34,556,341) (34,520,133)
----------- -----------
Total Stockholders' Deficit (78,075) (70,866)
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 635,200 $ 12,709
=========== ===========
3
THE BLACKHAWK FUND
STATEMENTS OF OPERATIONS
Three Months Ended March 31, 2006 and 2005
(unaudited)
2006 2005
------------- -----------
Revenue $ - $ 3,118
------------- -----------
Expenses:
General and administrative expense 32,943 4,598,639
Interest expense 3,265 -
------------- -----------
Net loss $ (36,208) $(4,595,521)
============= ===========
Basic and diluted loss per common share $ (.01) $ (19.15)
Weighted average common shares outstanding 6,664,556 239,923
4
THE BLACKHAWK FUND
STATEMENTS OF CASH FLOWS
Three Months Ended March 31, 2006 and 2005
(unaudited)
2006 2005
------------ ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (36,208) $(4,595,521)
Adjustments to reconcile net loss to net
cash used in operating activities:
Stock issued for services - 3,995,000
Stock option expense - 393,262
Changes in:
Other assets (increase) (1,593) -
Accounts payable (decrease)increase (1,301) 1,167
------------ ----------
NET CASH USED IN OPERATING ACTIVITIES (39,102) ( 206,092)
------------ ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Building (129,083) -
------------ ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from stock issuance/subscriptions 29,000 220,666
Payments on notes payable - related party (23,000) -
Proceeds from notes payable - related party 158,001 -
------------ ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 164,001 220,666
------------ ----------
NET CHANGE IN CASH (4,184) 14,574
CASH BALANCES
-Beginning of period 12,709 -
------------ ----------
-End of period $ 8,525 $ 14,574
============ ==========
Supplemental disclosures:
Cash paid for:
Interest $ 1,177 $ -
Income taxes - -
5
THE BLACKHAWK FUND
NOTES TO FINANCIAL STATEMENTS
(unaudited)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited interim financial statements of The Blackhawk Fund
("Blackhawk" or the "Company") have been prepared in accordance with accounting
principles generally accepted in the United States of America and the rules of
theSecurities and Exchange Commission ("SEC"), and should be read in conjunction
with the audited financial statements and notes thereto contained in Blackhawk's
Annual Report filed with the SEC on Form 10-KSB. In the opinion of management,
all adjustments, consisting of normal recurring adjustments, necessary for a
fair presentation of financial position and the results of operations for the
interim periods presented have been reflected herein. The results of operations
for interim periods are not necessarily indicative of the results to be expected
for the full year. Notes to the financial statements which would substantially
duplicate the disclosure contained in the audited financial statements for 2005
as reported in the 10-KSB have been omitted.
NOTE 2 - STOCK BASED COMPENSATION
Prior to January 1, 2006 we accounted for stock based compensation under
Statement of Financial Accounting Standards No. 123 Accounting for Stock-Based
Compensation (FAS 123). As permitted under this standard, compensation cost was
recognized using the intrinsic value method described in Accounting Principles
Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25).
Effective January 1, 2006, the Company has adopted Statement of Financial
Accounting Standards No. 123 (Revised 2004), Share-Based Payment (FAS 123R)
and applied the provisions of the Securities and Exchange Commission Staff
Accounting Bulletin No. 107 using the modified-prospective transition method.
Prior periods were not restated to reflect the impact of adopting the new
standard. As a result of the adoption of FAS 123R, stock-based compensation
expense recognized during the quarter ended March 31, 2006 includes
compensation expense for all share-based payments granted on or prior to, but
not yet vested as of December 31, 2005, based on the grant date fair value
estimated in accordance with the origial provisions of FAS 123, and
compensation cost for all share-based payments granted on or subsequent to
January 1, 2006, based on the grant date fair value estimated in accordance
with the provisions of FAS 123R.
Beginning on January 1, 2006, any future excess tax benefits derived from the
exercise of stock options will be recorded prospectively and reported as cash
flows from financing activities in accordance with FAS 123R.
During the quarter ended March 31, 2006, the Company did not make any stock
option grants and therefore did not recognize any stock-based compensation
expense. During the quarter ended March 31, 2005, the Company granted
470,000,014 options to purcahse common stock to employees. All options vested
immediately, had an exercise price of 85 percent of market on the date of
grant and expiry 10 years from the date of grant. The Company recorded stock
based compensation expense of $393,262, as determined under the intrinsic
value method, during the quarter ended March 31, 2005.
6
THE BLACKHAWK FUND
NOTES TO FINANCIAL STATEMENTS
(unaudited)
The following table illustrates the effect on net loss and per share
information had the Company accounted for share-based compensation in
accordance with FAS 123R for the periods indicated:
Three Months Ended
March 31, 2005
------------------
Net loss as reported $(4,595,521)
Add: stock based compensation determined
under intrinsic value-based method 393,262
Less: stock based compensation determined
under the fair value-based method (2,621,746)
-----------
Pro forma net loss $(6,824,005)
-----------
Basic and diluted net loss per common share:
As reported $(19.15)
Pro forma $(28.44)
The weighted average fair value of the stock options granted during 2005 was
$.005. Variables used in the Black-Scholes option pricing model included
(1) 1.5% risk-free interest rate, (2) expected option life is the actual
remaining life, (3)expected volatiltiy of 566% and (4) zero expected
dividends.
NOTE 3 - PROPERTY - HELD FOR SALE
In late March 2006, the Company purchased a condominium located in Carlsbad,
California for $625,083. The Company intends to renovate and sell the condo.
Since the Company intends to sell the condominium upon completion of the
planned renovations, it has beed designated as "held-for-sale." Therefore
it will be carried at the lower cost or fair value (net of expected sales
costs) during the renovation period and will not be depreciated.
NOTE 4 - COMMON STOCK
During the quarter ended March 31, 2006, the company issued 9 million shares
of common stock at par value pursuant to a stock subscription agreement.
As of March 31, 2006, the Company had not received the $9,000 due under the
stock subscription agreement and has therefore reflected it as stock
subscription receivable (a contra equity account).
On November 7, 2005, The company's Board of Directors declared an 800 to 1
reverse stock split for shareholders of record as of November 17, 2005.
All share and per share information has been retroactively restated in
the financial statements to reflect the reverse split.
NOTE 5 - NOTES PAYABLE
In conjunction with the purchase of the condominium described in Note 3
above, the Company executed a 30-year adjustable rate promissory note
for $496,000. The initial interest rate on the note is 7.875% and may
change on April 1, 2008 and on that date every sixth month thereafter.
Pursuant to the terms of the note, the Company is required to make
interest only payments for the first 10 years (first 120 payments).The
initial monthly payments will be $3,225 and may change beginning on
April 1, 2008. The note payable is personally guaranteed by the
Company's president.
7
THE BLACKHAWK FUND
NOTES TO FINANCIAL STATEMENTS
(unaudited)
During the quarter ended March 31, 2006, the Company received advances
from Palomar Enterprises, Inc. ("Palomar") totalling approximately
$158,000. Palomar is controlled by the Company's CEO and CFO. Of the
$158,000, $23,000 was used to repay advances previously made by the
CEO and CFO, $129,000 was used to fund the cash payment made in
connection with the acqusition of the condominium (discussed in Note
3 above) with the remainder being retained for general coporate purposes.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS.
FORWARD-LOOKING INFORMATION
Much of the discussion in this Item is "forward looking" as that term is
used in Section 27A of the Securities Act and Section 21E of the
Securities Exchange Act of 1934. Actual operations and results may
materially differ from present plans and projections due to changes
in economic conditions, new business opportunities, changed business
conditions, and other developments. Other factors that could cause results
to differ materially are described in our filings with the Securities
and Exchange Commission.
There are several factors that could cause actual results or events to
differ materially from those anticipated, and include, but are not
limited to general economic, financial and business conditions, changes
in and compliance with governmental laws and regulations, including
various state and federal environmental regulations, our ability to
obtain additional financing from outside investors and/or bank and
mezzanine lenders and our ability to generate sufficient revenues to
cover operating losses and position us to achieve positive cash flow.
Readers are cautioned not to place undue reliance on the forward-looking
statements contained herein, which speak only as of the date hereof. We
believe the information contained in this Form 10-QSB to be accurate as
of the date hereof. Changes may occur after that date. We will not update
that information except as required by law in the normal course of
our public disclosure practices.
Additionally, the following discussion regarding our financial condition
and results of operations should be read in conjunction with the
financial statements and related notes contained in Item 1 of Part I of
this Form 10-QSB, as well as the financial statements in Item 7 of Part II
of our Form 10-KSB for the fiscal year ended December 31, 2005.
MANAGEMENT'S PLAN OF OPERATIONS.
CURRENT BUSINESS PLAN
The Blackhawk Fund operates with a focus on developing and/or acquiring cash
flow positive businesses, acquiring the real property and assets that are
material to those businesses and offering various types of financial
instruments; including but not limited to, notes, deeds of trust and other
types of corporate financing structures.
The real properties acquired may be improved and re-sold at higher prices or
held for income and appreciation, depending on the market conditions.
Properties purchased will generally need minor improvements prior to re-sale,
this work will be contracted out to independent contractors. The properties
being held for income and appreciation will generate sufficient rental income
to be cash-flow positive and located in markets with a high probability of
appreciation.
8
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2006 COMPARED TO THE THREE MONTHS ENDED MARCH 31,
2005.
Total net sales and revenues were at zero for the three months ended
March 31, 2006 compared to $3,118 for the prior period.
General and administrative expense for the three months ended March 31,
2006 compared to 2005 decreased by $4,565,696 to $32,943 from $4,598,639 in
the prior period. The 2005 expenses included a $3,995,000 charge for share
based compensation relating to 99,875,000 shares issued in connection with
the conversion of Preferred A shares into common shares and a $393,262
charge for stock option expense which did not occur in 2006.
Net loss decreased from $4,595,521 to $36,208 for the three months
ended March 31, 2006.
Interest expense, for the three months ended March 31, 2006 was $3,265
as compared to none in the same period in 2005.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2006, we had a deficiency in working capital of $207,158.
Cash used in operating activities totaled $39,102 for the three months
ended March 31, 2006 as compared to $206,092 for the three months ended March
31, 2005.
Cash used in investing activities totaled $129,083 for the three months
ended March 31, 2006 as compared to none for the comparable prior year period.
The cash used in investing activities relates to the cash paid at closing in
connection with the purchase of the condominium in late March 2006.
Cash provided by financing activities totaled $164,001 for the three
months ended March 31, 2006 as compared to $220,666 for the comparable prior
year period. Of the 2006 amount, $29,000 related to proceeds from stock
issuances/subscriptions compared to $220,666 for the comparable prior year
period and $135,001 related to net proceeds received from advances made to
the Company by related parties compared to none for the comparable prior
year period.
CRITICAL ACCOUNTING POLICIES
The preparation of our financial statements in conformity with
accounting principles generally accepted in the United States requires us to
make estimates and judgments that affect our reported assets, liabilities,
revenues, and expenses, and the disclosure of contingent assets and
liabilities. We base our estimates and judgments on historical
experience and on various other assumptions we believe to be reasonable
under the circumstances. Future events, however, may differ markedly
from our current expectations and assumptions. A summary of our
critical accounting policies can be found in the notes to our annual
financial statements included our Form 10-KSB for the year ended December
31, 2005.
9
OFF-BALANCE SHEET ARRANGEMENTS.
We do not have any off-balance sheet arrangements.
ITEM 3. CONTROLS AND PROCEDURES.
Disclosure controls and procedures are controls and other procedures that
are designed to ensure that information required to be disclosed by us in the
reports that we file or submit under the Exchange Act is recorded, processed,
summarized and reported, within the time periods specified in the Securities and
Exchange Commission's rules and forms. Disclosure controls and procedures
include, without limitation, controls and procedures designed to ensure that
information required to be disclosed by us in the reports that we file under the
Exchange Act is accumulated and communicated to our management, including our
principal executive and financial officers, as appropriate to allow timely
decisions regarding required disclosure.
Evaluation of Disclosure and Controls and Procedures. As of the end of the
period covered by this Quarterly Report, we conducted an evaluation, under the
supervision and with the participation of our chief executive officer and chief
financial officer, of our disclosure controls and procedures (as defined in
Rules 13a-15(e) of the Exchange Act). Based on this evaluation, our chief
executive officer and chief financial officer concluded that our disclosure
controls and procedures are effective to ensure that information required to be
disclosed by us in reports that we file or submit under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified
in Securities and Exchange Commission rules and forms.
Changes in Internal Controls Over Financial Reporting. There was no change
in our internal controls, which are included within disclosure controls and
procedures, during our most recently completed fiscal quarter that has
materially affected, or is reasonably likely to materially affect, our internal
controls.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Reference is made to our Annual Report for the year ended December 31,
2005, filed with the Commission on February 28, 2006.
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.
None.
ITEM 5. OTHER INFORMATION.
None.
10
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
10.1** Zannwell Inc. Capital Stock Purchase Agreement, dated November
29, 2004.
31.1* Certification of Steve Bonenberger, President, Chief Executive
Officer and Director of The Blackhawk Fund, pursuant to
18 U.S.C. Sec.1350, as adopted pursuant to Sec.302 of the
Sarbanes-Oxley Act of 2002.
31.2* Certification of Brent Fouch, Secretary and Chief Financial
Officer of The Blackhawk Fund, pursuant to 18 U.S.C. Sec.1350,
as adopted pursuant to Sec.302 of the Sarbanes-Oxley Act of 2002.
32.1* Certification of Steve Bonenberger, President, Chief Executive
Officer and Director of The BlackhawK Fund, pursuant to 18 U.S.C.
Sec.1350, as adopted pursuant to Sec.906 of the Sarbanes-Oxley
Act of 2002.
32.2* Certification of Brent Fouch, Secretary and Chief Financial
Officer of The Blackhawk Fund, pursuant to 18 U.S.C. Sec.1350,
as adopted pursuant to Sec.906 of the Sarbanes-Oxley Act of 2002.
__________
* Filed herewith.
** Previously Filed.
SIGNATURES
In accordance with the requirements of the Exchange Act, the
Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
The BlackHawk Fund
Dated May 12, 2006.
By /s/ Steve Bonenberger
-----------------------------------
Steve Bonenberger, President, Chief
Executive Officer and Director
11