NUGL, INC. - Quarter Report: 2010 September (Form 10-Q)
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington
D.C. 20549
FORM
10-Q
(Mark
One)
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x
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QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For the quarterly period ended September 30,
2010
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For the transition period from
_________________ to _________________
Commission
File No.: 000-49672
THE
BLACKHAWK FUND
(Exact
name of registrant as specified in its charter)
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Nevada
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88-0408213
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(State
or other jurisdiction of
incorporation
or organization)
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(I.R.S.
Employer
Identification
No.)
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1802
N. Carson Street, Suite 108
Carson
City, NV 89701
(Address of principal
executive offices)
Issuer’s
telephone number: (775) 887-0670
1802
N. Carson Street, Suite 212-3018, Carson City, NV 89701
(Former
name, former address and former fiscal year, if changed since last
report)
Indicate
by check mark whether the registrant (1) 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. Yes x No o
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes
o No o
Indicate
by check mark whether the registrant is a large accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the
definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
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Large
accelerated filer o
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Accelerated
filer o
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Non-accelerated
filer o (Do
not check if a smaller reporting company)
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Smaller
reporting company x
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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
APPLICABLE ONLY TO CORPORATE
ISSUERS
As of
November 15, 2010, 1,000,293,791 shares of our common stock were
outstanding.
ITEM
1 – CONDENSED FINANCIAL STATEMENTS
THE BLACKHAWK FUND
BALANCE SHEETS
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(Unaudited)
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||||||||
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September
30
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December 31
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|||||||
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2010
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2009
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|||||||
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ASSETS
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||||||||
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CURRENT
ASSETS
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||||||||
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Cash and cash
equivalents
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$ | 25,266 | 2,719 | |||||
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Total current
assets
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25,266 | 2,719 | ||||||
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PROPERTY -- HELD FOR
SALE
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1,000 | 1,000 | ||||||
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TOTAL
ASSETS
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$ | 26,266 | $ | 3,719 | ||||
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LIABILITIES AND STOCKHOLDERS’
DEFICIT
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||||||||
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CURRENT
LIABILITIES
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||||||||
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Accounts payable and accrued
liabilities
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$ | 294,472 | $ | 199,256 | ||||
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Convertible notes payable, net of
discount
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410,407 | 130,483 | ||||||
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Notes payable - related
party
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95,780 | 89,764 | ||||||
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Total current
liabilities
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800,659 | 419,503 | ||||||
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COMMITMENTS AND
CONTINGENCIES
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- | - | ||||||
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STOCKHOLDERS’
DEFICIT
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||||||||
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Preferred stock, $0.0001 par
value:
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||||||||
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Series A, authorized 500,000,
500,000 issued and outstanding
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50 | 50 | ||||||
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Series B, authorized 10,000,000,
10,000,000 issued and outstanding
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1,000 | 1,000 | ||||||
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Series C, authorized 20,000,000,
10,000,000 issued and outstanding
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1,000 | 1,000 | ||||||
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Common stock, $0.0001 par value,
4,000,000,000 shares authorized, 1,000,293,791 and 896,293,791
shares issued and outstanding, respectively
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100,029 | 89,629 | ||||||
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Common stock B, $0.001 par value
150,000,000 authorized, 30,000,000 issued and
outstanding
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3,000 | 3,000 | ||||||
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Additional paid in
capital
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38,029,434 | 38,013,284 | ||||||
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Accumulated
deficit
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(38,908,906 | ) | (38,523,747 | ) | ||||
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Total stockholders’
deficit
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(774,393 | ) | (415,784 | ) | ||||
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TOTAL LIABILITIES AND
STOCKHOLDERS’ DEFICIT
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$ | 26,266 | $ | 3,719 | ||||
See accompanying notes to financial
statements
2
THE BLACKHAWK FUND
STATEMENTS OF
OPERATIONS
(Unaudited)
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Three Months Ended September
30
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Nine Months Ended September
30
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|||||||||||||||
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2010
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2009
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2010
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2009
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|||||||||||||
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Revenues
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$ | - | $ | - | $ | - | $ | - | ||||||||
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Cost of
Sales
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- | - | - | - | ||||||||||||
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Gross
Income
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- | - | - | - | ||||||||||||
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OPERATING
EXPENSES
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||||||||||||||||
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General and
Administrative
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83,192 | 41,772 | 140,712 | 85,387 | ||||||||||||
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OTHER INCOME /
(EXPENSES)
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||||||||||||||||
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Gain on sale of
assets
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- | - | - | 1,015,178 | ||||||||||||
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Loss on
Guarantee
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- | - | (618,750 | ) | ||||||||||||
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Other
expense
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- | - | (684 | ) | - | |||||||||||
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Interest
Expense
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(16,957 | ) | (326,943 | ) | (243,763 | ) | (341,883 | ) | ||||||||
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NET LOSS
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$ | (100,149 | ) | $ | (368,715 | ) | $ | (385,159 | ) | $ | (30,842 | ) | ||||
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Basic and Diluted Net Loss Per
Common Share
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$ | 0.00 | $ | 0.00 | $ | 0.00 | $ | 0.00 | ||||||||
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Weighted Average Number of Shares
Outstanding
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951,315,769 | 725,584,114 | 959,695,965 | 666,417,079 | ||||||||||||
See accompanying notes to financial
statements
3
THE BLACKHAWK FUND
STATEMENTS OF CASH
FLOWS
(Unaudited)
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Nine Months Ended September
30
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||||||||
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2010
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2009
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|||||||
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Cash Flows From Operating
Activities
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||||||||
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Net loss
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$ | (385,159 | ) | $ | (30,842 | ) | ||
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Adjustments to reconcile net loss
to net cash used in operating activities:
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||||||||
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Discount accretion on
note
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210,517 | 315,258 | ||||||
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Gain on sale of
assets
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- | (1,015,178 | ) | |||||
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Stock issued for services and
financing
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- | 24,000 | ||||||
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Loss on
guarantee
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- | 618,750 | ||||||
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Issuance of note for consulting
services
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41,107 | - | ||||||
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Changes in operating assets and
liabilities:
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||||||||
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Prepaid financing
costs
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- | 415 | ||||||
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Accounts payable and accrued
liabilities
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106,082 | 58,547 | ||||||
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Net cash used in operating
activities
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(27,453 | ) | (29,050 | ) | ||||
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Cash Flows From Investing
Activities:
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- | - | ||||||
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Cash Flows From Financing
Activities:
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||||||||
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Proceeds from notes
payable
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50,000 | - | ||||||
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Proceeds from notes payable -
related party
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- | 19,000 | ||||||
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Net cash provided by financing
activities
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50,000 | 19,000 | ||||||
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Net Change in
Cash
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22,547 | (10,050 | ) | |||||
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Cash Beginning of
Period
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2,719 | 11,161 | ||||||
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Cash End of
Period
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$ | 25,266 | $ | 1,111 | ||||
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Supplemental
disclosures:
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||||||||
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Cash paid
for:
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||||||||
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Interest
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- | - | ||||||
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Income
Taxes
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- | - | ||||||
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Supplemental disclosure of
non-cash financing activities
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||||||||
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Partial conversion of notes
payable
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$ | 20,700 | $ | - | ||||
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Common stock issued for
services
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$ | 5,850 | $ | 24,000 | ||||
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Common stock issued for debt
interest
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$ | - | $ | 210,000 | ||||
See accompanying notes to financial
statements
4
NOTES
TO FINANCIAL STATEMENTS
NOTE
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of
Business
The
Blackhawk Fund (“Blackhawk” or the “Company”) was organized on November 5, 1998
in Nevada as USA Telecom. In 1998, the entity amended its articles of
incorporation to change its name to USA Telcom, in 2000 it amended its articles
of incorporation to change its name to USA Telcom Internationale, in 2004 it
amended its articles of incorporation to change its name to ZannWell Inc., and
in January 2005, it amended its articles of incorporation to change its name to
Blackhawk Fund. For the year ended December 31, 2009 the Company was
in the business of residential and commercial real estate acquisition and
development.
Cash and cash
equivalents
The
Company considers all cash on hand and in banks, including accounts in book
overdraft positions, certificates of deposit and other highly- liquid
investments with maturities of three months or less, when purchased, to be cash
and cash equivalents.
Advertising
expenses
Advertising
and marketing expenses are charged to operations as incurred there were no
expenses for the nine-months ended September 30, 2010 and 2009.
Revenue
recognition
The
Company generates revenue from the sale of real estate, brokerage commissions,
and rental income from rental properties. Revenues from real estate
sales and commissions are recognized on execution of the sales
contract. The Company records gross commissions on the sales of
properties closed. The Company pays the broker of record five percent
of all transactions and 100 percent of personal sales. The Company
compensates its independent agents on a sliding scale between 70 and 80 percent
based on productivity. The Company also recognizes sales when it
sells properties that have been held for sale when their renovation is
complete. Revenue is recognized at “closing”.
The
Company has not recognized any revenue from its new business plan for the
nine-months ended September 30, 2010 and 2009.
Income
Taxes
The
Company utilizes the asset and liability method of accounting for income
taxes. Temporary differences represent differences in the recognition
of assets and liabilities for tax and financial reporting purposes, primarily
accumulated depreciation and amortization.
As of
September 30, 2010, the deferred tax asset is related solely to the Company’s
net operating loss carry forward and is fully reserved.
Loss per
share
Loss per
share are computed by dividing the net loss by the weighted-average number of
shares of common stock and common stock equivalents (primarily outstanding
options and warrants). Common stock equivalents represent the
dilutive effect of the assumed exercise of the outstanding stock options and
warrants, using the treasury stock method. The calculation of fully
diluted loss per share assumes the dilutive effect of the exercise of
outstanding options and warrants at either the beginning of the respective
period presented or the date of issuance, whichever is later. As of
September 30, 2010, the Company’s outstanding warrants are considered
anti-dilutive.
5
Use of
Estimates
The
preparation of 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 financial statements and the reported amounts of revenues and expenses
during the accounting period. Actual results could differ from those
estimates.
Recent Accounting
Pronouncements
Effective
September 30, 2009, the Company adopted the Financial Accounting Standard
Board’s new Accounting Standards Codificaiton (“ASC”) as the single source of
authoritative accounting guidance under the Generally Accepted Accounting
Principles (“GAAP”) Topic. The ASC does not create new accounting and
reporting guidance, rather it reorganizes GAAP pronouncements into approximately
90 topics within a consistent structure. All guidance in the ASC
carries an equal level of authority. Relevant portions of
authoritative content, issued by the Securities and Exchange Commission ("SEC"),
for SEC registrants, have been included in the ASC. After the
effective date of the Codification, all nongrandfathered, non-SEC accounting
literature not included in the ASC is superseded and deemed
nonauthoritative. Adoption of the Codification also changed how the
Company references GAAP in its financial statements.
In February 2010, FASB issued Accounting Standards Update
(“ASU”) 2010-9 Subsequent Events
(Topic 855) Amendments to Certain Recognition and Disclosure Requirements
("ASU 2010-9"). ASU 2010-9
amends disclosure requirements within Subtopic 855-10. An entity that is an
SEC filer is not required to disclose the
date through which subsequent events have been evaluated.
This change alleviates potential conflicts between Subtopic 855-10 and the SEC's
requirements. ASU 2010-9 is effective for interim and annual periods ending
after June 15, 2010. The Company does not expect
the adoption of ASU 2010-09
to have a material impact on its results of operations or financial position.
In January 2010, FASB issued ASU 2010-6
Improving
Disclosures about Fair Measurements ("ASU 2010-6"). ASU 2010-6 provides amendments
to Subtopic 820-10 that require separate disclosure of significant
transfers in and out of Level 1 and Level 2 fair value measurements and the
presentation of separate information regarding purchases, sales, issuances and
settlements for Level 3 fair value measurements.
Additionally, ASU 2010-6
provides amendments to Subtopic 820-10 that clarify existing
disclosures about the level of disaggregation and inputs and valuation
techniques. ASU 2010-6 is effective for financial statements issued for interim
and annual periods ending after December 15, 2010. The Company does not expect
the adoption of ASU 2010-06 to have a material impact on its results of
operations or financial position.
In January 2010, FASB issued ASU 2010-2
Accounting and
Reporting for Decreases in Ownership of a Subsidiary- a Scope
Clarification ("ASU
2010-2"). ASU 2010-2 addresses implementation issues related to the changes in
ownership provisions in the Consolidation—Overall Subtopic (Subtopic 810-10) of
the FASB Accounting
Standards Codification,
originally issued as FASB
Statement of Financial
Accounting Standards (“SFAS”) No. 160, Noncontrolling
Interests in Consolidated Financial Statements. Subtopic 810-10 establishes the
accounting and reporting guidance for noncontrolling interests and changes in
ownership interests of a
subsidiary. An entity is required to deconsolidate a subsidiary when the entity
ceases to have a controlling financial interest in the subsidiary. Upon
deconsolidation of a subsidiary, an entity recognizes a gain or loss on the
transaction and measures any retained investment in the
subsidiary at fair value. The gain or loss includes any gain or loss associated
with the difference between the fair value of the retained investment in the
subsidiary and its carrying amount at the date the subsidiary is deconsolidated. In contrast, an
entity is required to account for a decrease in ownership interest of a
subsidiary that does not result in a change of control of the subsidiary as an
equity transaction. ASU 2010-2 is effective for the Company
starting January 1, 2010.
The Company does not expect
the adoption of ASU 2010-2
to have a material impact on the Company's
results of operations or financial position.
6
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” (“SFAS 123”). As permitted under this standard,
compensation cost was recognized using the intrinsic value method described in
Accounting Principles Board Opinion (“APB”) No. 25, “Accounting for Stock Issued
to Employees” (“APB 25”). Effective January 1, 2006, the Company has
adopted SFAS No. 123 (Revised 2004), “Share-Based Payment” (“SFAS 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 SFAS 123R,
stock-based compensation expense recognized during the year ended December 31,
2008 includes compensation expense for all share-based payments granted on or
prior to, but not yet vested as of December 31, 2006, based on the grant date
fair value estimated in accordance with the original provisions of SFAS 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 SFAS 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 SFAS 123R.
During
the nine-months ended September 30, 2010 and 2009, the Company had no stock
based consulting expenses as determined under SFAS 123R.
NOTE
3 - PROPERTY - HELD FOR SALE/FIXED ASSETS
In late
March 2006, the Company purchased a condominium located in Carlsbad, California
for $625,083 (“Carlsbad Property”). The Company intended to renovate
and sell the condominium upon completion of the planned renovations, and,
accordingly, it has been 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. Major
improvements and renovations were capitalized.
In June
of 2006, the Company entered into a joint venture agreement to renovate and then
sell a residential home located in Oceanside, California (“Oceanside
Property”). The Company is a 50% joint venture partner, but has the
right to exercise control. The Company is 100% responsible for
improvement costs, with these costs to be reimbursed upon sale and any remaining
profits allocated evenly. The Company has valued the house at the
original value of the liability assumed of $1,000,000. As the
intention on this property is identical to the Carlsbad Property, the Oceanside
Property has been designated as “held for sale”. The Company has
capitalized improvements on this property of $149,817.
In
February 2009, the Company entered into settlement agreements with certain prior
affiliated parties pursuant to which the Company transferred the Carlsbad
Property and Oceanside Property. The Company entered into a
settlement agreement with the former controlling stockholder of the Company
under which the former controlling stockholder agreed to cancel and forgive a
promissory note made by the Company in the aggregate principal amount of
$841,828 in exchange for the Carlsbad Property. The Carlsbad
Property is also subject to a $496,000 mortgage which is now the responsibility
of the former controlling stockholder.
The
Company also entered into a settlement agreement with a joint venture partner in
relation to the Oceanside, Property. Pursuant to the agreement, the
joint venture partner released the Company from any and all liability pursuant
to the joint venture as well as any liability associated with the two mortgage
notes on this property ($1,120,000 and $320,000) in exchange for the
property.
The
Company recognized a gain on of $1,015,178 in connection with the settlement
agreements for the Carlsbad Property and the Oceanside Property.
In
December 2008, the Company purchased two parcels of undeveloped land in
Riverside County, City of Desert Hot Springs, California, for a purchase price
of a $1,000 promissory note. The land approximates 3.5
acres. This property is zoned for residential
dwellings. The Company is determining whether to build finished lots
or in the alternative to sell the land to a developer. The property
comprised of these two parcels has not yet been entitled.
7
NOTE
4 - PREFERRED STOCK
Series
A Preferred Stock
On April
24, 2008, the Company withdrew its certificate of designation establishing the
Company’s Series A Preferred Stock and filed a new certificate of designation
for 500,000 shares of Series A Preferred Stock, par value $0.001 per
share. Anytime after October 24, 2008, the Series A Preferred Stock
is convertible based upon the average of the per shares market value of the
Company’s common stock during the 20 trading days immediately preceding a
conversion date. In addition, upon the consummation of a bona fide
sale third party sale by the Company of its securities resulting in gross
proceeds of at least $1,000,000, the Series A Preferred Stock will automatically
convert into the securities being sold in such offering. The Series A
Preferred Stock has no voting rights, dividend rights, liquidation preference,
redemption rights, or preemptive rights.
On April
24, 2008, the Company issued 500,000 shares of the newly designated Series A
Preferred Stock as part of a financing transaction with Teriminus, Inc.
(“Terminus”). See Note 6. The Company has valued the
convertible shares using the Black-Scholes model and has recognized a financing
expense equivalent to the stated value of the Series A Preferred Stock of
$500,000.
On August
19, 2008, the Company amended and restated its articles of incorporation
(“August Amendment”) to increase the aggregate number of shares of all classes
of preferred stock which the Company shall have authority to issue to 50,000,000
shares with a par of $0.0001 per share.
Series
B Preferred Stock
On April
24, 2008, the Company amended the certificate of designation establishing the
Company’s Series B Preferred Stock. Pursuant to this amendment, the Company’s
Series B Preferred Stock now contains on limitation on conversions such that no
holder of Series B Preferred Stock can convert such shares into the Company’s
common stock if such conversion would result in the holder owning in excess of
4.99% of the Company’s issued and outstanding common stock.
Series
C Preferred Stock
On April
24, 2008, the Company amended the certificate of designation for its Series C
Preferred Stock. Pursuant to the Amendment, on all matters submitted
to a vote of the holders of the common stock, including, without limitation, the
election of directors, a holder of shares of the Series C Preferred Stock shall
be entitled to the number of votes on such matters equal to the product of (a)
the number of shares of the Series C Preferred Stock held by such holder, (b)
the number of issued and outstanding shares of the Company’s common stock, on a
fully-diluted basis, as of the record date for the vote, or, if no such record
date is established, as of the date such vote is taken or any written consent of
stockholders is solicited, and (c) 0.0000002.
NOTE
5 - COMMON STOCK
During
the quarter ended June 30, 2010, the Company issued 45,000,000 shares of common
stock in connection with a partial conversion of the Terminus
note. See Note 7.
During
the quarter ended March 31, 2010, the Company issued 14,000,000 shares of common
stock in connection with a partial conversion of the Terminus
note. See Note 7.
In
connection with the August Amendment, the Company’s changed the par value of its
common stock from $0.001 to $0.0001.
On
September 22, 2010, the Company issued 45,000,000 shares of common stock as
payment for certain professional services rendered. See Note
8.
8
NOTE
6 – PROMISSORY NOTES
On April
24, 2008, the Company and Terminus, as co-issuers, issued and sold to a single
accredited investor: (i) a $550,000 due on demand secured promissory note with
an interest rate of 12% per annum (“Terminus Note Payable”) and (ii) 500,000
shares of the Company’s Series A Preferred Stock. To secure payment
of the note, Terminus pledged the 10,000,000 shares of the Company’s Series C
Preferred Stock. The Company is a guarantor of the Terminus Note, and
accordingly, has treated the note as a contingent liability and as an “off-balance
sheet arrangement.”
On May 4,
2009, the Company and Terminus both defaulted on repayment of the Terminus Note.
As a result of the default on the Terminus Note, the Company has become
unconditionally liable for repayment of all principal and interest due under the
note, has recorded the full amount of $550,000 in principal and $68,750 in
accrued interest as a liability, and has incurred an expense for such
amounts. In addition, the Company continues to accrue interest
from the date of default.
On July
10, 2009, the Company, along with Terminus, entered into a first amendment to
the Terminus Note with the holder of the note. The amended note extends the
maturity date until July 10, 2010. In addition, the amendment provides that the
note may be converted into shares of the Company's common stock. The conversion
price for the amended note is the greater of (i) the then existing par value of
the Company's common stock or (i) 75 % of the average of the per shares market
values (as defined in the amended note) during the 20 trading days immediately
preceding a conversion date. If at any time after September 10, 2009, there is
either (i) insufficient shares of the Company's common stock to permit
conversions pursuant to the amended note or (ii) the per share market value is
less than the then existing par value of the Company's common stock for a period
of 5 consecutive trading days, the Company will use its best efforts to amend
its capital structure by means of either a reverse split of its common stock, an
increase in its authorized common stock, or a reduction of the par value of its
common stock, or any combination of the foregoing as determined by the Company's
board of directors in its reasonable judgment. The Company has recorded a
beneficial conversion feature relating to the Terminus Note in the amount of
$631,033.
Subsequent
to the Terminus Note amendment, the holder of the note has effected a series of
partial conversions and was issued an aggregate of 210,000,000 shares of common
stock at a conversion price of $0.001 per share. In the aggregate, these
issuances reduced the debt by $210,000 in principal.
On March
19, 2010, the Company issued an 8% $50,000 convertible promissory note
(“Terminus Note 2”) to the same holder of the Terminus Note. The note
is due and payable on March 19, 2015. In addition, the note is
convertible into shares of our common stock. The conversion
price for the note is the greater of (i) the then existing par value of the
Company's common stock or (i) 75 % of the average of the per shares market
values (as defined in the amended note) during the 20 trading days immediately
preceding a conversion date. If at any time after September 10, 2009, there is
either (i) insufficient shares of the Company's common stock to permit
conversions pursuant to the amended note or (ii) the per share market value is
less than the then existing par value of the Company's common stock for a period
of 5 consecutive trading days, the Company will use its best efforts to amend
its capital structure by means of either a reverse split of its common stock, an
increase in its authorized common stock, or a reduction of the par value of its
common stock, or any combination of the foregoing as determined by the Company's
board of directors in its reasonable judgment. The proceeds for the
sale of the note were for working capital and general corporate
purposes. The issuance was exempt under Section 4(2) and Rule 506 of
the Securities Act of 1933, as amended. No discount was recorded in connection
with this note.
On March
25, 2010, the holder of the Terminus Note effected a partial conversion and was
issued 14,000,000 shares of common stock. The issuance reduced the debt by
$5,355.
On April
5, 2010, the holder of the Terminus Note exercised a partial conversion and was
issued 45,000,000 shares of common stock. The issuance reduced the debt by
$15,345.
9
On July 7, 2010, the Company entered
into a second amendment to the Terminus Note extending the maturity date under
the note from July 10, 2010 to February 1, 2011.
The
balance of the Terminus Note at September 30, 2010 and December 31, 2009 are
$429,300 and $130,483, respectively. The note discount related to the Terminus
Note was fully amortized as of July 10, 2010.
On
September 15, 2010, the Company entered into a consulting
agreement. In connection with the consulting agreement the Company
issued a convertible note payable (“Consulting Note”) in the amount of $60,000.
The entire principal amount is due on September 15, 2020, and the Consulting
Note accrues interest on the unpaid principal amount at the rate of 4% per
annum. The holder of the Consulting Note may exercise its right to convert any
portion of unpaid principal and accrued interest into shares of the Company’s
common stock any time after March 15, 2011 at a conversion price calculated as
85% of the average of the three per share market values of the Company’s common
stock immediately preceding a conversion date. Each conversion is
limited to $10,000 per calendar month. In connection with the Consulting Note,
the Company recorded a note discount in the amount of $18,893.
NOTE
7 - RELATED PARTY TRANSACTIONS
For the
quarter ended September 30, 2010 and the year ended December 31, 2009, Terminus,
Inc. the holder of the Company’s Series C Preferred Stock, has loaned the
Company $82,127 and $81,127, respectively. The loan is payable upon
demand with interest at 12% per annum. At September 30, 2010 and
December 31, 2009 interest accrued to this loan was $13,653 and $8,637,
respectively.
NOTE
8 – 2009 STOCK INCENTIVE PLAN
On August
10, 2009, the Company’s Board of Directors adopted its 2009 Stock Incentive Plan
(the “Plan”). The Board of Directors approved the issuance of
124,000,000 shares of common stock pursuant to the 2009 Stock Incentive Plan in
payment of legal services. The Company issued 45,000,000 shares of
common stock as payment for certain professional services rendered under
the Plan during the quarter ended September 30, 2010.
NOTE
9 - GOING CONCERN
The
Company has incurred significant losses, has a negative capital, and negative
current ratio. These factors, among others indicate that the Company
may not be able to continue as a going concern. No adjustments have
been made to the carrying value of assets and liabilities should the company not
continue as a going concern.
10
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATIONS
The
following discussion and analysis should be read in conjunction with our
financial statements and related notes included in this report. This
report contains “forward-looking statements” within the meaning of the Private
Securities Litigation Reform Act of 1995. The statements contained in
this report that are not historic in nature, particularly those that utilize
terminology such as “may,” “will,” “should,” “expects,” “anticipates,”
“estimates,” “believes,” or “plans” or comparable terminology are
forward-looking statements based on current expectations and
assumptions. Various risks and uncertainties could cause actual
results to differ materially from those expressed in forward-looking
statements.
All
forward-looking statements in this document are based on information currently
available to us as of the date of this report, and we assume no obligation to
update any forward-looking statements. Forward-looking statements
involve known and unknown risks, uncertainties and other factors that may cause
the actual results to differ materially from any future results, performance or
achievements expressed or implied by such forward-looking
statements.
General
The
Blackhawk Fund acquires and redevelops residential and commercial real estate
for investment. Once we acquire a property, we redevelop and
refurbish the properties, seeking to enhance the value of the
properties. Once a property is refurbished, we seek to generate
revenue by rental of the property, and we also seek to resell the properties if
market conditions permit. We currently hold one property in our real
estate portfolio.
Historically,
we have also operated a media and television production division. In
this division, we have sought to manage and implement proprietary media
properties, including cable television shows, infomercials, online video
magazines, and DVDs. However, as discussed below, management has
determined that the ongoing media and television production operations are not
viable, and accordingly has determined to discontinue the media and television
production operations.
Change
of Control and Change in Management
On April
24, 2008, we entered into a stock purchase agreement with Terminus, Inc. and
Palomar Enterprises, Inc. pursuant to which Terminus purchased 10,000,000 shares
of our Series C Preferred Stock from Palomar for $363,000. As a
result, the sale of the Series C Preferred Stock by Palomar to Terminus
effectively transferred Palomar’s control of our company to
Terminus.
Concurrently,
Steve Bonenberger resigned as our President and Chief Executive Officer, and
Brent Fouch resigned as our Secretary and Chief Financial Officer. In
connection therewith, the board of directors increased the number of authorized
directors from two to three and appointed Frank Marshik to fill the newly
created vacancy on the board. The board of directors then appointed
Mr. Marshik as our President, Chief Financial Officer, and
Secretary. Thereafter, Mr. Bonenberger and Mr. Fouch resigned as
directors. Mr. Marshik, as the sole remaining director, appointed
Terry Ross to fill one of the two vacancies resulting from these
resignations.
On August
19, 2008, the board of directors reduced the number of authorized directors from
three (3) to one (1). Concurrently therewith, Terry Ross resigned as
a director. Mr. Ross’ resignation was not due to any disagreements
with The Blackhawk Fund on matters relating to its operations, policies, and
practices.
Plan
of Operation
Our new
management determined that our company has incurred operating and net losses in
each of the last two fiscal years, had a working capital deficit as of the end
of the latest fiscal year and as of the latest fiscal quarter, and has a large
accumulated deficit. Accordingly, new management commenced an
analysis of each of our two business lines to determine the viability of each
line during the second and third quarters of 2008. Within each line
of business, management has evaluated and is evaluating historical and projected
costs in running the line, existing and potential revenue streams, and the
availability of additional capital for expansion of the business
line. In particular, with respect to the real estate business,
management is evaluating our current real estate portfolio in light of current
market conditions, both in the real estate markets and the credit
markets. Upon completion of the analysis, management will determine
whether to seek to expand the business line or to discontinue or divest of the
division.
11
In 2008,
management determined that, based on its analysis of the foregoing factors, the
media and television production operations are not
viable. Accordingly, management has determined to discontinue the
media and television production operations. Management is continuing
the evaluation of our real estate business, the existing real estate portfolio
valuations, the existing and potential rental possibilities, the current market
values, and the existing financing arrangements. In addition, in
light of the distress in the real estate markets, management is looking at
potential real estate acquisition opportunities that, if consummated, would
increase and diversify our real estate portfolio. Management is also
considering diversifying into additional lines of business. In all
cases, management may seek to form one or more partnerships, enter into one or
more joint ventures, or conduct one or more strategic acquisitions.
We are
currently focused on expanding our real estate development
business. We currently have one property in our portfolio and
are engaged in preliminary discussion for the acquisition of two
others. We expect to have at least two properties in our portfolio at
the end of fiscal 2010.
Critical
Accounting Policies
The
discussion and analysis of our financial conditions and results of operations is
based upon our consolidated financial statements, which have been prepared in
accordance with generally accepted accounting principles in the United
States. The preparation of financial statements requires managers to
make estimates and disclosures on the date of the financial
statements. On an on-going basis, we evaluate our estimates,
including, but not limited to, those related to revenue
recognition. We use authoritative pronouncements, historical
experience, and other assumptions as the basis for making
judgments. Actual results could differ from those
estimates. We believe the following critical accounting policies
affect our more significant judgments and estimates in the preparation of our
consolidated financial statements. A summary of our critical
accounting policies can be found in the notes to our annual financial statements
included this report.
Results
of Operations
Basis
of Presentation
The
following table sets forth, for the periods indicated, certain unaudited
selected financial data:
|
Three
Months Ended
September
30,
|
Nine
Months Ended
September
30,
|
|||||||||||||||
|
2010
|
2009
|
2010
|
2009
|
|||||||||||||
|
Revenues
|
$ | -- | $ | -- | $ | -- | $ | -- | ||||||||
|
Costs
of Sales
|
-- | -- | -- | -- | ||||||||||||
|
General
and administrative
|
81,192 | 41,772 | 140,712 | 85,317 | ||||||||||||
|
Gain
on sale of assets
|
-- | -- | -- | 1,015,178 | ||||||||||||
|
Loss
on Guarantee
|
-- | -- | -- | (618,750 | ) | |||||||||||
|
Other
expense
|
-- | -- | (684 | ) | -- | |||||||||||
|
Interest
Expense
|
(16,957 | ) | (326,943 | ) | (243,763 | ) | (341,883 | ) | ||||||||
|
Operating
income (loss)
|
$ | (100,149 | ) | $ | (368,715 | ) | $ | (385,159 | ) | $ | (30,842 | ) | ||||
Comparison
of the three months ended September 30, 2010 and 2009
Net sales. Our revenues were $0
for the three months ended September 30, 2010 and 2009. This resulted
from our prior decision to cease our media operations in the end of fiscal 2008
as well as from a lack of sales of any real estate properties held for
development or any real estate properties generating rental
revenue.
Cost of
Sales. Costs of sales were $0 for the three months ended
September 30, 2010 and 2009.
12
General and
administrative. General and administrative expenses increased
to $83,192 for the three months ended September 30, 2010 as compared to $41,772
for the three months ended September 30, 2009. The increase
resulted primarily from our incurring additional consulting services in the
third quarter of 2010.
Interest. Interest
expense decreased to $16,957 for the three months ended September 30, 2010 as
compared to interest expense of $243,763 for the three months ended September
30, 2009. The decrease in interest was primarily attributed to reduced
amortization of beneficial conversion feature discount on outstanding promissory
notes.
Net loss. We
incurred a net loss of $100,149 for the three months ended December 31, 2010, as
compared to net loss of $368,715 for the three months ended September 30,
2009. Our decrease in net loss is primarily attributable
to a decrease in interest expense for the period, offset by an increase general
and administrative expenses.
Comparison
of the nine months ended September 30, 2010 and 2009
Net sales. Our revenues were $0
for the nine months ended September 30, 2010 and 2009. This resulted
from our prior decision to cease our media operations in the end of fiscal 2008
as well as from a lack of sales of any real estate properties held for
development or any real estate properties generating rental
revenue.
Cost of
Sales. Costs of sales were $0 for the nine months ended
September 30, 2010 and 2009.
General and
administrative. General and administrative expenses increased
to $140,712 for the nine months ended September 30, 2010 from $85,387 for the
comparable period in 2009. The increase resulted primarily from our
incurring additional consulting services in the third quarter of
2010.
Gain on sale of assets.
We did not incur any gain or loss on sale of assets in the nine months
ended September 30, 2010. In February 2009, we disposed of two
properties in connection with settlement agreements under which the transferees
assumed certain notes associated with such properties in connection with the
disposition. Accordingly, as a result of these transactions, we
realized a gain on the disposition of assets equal to $1,015,178.
Loss on
Guarantee. We did not incur any gain or loss on guarantee in
the nine months ended September 30, 2010. However, we incurred a loss
on guarantee of $618,750 in the second quarter of 2009 as a result of a default
by us and Terminus, Inc., as co-issuers, on repayment of a 12% promissory note
in the principal amount of $550,000 and accrued interest of
$68,750.
Other expense. We
incurred other expense of $684 during the nine months ended September 30,
2010. We did not occur such an expense in the comparable period in
2009.
Interest. Interest
expense decreased to $243,763 for the nine months ended September 30, 2010 as
compared to interest expense of $341,883 for the nine months ended September 30,
2009. The decrease in interest was primarily attributed to reduced amortization
of beneficial conversion feature discount on outstanding promissory
notes.
Net loss. We
incurred a net loss of $385,159 for the nine months ended September 30, 2010 as
compared to a net loss of $30,842 for the nine months ended September 30,
2009. In February 2009, we disposed of two properties in
connection with settlement agreements under which the transferees assumed
certain notes associated with such properties in connection with the
disposition. Our net income on the nine months ended September 30,
2009 is primarily attributable to these transactions for which we realized a
gain on the disposition of assets equal to $1,015,178, offset by the loss on
guarantee of $618,750.
Liquidity
and Capital Resources
We have
financed our operations, debt service, and capital requirements through cash
flows generated from operations and through issuance of debt and equity
securities. Our working capital deficit at September 30, 2010 was
$775,393, and we had cash of $25,266 as of September 30, 2010.
13
We used
$27,453 of net cash in operating activities for the nine months ended September
30, 2010, compared to using $29,050 in the nine months ended September 30,
2009. The net loss of $385,159 was offset by non-cash expenses of
$210,517 in discount accretion on notes, $41,107 for issuance of a note for
consulting services, and an increase of $106,082 in accounts payable and accrued
liabilities.
We
generated no cash flows from investing activities for the nine months ended
September 30, 2010 and 2009.
Net cash
flows provided by financing activities were $50,000 for the nine months ended
September 30, 2010, compared to net cash flows provided by financing activities
of $19,000 for the nine months ended September 30, 2009. The only
proceeds received in the nine months ended September 30, 2010 was generated from
issuance of a convertible promissory note.
Capital
Requirements
Our
financial statements for the nine months ended September 30, 2010 state that we
have incurred significant losses, have a negative capital, and a negative
current ratio. These factors, among others indicate that we may not
be able to continue as a going concern. We believe that, as of the
date of this report, in order to fund our plan of operations over the next 12
months, we will need to fund operations out of cash flows generated from
operations, from the borrowing of money, and from the sale of additional
securities. It is possible that we will be unable to obtain
sufficient additional capital through the borrowing of money or the sale of our
securities as needed.
Part of
our growth strategy may include diversifying into additional lines of business,
forming one or more partnerships, entering into one or more joint ventures, or
conducting one or more strategic acquisitions, which may require us to raise
additional capital. We do not currently have binding agreements or
understandings to acquire any other companies.
We intend
to retain any future earnings to pay our debts, finance the operation and
expansion of our business and any necessary capital expenditures, and for
general corporate purposes.
Off-Balance
Sheet Arrangements
None.
ITEM
3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a
“smaller reporting company” as defined by Item 10 of Regulation S-K, we are not
required to provide information required by this item.
ITEM
4 – CONTROLS AND PROCEDURES
We
maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed in our reports that we file under the
Securities Exchange Act of 1934, as amended, is recorded, processed, summarized,
and reported within the time periods specified in the Securities and Exchange
Commission’s rules and forms, and that such information is accumulated and
communicated to our management, including our Chief Executive Officer and Chief
Financial Officer, as appropriate, to allow timely decisions regarding required
disclosure based on the definition of “disclosure controls and procedures” in
Rule 13a-15(e). In designing and evaluating the disclosure controls
and procedures, our management recognized that any controls and procedures, no
matter how well designed and operated, can provide only reasonable assurance of
achieving the desired control objectives, and management necessarily was
required to apply its judgment in evaluating the cost-benefit relationship of
possible controls and procedures.
At the
end of the period covered by this Quarterly Report on Form 10-Q, we carried out
an evaluation, under the supervision and with the participation of our former
management, including our former Chief Executive Officer and former Chief
Financial Officer, of the effectiveness of the design and operation of our
disclosure controls and procedures. Based on the foregoing, our
former Chief Executive Officer and our former Chief Financial Officer concluded
that our disclosure controls and procedures were effective to ensure that all
material information required to be disclosed in this Quarterly Report on Form
10-Q has been made known to them in a timely fashion.
14
Our
former Chief Executive Officer and former Chief Financial Officer have also
evaluated whether any change in our internal controls occurred during the last
fiscal quarter and have concluded that there were no material changes in our
internal controls or in other factors that occurred during the last fiscal
quarter that has materially affected, or is reasonably likely to materially
affect, these controls.
PART
II: OTHER INFORMATION
ITEM
1 – LEGAL PROCEEDINGS
None.
ITEM
1A – RISK FACTORS
As a
“smaller reporting company” as defined by Item 10 of Regulation S-K, we are not
required to provide information required by this item.
ITEM
2 – UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On
September 15, 2010, we issued a 4% 650,000 convertible promissory note to a
single accredited investor for consulting services. The note is due
and payable on September 15, 2020. In addition, the note is
convertible into shares of our common stock at any time after March 15,
2011. The conversion price for the note is the greater of (i)
the then existing par value of the Company's common stock or (ii) 85 % of the
average of the per shares market values (as defined in the note) during the
three trading days immediately preceding a conversion date. The
issuance was exempt under Section 4(2) and Rule 506 of the Securities Act of
1933, as amended.
ITEM
3 – DEFAULT UPON SENIOR SECURITIES
None.
ITEM
4 – (REMOVED AND RESERVED)
ITEM
5 – OTHER INFORMATION
None.
ITEM
6 –
EXHIBITS
|
Item No.
|
Description
|
Method of
Filing
|
||
|
31.1
|
Certification
of Frank Marshik pursuant to Rule 13a-14(a)
|
Filed
herewith.
|
||
|
32.1
|
Chief
Executive Officer and Chief Financial Officer Certification pursuant to 18
U.S.C. § 1350 adopted pursuant to Section 906 of the Sarbanes Oxley Act of
2002
|
Filed
herewith.
|
15
SIGNATURES
Pursuant to the requirements 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.
|
THE
BLACKHAWK FUND
|
|
|
November
15, 2010
|
/s/ Frank
Marshik
|
|
Frank
Marshik
|
|
|
President
|
|
|
(Principal
Executive Officer and Principal Accounting
Officer)
|
16