NUGL, INC. - Quarter Report: 2010 June (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 June 30,
2010
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¨
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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 _________________
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Commission
File No.: 000-49672
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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)
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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 ¨
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 ¨ No ¨
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 ¨
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Accelerated
filer ¨
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Non-accelerated
filer ¨ (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 ¨ No x
APPLICABLE
ONLY TO CORPORATE ISSUERS
As of
August 17, 2010, 955,293,791 shares of our common stock were
outstanding.
ITEM
1 – CONDENSED FINANCIAL STATEMENTS
THE
BLACKHAWK FUND
BALANCE
SHEETS
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June
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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$ | 27,469 | 2,719 | |||||
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Total
current assets
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27,469 | 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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$ | 28,469 | $ | 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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$ | 254,862 | $ | 199,256 | ||||
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Note
payable, net of discount of $8,893 and $209,517,
respectively
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360,408 | 130,483 | ||||||
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Notes
payable - related party
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93,293 | 89,764 | ||||||
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Total
current liabilities
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708,563 | 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, 955,293,791and
896,293,791 shares issued and outstanding, respectively
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95,529 | 89,629 | ||||||
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Common
stock B, $0.001 par value 150,000,000 authorized, 30,000,000 issued and
outstanding
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3,000 | 3,000 | ||||||
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Additional
paid in capital
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38,028,084 | 38,013,284 | ||||||
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Accumulated
deficit
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(38,808,757 | ) | (38,523,747 | ) | ||||
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Total
stockholders’ deficit
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(680,094 | ) | (415,784 | ) | ||||
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TOTAL
LIABILITIES AND STOCKHOLDERS’ DEFICIT
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$ | 28,469 | $ | 3,719 | ||||
2
THE
BLACKHAWK FUND
STATEMENTS
OF OPERATIONS
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Three Months Ended June 30,
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Six Months Ended June 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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35,302 | 21,962 | 57,519 | 43,615 | ||||||||||||
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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 | ) | (618,750 | ) | |||||||||||
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Other
expense
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- | (684 | ) | - | ||||||||||||
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Interest
expense
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(119,401 | ) | (12,956 | ) | (226,806 | ) | (14,940 | ) | ||||||||
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NET
INCOME (LOSS)
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$ | (154,703 | ) | $ | (653,668 | ) | $ | (285,009 | ) | $ | 337,873 | |||||
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Basic
and diluted net income (loss) per common share
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$ | - | $ | - | $ | - | $ | - | ||||||||
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Weighted
average number of shares outstanding
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902,805,121 | 562,293,791 | 926,420,863 | 562,293,791 | ||||||||||||
3
THE
BLACKHAWK FUND
STATEMENTS
OF CASH FLOWS
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Six Months Ended June 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
income (loss)
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$ | (285,009 | ) | $ | 337,873 | |||
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Adjustments
to reconcile net income (loss) to net cash used in operating
activities:
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||||||||
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Discount
accretion on note
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201,625 | - | ||||||
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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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Prepaid
financing costs
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- | 415 | ||||||
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Accounts
payable and accrued liabilities
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58,134 | 37,756 | ||||||
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Net
cash used in operating activities
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(25,250 | ) | (20,384 | ) | ||||
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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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24,750 | (1,384 | ) | |||||
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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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$ | 27,469 | $ | 9,777 | ||||
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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 | - | |||||
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 six-months ended June 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
six-months ended June 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
June 30, 2010, the deferred tax asset is related solely to the Company’s net
operating loss carry forward and is fully reserved.
Income / Loss per
share
Basic
income / loss per share are computed by dividing the net income / 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 June
30, 2010, the Company’s outstanding warrants are considered
anti-dilutive.
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.
5
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.
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.
6
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 six-months ended June 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.
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.
7
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
6.
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
6.
In
connection with the August Amendment, the Company’s changed the par value of its
common stock from $0.001 to $0.0001.
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”) 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.
8
Subsequent
to the Terminus Note amendment, the holder of the note has effected a series of
partial conversions and was issued an aggregate of 269,000,000 shares of common
stock at a conversion price of $0.001 per share. In the aggregate, these
issuances reduced the debt by $230,700 in principal.
On March
19, 2010, the Company issued an 8% $50,000 convertible promissory note
(“Terminus Note 2”, together with the Terminus Note, the “Terminus Notes”) 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.
The
balance of the Terminus Notes at June 30, 2010 and December 31, 2009 are
$319,300 and $340,000, respectively.
NOTE
7 - RELATED PARTY TRANSACTIONS
For the
quarter ended June 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 June 30, 2010 and December 31, 2009 interest
accrued to this loan was $11,166 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. There were no issuances of stocks under the Plan during the quarter
ended June 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.
NOTE
10 – SUBSEQUENT EVENTS
On July
7, 2010 the Company entered into a Second Amendment to the Terminus Note
extending the Maturity Date under such note from July 10, 2010 to February 1,
2011.
9
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.
10
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
|
Six
Months Ended
|
|||||||||||||||
|
June 30,
|
June 30,
|
|||||||||||||||
|
2010
|
2009
|
2010
|
2009
|
|||||||||||||
|
Revenues
|
$ | — | $ | — | $ | — | $ | — | ||||||||
|
Costs
of Sales
|
— | — | — | — | ||||||||||||
|
General
and administrative
|
35,302 | 21,962 | 57,519 | 43,615 | ||||||||||||
|
Gain
on sale of assets
|
— | — | — | 1,015,178 | ||||||||||||
|
Loss
on Guarantee
|
— | 618,750 | — | 618,750 | ||||||||||||
|
Interest
Expense
|
119,401 | 12,956 | 226,806 | 14,940 | ||||||||||||
|
Operating
income (loss)
|
$ | (154,703 | ) | $ | (653,668 | ) | $ | (285,009 | ) | $ | 337, 873 | |||||
Comparison
of the three months ended June 30, 2010 and 2009
Net sales. Our revenues were $0
for the three months ended June 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 June 30, 2010 and
2009.
11
General and
administrative. General and administrative expenses remained
generally unchanged for the three months ended June 30, 2010 at $25,302 as
compared to $21,962 for the three months ended June 30, 2009.
Loss on Guarantee. We
did not incur any gain or loss on guarantee in the six months ended June 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.
Interest. Interest
expense increased to $119,401 for the three months ended June 30, 2010 as
compared to interest expense of $12,956 for the three months ended June 30,
2009. The increase in interest was primarily attributed to the amortization of
beneficial conversion feature discount on outstanding promissory
notes.
Net loss. We incurred a
net loss of $154,703 for the three months ended December 31, 2010 as
compared to net loss of $653,668 for the three months ended June 30, 2009.
Our decrease net loss is primarily attributable to the absence of
the loss on guarantee which occurred in 2009, offset by the increase in interest
expense for the period.
Comparison
of the six months ended June 30, 2010 and 2009
Net sales. Our revenues were $0
for the six months ended June 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 six months ended June 30, 2010 and 2009.
General and
administrative. General and administrative expenses increased to
$57,519 for the six months ended June 30, 2010 from $43,615 for the comparable
period in 2009.
Gain on sale of
assets. We did not incur any gain or loss on sale of assets in the
six months ended June 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 six months ended June 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.
Interest. Interest
expense increased to $226,806 for the six months ended June 30, 2010 as
compared to interest expense of $14,940 for the six months ended June 30,
2009. The increase in interest was primarily attributed to the amortization of
beneficial conversion feature discount on outstanding promissory
notes.
Net loss. We incurred a
net loss of $285,009 for the six months ended June 30, 2010 as compared to net
income of $337,873 for the six months ended June 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
six months ended June 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 June 30, 2010 was $681,094, and
we had cash of $27,469 as of June 30, 2010.
We used
$25,250 of net cash in operating activities for the six months ended June 30,
2010, compared to using $20,384 in the six months ended June 30, 2009. The
net loss of $285,009 was offset by non-cash expenses of $201,625 in
discount accretion on a note and an increase of $58,134 in accounts payable and
accrued liabilities.
12
We
generated no cash flows from investing activities for the six months ended June
30, 2010 and 2009.
Net cash
flows provided by financing activities were $50,000 for the six months ended
June 30, 2010, compared to net cash flows provided by financing activities of
$19,000 for the six months ended June 30, 2009. The only proceeds received
in the six months ended June 30, 2010 was generated from issuance of a
convertible promissory note.
Capital
Requirements
Our
financial statements for the six months ended June 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.
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.
13
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
During
the quarter ended June 30, 2010, we issued an aggregate of 45,000,000 shares of
common stock upon conversion of a convertible note. The aggregate
principal and interest amount of the note converted was $15,345. The
issuance was exempt pursuant to Section 3(a)(9) of the Securities Act as well as
Section 4(2) of the Securities Act.
ITEM
3 – DEFAULT UPON SENIOR SECURITIES
None.
ITEM
4 – (REMOVED AND RESERVED)
ITEM
5 – OTHER INFORMATION
On July
7, 2010 we entered into a Second Amendment to the Terminus Note extending the
Maturity Date under such note from July 10, 2010 to February 1,
2011.
ITEM
6 - EXHIBITS
|
Item
|
||||
|
No.
|
Description
|
Method of Filing
|
||
|
4.1
|
Second
Amendment to Note
|
Filed
herewith.
|
||
|
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 o 18
U.S.C. § 1350 adopted pursuant to Section 906 of the Sarbanes Oxley Act of
2002
|
|
Filed
herewith.
|
14
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
|
||
|
August
23, 2010
|
/s/ Frank Marshik
|
|
|
Frank
Marshik
|
||
|
President
|
||
|
(Principal
Executive Officer and Principal Accounting
Officer)
|
||
15