SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________________________________________
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2004.
[_] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM
COMMISSION FILE NO. 000-49672
THE BLACKHAWK FUND
(Exact name of issuer as specified in its charter)
NEVADA 88-0408213
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1802 N. CARSON STREET, SUITE 212 89701
CARSON CITY, NEVADA
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (775) 887-0670
Securities registered under Section 12(b)
of the Exchange Act: NONE
Securities registered under Section 12(g) COMMON STOCK, PAR VALUE
of the Exchange Act: $0.001 PER SHARE
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months (or 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 if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [_]
State issuer's revenues for its most recent fiscal year: $0.
State the aggregate market value of the voting and non-voting common equity
held by non-affiliates computed by reference to the price at which the common
equity was last sold, or the average bid and asked price of such common equity,
as of March 21, 2005: $93,000.00.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock as of March 31, 2005: 570,209,709 shares of common
stock.
Documents incorporated by reference: None.
Transitional Small Business Disclosure Format (Check one): Yes [_] No [X]
1
TABLE OF CONTENTS
Item 1. Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Item 2. Description of Property.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . . . . . 11
Item 5. Market for Common Equity and Related Stockholder Matters. . . . . . . . . . . . . . . . . . . . 11
Item 6. Management's Discussion and Analysis or Plan of Operation . . . . . . . . . . . . . . . . . . . 12
Item 7. Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Item 8. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. . . . . . 18
Item 8A. Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Item 8B Other information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance With Section 16(a) of
the Exchange Act. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Item 10. Executive Compensation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Item 11. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Item 12. Certain Relationships and Related Transactions. . . . . . . . . . . . . . . . . . . . . . . . . 23
Item 13. Exhibits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Item 14. Principal Accountant Fees and Services. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
2
PART I
ITEM 1. BUSINESS.
COMPANY OVERVIEW
We were formed on or about November of 1998. USA Telcom, as we were
previously called, acted as an agent in commercial transactions between
Vietnamese purchasers and U.S. manufacturers. In particular, USA Telcom
identified suitable U.S. suppliers for Vietnamese buyers, facilitated
communications between the parties, and assisted Vietnamese buyers with the
preparation of letters of credit documentation and submitting of such to the
seller for approval.
Our prior management has decided to terminate the Vietnamese commercial
business and focus on opportunities within the United States.
CHANGE OF CONTROL
On March 19, 2004, we issued 13,000,000 shares of common stock to Robert C.
Simpson, Ph.D. for a purchase price of $260,000.00 which constituted
approximately 75 percent of our issued and outstanding shares of common stock.
Before the purchase by Dr. Simpson, Allen Jones was our controlling stockholder.
Following the purchase of our shares by Dr. Simpson, he and George Peterman were
appointed to our board of directors. Dr. Simpson was also elected as our
president, chief financial officer and secretary.
On May 26, 2004, Mr. Peterman resigned as our director. On July 14, 2004,
Dr. Simpson resigned as our president and became chairman of our board of
directors. At that time, we elected Luther E. Lindner, M.D., Ph.D. as president
and chief executive officer. We and Dr. Lindner have since mutually agreed that
Dr. Lindner would resign as our president and chief executive officer in order
to allow Dr. Lindner to accept a position as president and chief executive
officer of Cryptobe, Inc., an affiliated privately-held company.
We retained AMVI, a company controlled by Mr. Jones, as a consultant.
Under the terms of the consulting agreement, AMVI received a total of
$141,516 from March 19, 2004 through October 1, 2004, payable in four
installments. In addition, we sold certain assets to AMVI for $10,300, which
consisted of 5,000 shares of common stock of an unrelated corporation, certain
computer equipment and a note receivable in the principal amount of $300,000.
All monies were put into a trust managed by counsel and paid on schedule.
After Dr. Simpson initially acquired our shares, we intended to acquire
Blue Kiwi, Inc., a company in which Dr. Simpson has an equity interest.
However, we decided that we would not acquire Blue Kiwi, Inc. Instead, we
entered into a strategic alliance with Blue Kiwi based on the synergies as seen
by Dr. Simpson.
On July 21, 2004, we filed certificates of designation establishing our
Series A, B and C preferred stock. 20 million shares have been designated as
our Series A preferred stock, 10 million shares have been designated as our
Series B preferred stock, and 20 million shares have been designated as our
Series C preferred stock.
Each share of our Series A preferred stock is convertible into 10 shares of
our common stock. Each share of the Series B preferred stock is convertible
into 200 shares of our common stock. The shares of our Series C preferred stock
are not convertible into shares of our common stock.
The holders of shares of our Series A preferred stock do not have voting
rights on any matters submitted to a vote of our stockholders. On all matters
submitted to a vote of our stockholders, each holder of shares of our Series B
preferred stock is entitled to one vote per share of the Series B preferred
stock held by such holder. On all matters submitted to a vote of our
stockholders, each holder of shares of our Series C preferred stock is entitled
to 100 votes per share of the Series C preferred stock held by such
holder.
1
Effective November 29, 2004, we filed a certificate of correction to our
certificate of designation establishing our Series B preferred stock. Our
certificate of designation for the Series B preferred stock, as originally filed
on June 21, 2004, incorrectly stated that the shares of the Series B preferred
stock were not convertible into the shares of our common stock. The certificate
of correction, filed on November 29, 2004, corrected the error by stating that
each share of the Series B preferred stock is convertible into 200 shares of our
common stock.
On October 12, 2004, R. Patrick Liska was elected a director and appointed
our president, secretary, treasurer, chairman of the board and chief executive
officer.
On November 23, 2004, R. Patrick Liska was removed as our director,
secretary, treasurer, president, chairman of the board and chief executive
officer. The removal of R. Patrick Liska as our director and officer resulted
from philosophical differences between our former management and Mr. Liska
regarding business operations, policies and practices. The effective date of
the removal was November 23, 2004.
Effective November 23, 2004, Robert C. Simpson was elected our sole
director, president, chairman of the board and chief executive officer.
On November 29, 2004, a change in control occurred as the result of the
acquisition of our series A, series B and series C preferred stock by Palomar
Enterprises, Inc., a Nevada corporation ("Palomar").
Pursuant to that certain capital Stock Purchase Agreement dated November 9,
2004, between Robert C. Simpson, our then-sole director and officer and Palomar,
on November 29, 2004, Palomar acquired from Dr. Simpson 19,000,000 shares of our
series A preferred stock, 10,000,000 shares of our series B preferred stock and
10,000,000 shares of our Series C preferred stock. Each share of the series A
preferred stock is convertible into ten shares of our common stock. The shares
of the series A preferred stock do not have voting rights. Each share of the
series B preferred stock is convertible into two hundred shares of our common
stock. On all matters submitted to a vote of the holders of the Common Stock, a
holder of the Series B Preferred Stock is entitled to one vote per share of the
Series B Preferred Stock held by such holder. The series C preferred stock is
not convertible into our common shares. Each share of the series C preferred
stock entitles the holder to 100 votes of our common stock on all matters
brought before our stockholders.
All of the preferred shares acquired by Palomar carried a legend
restricting the transfer thereof under the Securities Act of 1933, as amended.
Palomar used $380,000 of its working capital as consideration for the preferred
shares purchased by it pursuant to the Capital Stock Purchase Agreement.
Concurrently with the stock purchase transaction, Robert C. Simpson, our
then-sole director and officer, nominated Steve Bonenberger and Brent Fouch as
directors. Steve Bonenberger was also elected president and chief executive
officer and Brent Fouch was elected Secretary and chief financial officer.
Following the election of Messrs. Bonenberger and Fouch as our officers and
directors, Robert C. Simpson resigned his positions as our director and officer.
CURRENT BUSINESS PLAN
Our current purpose is to seek, investigate and, if such investigation
warrants, acquire an interest in business opportunities presented to us by
persons or firms who or which desire to seek the perceived advantages of a
corporation which is registered under the Securities Exchange Act of 1934, as
amended. We do not restrict our search to any specific business; industry or
geographical location and we may participate in a business venture of virtually
any kind or nature.
We may seek a business opportunity with entities which have recently
commenced operations, or which wish to utilize the public marketplace in order
to raise additional capital in order to expand into new products or markets, to
develop a new product or service or for other corporate purposes. We may
acquire assets and establish wholly owned subsidiaries in various businesses or
acquire existing businesses as subsidiaries.
2
We have the option of converting into a Business Development Corporation at
some time within the next 12 months. If our board decides that it is in our
best interests to become a Business Development Corporation, we would do so by
filing a Form N-54 with the Securities and Exchange Commission and electing to
be governed by the Investment Company Act of 1940, as amended. We would
continue to be subject to the periodic reporting requirements of the Exchange
Act.
As part of our investigation of potential merger candidates, our officers
and directors will meet personally with management and key personnel, may visit
and inspect material facilities, obtain independent analysis or verification of
certain information provided, check references of management and key personnel
and take other reasonable investigative measures, to the extent of our financial
resources and management expertise. The manner in which we participate in an
opportunity will depend on the nature of the opportunity, the respective needs
and desires of us and other parties, the management of the opportunity, our
relative negotiation strength and that of the other management.
We intend to concentrate on identifying preliminary prospective business
opportunities that may be brought to our attention through present associations
of our officers and directors, or by our shareholders. In analyzing prospective
business opportunities, we will consider such matters as the available
technical, financial and managerial resources; working capital and other
financial requirements; history of operations, if any; prospects for the future;
nature of present and expected competition; the quality and experience of
management services which may be available and the depth of that management; the
potential for further research, development or exploration; specific risk
factors not now foreseeable but which then may be anticipated to impact our
proposed activities; the potential for growth or expansion; the potential for
profit; the perceived public recognition or acceptance of products, services or
trades; name identification; and other relevant factors.
Our officers and directors will meet personally with management and key
personnel of the business opportunity as part of their investigation. We will
not acquire or merge with any company for which audited financial statements
cannot be obtained within a reasonable period of time after closing of the
proposed transaction, as required by the Exchange Act.
We will not restrict our search to any specific kind of firms, but may
acquire a venture which is in its preliminary or development stage, which is
already in operation, or which is in essentially any stage of its corporate
life. It is impossible to predict at this time the status of any business in
which we may become engaged, in that such business may need to seek additional
capital, may desire to have its shares publicly traded or may seek other
perceived advantages which we may offer.
KEY PERSONNEL
Our future financial success depends to a large degree upon the efforts of
Messrs. Bonenberger and Fouch, our officers and directors. Messrs. Bonenberger
and Fouch have played major roles in developing and executing our business
strategy. The loss of Messrs. Bonenberger and Fouch could have an adverse
effect on our business and our chances for profitable operations. While we
intend to employ additional management and marketing personnel in order to
minimize the critical dependency upon any one person, there can be no assurance
that we will be successful in attracting and retaining the persons needed. If
we do not succeed in retaining and motivating our current employees and
attracting new high quality employees, our business could be adversely affected.
We do not maintain key man life insurance on the lives of Messrs. Bonenberger
and Fouch.
OUR FINANCIAL RESULTS MAY BE AFFECTED BY FACTORS OUTSIDE OF OUR CONTROL
Our future operating results may vary significantly from quarter to quarter
due to a variety of factors, many of which are outside our control. Our
anticipated expense levels are based, in part, on our estimates of future
revenues and may vary from our projections. We may be unable to adjust spending
rapidly enough to compensate for any unexpected revenues shortfall.
Accordingly, any significant shortfall in revenues in relation to our planned
expenditures would materially adversely affect our business, operating results,
and financial condition.
3
We cannot predict with certainty our revenues and operating results.
Further, we believe that period-to-period comparisons of our operating results
are not necessarily a meaningful indication of future performance.
CORPORATE OFFICES
Our executive office is located at 1802 N. Carson Street, Suite 212, Carson
City, Nevada, 89701, telephone number (775) 887-0670.
RECENT EVENTS
Effective January 3, 2005, we changed our name from "Zannwell Inc." to "The
Blackhawk Fund" and implemented a one for 800 reverse split of our common stock.
All share and per share amounts presented in our financial statements which are
part of this Annual Report on Form 10-KSB have been restated retroactively to
reflect the split as if it had occurred on the first day of the first period
presented, or January 1, 2003. However, all share and per share amounts have
not been restated retroactively to reflect the split in the narrative portion of
this Annual Report on Form 10-KSB. Consequently, the retroactive restatement
may cause some apparent inconsistencies between the narrative portion of this
Annual Report on Form 10-KSB and our other filings with the Securities and
Exchange Commission on one hand, and the financial statements and accompanying
notes forming part of this Annual Report on Form 10-KSB on the other hand.
Effective January 4, 2005, we amended our articles of incorporation to
authorize 4,000,000,000 shares of common stock, par value $0.001 per share, and
50,000,000 shares of preferred stock, par value $0.001 per share.
EMPLOYEES
We have two full-time employees and two part-time employees as of March 31,
2005. As we grow, we will need to attract an unknown number of additional
qualified employees. Although we have experienced no work stoppages and believe
our relationships with our employees are good, we could be unsuccessful in
attracting and retaining the persons needed. None of our employees are
currently represented by a labor union.
RISK FACTORS
NEED FOR ONGOING FINANCING.
We will need additional capital to continue our operations and will
endeavor to raise funds through the sale of equity shares and revenues from
operations.
There can be no assurance that we will generate revenues from operations or
obtain sufficient capital on acceptable terms, if at all. Failure to obtain
such capital or generate such operating revenues would have an adverse impact on
our financial position and results of operations and ability to continue as a
going concern. Our operating and capital requirements during the next fiscal
year and thereafter will vary based on a number of factors, including the level
of sales and marketing activities for our services and products. There can be
no assurance that additional private or public financing, including debt or
equity financing, will be available as needed, or, if available, on terms
favorable to us. Any additional equity financing may be dilutive to
stockholders and such additional equity securities may have rights, preferences
or privileges that are senior to those of our existing common stock.
Furthermore, debt financing, if available, will require payment of interest
and may involve restrictive covenants that could impose limitations on our
operating flexibility. Our failure to successfully obtain additional future
funding may jeopardize our ability to continue our business and operations.
4
If we raise additional funds by issuing equity securities, existing
stockholders may experience a dilution in their ownership. In addition, as a
condition to giving additional funds to us, future investors may demand, and may
be granted, rights superior to those of existing stockholders.
5
BUSINESS CONCENTRATION.
While we consider our relationships with our customers to be satisfactory,
given the concentration of our sales to a few key customers, our continued
relationships may be subject to the policies and practices of the customers. We
continue to concentrate our efforts on expanding our customer base in order to
reduce our reliance on our current customers.
INFLATION.
In our opinion, inflation has not had a material effect on our financial
condition or results of our operations.
TRENDS, RISKS AND UNCERTAINTIES.
We have sought to identify what we believe to be the most significant risks
to our business, but we cannot predict whether, or to what extent, any of such
risks may be realized nor can we guarantee that we have identified all possible
risks that might arise. Investors should carefully consider all of such risk
factors before making an investment decision with respect to our common stock.
CAUTIONARY FACTORS THAT MAY AFFECT FUTURE RESULTS.
We provide the following cautionary discussion of risks, uncertainties and
possible inaccurate assumptions relevant to our business and our products.
These are factors that we think could cause our actual results to differ
materially from expected results. Other factors besides those listed here could
adversely affect us.
POTENTIAL FLUCTUATIONS IN QUARTERLY OPERATING RESULTS.
Our quarterly operating results may fluctuate significantly in the future
as a result of a variety of factors, most of which are outside our control,
including the demand for our services, seasonal trends in purchasing, the amount
and timing of capital expenditures; price competition or pricing changes in the
industry; technical difficulties or system downtime; general economic
conditions, and economic conditions specific to our industry. Our quarterly
results may also be significantly impacted by the impact of the accounting
treatment of acquisitions, financing transactions or other matters.
Particularly at our early stage of development, occurrences such as accounting
treatment can have a material impact on the results for any quarter. Due to the
foregoing factors, among others, it is likely that our operating results will
fall below our expectations or those of investors in some future quarter.
LACK OF INDEPENDENT DIRECTORS.
We cannot guarantee that our board of directors will have a majority of
independent directors in the future. In the absence of a majority of
independent directors, our executive officers, could establish policies and
enter into transactions without independent review and approval thereof. This
could present the potential for a conflict of interest between us and our
stockholders generally and the controlling officers, stockholders or directors.
LIMITATION OF LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS.
Our officers and directors are required to exercise good faith and high
integrity in our management affairs. Our articles of incorporation provide,
however, that our officers and directors shall have no liability to our
stockholders for losses sustained or liabilities incurred which arise from any
transaction in their respective managerial capacities unless they violated their
duty of loyalty, did not act in good faith, engaged in intentional misconduct or
knowingly violated the law, approved an improper dividend or stock repurchase,
or derived an improper benefit from the transaction. Our articles and bylaws
also provide for the indemnification by us of the officers and directors against
any losses or liabilities they may incur as a result of the manner in which they
operate our business or conduct the internal affairs, provided that in
connection with these activities they act in good faith
6
and in a manner that they reasonably believe to be in, or not opposed to, our
best interests, and their conduct does not constitute gross negligence,
misconduct or breach of fiduciary obligations.
MANAGEMENT OF POTENTIAL GROWTH.
We may experience rapid growth which will place a significant strain on our
managerial, operational, and financial systems resources. To accommodate our
current size and manage growth, we must continue to implement and improve our
financial strength and our operational systems, and expand, train and manage our
sales and distribution base. There is no guarantee that we will be able to
effectively manage the expansion of our operations, or that our facilities,
systems, procedures or controls will be adequate to support our expanded
operations. Our inability to effectively manage our future growth would have a
material adverse effect on us.
WE PAY NO DIVIDENDS.
We have never declared nor paid cash dividends on our capital stock. We
currently intend to retain any earnings for funding growth however these plans
may change depending upon capital raising requirements.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
We believe that we do not have any material exposure to interest or
commodity risks. Our financial results are quantified in U.S. dollars and a
majority of our obligations and expenditures with respect to our operations are
incurred in U.S. dollars. Although we do not believe we currently have any
materially significant market risks relating to our operations resulting from
foreign exchange rates, if we enter into financing or other business
arrangements denominated in currency other than the U.S. dollars, variations in
the exchange rate may give rise to foreign exchange gains or losses that may be
significant.
We currently have no material long-term debt obligations. We do not use
financial instruments for trading purposes and we are not a party to any
leverage derivatives.
RISKS RELATING TO OUR BUSINESS
WE ARE NOT LIKELY TO SUCCEED UNLESS WE CAN OVERCOME THE MANY OBSTACLES WE FACE.
As an investor, you should be aware of the difficulties, delays and
expenses we encounter, many of which are beyond our control, including
unanticipated market trends, employment costs, and administrative expenses. We
cannot assure our investors that our proposed business plans as described in
this report will materialize or prove successful, or that we will ever be able
to finalize development of our products or services or operate profitably. If
we cannot operate profitably, you could lose your entire investment. As a
result of the nature of our business, initially we expect to sustain substantial
operating expenses without generating significant revenues.
OUR AUDITORS HAVE STATED WE MAY NOT BE ABLE TO STAY IN BUSINESS.
Our auditors have issued a going concern opinion, which means that there is
doubt that we can continue as an ongoing business for the next 12 months.
Unless we can raise additional capital, we may not be able to achieve our
objectives and may have to suspend or cease operations. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
OUR ACQUISITION STRATEGY INVOLVES A NUMBER OF RISKS.
We intend to pursue growth through the opportunistic acquisition of
companies or assets that will enable us to expand our service lines to provide
more cost-effective customer solutions. We routinely review potential
acquisitions. This strategy involves certain risks, including difficulties in
the integration of operations and systems, the diversion of our management's
attention from other business concerns, and the potential loss of key employees
of acquired companies. We may not be able to successfully acquire, and/or
integrate acquired businesses into our operations.
7
RISKS RELATING TO OUR STOCK
WE MAY NEED TO RAISE ADDITIONAL CAPITAL. IF WE ARE UNABLE TO RAISE NECESSARY
ADDITIONAL CAPITAL, OUR BUSINESS MAY FAIL OR OUR OPERATING RESULTS AND OUR STOCK
PRICE MAY BE MATERIALLY ADVERSELY AFFECTED.
Due to the lack of revenue and expenses, we need to secure adequate
funding. If we are unable to obtain adequate funding, we may not be able to
successfully develop and market our products and services and our business will
most likely fail. We do not have commitments for additional financing. To
secure additional financing, we may need to borrow money or sell more
securities, which may reduce the value of our outstanding securities. Under
these circumstances, we may be unable to secure additional financing on
favorable terms or at all.
Selling additional stock, either privately or publicly, would dilute the
equity interests of our stockholders. If we borrow more money, we will have to
pay interest and may also have to agree to restrictions that limit our operating
flexibility. If we are unable to obtain adequate financing, we may have to
curtail business operations which would have a material negative effect on
operating results and most likely result in a lower stock price.
OUR COMMON STOCK HAS EXPERIENCED IN THE PAST, AND IS EXPECTED TO EXPERIENCE IN
THE FUTURE, SIGNIFICANT PRICE AND VOLUME VOLATILITY, WHICH SUBSTANTIALLY
INCREASES THE RISK THAT YOU MAY NOT BE ABLE TO SELL YOUR SHARES AT OR ABOVE THE
PRICE THAT YOU PAY FOR THE SHARES.
Because of the limited trading market for our common stock, and because of
the possible price volatility, you may not be able to sell your shares of common
stock when you desire to do so. During 2003 and 2004, our common stock was sold
and purchased at prices that ranged from a high of $0.25 to a low of $0.0006
per share. The inability to sell your shares in a rapidly declining market may
substantially increase your risk of loss because of such illiquidity because the
price for our common stock may suffer greater declines due to its price
volatility.
The price of our common stock that will prevail in the market after this
offering may be higher or lower than the price you pay. Certain factors, some
of which are beyond our control, that may cause our share price to fluctuate
significantly include, but are not limited to, the following:
- Variations in our quarterly operating results;
- The development of a market in general for our products and services;
- Changes in market valuations of similar companies;
- Announcement by us or our competitors of significant contracts,
acquisitions, strategic partnerships, joint ventures or capital
commitments;
- Loss of a major customer or failure to complete significant transactions;
- Additions or departures of key personnel; and
- Fluctuations in stock market price and volume.
Additionally, in recent years the stock market in general, and the OTC
Bulletin Board and technology stocks in particular, have experienced extreme
price and volume fluctuations. In some cases, these fluctuations are unrelated
or disproportionate to the operating performance of the underlying company.
These market and industry factors may materially and adversely affect our stock
price, regardless of our operating performance.
Over the past few months, there have been periods of significant increases
in trading volume of our common stock during which the price of our stock has
both increased and decreased. The historical trading of our common stock is not
necessarily an indicator of how it will trade in the future and our trading
price as of the date of this report does not necessarily portend what the
trading price of our common stock might be in the future.
8
In the past, class action litigation has often been brought against
companies following periods of volatility in the market price of the common
stock of those companies. If we become involved in this type of litigation in
the future, it could result in substantial costs and diversion of management
attention and resources, which could have a further negative effect on your
investment in our stock.
OUR DIRECTORS HAVE THE RIGHT TO AUTHORIZE THE ISSUANCE OF PREFERRED STOCK AND
ADDITIONAL SHARES OF OUR COMMON STOCK.
Our directors, within the limitations and restrictions contained in our
articles of incorporation and without further action by our stockholders, have
the authority to issue shares of preferred stock from time to time in one or
more series and to fix the number of shares and the relative rights, conversion
rights, voting rights, and terms of redemption, liquidation preferences and any
other preferences, special rights and qualifications of any such series. We
have no intention of issuing preferred stock at the present time. Any issuance
of preferred stock could adversely affect the rights of holders of our common
stock.
Should we issue additional shares of our common stock at a later time, each
investor's ownership interest in The Blackhawk Fund would be proportionally
reduced. No investor will have any preemptive right to acquire additional
shares of our common stock, or any of our other securities.
THE ISSUANCE OF SHARES UPON THE EXERCISE OF OUTSTANDING WARRANTS MAY CAUSE
IMMEDIATE AND SUBSTANTIAL DILUTION TO OUR EXISTING STOCKHOLDERS.
The issuance of shares upon the exercise of warrants may result in
substantial dilution to the interests of other stockholders since the selling
stockholders may ultimately convert and sell the full amount issuable on
conversion. There is no upper limit on the number of shares that may be issued
which will have the effect of further diluting the proportionate equity interest
and voting power of holders of our common stock, including investors in this
offering.
IF WE FAIL TO REMAIN CURRENT ON OUR REPORTING REQUIREMENTS, WE COULD BE REMOVED
FROM THE OTC BULLETIN BOARD WHICH WOULD LIMIT THE ABILITY OF BROKER-DEALERS TO
SELL OUR SECURITIES AND THE ABILITY OF STOCKHOLDERS TO SELL THEIR SECURITIES IN
THE SECONDARY MARKET.
Companies trading on the OTC Bulletin Board, such as The Blackhawk Fund,
must be reporting issuers under Section 12 of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and must be current in their reports
under Section 13, in order to maintain price quotation privileges on the OTC
Bulletin Board. If we fail to remain current on our reporting requirements, we
could be removed from the OTC Bulletin Board. As a result, the market liquidity
for our securities could be severely adversely affected by limiting the ability
of broker-dealers to sell our securities and the ability of stockholders to sell
their securities in the secondary market.
OUR COMMON STOCK IS SUBJECT TO THE "PENNY STOCK" RULES OF THE SEC AND THE
TRADING MARKET IN OUR SECURITIES IS LIMITED, WHICH MAKES TRANSACTIONS IN OUR
STOCK CUMBERSOME AND MAY REDUCE THE VALUE OF AN INVESTMENT IN OUR STOCK.
The Securities and Exchange Commission has adopted Rule 15g-9 which
establishes the definition of a "penny stock," for the purposes relevant to us,
as any equity security that has a market price of less than $5.00 per share or
with an exercise price of less than $5.00 per share, subject to certain
exceptions. Inasmuch as that the current bid and ask price of common stock is
less than $5.00 per share, our shares are classified as "penny stock" under the
rules of the SEC. For any transaction involving a penny stock, unless exempt,
the rules require:
- That a broker or dealer approve a person's account for transactions in
penny stocks; and
- The broker or dealer receives from the investor a written agreement to the
transaction, setting forth the identity and quantity of the penny stock to
be purchased.
In order to approve a person's account for transactions in penny stocks,
the broker or dealer must:
9
- Obtain financial information and investment experience objectives of the
person; and
- Make a reasonable determination that the transactions in penny stocks are
suitable for that person and the person has sufficient knowledge and
experience in financial matters to be capable of evaluating the risks of
transactions in penny stocks.
The broker or dealer must also deliver, prior to any transaction in a penny
stock, a disclosure schedule prescribed by the Commission relating to the penny
stock market, which, in highlight form:
- Sets forth the basis on which the broker or dealer made the suitability
determination; and
- That the broker or dealer received a signed, written agreement from the
investor prior to the transaction.
Generally, brokers may be less willing to execute transactions in
securities subject to the "penny stock" rules. This may make it more difficult
for investors to dispose of our common stock and cause a decline in the market
value of our stock.
Disclosure also has to be made about the risks of investing in penny stocks
in both public offerings and in secondary trading and about the commissions
payable to both the broker-dealer and the registered representative, current
quotations for the securities and the rights and remedies available to an
investor in cases of fraud in penny stock transactions. Finally, monthly
statements have to be sent disclosing recent price information for the penny
stock held in the account and information on the limited market in penny stocks
ITEM 2. DESCRIPTION OF PROPERTY.
We lease office space at 1802 N. Carson Street, Suite 212, Carson City,
Nevada, 89701. Our Carson Street lease costs $100 per month and is scheduled to
expire on December 31, 2005. Our management team occupies office space at 120
Birmingham, Suite 120-C, Cardiff, California 92007. The Birmingham lease costs
$650 per month and is scheduled to expire on December 31, 2005.
ITEM 3. LEGAL PROCEEDINGS.
On December 28, 2004, R. Patrick Liska, who served as our director and
officer at the time when we were called Zannwell, Inc., filed a lawsuit against
us in the Hennepin county, Minnesota District Court. Mr. Liska alleges that he
is entitled to receive 1,000,000 shares of our series A convertible preferred
stock, and 5,000,000 shares of our common stock, both of which we deny
vigorously. Because this proceeding is only in its beginning stages, it is
difficult to predict with any degree of certainty what liability we may face, if
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On January 3, 2005 the holder of the majority of our voting capital stock
acted by written consent to effect the following corporate actions:
1. Amend our articles of incorporation to change our name from
"ZannWell Inc." to "The BlackHawk Fund";
2. Approve an amendment to our articles of incorporation to increase
the authorized number of shares of our common stock from 900,000,000 to
4,000,000,000 shares;
3. Grant discretionary authority to our board of directors to implement
a reverse stock split of our common stock on the basis of one post-consolidation
share for up to each 800 pre-consolidation shares to occur at some time within
12 months of the date of this information statement, with the exact time of the
reverse split to be determined by the board of directors;
10
4. Grant discretionary authority to the directors to implement a
proposal for ZannWell Inc. to become a Business Development Corporation to occur
at some time within 12 months of the date of this information statement, with
the exact time of such conversion to be determined by the board of directors;
5. Ratify the removal of R. Patrick Liska from our board of directors;
and
6. Ratify the election of Steve Bonenberger and Brent Fouch as our
directors.
We had a consenting stockholder, Palomar Enterprises, Inc., a Nevada
corporation, ("Palomar"), which held 19,000,000 shares of our series A preferred
stock, 10,000,000 shares of our series B preferred stock, and 10,000,000 shares
of our series C preferred stock on the record date. The shares of the series A
preferred stock do not have voting rights. Each share of the series B preferred
stock entitles the holder to one vote of our common stock on all matters brought
before our stockholders. Each share of the series C preferred stock entitles
the holder to 100 votes of our common stock on all matters brought before our
stockholders. Therefore, Palomar had the power to vote 1,010,000,000 shares of
the common stock, which number exceeded the 167,750,000 issued and outstanding
shares of our common stock on the record date.
Palomar voted in favor of the proposed amendments to our articles of
incorporation, to ratify the removal of a director and the election of new
directors, and for the grant of discretionary authority to the board with
respect to the stock split and conversion to a Business Development Corporation.
Palomar had the power to pass the proposed corporate actions without the
concurrence of any of our other stockholders.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Until January 3, 2005, our common stock was quoted on the OTC Bulletin
Board under the symbol "ZWLL.OB." On January 3, 2005, in connection with our
name change and 1-800 reverse stock split, our symbol changed from "ZWLL.OB." to
"BHWK.OB." These quotations reflect inter-dealer prices, without mark-up,
mark-down or commission, and may not represent actual transactions.
CALENDAR YEAR 2003 HIGH LOW
------------------ ---- ---
First Quarter 0.25 0.15
Second Quarter 0.15 0.15
Third Quarter 0.15 0.05
Fourth Quarter 0.25 0.05
CALENDAR YEAR 2003 HIGH LOW
------------------ ---- ---
First Quarter 0.13 0.07
Second Quarter 0.10 0.03
Third Quarter 0.04 0.0008
Fourth Quarter 0.0061 0.0006
As of March 31, 2005, we had 570,209,709 shares of our common stock
outstanding. Our shares of common stock are held by approximately 53
stockholders of record. The number of record holders was determined from the
records of our transfer agent and does not include beneficial owners of common
stock whose shares are held in the names of various security brokers, dealers,
and registered clearing agencies.
11
SECTION 15(G) OF THE EXCHANGE ACT
The shares of our common stock are covered by Section 15(g) of the Exchange
Act, and Rules 15g-1 through 15g-6 promulgated thereunder, which impose
additional sales practice requirements on broker-dealers who sell our securities
to persons other than established customers and accredited investors.
Rule 15g-2 declares unlawful any broker-dealer transactions in "penny
stocks" unless the broker-dealer has first provided to the customer a
standardized disclosure document.
Rule 15g-3 provides that it is unlawful for a broker-dealer to engage in a
"penny stock" transaction unless the broker-dealer first discloses and
subsequently confirms to the customer the current quotation prices or similar
market information concerning the penny stock in question.
Rule 15g-4 prohibits broker-dealers from completing "penny stock"
transactions for a customer unless the broker-dealer first discloses to the
customer the amount of compensation or other remuneration received as a result
of the penny stock transaction.
Rule 15g-5 requires that a broker-dealer executing a "penny stock"
transaction, other than one exempt under Rule 15g-1, disclose to its customer,
at the time of or prior to the transaction, information about the sales person's
compensation.
Our common stock may be subject to the foregoing rules. The application of
the "penny stock" rules may affect our stockholders' ability to sell their
shares because some broker-dealers may not be willing to make a market in our
common stock because of the burdens imposed upon them by the "penny stock"
rules.
The following table provides information about purchases by us and our
affiliated purchasers during the quarter ended December 31, 2004 of equity
securities that are registered by us pursuant to Section 12 of the Securities
Exchange Act of 1934:
SMALL BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES
(a) (b) (c) (d)
-------------- ----------------- ------------- ----------------
Maximum
Total number number (or
of shares (or approximate
units) dollar value) of
purchased as shares (or
part of units) that may
Total number publicly yet be
of shares (or Average price announced purchased
units) paid per plans or under the plans
Period purchased share (or unit) programs or programs
-------------- ----------------- ------------- ----------------
October 2004 -0- -0- -0- -0-
November 2004 -0- -0- -0- -0-
December 2004 -0- -0- -0- -0-
-------------- ----------------- ------------- ----------------
Total -0- -0- -0- -0-
============== ================= ============= ================
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
FORWARD-LOOKING INFORMATION
Much of the discussion in this Item is "forward looking" as that term is
used in Section 27A of the Securities Act and Section 21E of the Exchange Act.
Actual operations and results may materially differ from present plans and
projections due to changes in economic conditions, new business opportunities,
changed business
12
conditions, and other developments. Other factors that could cause results to
differ materially are described in our filings with the Securities and Exchange
Commission.
There are several factors that could cause actual results or events to
differ materially from those anticipated, and include, but are not limited to
general economic, financial and business conditions, changes in and compliance
with governmental laws and regulations, including various state and federal
environmental regulations, our ability to obtain additional financing from
outside investors and/or bank and mezzanine lenders and our ability to generate
sufficient revenues to cover operating losses and position us to achieve
positive cash flow.
Readers are cautioned not to place undue reliance on the forward-looking
statements contained herein, which speak only as of the date hereof. We believe
the information contained in this Form 10-KSB to be accurate as of the date
hereof. Changes may occur after that date. We will not update that
information except as required by law in the normal course of its public
disclosure practices.
MANAGEMENT'S PLAN OF OPERATIONS
We have the following business model in place and operating: We take the
lead role in the financing, development and management of our portfolio
companies. We receive as an exchange for these services a majority equity
interest in each company that we seek to either develop and/or acquire. Once a
portfolio company has successfully implemented its stated business model and has
moved out of the development and into its operational and growth phases, we will
look to assist that portfolio company in the process of becoming publicly traded
as a separate entity.
Our purpose is to gain a higher valuation for the equity positions that are
held by The BlackHawk Fund. Currently, we have one portfolio company which has
been launched and is now out of the development phase and is moving into its
operational and growth phases.
BlackHawk Financial. We have been able to launch operations for our first
portfolio company, Blackhawk Financial. Blackhawk Financial, Inc., is our wholly
owned portfolio company. Blackhawk Financial, Inc. has two divisions that are
both currently operational:
(1) Down Payment Assistance Program ("DPA"): This core group assists
home buyers who are seeking to purchase a home, but need additional funds for
the down payment. Our assistance program consists of the following:
- We match up to $ 20,000.00 per candidate via our DPA program;
- The buyer agrees to invest (match) an equal amount in their home
purchase;
- The buyer agrees to utilize the services (whenever possible) of The
Palomar Group (www.thepalomargroup.com) for both its home purchase,
sale of any existing property and to locate the new financing for the
purchase;
- Blackhawk Financial, Inc., attaches a second deed of trust to the
subject property upon closing;
- Terms and conditions of the "DPA" vary between nine and 12 percent
depending upon the credit score of the applicant and recipient;
- The note is fully amortized over a t10 year term and will bear the
interest rate that is agreed upon by the recipient and Blackhawk
Financial, Inc.;
- Blackhawk Financial, Inc., looks for the borrower (whenever possible)
to refinance the loan (secured by a second deed of trust vs. the
subject property) and combine it into a larger first deed of trust
sometime within a 12-24 month time from the origination.
13
To date, no "DPA" programs have been initiated. We have begun a marketing
campaign via the North County Times and The Union Tribune in San Diego,
California. The purpose of the campaign is to find qualified candidates that can
enter the "DPA". Several possible candidates are being interviewed and the
company looks to have its first "DPA" in place in the near term.
(2) Corporate Consulting Services: This core group assists and
consults companies, both private and public in matters that range from marketing
strategies, to product development and placement services, as well as corporate
management, governance and core capitalization structures. Currently, the
company has two corporate consulting service contracts in place and looks to
gather several more in the coming months.
Blackhawk Financial, Inc., the only operating portfolio company operates in
the highly competitive financial services industry. We have established the
following strategies to compete in this industry:
DPA Program. We are implementing this program via the following methods:
- Traditional Media: We have begun marketing this program in the local
San Diego, California. newspapers. Our parent company (Palomar
Enterprises, Inc., PLMI.OB) runs weekly display ads in both local
papers and is now featuring the "DPA" program in the weekly display
ads.
- Agents: Our parent company, Palomar Enterprises, Inc., has a team of
professional sales agents that it has instructed, at their discretion,
to offer the "DPA" program to any suitable candidates.
- Internet: We have recently entered into an agreement with Data
Resource Consultants, Inc., and are in the process of establishing a
web based marketing program.
We believe that these strategies are sufficient to generate the necessary
market share for our "DPA" program.
Corporate Consulting Services. We are implementing this program via the
following methods:
- Relationship based marketing: We have begun penetrating the market
based upon the existing relationships of our management.
- Direct marketing: We are considering a direct marketing campaign to
expand our corporate client base.
- Currently, we have two corporate clients and are looking to secure
several others in the near term.
We have identified the following as our benchmarks for the next 12-24
months:
- Raise enough capital to fully launch our first core portfolio company,
Blackhawk Financial, Inc.;
- Recruit, train and retain key personnel to oversee the growth and
market share and potential profitability of its core portfolio
companies;
- Work with the management team of Blackhawk Financial, Inc., and assist
them in the process of becoming publicly traded as a separate entity;
- Work with the company counsel to prepare and file the documents
necessary to operate as a Business Development Company;
- Establish and maintain an independent board of directors who are
tasked with assisting the management with moving the fund to
sustain-ability, profitability and earnings;
14
- Continue to seek to bring value to our shareholders via the deployment
and successful implementation of the stated and established business
model.
DEPENDENCE UPON ONE OR A FEW MAJOR CUSTOMERS
"DPA" Program. We have no contracts currently in place and we are looking,
on a funds available basis to originate several contracts per month.
Corporate Consulting Services. We currently have two clients: Safe Travel
Care, Inc., a corporate consulting client, and eWorldMedia Holdings, Inc, a
media services client.
RESULTS OF OPERATIONS
TWELVE MONTHS ENDED DECEMBER 31, 2004 COMPARED TO THE TWELVE MONTHS ENDED
DECEMBER 31, 2003.
REVENUE
Revenue for the 12 months ended December 31, 2004 was $0 compared to $0 for
the 12 months ended December 31, 2003,. Revenue did not change due to no
operations in 2004.
COST OF REVENUE
Cost of revenue was $0 for the 12 months ended December 31, 2004, compared
to $0 sales for the 12 months ended December 31, 2003. Cost of revenue did not
change due to no operations in 2004. We expect cost of revenue to increase
during the coming 12 months due to increased sales and the requirement for
additional product.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses ("G&A") were $29,470,043 for the 12
months ended December 31, 2004, compared to $104,287 for the 12 months ended
December 31, 2003, an increase of $29,365,756. The increase in G&A is due
primarily to stock issued for services. For accounting purposes, the stock
issued for services was valued based on the value of the underlying common
stock, into which the preferred stock was convertible. As a result, the
preferred shares issued for services were valued at $29,362,394. This generated
an expense of $29,362,394
We expect G&A expenses to increase substantially in the coming 12 months
due to the increase in sales activities within our business units. We intend to
focus on operating efficiencies, increasing revenues, and ensuring profitability
in our core business units during this period.
LIQUIDITY AND CAPITAL RESOURCES
During the twelve-month period ended December 31, 2004, operating expenses
were $29,470,812 as compared to $266,309 for the same period in 2003. The
increase in professional expenses and operating expenses are mainly a result of
launching new product lines and related expenses. We intend to continue to find
ways to expand our business through new product development and introduction and
possibly through completing the one planned acquisition. We believe that
revenues and earnings will increase as we grow. We anticipate that we will incur
smaller losses in the near future if we are able to expand our business and the
marketing of our products and services now under development. The losses will be
created to the extent of the excess of technology development and marketing
expenses over the income from operations. Our operating losses as shown may be
perceived as alarming and possibly indicate a downward spiral leading to the
demise of the company; however, from management's point of view, there is a
bright side to the operating losses which have accumulated to approximately
$29,739,726 are tapering off. The positive side of this operating loss will be
beneficial to us as two - three of our business units become profitable in 2005
and the net operating loss will allow us to accumulate cash without paying
foreseeable future.
15
During the 12 months ended December 31, 2004, we generated a net loss of
$29,477,019. During the 12 months ended December 31, 2004, we used cash in
operating activities of $403,405, cash provided by investing activities was
$10,300, and cash provided by financing activities was $392,990.
In order to execute our business plan, we will need to acquire additional
capital from debt or equity financing. In the absence of significant revenue and
profits, we will be completely dependent on additional debt and equity financing
arrangements. There is no assurance that any financing will be sufficient to
fund our capital expenditures, working capital and other cash requirements for
the fiscal year ending December 31, 2005. No assurance can be given that any
such additional funding will be available or that, if available, can be obtained
on terms favorable to us. If we are unable to raise needed funds on acceptable
terms, we will not be able to execute our business plan, develop or enhance
existing services, take advantage of future opportunities or respond to
competitive pressures or unanticipated requirements. A material shortage of
capital will require us to take drastic steps such as further reducing our level
of operations, disposing of selected assets or seeking an acquisition partner.
CRITICAL ACCOUNTING POLICIES
The preparation of our consolidated financial statements in conformity with
accounting principles generally accepted in the United States requires us to
make estimates and judgments that affect our reported assets, liabilities,
revenues, and expenses, and the disclosure of contingent assets and liabilities.
We base our estimates and judgments on historical experience and on various
other assumptions we believe to be reasonable under the circumstances. Future
events, however, may differ markedly from our current expectations and
assumptions. While there are a number of significant accounting policies
affecting our consolidated financial statements, we believe the following
critical accounting policy involve the most complex, difficult and subjective
estimates and judgments.
STOCK-BASED COMPENSATION
In December 2002, the FASB issued SFAS No. 148 - Accounting for Stock-Based
Compensation - Transition and Disclosure. This statement amends SFAS No. 123 -
Accounting for Stock-Based Compensation, providing alternative methods of
voluntarily transitioning to the fair market value based method of accounting
for stock based employee compensation. SFAS 148 also requires disclosure of the
method used to account for stock-based employee compensation and the effect of
the method in both the annual and interim financial statements. The provisions
of this statement related to transition methods are effective for fiscal years
ending after December 15, 2002, while provisions related to disclosure
requirements are effective in financial reports for interim periods beginning
after December 31, 2002.
We elected to continue to account for stock-based compensation plans using
the intrinsic value-based method of accounting prescribed by APB No. 25,
"Accounting for Stock Issued to Employees," and related interpretations. Under
the provisions of APB No. 25, compensation expense is measured at the grant date
for the difference between the fair value of the stock and the exercise price.
RECENT ACCOUNTING PRONOUNCEMENTS
We adopted SFAS No. 142. Under the new rules, we will no longer amortize
goodwill and other intangible assets with indefinite lives, but such assets will
be subject to periodic testing for impairment. On an annual basis, and when
there is reason to suspect that their values have been diminished or impaired,
these assets must be tested for impairment, and write-downs to be included in
results from operations may be necessary. SFAS No. 142 also requires us to
complete a transitional goodwill impairment test six months from the date of
adoption.
Any goodwill impairment loss recognized as a result of the transitional
goodwill impairment test will be recorded as a cumulative effect of a change in
accounting principle no later than the end of fiscal year 2002. The adoption of
SFAS No. 142 had no material impact on our consolidated financial statements.
SFAS No. 143
16
establishes accounting standards for the recognition and measurement of an asset
retirement obligation and its associated asset retirement cost. It also
provides accounting guidance for legal obligations associated with the
retirement of tangible long-lived assets. SFAS No. 143 is effective in fiscal
years beginning after June 15, 2002, with early adoption permitted. We expect
that the provisions of SFAS No. 143 will not have a material impact on our
consolidated results of operations and financial position upon adoption. We
plan to adopt SFAS No. 143 effective January 1, 2003.
SFAS No. 144 establishes a single accounting model for the impairment or
disposal of long-lived assets, including discontinued operations. SFAS No. 144
superseded Statement of Financial Accounting Standards No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of"
(SFAS No. 121), and APB Opinion No. 30, "Reporting the Results of Operations -
Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary,
Unusual and Infrequently Occurring Events and Transactions." We adopted SFAS
No. 144 effective January 1, 2002. The adoption of SFAS No. 144 had no material
impact on our consolidated financial statements.
In April 2002, the FASB issued Statement No. 145, "Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections." This Statement rescinds FASB Statement No. 4, "Reporting Gains
and Losses from Extinguishment of Debt," and an amendment of that Statement,
FASB Statement No. 64, "Extinguishments of Debt Made to Satisfy Sinking-Fund
Requirements" and FASB Statement No. 44, "Accounting for Intangible Assets of
Motor Carriers." This Statement amends FASB Statement No. 13, "Accounting for
Leases," to eliminate an inconsistency between the required accounting for
sale-leaseback transactions and the required accounting for certain lease
modifications that have economic effects that are similar to sale-leaseback
transactions. We do not expect the adoption to have a material impact to our
financial position or results of operations.
In June 2002, the FASB issued Statement No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." This Statement addresses
financial accounting and reporting for costs associated with exit or disposal
activities and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3,
"Liability Recognition for Certain Employee Termination Benefits and Other Costs
to Exit an Activity (including Certain Costs Incurred in a Restructuring)." The
provisions of this statement are effective for exit or disposal activities that
are initiated after December 31, 2002, with early application encouraged. We do
not expect the adoption to have a material impact to our financial position or
results of operations.
In October 2002, the FASB issued Statement No. 147, "Acquisitions of
Certain Financial Institutions-an amendment of FASB Statements No. 72 and 144
and FASB Interpretation No. 9," which removes acquisitions of financial
institutions from the scope of both Statement 72 and Interpretation 9 and
requires that those transactions be accounted for in accordance with Statements
No. 141, Business Combinations, and No. 142, Goodwill and Other Intangible
Assets. In addition, this Statement amends SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, to include in its scope long-term
customer-relationship intangible assets of financial institutions such as
depositor and borrower-relationship intangible assets and credit cardholder
intangible assets. The requirements relating to acquisitions of financial
institutions are effective for acquisitions for which the date of acquisition is
on or after October 1, 2002. The provisions related to accounting for the
impairment or disposal of certain long-term customer-relationship intangible
assets are effective on October 1, 2002. The adoption of this statement did not
have a material impact to our financial position or results of operations as we
have not engaged in either of these activities.
In December 2002, the FASB issued Statement No. 148, "Accounting for
Stock-Based Compensation-Transition and Disclosure," which amends FASB Statement
No. 123, Accounting for Stock-Based Compensation, to provide alternative methods
of transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. In addition, this statement
amends the disclosure requirements of Statement 123 to require prominent
disclosures in both annual and interim financial statements about the method of
accounting for stock-based employee compensation and the effect of the method
used on reported results. The transition guidance and annual disclosure
provisions of Statement 148 are effective for fiscal years ending after December
15, 2002, with earlier application permitted in certain circumstances. The
interim disclosure provisions are effective for financial reports containing
financial statements for interim periods beginning after December 15, 2002. The
17
adoption of this statement did not have a material impact on our financial
position or results of operations as we have not elected to change to the fair
value based method of accounting for stock-based employee compensation.
In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities." Interpretation 46 changes the criteria by which
one company includes another entity in its consolidated financial statements.
Previously, the criteria were based on control through voting interest.
Interpretation 46 requires a variable interest entity to be consolidated by a
company if that company is subject to a majority of the risk of loss from the
variable interest entity's activities or entitled to receive a majority of the
entity's residual returns or both. A company that consolidates a variable
interest entity is called the primary beneficiary of that entity. The
consolidation requirements of Interpretation 46 apply immediately to variable
interest entities created after January 31, 2003. The consolidation
requirements apply to older entities in the first fiscal year or interim period
beginning after June 15, 2003. Certain of the disclosure requirements apply in
all financial statements issued after January 31, 2003, regardless of when the
variable interest entity was established. We do not expect the adoption to have
a material impact to our financial position or results of operations.
In April 2003, the FASB issued Statement of Financial Accounting Standards
(SFAS) No. 149, Amendment of Statement No. 133 on Derivative Instruments and
Hedging Activities. SFAS 149 amends SFAS No. 133 to provide clarification on
the financial accounting and reporting of derivative instruments and hedging
activities and requires that contracts with similar characteristics be accounted
for on a comparable basis. The provisions of SFAS 149 are effective for
contracts entered into or modified after June 30, 2003, and for hedging
relationships designated after June 30, 2003. The adoption of SFAS 149 did not
have a material impact on our results of operations or financial position.
In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and Equity. SFAS 150
establishes standards on the classification and measurement of certain financial
instruments with characteristics of both liabilities and equity. The provisions
of SFAS 150 are effective for financial instruments entered into or modified
after May 31, 2003 and to all other instruments that exist as of the beginning
of the first interim financial reporting period beginning after June 15, 2003.
The adoption of SFAS 150 did not have a material impact on our results of
operations or financial position.
OFF-BALANCE SHEET ARRANGEMENTS
We do not have any off-balance sheet arrangements.
ITEM 7. FINANCIAL STATEMENTS.
THE FINANCIAL STATEMENTS AND RELATED NOTES ARE INCLUDED AS PART OF THIS
REPORT AS INDEXED IN THE APPENDIX ON PAGE F-1 THROUGH F-11.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
On June 22, 2004, we dismissed Beckstead & Watts, LLP as our independent
accountants, and we have engaged Malone & Bailey, PC as our independent
accountants.
The reports of Beckstead & Watts, LLP on our financial statements for the
fiscal years ended December 31, 2002 and 2003 did not contain an adverse opinion
or a disclaimer of opinion, nor were such reports qualified or modified as to
uncertainty, audit scope or accounting principles.
The decision to dismiss Beckstead & Watts, LLP was approved by our board of
directors.
During our fiscal years ended December 31, 2002 and 2003 and the subsequent
interim period through June 22, 2004, the date of the dismissal of Beckstead &
Watts, LLP, we did not have any disagreement with Beckstead & Watts, LLP on any
matter of accounting principles or practices, financial statement disclosure, or
auditing scope or procedure.
18
During that time, there were no "reportable events" as set forth in Item
304(a)(1)(i-v) of Regulation S-B adopted by the Securities and Exchange
Commission.
We engaged Malone & Bailey, PC ("Malone & Bailey") on June 22, 2004. The
decision to engage Malone & Bailey was recommended by our board of directors.
During our two most recent fiscal years and any subsequent interim period prior
to the engagement of Malone & Bailey, neither we nor anyone on our behalf
consulted with Malone & Bailey regarding either (i) the application of
accounting principles to a specified transaction, either contemplated or
proposed, or the type of audit opinion that might be rendered on our financial
statements or (ii) any matter that was either the subject of a "disagreement" or
a "reportable event."
We have provided Beckstead & Watts, LLP with a copy of our current report
on Form 8-K prior to its filing with the Commission, and we have requested that
Beckstead & Watts furnish a letter addressed to the Commission stating whether
it agreed with the statements made by us in that report and if not, stating the
respects in which it did not agree. Beckstead & Watts' letter was attached as
an exhibit to our current report, filed with the Commission on July 14, 2004.
ITEM 8A. CONTROLS AND PROCEDURES.
Disclosure controls and procedures are controls and other procedures that
are designed to ensure that information required to be disclosed by us in the
reports that we file or submit under the Exchange Act is recorded, processed,
summarized and reported, within the time periods specified in the Securities and
Exchange Commission's rules and forms. Disclosure controls and procedures
include, without limitation, controls and procedures designed to ensure that
information required to be disclosed by us in the reports that we file under the
Exchange Act is accumulated and communicated to our management, including our
principal executive and financial officers, as appropriate to allow timely
decisions regarding required disclosure.
Evaluation of disclosure and controls and procedures. As of the end of the
period covered by this Annual report, we conducted an evaluation, under the
supervision and with the participation of our chief executive officer and chief
financial officer, of our disclosure controls and procedures (as defined in
Rules 13a-15(e) of the Exchange Act). Based on this evaluation, our chief
executive officer and chief financial officer concluded that our disclosure
controls and procedures are effective to ensure that information required to be
disclosed by us in reports that we file or submit under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified
in Securities and Exchange Commission rules and forms.
Changes in internal controls over financial reporting. There was no change
in our internal controls, which are included within disclosure controls and
procedures, during our most recently completed fiscal quarter that has
materially affected, or is reasonably likely to materially affect, our internal
controls.
ITEM 8B. OTHER INFORMATION.
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
Our directors and executive officers are:
NAME AGE POSITION POSITION HELD SINCE
---- --- -------- -------------------
Steve Bonenberger 48 President, director and chief executive officer 2004
Brent Fouch 35 Secretary, director and chief financial officer 2004
Our executive officers are elected annually by our board of directors.
19
Steve Bonenberger: During the past five years, Mr. Bonenberger was the
managing director of B.M.M., LLC, a corporate consulting firm. Going forward,
he intends to devote a significant portion of his time to the furtherance of our
operations.
Brent Fouch: Over the past four years, Mr. Fouch has been a corporate
consultant. Mr. Fouch intends to serve as our chief financial officer, director
and secretary. In the period encompassing from 2003 to present, Mr.
Fouch has served as chief operating officer of Palomar Enterprises, Inc., as the
president of Action Stocks, Inc., a corporate media company, and was president
of Micro Capital Corporation, where he performed business consulting services.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under Section 16(a) of the Exchange Act, our directors and certain of our
officers, and persons holding more than 10 percent of our common stock are
required to file forms reporting their beneficial ownership of our common stock
and subsequent changes in that ownership with the Securities and Exchange
Commission. Such persons are also required to furnish us with copies of all
forms so filed.
Based solely upon a review of copies of such forms filed on Forms 3, 4, and
5, we are aware of one person who during the year ended December 31, 2004, was a
director, officer, or beneficial owners of more than ten percent of our common
stock, and who failed to file, on a timely basis, reports required by Section
16(a) of the Securities Exchange Act of 1934 during such fiscal year as follows:
- Robert C. Simpson. Dr. Simpson was an officer and director during the year
2004. Dr. Simpson failed to timely file a Form 4 for the year ended
December 31, 2004.
- Steve Bonenberger. Mr. Bonenberger was an officer and director during the
year 2004. Mr. Bonenberger failed to timely file a Form 4 for the year
ended December 31, 2004.
- Brent Fouch. Mr. Fouch was an officer and director during the year 2004.
Mr. Fouch failed to timely file a Form 4 for the year ended December 31,
2004.
- R. Patrick Liska. Mr. Liska was an officer and director during the year
2004. Mr. Liska failed to timely file a Form 3 for the year ended December
31, 2004.
- Palomar Enterprises, Inc. Palomar Enterprises, Inc. was a beneficial owners
of more than ten percent of our common stock during the year 2004. Palomar
Enterprises, Inc. failed to timely file a Form 4 for the year ended
December 31, 2004.
CODE OF ETHICS
We have adopted a code of ethics that applies to our principal executive
officer, principal financial officer, principal accounting officer or
controller, or persons performing similar functions. The code of ethics is
designed to deter wrongdoing and to promote:
- Honest and ethical conduct, including the ethical handling of actual or
apparent conflicts of interest between personal and professional
relationships;
- Full, fair, accurate, timely, and understandable disclosure in reports and
documents that we file with, or submits to, the SEC and in other public
communications made by us;
- Compliance with applicable governmental laws, rules and regulations;
- The prompt internal reporting of violations of the code to an appropriate
person or persons identified in the code; and
- Accountability for adherence to the code.
20
A copy of our code of ethics that applies to our principal executive
officer, principal financial officer, principal accounting officer or
controller, or persons performing similar functions is filed as an exhibit to
this Annual report. We have posted a copy of the code of ethics on our website.
We will provide to any person without charge, upon request, a copy of our
code of ethics. Any such request should be directed to our corporate secretary
at 1802 N. Carson Street, Suite 212, Carson City, Nevada, 89701.
ITEM 10. EXECUTIVE COMPENSATION.
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
SUMMARY COMPENSATION TABLE
The following table provides certain summary information concerning the
compensation earned by the named executive officers (determined as of the end of
the last fiscal year) for services rendered in all capacities to The Blackhawk
Fund and our subsidiaries:
-------------------------------------------------------------------------------------------------------------------------------
ANNUAL COMPENSATION LONG TERM COMPENSATION
--------------------------------------- --------------------------------------
AWARDS PAYOUTS
--------------------------------------
RESTRICTED SECURITIES
OTHER ANNUAL STOCK UNDERLYING LTIP ALL OTHER
NAME AND PRINCIPAL SALARY BONUS COMPENSATION AWARD(S) OPTIONS/SARS PAYOUTS COMPENSATION
POSITION YEAR ($) ($) ($) ($) (#) ($) ($)
------------------ ------------ ----------- ------------- ----------- ------------- ------------ --------- ------------
Robert C. Simpson
2004 0 0 0 0 0 0
Steve Bonenberger *
2004 0 0 0 0 0 0 0
Brent Fouch * 2004 0 0 0 0 0 0 0
-------------------------------------------------------------------------------------------------------------------------------
* During the first quarter of 2005, we paid the following salaries:
Steve Bonenberger $ 5,000.00
Brent Fouch $ 10,000.00.
EMPLOYMENT AGREEMENTS
We do not have employment agreements with either of our officers or directors at
this time. However, we do intend to enter into employment agreements with each
of Mr. Steve Bonenberger and Mr. Brent Fouch in the near future. We will
promptly report our entry into such employment agreements with Messrs.
Bonenberger and Fouch by making appropriate filing(s) with the Commission. We
also plan to enter into consulting agreements with various consulting entities
owned by our officers and directors. We will promptly report our entry into such
consulting agreements by making appropriate filing(s) with the Commission.
CONFIDENTIALITY AGREEMENTS
None.
21
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS.
EQUITY COMPENSATION PLAN INFORMATION
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
The following table provides information as of the end of the most recently
completed fiscal year with respect to compensation plans (including individual
compensation arrangements) under which equity securities of the registrant are
authorized for issuance, aggregated as follows:
- All compensation plans previously approved by security holders; and
- All compensation plans not previously approved by security holders.
NUMBER OF SECURITIES REMAINING
NUMBER OF SECURITIES TO BE AVAILABLE FOR FUTURE ISSUANCE
ISSUED UPON EXERCISE OF WEIGHTED-AVERAGE EXERCISE UNDER EQUITY COMPENSATION
OUTSTANDING OPTIONS, WARRANTS OF OUTSTANDING OPTIONS, PLANS (EXCLUDING SECURITIES
AND RIGHTS WARRANTS AND RIGHTS REFLECTED IN COLUMN (A))
PLAN CATEGORY (A) (B) (C)
----------------------------- ------------------------------- ------------------------------ ------------------------------
Equity compensation plans -0- N/A N/A
approved by security holders
Equity compensation plans not 207,500,000 0.001 N/A
approved by security holders
Total 207,500,000 $0.001 -0-
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of December 31, 2004, information
concerning ownership of our securities by:
- Each person who owns beneficially more than five percent of the outstanding
shares of our common stock;
- Each person who owns beneficially outstanding shares of our preferred
stock;
- Each director;
- Each named executive officer; and
- All directors and officers as a group.
COMMON STOCK BENEFICIALLY PREFERRED STOCK BENEFICIALLY
OWNED (2) OWNED (2)
------------------------- ----------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER (1) NUMBER PERCENT NUMBER PERCENT
--------------------------------------------------- -------------- --------- --------------- -----------
Steve Bonenberger . . . . . . . . . . . . . . . . . -0- -0- -0- -0-
Brent Fouch . . . . . . . . . . . . . . . . . . . . -0- -0- -0- -0-
-------------- -------- --------------- -----------
All directors and officers as a group (two persons) -0- -0- -0- -0-
============== ======== =============== ===========
Palomar Enterprises (6) . . . . . . . . . . . . . . -0- -0- 19,000,000 (3) 95 (3)
10,000,000 (4) 100 (4)
10,000,000 (5) 100 (4)
R. Patrick Liska. . . . . . . . . . . . . . . . . . -0- -0- 1,000,000 (3) 5 (3)
------------------
22
(1) Unless otherwise indicated, the address for each of these stockholders is
c/o The Blackhawk Fund, 1802 N. Carson Street, Suite 212, Carson City,
Nevada, 89701, telephone number (775) 887-0670. Also, unless otherwise
indicated, each person named in the table above has the sole voting and
investment power with respect to the shares of our common and preferred
stock which he beneficially owns.
(2) Beneficial ownership is determined in accordance with the rules of the SEC.
As of March 31, 2005, the total number of outstanding shares of the common
stock is 570,209,709, the total number of outstanding shares of the Series
A preferred stock is 20,000,000, the total number of outstanding shares of
the Series B preferred stock is 10,000,000 and the total number of
outstanding shares of the Series C preferred stock is 10,00,000.
(3) Series A preferred stock.
(4) Series B preferred stock.
(5) Series C preferred stock.
(6) Palomar Enterprises, Inc., a Nevada publicly-traded corporation, is
controlled by Messrs. Steve Bonenberger and Brent Fouch, our officers and
directors. Palomar Enterprises, Inc. holds 19,000,000 shares of our Series
A preferred stock, 10,000,000 shares of our Series B preferred stock and
10,000,000 shares of our series C preferred stock, equivalent to the voting
power of 1,010,000,000 shares of our common stock, which number exceeds the
number of shares outstanding as of March 31, 2005 .
There are no arrangements, known to us, including any pledge by any person
of our securities, the operation of which may at a subsequent date result in a
change in control of The Blackhawk Fund.
There are no arrangements or understandings among members of both the
former and the new control groups and their associates with respect to election
of directors or other matters.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
During the first quarter of 2005, we paid $50,000.00 in consulting fees to BMM,
LLC, a Limited liability company owned and controlled by Steve Bonenberger, our
officer and director. We also paid $45,000.00 in consulting fees to Prize
Entertainment, Inc., a corporation owned and controlled by Brent Fouch, our
officer and director.
ITEM 13. EXHIBITS.
EXHIBIT
-------
NO. IDENTIFICATION OF EXHIBIT
--- -------------------------
3.1** Articles of Incorporation.
3.2* Certificate of Amendment to Articles of Incorporation, filed on June 30, 2004.
3.3* Certificate of Designation establishing our Series A, B and C Preferred Stock, filed effective July 21, 2004.
3.4* Certificate of Correction to the Certificate of Designation for our Series B Preferred Stock, filed effective
on November 29, 2004.
3.5* Certificate of Amendment to Articles of Incorporation, filed effective January 3, 2005.
3.6* Certificate of Amendment to Articles of Incorporation, filed effective January 4, 2005
3.7* Amended Bylaws of Zannwell, Inc.
10.1** Zannwell Inc. Capital Stock Purchase Agreement, dated November 29, 2004.
14* Code of Ethics
21* Subsidiaries.
31.1* Certification of Steve Bonenberger, President and Chief Executive Officer of The Blackhawk Fund,
pursuant to 18 U.S.C. Sec.1350, as adopted pursuant to Sec.302 of the Sarbanes-Oxley Act of 2002.
31.2* Certification of Brent Fouch, Secretary and Chief Financial Officer of The Blackhawk Fund, pursuant to
18 U.S.C. Sec.1350, as adopted pursuant to Sec.302 of the Sarbanes-Oxley Act of 2002
32.1* Certification of Steve Bonenberger, President and Chief Executive Officer of The Blackhawk Fund,
pursuant to 18 U.S.C. Sec.1350, as adopted pursuant to Sec.906 of the Sarbanes-Oxley Act of 2002.
32.2* Certification of Brent Fouch, Secretary and Chief Financial Officer of The Blackhawk Fund, pursuant to
18 U.S.C. Sec.1350, as adopted pursuant to Sec.906 of the Sarbanes-Oxley Act of 2002.
__________
** Previously Filed
* Filed Herewith
23
Item 14. Principal Accountant Fees and Services.
AUDIT FEES
The aggregate fees billed by Malone & Bailey for professional services
rendered for the audit of our annual financial statements for fiscal year 2004
were $19,515.
AUDIT-RELATED FEES
The aggregate fees billed by Beckstead & Watts for assurance and related
services that are reasonably related to the performance of the audit or review
of our financial statements for fiscal year 2003 were $0.
The aggregate fees billed by Malone & Bailey for assurance and related
services that are reasonably related to the performance of the audit or review
of our financial statements for fiscal year 2004 were $0.
ALL OTHER FEES
There were no other fees billed by Beckstead & Watts or Malone & Bailey for
professional services rendered, other than as stated under the captions Audit
Fees, Audit-Related Fees, and Tax Fees.
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, as amended, the Registrant has duly caused this Annual report to be signed
on its behalf by the undersigned, thereunto duly authorized.
The Blackhawk Fund
Date: April 15, 2005.
By /s/Steve Bonenberger
-----------------------------------
Steve Bonenberger,
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this Annual report has been signed by the following persons on behalf
of the registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Steve Bonenberger President, Director April 15, 2005
--------------------- and Chief Executive Officer
Steve Bonenberger
/s/ Brent Fouch Secretary, Director April 15, 2005
--------------------- and Chief Financial Officer
Brent Fouch
24
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
The Blackhawk Fund
(Formerly ZannWell,Inc.
And USA Telcom Internationale)
Cardiff, California
We have audited the accompanying balance sheet of The Blackhawk Fund as of
December 31, 2004 and the related statements of operations, stockholders'
deficit, and cash flows for the year ended December 31, 2004. These financial
statements are the responsibility of Blackhawk's management. Our responsibility
is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Blackhawk Fund as of December
31, 2004 and the results of its operations and its cash flows for the periods
described in conformity with accounting principles generally accepted in the
United States of America.
As discussed in Note 12 to the financial statements, errors resulting in an
overstatement of assets and liabilities and an understatement of expenses
were discovered by management in 2004. Accordingly, adjustments have been made
as of December 31, 2003 to correct the errors.
Malone & Bailey, PC
www.malone-bailey.com
Houston, Texas
February 8, 2005
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors
USA TELCOM INTERNATIONALE
Las Vegas, Nevada
We have audited the Statements of Operations, Stockholders' Equity, and Cash
Flows for the year ended December 31, 2003 of USA Telcom Internationale (A
Nevada Corporation). These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statement presentation. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of USA Telcom Internationale's operations and
cash flows for the year ended December 31, 2003, in conformity with generally
accepted accounting principles in the United States of America.
As discussed in Note 12 to the financial statements, errors resulting in an
overstatement of assets and liabilities and an understatement of expenses
were discovered by management in 2004. Accordingly, adjustments have been made
as of December 31, 2003 to correct the errors.
Beckstead and Watts, LLP
March 16, 2004
THE BLACKHAWK FUND
(FORMERLY ZANNWELL, INC. AND USA TELCOM INTERNATIONALE
BALANCE SHEET
DECEMBER 31, 2004
Total Assets $ -
=============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Total Liabilities $ -
-------------
Commitments -
Stockholders' Deficit
Preferred Stock, $.001 par value:
Series A: Authorized 20,000,000, 19,000,000 issued and outstanding 19,000
Series B: Authorized 10,000,000, 10,000,000 issued and outstanding 10,000
Series C: Authorized 20,000,000, 10,000,000 issued and outstanding 10,000
Common Stock, $.001 par value:
1,125,000 shares authorized, 209,695 shares
issued and outstanding 210
Additional Paid-In Capital 29,700,516
Retained Deficit (29,739,726)
-------------
Total Stockholders' Deficit -
-------------
Total Liabilities and Stockholders' Deficit $ -
=============
See accompanying summary of significant accounting policies
and notes to financial statements.
THE BLACKHAWK FUND
(FORMERLY ZANNWELL, INC. AND USA TELCOM INTERNATIONALE
STATEMENTS OF EXPENSES
Years Ended December 31, 2004 and 2003
(Restated)
2004 2003
------------- -----------
OPERATING EXPENSES
General & Administrative $ 29,470,043 $ 104,287
Impairment of loan - 161,850
Depreciation - 172
Interest Income (2) -
Interest Expense 6,209 -
Loss on Sale of Assets - Related Party 769 -
------------- -----------
NET LOSS $(29,477,019) $ (266,309)
============= ===========
Basic and Diluted Net Income (Loss)
Per Common Share $ (359.16) $ (50.12)
============= ===========
Weighted Average Number of Shares
Outstanding 82,071 5,313
============= ===========
See accompanying summary of significant accounting policies
and notes to financial statements.
THE BLACKHAWK FUND
(FORMERLY ZANNWELL, INC. AND USA TELCOM INTERNATIONALE
Statement of Stockholders' Deficit
Years Ended December 31, 2003 and 2004
(Restated)
Preferred Stock Preferred Stock Preferred Stock
------------------------------------------------------------ Common Stock Additional
Series A Series B Series C ---------------- Paid-In
Shares Amount Shares Amount Shares Amount Shares Amount Capital
--------------------------------------------------------------------------------------------
Balances, December 31, 2003 - - - - - - 5,313 5 178,988
Net Income
- - - - - - - - -
--------------------------------------------------------------------------------------------
Balances, December 31, 2003 (Restated) - - - - - - 5,313 5 178,988
Common Stock Issued for Cash - - - - - - 111,250 111 392,823
Common Stock Issued for Services - - - - - - 93,125 93 268,437
Preferred Series A Issued for
Services 19,000,000 19,000 - - - - - - 477,000
Preferred Series B Issued for
Services - - 10,000,000 10,000 - - - - 100,000
Preferred Series C Issued for
Services - - - - 10,000,000 10,000 - - 27,990,000
Stock Option Expense - - - - - - - - 54,346
Imputed Interest - - - - - - - - 4,815
Debt forgiveness-Related Party - - - - - - - - 234,108
Net Loss
- - - - - - - - -
--------------------------------------------------------------------------------------------
Balances, December 31, 2004 19,000,000 $19,000 10,000,000 $10,000 10,000,000 $10,000 209,688 $ 210 $29,700,517
============================================================================================
Retained Total
Earnings Stockholders'
(Deficit) Equity
------------------------------
Balances, December 31, 2002 $ 3,602 $ 182,595
Net Income (266,309) (266,309)
------------------------------
Balances, December 31, 2003 (Restated) (262,707) (83,714)
Common Stock Issued for Cash - 392,934
Common Stock Issued for Services - 268,530
Preferred Series A Issued for
Services - 496,000
Preferred Series B Issued for
Services - 110,000
Preferred Series C Issued for
Services - 28,000,000
Stock Option Expense - 54,346
Imputed Interest - 4,815
Debt forgiveness-Related Party - 234,108
Net Loss
(29,477,019) (29,477,019)
------------------------------
Balances, December 31, 2004 $(29,739,726) $ -
==============================
See accompanying summary of significant accounting policies
and notes to financial statements.
THE BLACKHAWK FUND
(FORMERLY ZANNWELL, INC. AND USA TELCOM INTERNATIONALE
STATEMENTS OF CASH FLOWS
Years Ended December 31, 2004 and 2003
(Restated)
2004 2003
------------- ----------
Cash Flows From Operating Activities
Net Income (Loss) $(29,477,019) $(266,309)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation - 172
Impairment of loan - 161,850
Loss on Sale of Assets-Related Party 769 -
Stock Option Expense 54,346 -
Stock Issued for Services 28,874,530 -
Imputed Interest 4,815 -
Changes in Operating Assets and Liabilities:
Decrease in other assets - 5,000
Increase in Accounts Payable and Other Liabilities 139,154 10,846
------------- ----------
Net cash used in operating activities (403,405) (88,441)
------------- ----------
Cash Flows From Investing Activities:
Proceeds from the Sale of Assets 10,300 -
Cash given for loan - (171,850)
------------- ----------
Net cash provided by (used in) investing activities 10,300 (171,850)
------------- ----------
Cash Flows From Financing Activities:
Proceeds from the sale of common stock 392,934 -
Proceeds from related party loan 84,209 84,052
Payments on loan payable-Shareholder (84,153) -
------------- ----------
Net cash provided by financing activities 392,990 84,052
------------- ----------
Net Change in Cash (115) (176,239)
Cash Beginning of Period 115 176,354
------------- ----------
Cash End of Period $ - $ 115
============= ==========
Supplemental information:
Interest Paid $ 1,445 $ -
============= ==========
Income Taxes Paid $ - $ -
============= ==========
Non-Cash Disclosures:
Debt forgiveness-related party $ 234,108 $ -
============= ==========
See accompanying summary of significant accounting policies
and notes to financial statements.
THE BLACKHAWK FUND
(Formerly Zannwell, Inc. and USA Telcom Internationale)
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of business. The Blackhawk Fund ("Blackhawk") was organized 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
on January 2005, it amended its articles of incorporation to change its name to
Blackhawk Fund. Blackhawk did not have any operating activities as of December
31, 2004.
Restatements of 2003 were made. See note 12 for details.
Reclassifications. Certain prior year amounts have been reclassified to conform
with the current year presentation.
Use of Estimates. In preparing financial statements, management makes estimates
and assumptions that affect the reported amounts of assets and liabilities in
the balance sheet and revenue and expenses in the statement of expenses. Actual
results could differ from those estimates.
Cash and Cash Equivalents. For purposes of the statement of cash flows,
Blackhawk considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents.
Revenue Recognition. Blackhawk recognizes revenue when persuasive evidence of
an arrangement exists, services have been rendered, the sales price is fixed or
determinable, and collectibility is reasonably assured. Blackhawk had no
revenues for years ended December 31, 2004 or 2003.
Property and equipment is valued at cost. Additions are capitalized and
maintenance and repairs are charged to expense as incurred. Gains and losses on
dispositions of equipment are reflected in operations. Depreciation is provided
using the straight-line method over the estimated useful lives of the assets.
Impairment of Long-Lived Assets. Blackhawk reviews the carrying value of its
long-lived assets annually or whenever events or changes in circumstances
indicate that the historical cost-carrying value of an asset may no longer be
appropriate. Blackhawkassesses recoverability of the carrying value of the asset
by estimating the future net cash flows expected to result from the asset,
including eventual disposition. If the future net cash flows are less than the
carrying value of the asset, an impairment loss is recorded equal to the
difference between the asset's carrying value and fair value.
Income taxes. Blackhawk recognizes deferred tax assets and liabilities based on
differences between the financial reporting and tax bases of assets and
liabilities using the enacted tax rates and laws that are expected to be in
effect when the differences are expected to be recovered. Blackhawk provides a
valuation allowance for deferred tax assets for which it does not consider
realization of such assets to be more likely than not.
Basic and diluted net income (loss) per share. The basic net loss per common
share is computed by dividing the net income (loss) by the weighted average
number of common shares outstanding. Diluted net income (loss) per common share
is computed by dividing the net income (loss) adjusted on an "as if converted"
basis, by the weighted average number of common shares outstanding plus
potential dilutive securities. For the year ended December 31, 2004, potential
dilutive securities had an anti-dilutive effect and were not included in the
calculation of diluted net
loss per common share.
Stock Compensation. Blackhawk adopted the disclosure requirements of Financial
Accounting Standard No. 123, Accounting for Stock-Based Compensation (FAS No.
123) and FAS No. 148 with respect to pro forma disclosure of compensation
expense for options issued. For purposes of the pro forma disclosures, the fair
value of each option grant is estimated on the grant date using the
Black-Scholes option-pricing model.
Blackhawk accounts for its employee stock-based compensation plans under
Accounting Principles Board ("APB") Opinion No. 25, Accounting for Stock Issued
to Employees. Blackhawk granted 95,000 options to purchase common stock to
employees during the year ended December 31, 2004. All options vest immediately,
have an exercise price of 85 percent of market value on the date of grant and
expire 10 years from the date of grant. Blackhawk recorded compensation expense
of $54,346 under the intrinsic value method during the year ended December 31,
2004.
The following table illustrates the effect on net loss and net loss per share if
Blackhawk had applied the fair value provisions of FASB Statement No. 123,
Accounting for Stock-Based Compensation, to stock-based employee compensation.
(Restated)
2004 2003
----------------- ---------------
Net income (loss) as reported $ (29,477,019) $ (266,309)
Add: stock based compensation
determined under intrinsic
value-based method 54,346 -
Less: stock based compensation
determined under fair value-
based method (362,306) -
----------------- ---------------
Pro forma net income (loss) $ (29,784,979) $ (266,309)
================= ===============
Basic and diluted net loss
per common share:
As reported $ (359.16) $ (50.12)
Pro forma (362.92) (50.12)
The weighted average fair value of the stock options granted during 2004 and
2003 was $.005 and n/a respectively. Variables used in the Black-Scholes
option-pricing model include (1) 1.5% risk-free interest rate and n/a
respectively, (2) expected option life is the actual remaining life of the
options as of each year end, (3) expected volatility was 462% and n/a
respectively, and (4) zero expected dividends.
Recently issued accounting pronouncements. Blackhawk does not expect the
adoption of recently issued accounting pronouncements to have a significant
impact on Blackhawk results of operations, financial position or cash flow.
Stock split. On January 3, 2005, Blackhawk effected a 1:800 reverse split. All
share and per share amounts presented have been restated to reflect the split as
if it had occurred on the first day of the first period presented.
NOTE 2 - ASSETS
On March 3, 2004 Blackhawk agreed to sell to AMVI 1st Corporation, a related
company, $500 of marketable securities, $300,000 note receivable, and fixed
assets,
net of depreciation worth $569 in exchange for $10,300 cash. The note receivable
was written down to $10,000 as of December 31, 2003, resulting in a loss of
$769. See note 12 for further details.
NOTE 3 - RELATED PARTY DEBT FORGIVENESS
During the year ended December 31, 2004, three related parties forgave $150,000
of accounts payable and $84,108 of notes payable owed to them. This resulted in
a charge of $234,108 to additional paid in capital.
NOTE 4 - LOAN PAYABLE - SHAREHOLDER
During the year ended December 31, 2004, Blackhawk paid back a shareholder
$85,447 loaned to Blackhawk in 2003. $84,052 was principle and $1,395 was
interest.
NOTE 5 - COMMITMENTS
Blackhawk's principal office is in the office of a director and shareholder
pursuant to a verbal agreement on a rent-free month-to-month basis.
NOTE 6 - STOCK OPTION PLAN
In 2004 Blackhawk adopted the 2004 Employee Stock Option Plan ("the Plan"). The
Plan provides for the granting of stock options to employees and consultants
of Blackhawk. Options granted under the Plan may be either incentive stock
options or nonqualified stock options. Incentive stock options ("ISO") may be
granted only to Company employees (including officers and directors who are also
employees). Nonqualified stock options ("NSO") may be granted to Blackhawk
employees and consultants. Blackhawk has reserved 232,500 shares of common stock
for issuance under the Plan.
Options under the Plan may be granted for periods of up to ten years and at an
exercise price of 85 percent of market value on the date of grant, provided,
however, that the exercise price of an ISO and NSO granted to a 10% shareholder
shall not be less than 110% of the estimated fair value of the shares on the
date of grant. To date, options granted generally are exercisable immediately
as of the effective date of the option agreement.
Summary information regarding options is as follows:
Exercise
Options Price
-------- ---------
Outstanding at
December 31, 2003 - n/a
Year ended December 31, 2004:
Granted 95,000 $ 3.2
Exercised (95,000) $ 3.2
-------- ---------
Outstanding at
December 31, 2004 - n/a
======== =========
There were no options outstanding and exercisable as of December 31, 2004.
NOTE 7 - INCOME TAXES
Blackhawk uses the liability method, where deferred tax assets and liabilities
are determined based on the expected future tax consequences of temporary
differences between the carrying amounts of assets and liabilities for financial
and income tax reporting purposes.
Internal Revenue Section 382 restricts the ability to use these carry-forwards
whenever an ownership change as defined occurs. Blackhawk incurred such an
ownership change on March 19, 2004 and again on November 29, 2004.
NOTE 8 - COMMON STOCK
During the year ended December 31, 2004, employees exercised options to acquire
95,000 shares of common stock on a cashless basis through an outside broker. The
broker sold the shares on the open market and Blackhawk received proceeds
totaling $132,934.
During the year ended December 31, 2004, Blackhawk sold 16,250 shares of common
stock in a private placement for proceeds of $260,000.
During the year ended December 31, 2004, Blackhawk issued 93,125 shares of
common stock for services. The shares were valued at $268,530.
NOTE 9 - PREFERRED STOCK
There are three classes of preferred stock, A, B & C.
Each Series A holder is entitled to receive cash, stock, or other property, as
dividends, and at any time, may redeem the whole or any part of the outstanding
Series A Preferred Stock. Each share of Series A is convertible at the option
of the holder into .0125 shares of common stock. The Series A Preferred Stock
will have no voting rights, prior to conversion into shares of common stock.
Each Series B holder is entitled to receive cash, stock or other property, as
dividends, and at any time may redeem the whole or any part of the outstanding
Series B Preferred Stock. Each share of Series B is convertible at the option
of the holder into .25 shares of common stock. Series B holders are entitled to
.00125 votes per share.
Each Series C holder is entitled to receive cash, stock or other property, as
dividends, and at any time may redeem the whole or any part of the outstanding
Series C Preferred Stock. Series C is not convertible, but each share has .125
votes per share.
During the year ended December 31, 2004, Blackhawk issued 19,000,000 shares of
Series A preferred stock for services. The shares were valued at $496,000.
During the year ended December 31, 2004, Blackhawk issued 10,000,000 shares of
Series B preferred stock for services. The shares were valued at $110,000.
During the year ended December 31, 2004, Blackhawk issued 10,000,000 shares of
Series C preferred stock for services. The shares were valued at $28,000,000.
NOTE 10 - CHANGE OF CONTROL
On March 19, 2004, USA Telcom Internationale sold 16,250 shares of common stock
to Robert C. Simpson for $260,000. Dr Simpson paid the purchase price for these
shares from personal funds. The 16,250 shares constituted approximately
seventy-five percent (75%) of the issued and outstanding shares of common stock
of USA Telcom Internationale. Before this issuance, Mr. Allen Jones was the
controlling stockholder of USA Telcom Internationale.
On November 29, 2004, Robert C. Simpson, then-sole director and officer of
Blackhawk, sold his 19,000,000 shares of series A Preferred stock, 10,000,000
shares of series B Preferred stock, and 10,000,000 shares of series C Preferred
stock of Blackhawk to Palomar Enterprises, Inc. ("Palomar") for $380,000.
NOTE 11 - SUBSEQUENT EVENTS
Effective on January 3, 2005, Blackhawk effected a 1:800 reverse split of its
issued and outstanding common stock and increased its authorized number of
shares of common stock from 1,125,000 to 5,000,000 shares.
In January and February 2005, Blackhawk employees exercised options to acquire
62,000,000 shares of common stock on a cashless basis through an outside broker.
The broker sold the shares on the open market and Blackhawk received proceeds
totaling $117,583.
In January 2005, Palomar exchanged 10 million shares of Series B preferred stock
for 100 million shares of Blackhawk's common stock. The 10 million shares of
Series B preferred were convertible under their terms into 125,000 shares of
post-split common stock. The additional 99,875,000 had a fair market value of
$.04 per share resulting in additional compensation of $3,995,000.
NOTE 12 - RESTATEMENT
During 2004, management discovered errors in 2003 whereby assets and liabilities
were overstated and expenses were understated. A note receivable for $300,000
originally on the books as of December 31, 2003 was settled in 2004 for $10,000.
$128,150 of interest income associated with this note was recognized in 2003.
The interest income created net income in 2003 which created income taxes
payable and income tax expense as of December 31, 2003. The restatement reduces
the $300,000 note receivable to $10,000, eliminates the interest income of
$128,150, creates an impairment expense of $161,850 and eliminated the income
taxes payable and income tax expense of $4,662.