Item 1. Description of Business.
This annual report contains forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may”, “should”, “expects”, “plans”, “anticipates”, “believes”, “estimates”, “predicts”, “potential” or “continue” or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks in the section entitled “Risk Factors”, that may cause our company’s or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.
Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.
Our financial statements are stated in United States Dollars (US$) and are prepared in accordance with United States Generally Accepted Accounting Principles.
In this annual report, unless otherwise specified, all dollar amounts are expressed in United States dollars and all references to “common shares” refer to the common shares in our capital stock.
As used in this annual report, the terms “we”, “us”, “our”, and “Black Hawk” mean Black Hawk Exploration unless otherwise indicated.
Corporate History
We were incorporated in the State of Nevada on April 14, 2005. We are engaged in the acquisition and exploration of mining properties. We maintain our statutory registered agent’s office at 9360 W. Flamingo #110-158 Las Vegas, NV 89147 and our business office is located at 1174 Manitou Dr., PO Box 363, Fox Island, WA 98333.
Other than as set out herein, we have not been involved in any bankruptcy, receivership or similar proceedings, nor have we been a party to any material reclassification, merger, consolidation or purchase or sale of a significant amount of assets not in the ordinary course of our business.
Our Current Business
We are an exploration stage resource company, and are primarily engaged in the exploration for and development in the properties in which we have acquired interests. Black Hawk Exploration is a diversified energy and metals exploration company focused on identifying and exploring strategic high value properties and developing new prospective projects globally. Black Hawk Exploration will establish wholly owned corporate identities in multiple strategic minerals, high value commodities, and rare earth projects.
On December 8th, 2009 the Company formed a wholly owned Nevada subsidiary, Golden Black Hawk, Inc.
Dun Glen Property
On December 10, 2009, (the “Effective Date”), the Company entered into a property interest purchase option agreement (the “Option Agreement”) with HuntMountain Resources, Inc. (“HuntMountain”), a public company that has the option right to acquire 100% interest in a total of 73 mining claims in Pershing County, Nevada (the “Dun Glen Property”).
The Option Agreement entitled the Company to acquire undivided legal and beneficial interests of up to 75 percent in the claims, free and clear of all liens, charges and claims of others. Considerations for the Option Agreement were as follows:
●An initial payment of $50,000 (paid) and issuance of 250,000 restricted shares of common stock on the effective date. The common shares were issued on February 23, 2010.
●An additional payment of $25,000 and issuance of 100,000 restricted common shares on or before the first year anniversary of the signing of the agreement. An additional and final payment of $25,000 is due on or before December 10, 2011.
●A further payment of $25,000 on or before the second anniversary.
●Development expenditures on the property of not less than $700,000 on or before the fourth anniversary of the effective date of the agreement.
The Company also assumed an obligation to pay certain third parties an aggregate of $72,500 in 2011 and each year thereafter as part of its option agreements with the seller.
As of August 31, 2011, the Company has incurred $325,000 of preliminary acquisition costs related to the mineral rights of the Dun Glen Property, plus another $121,435 in subsequent acquisition costs. Additionally, the Company has incurred and capitalized $14,420 in exploration costs associated with the Dun Glen mining claims. Management does not consider any impairment of the assets necessary as of August 31, 2011.
Subject to funds available Black Hawk Exploration plans on increasing research and development over the next twelve months ending August 31, 2012.
Clayton Valley Property
In August 2009 the Company formed a wholly owned Nevada subsidiary, Blue Lithium Energy Inc. (“Blue Lithium”). Blue Lithium will initially acquire, explore and develop a portfolio of strategic Lithium properties in the United States and Canada.
On September 30, 2009 Black Hawk announced its Clayton Valley, Nevada claims acquisition, also referred to as its BMP claims. Black Hawk’s 1,120 acre site is located in the lithium rich Clayton Valley which is the home of the largest lithium brine production facility in the U.S. The Chemetall Foote facility has produced in excess of 50 million Kg of lithium to date and is scaled to produce 1.2 million Kg a year. The American Institute of Mining estimates the mineral resource of the Clayton Valley to be 750 million Kg of lithium. The lithium brine deposits are located at depths of a few hundred meters and can be extracted in an environmentally friendly manner. During the mid-to late 1970’s the U.S. Geological Survey (USGS) evaluated Lithium deposits and resources around the world. During the course of the program they drilled 22 holes in Nevada and Arizona. Initial drilling was in Clayton Valley (one of these drill sites was on Black Hawk claims adjacent to Chemetall Foote) to evaluate the known continental-brines. USGS holes drilled in the new target area had 1.3 and 1.7 ppm Lithium in the brines that were intersected plus 287 and 364 ppm lithium in the sediments. These are within the range of values that could be indicative for lithium brines in the target area.
The area the Company is currently evaluating has a geologic and topographic setting that is similar. The Company has drilled 1 exploratory well which incurred lithium assays indications from 65 feet to total depth of 520 feet. A well defined Lithium aquafer reflecting commercial values was not found and additional exploration of the leases will be evaluated The Company renewed the Clayton Valley leases for future exploration. We hold title to 56 placer mineral claims over a 1,120 acre site. The mineral claims give us the right to all of the minerals which can be claimed by placer claims underlying the land on which the claims have been staked. We began exploration on our property in September 2009.
In March of 2010, Blue Lithium completed its primary drill program on its Clayton Valley claims.
Former Claims
Effective November 14, 2007 we entered into a formal option agreement with Perry English for Rubicon Minerals Corp. and Precambrian Ventures Ltd (collectively the “Optionor”) pursuant to which we may earn up to a 100% interest in the Optionor’s NWT project located in the Northwest Territories, Canada. Under the terms of the agreement, we can earn a 100% interest by paying the Optionor $86,000 cash (completed) and issuing 50,000 shares on signing (completed) and paying an additional $95,000 cash and issuing 100,000 shares over the next three years. The Optionor will retain a 2% net smelter royalty (“NSR”) of which 1% can be purchased by us for $1,000,000 at any time. In August 2008, we discontinued our pursuit of the North West Territories property. We did not make the annual payment required to keep the property in good standing under the option agreement.
In August 2007, we acquired a 100% interest in the Lucky Emma Uranium claims, (“Wyoming Claims”), located in the recording district of Lander, Wyoming. Pursuant to an Asset Purchase Agreement between us and Maria Regina Caeli Management Corp (the “Seller), we paid $20,000 and issued 50,000 shares to the Seller for a 100% interest in the Wyoming Claims. In August 2008, we discontinued our pursuit of the Wyoming property. We did not make the annual payment to the State of Nevada in order to keep the property in good standing.
On July 13, 2007, we signed a formal option agreement with Perry English (English) for Rubicon Minerals Corp. pursuant to which we may earn up to a 100% interest in English’s Sand Lake North project located in Ontario, Canada. Under the terms of the agreement, we can earn a 100% interest by paying English $44,000 cash (completed) and issuing 25,000 shares on signing (completed) and paying an additional $88,000 cash and issuing 75,000 shares and incurring $700,000 in exploration expenditures over the next two years. English will retain a 2% net smelter royalty (“NSR”) of which 1% can be purchased by us for $1,000,000 at any time. In August 2008, we discontinued our pursuit of the Sand Lake North property. We did not make the annual payment required to keep the property in good standing under the option agreement.
On June 15, 2007 we entered into an option agreement with Firestone Ventures to acquire the Alberta Sun Uranium project. The Alberta Sun uranium property (covering over 200,000 acres) is characterized by easy access across southern Alberta rangeland. Results of initial fieldwork on the project include scintillometer readings of up to 1250 cps (counts per second), visible alteration, shale beds and abundant hematite and carbonaceous material within sandstone. Composite grab samples of isolated organic debris material returned up to 7640 ppm uranium (0.901 U 3 O 8 ). Grab rock samples (sandstone) from a separate area 40 km southeast returned 57 to 150 ppm uranium. Elevated vanadium, molybdenum, arsenic, and lead values, important indicators of sandstone-hosted uranium, occur at both areas.
A 2,384 line kilometer electromagnetic and magnetic airborne survey over four priority areas has been completed. TerraNotes Ltd. of Edmonton is carrying out initial analysis of the survey to be followed by sophisticated modeling of the dataset which should delineate high-priority areas for drilling. In, March 2008 we discontinued our pursuit of this property and terminated the Alberta Sun option.
In 2005 the Company under the management of former President, Garrett Ainsworth acquired a 100% undivided right, title and interest in and to 3 mineral claims comprising 942 hectares located 15 kilometers south of the Golden Bear Mine and 73 km northwest of the town of Telegraph Creek, British Columbia, Canada. In order to acquire the claims, our former President, Garrett Ainsworth paid $2,000 to Mr. Peter Burjoski, the vendor of the property, in an arm’s length transaction. On August 21, 2005 we reimbursed Mr. Ainsworth for the purchase. In addition, on December 19, 2005, our President, Garret Ainsworth staked an additional 410 hectares of property contiguous with the Samotua Property. This property is called the Bandit claims. In May 2006 our former President, Garrett Ainsworth staked another approximately 400 hectares of property contiguous with the Bandit claim. In 2008 we discontinued our pursuit of this property.
Oil and Gas Properties.
On October 27, 2010, the Company entered into an agreement with Tiger Oil & Energy, Inc., a related party, to purchase a 100 percent working interest and net revenue interest in 13 oil and gas leases located in Cowley County, Kansas covering approximately 2,553 acres of land. The Company paid $193,980 to acquire the leases and the related support equipment. Of this amount, $40,000 was applied toward finder’s fees associated with the purchase. Of the aggregate purchase price of $233,980, $213,274 was applied to oil and gas properties, and the remaining $20,246 was applied to support equipment. Under the lease agreement, the Company agreed to pay for 100 percent of the approved costs and expenses incurred in connection with rework of specific wells on the leased property.
On February 1, 2011 the Company agreed to sell a 100 percent working interest and net revenue interest in three of its Keta leases to a related-party. The consideration for this sale was $80,000, to be paid in the form of a $35,000 promissory note, and 250,000 shares of the buyer’s common stock, which was valued at the market rate of $0.18 per share on the date of the sale. Collectively, these three leases had a cost basis of $35,988, plus an additional $867 in capitalized exploration costs at the time of sale. The excess of sales price over the total cost basis of the leases was $43,147, which the Company recorded as a reduction to oil and gas properties.
On April 13, 2011 the Company agreed to sell a 70 percent working interest and 76 percent net revenue interest in eight of its Keta leases to an unrelated third-party. The consideration for this sale was to be $284,361. Of this amount, the Company received $84,400 in cash, and a total of $148,407 was paid directly to Company creditors by the purchaser. The remaining $51,554 was determined to be uncollectible and written-off as bad debt expense during the year ended August 31, 2011.
On June 10, 2011 the Company repurchased a 30 percent working interest and revenue interest in three oil and gas leases from a related-party. The consideration for the purchase was $42,000, executed in the form of a note payable to the seller. The note does not accrue interest and is due on demand. As of August 31, 2011, the entire balance of the note remains unpaid and outstanding.
Potash Properties.
On January 24, 2011 the Company purchased the mineral rights to 640 acres of land in San Juan County, Utah at a price of $79.29 per acre, for an aggregate cost of $50,748.
In March 2011 the Company agreed to sell a 60 percent interest in these same mineral rights to a related party for $50,000 in cash, and 250,000 shares of the purchaser’s common stock, which were valued at an aggregate of $40,000 on the sale date. As of August 31, 2011 the Company has received $30,000 of the cash portion of the sales price. The $70,000 in consideration received pursuant to this sales transaction is recorded as a customer deposit, and will remain recorded as such until the terms of the agreement are fully satisfied, the Company receives the remainder of the agreed-upon consideration, and the title to the property transfers to the purchaser.
Employees
Currently there are no full time or part-time employees of our company (other than our two directors and officers who, at present, have not signed employment or consulting agreements with us) but are compensated $2,000 per month each. We do not expect any material changes in the number of employees over the next 12 month period (although we may enter into employment or consulting agreements with our officer or directors). We do and will continue to outsource contract employment as needed. However, if we are successful in our initial and any subsequent drilling programs we may retain additional employees.
Purchase or Sale of Equipment
We do not intend to purchase any significant equipment over the next twelve months ending August 31, 2012.
Competition
The Lithium, Gold and Silver, Oil and Gas industries are fragmented. We compete with other exploration companies looking for these minerals. We are one of the smallest exploration companies. We are an infinitely small participant in the Lithium, Gold and Silver exploration market. While we compete with other exploration companies, there is no competition for the exploration or removal of Lithium, Gold and Silver, Oil and Gas from our properties.
Readily available Lithium markets exist in Canada and around the world for the sale of Lithium. As the international demand for battery-powered devices steadily increases, the Global demand for our potential lithium production will focus the investment communities spotlight on Black Hawk and its Clayton Valley holdings. The Chemetall Foote Minerals facility at their Clayton Valley Silver Peak Mine, located in close proximity to our Blue Lithium Clayton Valley holdings, has been continually producing lithium utilizing brines from shallow 300 ft to 800 ft wells for almost 45 years (1965).
Gold and Silver markets exist internationally in all areas of the world for the purchase and sale of Gold and Silver.
As the price of Gold and Silver continues to increase and demand for our potential Gold and Silver production increases, we will focus the investment communities spotlight on Black Hawk Exploration, Golden Black Hawk, Inc. and its Dun Glen Claims.
Readily available Oil and Gas markets exist in the United States and Internationally. Demand for our Oil and Gas production will match production. We have 3 wells in production, 2 Oil and 1 Salt Water disposal well, in Cowley County, Kansas and interests in multiple other Oil and Gas leases. Although we have been receiving revenue from our oil and gas properties there are no guarantees we will continue to do so. Our Oil and Gas production varies on a daily basis on our existing wells and cannot be guaranteed to continue.
Government Regulations and Supervision
Our mineral exploration program will be subject to the rules of the Bureau of Land Management (BLM).
Site permitting will be done utilizing the Bureau of Land Management’s (BLM) Notice Level process. This provides for permitting less then 5 acres of disturbance for exploration on mineral properties which is more than sufficient for Black Hawks current program. Most typically the entire Notice Level Permitting (NLP) is approved / accepted in 3 to 4 weeks. Once the NLP is submitted the BLM has 15 days to review and issue their comments and/or approval.
The submission of Black Hawk’s NLP will describe our ownership, intended exploration program, planned disturbance, and reclamation plans. The reclamation program for the NLP requires bonding based on a prescribed BLM formula. The bonding process will utilize the Nevada Division of Mining Statewide Bonding Pool.
Black Hawk’s Board of Directors have approved $50,000 in funding for the program submitted by Black Hawk Exploration’s geologists Dun Glen Auger drill program and expect the Dun Glen and Clayton Valley exploration and permitting process to continue through 2012. Black Hawk has received BLM approval to commence additional drill programs November 10th, 2010 and continued these programs through 2011. The Company has retained JBR Environmental Consultants to prepare a Plan of Operations (POO) and Reclamation for Dun Glen.
RISK FACTORS
Much of the information included in this current report includes or is based upon estimates, projections or other “forward looking statements”. Such forward looking statements include any projections or estimates made by us and our management in connection with our business operations. While these forward-looking statements, and any assumptions upon which they are based, are made in good faith and reflect our current judgment regarding the direction of our business, actual results will almost always vary, sometimes materially, from any estimates, predictions, projections, assumptions or other future performance suggested herein.
Such estimates, projections or other “forward looking statements” involve various risks and uncertainties as outlined below. We caution the reader that important factors in some cases have affected and, in the future, could materially affect actual results and cause actual results to differ materially from the results expressed in any such estimates, projections or other “forward looking statements”.
Our common shares are considered speculative during the development of our new business operations. Prospective investors should consider carefully the risk factors set out below.
We need to continue as a going concern if our business is to succeed, if we do not we will go out of business.
Our independent accountant’s report to our audited consolidated financial statements for the year ended August 31, 2011, indicates that there are a number of factors that raise substantial doubt about our ability to continue as a going concern. Such factors identified in the report are our accumulated deficit since inception, our failure to attain profitable operations and our dependence upon obtaining adequate additional financing to pay our liabilities. If we are not able to continue as a going concern, it is likely investors will lose their investments.
Because of the unique difficulties and uncertainties inherent in mineral exploration ventures, we face a high risk of business failure.
Potential investors should be aware of the difficulties normally encountered by new mineral exploration companies and the high rate of failure of such enterprises. The likelihood of success must be considered in light of the problems, expenses, difficulties, complications and delays encountered in connection with the exploration of the mineral properties that we plan to undertake. These potential problems include, but are not limited to, unanticipated problems relating to exploration, and additional costs and expenses that may exceed current estimates. The expenditures to be made by us in the exploration of the mineral claim may not result in the discovery of mineral deposits. Problems such as unusual or unexpected formations and other conditions are involved in mineral exploration and often result in unsuccessful exploration efforts. If the results of our exploration do not reveal viable commercial mineralization, we may decide to abandon our claim and acquire new claims for new exploration. The acquisition of additional claims will be dependent upon us possessing capital resources at the time in order to purchase such claims. If no funding is available, we may be forced to abandon our operations.
If we do not obtain additional financing, our business will fail.
Our current operating funds are less than necessary to complete all intended exploration of the property, and therefore we will need to obtain additional financing in order to complete our business plan. As of August 31, 2011, we had cash in the amount of $3,266. We currently have minimal operations at our Dun Glen Claims and we have no income from these operations.
Our business plan calls for significant expenses in connection with the exploration of the Dun Glen and Clayton Valley, and Cowley County Oil and Gas leases and properties. We currently have sufficient funds to conduct continued exploration on the properties but may require additional financing in order to determine whether the properties contains economic mineralization. We will also require additional financing if the costs of the exploration of the property are greater than anticipated.
We will require additional financing to sustain our business operations if we are not successful in earning increased revenues once exploration is complete. We do not currently have any firm arrangements for financing and we can provide no assurance to investors that we will be able to find such additional financing if required. Obtaining additional financing would be subject to a number of factors, including the market prices for lithium, oil and gas, copper, silver and gold, investor acceptance of our property, other mineral opportunities and general market conditions. These factors may make the timing, amount, terms or conditions of additional financing unavailable to us.
The most likely source of future funds presently available to us is through the additional sale of equity capital. Any sale of share capital will result in dilution to existing shareholders. The only other anticipated alternative for the financing of further exploration would be our sale of a partial interests in our property to a third party in exchange for cash or exploration expenditures, which is not presently contemplated.
Because we have commenced limited business operations, we face a high risk of business failure.
We have commenced limited exploration on our properties. Accordingly, we have no way to evaluate the likelihood that our business will be successful. We were incorporated on April 14, 2005 and have been involved primarily in organizational activities and the acquisition of our mineral property. We have not earned any revenues as of the date of this prospectus.
Prior to completion of our exploration stage, we anticipate that we will incur increased operating expenses without realizing any revenues. We therefore expect to incur significant losses into the foreseeable future. We recognize that if we are unable to generate significant revenues from development of the mineral claims and the production of minerals from the claims, we will not be able to earn profits or continue operations.
There is no history upon which to base any assumption as to the likelihood that we will prove successful, and we can provide investors with no assurance that we will generate any operating revenues or ever achieve profitable operations. If we are unsuccessful in addressing these risks, our business will most likely fail.
We lack an operating history and we expect to have losses in the future.
We have not started our proposed business operations in Lithium and Gold and Silver, except for the preliminary acquisition of mining claims. We have not realized any revenues from these ventures. We have no operating history in Lithium and Gold and Silver upon which an evaluation of our future success or failure can be made. Our ability to achieve and maintain profitability and positive cash flow is dependent upon the following:
● Our ability to locate a profitable mineral property;
● Our ability to generate additional revenues from our Oil wells; and
● Our ability to reduce exploration costs.
Based upon current plans, we expect to incur operating losses in future periods. This will happen because there are expenses associated with the research and exploration of our mineral properties. We cannot guarantee that we will be successful in continuing to generating revenues in the future. Failure to generate sufficient revenues will cause us divest our current holdings or to go out of business.
Because of the inherent dangers involved in mineral exploration, there is a risk that we may incur liability or damages as we conduct our business.
The search for valuable minerals involves numerous hazards. As a result, we may become subject to liability for such hazards, including pollution, cave-ins and other hazards against which we cannot insure or against which we may elect not to insure. The payment of such liabilities may have a material adverse effect on our financial position.
Because we are small and do not have much capital, we must limit our exploration and consequently may not find mineralized material. If we do not find mineralized material, we will cease operations.
Because we are small and do not have much capital, we must limit our exploration. Because we may have to limit our exploration, we may not find mineralized material, although our mineral claims may contain mineralized material. If we do not find mineralized material, we will cease operations.
If we become subject to onerous government regulation or other legal uncertainties, our business will be negatively affected.
There are several governmental regulations that materially restrict mineral property exploration and development. Under the rules of the BLM, to engage in certain types of exploration will require work permits, the posting of bonds, and the performance of remediation work for any physical disturbance to the land. While these current laws do not affect our current exploration plans, if we proceed to commence drilling operations on the mineral claims, we will incur modest regulatory compliance costs.
In addition, the legal and regulatory environment that pertains to the exploration of oil and gas as well as rare earth minerals is uncertain and may change. Uncertainty and new regulations could increase our costs of doing business and prevent us from exploring for Lithium Brine, Gold and Silver and developing our Oil interests. The growth of demand for Gold and Silver, and Oil and Gas, and Lithium may also be significantly slowed. This could delay growth in potential demand for and limit our ability to generate revenues. In addition to new laws and regulations being adopted, existing laws may be applied to mining that have not as yet been applied. These new laws may increase our cost of doing business with the result that our financial condition and operating results may be harmed.
We may not have access to all of the supplies and materials we need to begin exploration that could cause us to delay or suspend operations.
Competition and unforeseen limited sources of supplies in the industry could result in occasional spot shortages of supplies, such as explosives, and certain equipment such as bulldozers and excavators that we might need to conduct exploration. We have not attempted to locate or negotiate with any suppliers of products, equipment or materials. We will attempt to locate products, equipment and materials after this offering is complete. If we cannot find the products and equipment we need, we will have to suspend our exploration plans until we do find the products and equipment we need.
Because of the speculative nature of exploration of mineral properties, there is no assurance that our exploration activities will result in the discovery of new commercially exploitable quantities of oil, gas and minerals.
We plan to continue exploration on our mineral claims. The search for valuable minerals as a business is extremely risky. We can provide investors with no assurance that additional exploration on our properties will establish that additional commercially exploitable Lithium Brine, Gold and Silver, Oil and Gas exist on our properties. Problems such as unusual or unexpected geological formations or other variable conditions are involved in exploration and often result in exploration efforts being unsuccessful. The additional potential problems include, but are not limited to, unanticipated problems relating to exploration and attendant additional costs and expenses that may exceed current estimates. These risks may result in us being unable to establish the presence of additional commercial quantities of Lithium, Gold, Silver, Oil and Gas on our mineral claims with the result that our ability to fund future exploration activities may be impeded.
Because the SEC imposes additional sales practice requirements on brokers who deal in our shares that are penny stocks, some brokers may be unwilling to trade them. This means that you may have difficulty in reselling your shares and may cause the price of the shares to decline.
Our shares qualify as penny stocks and are covered by Section 15(g) of the Securities Exchange Act of 1934, which imposes additional sales practice requirements on broker/dealers who sell our securities in this offering or in the aftermarket. In particular, prior to selling a penny stock, broker/dealers must give the prospective customer a risk disclosure document that: contains a description of the nature and level of risk in the market for penny stocks in both public offerings and secondary trading; contains a description of the broker/dealers’ duties to the customer and of the rights and remedies available to the customer with respect to violations of such duties or other requirements of Federal securities laws; contains a brief, clear, narrative description of a dealer market, including “bid” and “ask” prices for penny stocks and the significance of the spread between the bid and ask prices; contains the toll free telephone number for inquiries on disciplinary actions established pursuant to section 15(A)(i); defines significant terms used in the disclosure document or in the conduct of trading in penny stocks; and contains such other information, and is in such form (including language, type size, and format), as the SEC requires by rule or regulation. Further, for sales of our securities, the broker/dealer must make a special suitability determination and receive from you a written agreement before making a sale to you. Because of the imposition of the foregoing additional sales practices, it is possible that brokers will not want to make a market in our shares. This could prevent you from reselling your shares and may cause the price of the shares to decline.
We have no known Lithium reserves and we cannot guarantee we will find any Lithium or if we find Lithium, that production will be profitable.
We have no known Lithium reserves. We have not identified any Lithium on the property and we cannot guarantee that we will ever find any Lithium. We did rely upon expert advice in selecting the property for the exploration. If we cannot find Lithium or it is not economical to recover, we will have to cease operations.
We have no known Gold and Silver reserves but sampling has indicated we have gross revenue estimates of up to $650,000 at current market prices but we cannot guarantee we will process any Gold and Silver or if we find additional Gold and Silver, that production will be profitable.
We have minimal gold and silver known estimated inferred reserves. We have identified gold and silver on the property but we cannot guarantee that we will ever find any additional gold and silver. We did rely upon expert advice in selecting the property for the exploration. If we cannot find additional gold and silver or it is not economical to recover, we will have to cease operations.
Rain and snow may make the road leading to our property impassable. This will delay our proposed exploration operations and could prevent us from working.
While we plan to conduct our exploration year round, it is possible that tornados, snow or rain could cause roads leading to our leases and claims to be impassable. When roads are impassable, we are unable to work. Our lithium properties are located in high desert area of Nevada and could be subject to Snow and Flooding. Our Dun Glen Claims are located at 5,000 to 7,000 feet above sea level and access is limited in the late fall to mid- spring time periods. Our Oil and Gas properties are located in areas with a history of tornado activity.
Because we are small and do not have much capital, we must limit our exploration and consequently may not find mineralized material. If we do not find mineralized material, we will cease operations.
Because we are small and do not have much capital, we must limit our exploration. Because we may have to limit our exploration, we may not find additional oil and mineralized material, although our property may contain oil and gas and mineralized material. If we do not find additional oil and gas and mineralized material, we could cease operations.
As we face intense competition in the oil, gas and mining industry, we will have to compete with our competitors for financing and for qualified managerial and technical employees.
The mining industry is intensely competitive in all of its phases. Competition includes large established mining companies with substantial capabilities and with greater financial and technical resources than we have. As a result of this competition, we may be unable to acquire additional attractive claims or financing on terms we consider acceptable. We also compete with other mining companies in the recruitment and retention of qualified managerial and technical employees. If we are unable to successfully compete for financing or for qualified employees, our exploration and development programs may be slowed down or suspended.
Trading of our stock may be restricted by the SEC’s Penny Stock Regulations which may limit a stockholder’s ability to buy and sell our stock.
The U.S. Securities and Exchange Commission has adopted regulations which generally define “penny stock” to be any equity security that has a market price (as defined) less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions. Our securities are covered by the penny stock rules, which impose additional sales practice requirements on broker-dealers who sell to persons other than established customers and “accredited investors”. The term “accredited investor” refers generally to institutions with assets in excess of $5,000,000 or individuals with a net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their spouse. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document in a form prepared by the SEC which provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction and monthly account statements showing the market value of each penny stock held in the customer’s account. The bid and offer quotations, and the broker-dealer and salesperson compensation information, must be given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing before or with the customer’s confirmation. In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from these rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for the stock that is subject to these penny stock rules. Consequently, these penny stock rules may affect the ability of broker-dealers to trade our securities. We believe that the penny stock rules discourage investor interest in and limit the marketability of, our common stock.
We do not expect to declare or pay any dividends.
We have not declared or paid any dividends on our common stock since our inception, and we do not anticipate paying any such dividends for the foreseeable future.
Anti-Takeover Provisions
We do not currently have a shareholder rights plan or any anti-takeover provisions in our By-laws. Without any anti-takeover provisions, there is no deterrent for a take-over of our company, which may result in a change in our management and directors.
Our By-laws contain provisions indemnifying our officer and directors against all costs, charges and expenses incurred by them.
Our By-laws contain provisions with respect to the indemnification of our officer and directors against all costs, charges and expenses, including an amount paid to settle an action or satisfy a judgment, actually and reasonably incurred by him, including an amount paid to settle an action or satisfy a judgment in a civil, criminal or administrative action or proceeding to which he is made a party by reason of his being or having been one of our directors or officer.
Volatility of Stock Price.
Our common shares are currently publicly traded on the OTCMarkets, previously known as the PINK SHEETS exchange under the symbol BHWX. In the future, the trading price of our common shares may be subject to continued wide fluctuations. Trading prices of the common shares may fluctuate in response to a number of factors, many of which will be beyond our control. In addition, the stock market in general, and the market for software technology companies in particular, has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of such companies. Market and industry factors may adversely affect the market price of the common shares, regardless of our operating performance.
In the past, following periods of volatility in the market price of a company’s securities, securities class-action litigation has often been instituted. Such litigation, if instituted, could result in substantial costs and a diversion of management’s attention and resources.
Item 2. Description of Property.
Location and Access
Clayton Valley Lithium Claims
The BMP placer mining claims are located approximately 24 air miles southwest of Tonopah, Nevada. Tonopah is 290 highway miles southeast of Reno, Nevada and 214 highway miles northwest of Las Vegas Nevada. The claims are in the Clayton Valley within the Silver Peak mining district.
Access to the claims is via 52 miles of paved U.S. and Nevada State highways from Tonopah leading to 4 miles of improved gravel roads within Clayton Valley which cross the center of the claims. Sources of power and water are available less than 3 miles from the claims. Labor and supplies are available at Tonopah, Las Vegas or Reno which are local and regional mining and supply centers.
The mineral claims are located in section 30, T1S/R40E, MDBM.
Dun Glen Gold and Silver Claims
The Dun Glen mining claims are located approximately 18.5 air miles southwest of Winnemucca, Nevada. Winnemucca is 149 highway miles northeast of Reno, Nevada and 500 highway miles northeast of Las Vegas Nevada. The claims are on Auld Lang Syne peak area in the vicinity of the old abandoned Dun Glen town site within the Sierra mining district.
Access to the claims is via 25.6 miles of paved U.S. and Nevada State highways from Winnemucca leading to 9.7 miles of county improved and maintained gravel roads from the Dun Glen exit which cross the boundary of the claims. Sources of water are available on the property. Power is available at the intersection of the county road and State Highway at the foot of the mountain. Labor and supplies are available at Winnemucca, Elko, Tonopah, Las Vegas and Reno which are local and regional mining and supply centers.
The mineral claims are located in sections 1, 2, 11-12, and 14 T33N/R36E Mount Diablo Meridian.
Cowley County, Kansas Oil and Gas Leases
On October 27, 2010 the Company entered into an agreement with Tiger Oil & Energy to purchase mineral properties located in Cowley County, Kansas covering approximately 2,553 acres of land. The Company paid $193,000 to acquire the leases. Of this amount, $40,000 was applied toward finder’s fees associated with the purchase. These costs have been capitalized to the cost of the Company’s mineral properties.
Under the lease agreement, the Company has agreed to pay for 100% of the approved costs and expenses incurred in connection with rework of specific wells on the leased property.
The Company purchased the mineral rights to an additional 425 acres in Cowley County, Kansas on January 14, 2011 for $73.81 per acre, for an aggregate cost of $31,369.
On January 24, 2011 the Company purchased the mineral rights for an additional 640 acres in San Juan County, Utah at $79.29 per acre, for an aggregate cost of $50,838.
On February 1st 2011 Black Hawk sold 400 acres of oil and gas leases to Tiger Oil and Energy for $150 an acre consisting of $35,000 in cash and the issuance of 250,000 shares of Tigers common stock valued at $ .10 a share.
On February 11th, 2011 Black Hawk sold its Potash interest in Utah to Universal Potash (UPCO) for $50,000 cash and 250,000 shares of UPCO’s common stock valued at $.05 a share. Black Hawk retained 100% of the lease’s Lithium rights.
On April 5th, 2011 Black Hawk sold a 70% interest in the Sellers lease and Sellers B #3 well located in Cowley County, Kansas to Roemer LLC, delivering an 81.5% net revenue interest, proportionately reduced. Roemer Interests has assigned operations to Lasso LLC. Closing occurred April 13th, 2011.
On April 5th, 2011 Black Hawk additionally sold 70% of its other Cowley County, Kansas lease holdings to Roemer for $105 per acre due on closing. Closing occurred April 13th, 2011.
On April 5th, 2011 Roemer agreed to reimburse Black Hawk for 70% of the cost paid by Black Hawk on the development of the Sellers #3B well. Closing occurred April 13th, 2011.
On June 30th, 2011 Black Hawk purchased a 10% Working Interest (WI) in the 80 acre Moon Lease and 2 producing wells designated the Moon #1 and #2 with production of approximately 3 barrels of oil per day.
The Cowley County leases are located in multiple locations. Cowley County is located on the Kansas, Oklahoma border in a historic oil and gas production area. Access to the leases is from major highways and county roads that are government maintained. Access from these is on private roads across farmland by the Company.
Item 3. Legal Proceedings.
We know of no material, active or pending legal proceedings against us, nor are we involved as a plaintiff in any material proceedings or pending litigation. There are no proceedings in which any of our directors, officer or affiliates, or any registered beneficial shareholder are an adverse party or has a material interest adverse to us.
Item 4. Submissions of Matters to a Vote of Security Holders.
There were no matters submitted to a vote of our security holders either through solicitation of proxies or otherwise in the fourth quarter of the fiscal year ended August 31, 2011.
Item 5. Market for Common Equity and Related Stockholder Matters.
Our common stock is quoted on the OTCMarkets electronic trading system under the symbol “BHWX”.
On May 7, 2007, our Board of Directors approved a ten (10) for one (1) forward stock split of our authorized, issued and outstanding shares of common stock. We amended our Articles of Incorporation by the filing of a Certificate of Change with the Nevada Secretary of State wherein we stated that our Corporation will issue ten (10) shares for every one (1) share of common stock issued and outstanding immediately prior to the effective date of the forward stock split. The change in our Articles of Incorporation was effected with the Nevada Secretary of State on April 6, 2007. As a result, our authorized capital has increased from 30,000,000 to 300,000,000 shares of common stock with a par value of $0.001 each. We issued ten (10) shares of common stock in exchange for every one (1) share of common stock issued and outstanding. This increased our issued and outstanding share capital from 5,747,000 shares of common stock to 57,470,000 shares of common stock. As of December 15, 2011 there were in excess of 8,000 shareholders and 63,581,720 shares outstanding.
On October 19, 2009 Black Hawk announced that it had entered into an equity financing agreement for up to $1,000,000 from private investors (of which $600,000 has been drawn as of August 31, 2010). Under the terms of the agreement, Black Hawk has the right to call upon funds as needed, with actual funding subject to the sole discretion and approval of the investors. Black Hawk has received its first tranche which will be used for additional claim evaluations and operating expenses. Black Hawk may draw up to $1,000,000 in total by issuing units consisting of one share of its common stock at $0.85 US and one common stock purchase warrant exercisable for the purchase of one additional share of common stock at $1.05 for the first 12 months and $1.25 if exercised by the end of the second year. The securities to be issued under the agreement have not been registered under the Securities Act of 1933 and may not be offered or sold in the United States absent a registration or an applicable exemption from the registration requirements.
All of our issued and outstanding shares can be sold pursuant to Rule 144 of the Securities Act of 1933.
We have not declared any dividends since incorporation and do not anticipate that we will do so in the foreseeable future. Although there are no restrictions that limit the ability to pay dividends on our common shares, our intention is to retain future earnings for use in our operations and the expansion of our business.
Recent Sales of Unregistered Securities
On October 20, 2006 we sold 2,000,000 post-split shares to one investor at a price of $0.10 for proceeds of $20,000.
On May 30, 2007, we closed a private placement of 571,428 common shares for gross proceeds of $400,000.
On August 6, 2009 we closed a private placement of 600,000 common shares at $0.10 for proceeds of $60,000.
On October 16, 2009 we closed a private placement of 64,706 common shares at a price of $0.85 for proceeds of $55,000.
On November 20, 2009 the Company received a first tranche of $200,000 under a “Share Issuance Agreement” that provides the Company with up to $1,000,000. The agreement is to issue common shares at a price of $0.85 upon receipt of funds and to issue a warrant for the like number of shares priced at $1.05 for the first year and $1.25 if exercised in the second year.
On October 18, 2010 Black Hawk Exploration (the “Company”, “we”, “our”, “us”) entered into a Securities Purchase Agreement wherein we agreed to sell, and two institutional investors agreed to purchase, $500,000 of our common stock, previously registered on a June 29, 2010 Post-Effective Amendment to our Form S-1, at $0.22 per share for an aggregate of 2,272,728 shares. In addition to the shares, we also agreed to issue Series A and Series B warrants to the investors. The Series A warrants will entitle the investors to acquire up to a maximum of 15,000,000 shares of our common stock at $0.22 per share for a period of 30 months from the date of closing. The Series B warrants will entitle the investors to acquire up to a maximum of 2,272,728 shares of our common stock at $0.22 per share for a period of 5 years from the date of closing. Both series of warrants also include cashless exercise provisions. In connection with the transactions described herein, certain shareholders of the Company agreed to not sell shares of our common stock for 180 days following the closing. The Company closed this transaction on October 19, 2010.
Also on October 18, 2010, we entered into secured loan agreements with the same investors. The aggregate face value of the loans is $600,000, with a discounted $500,000 in cash being provided to us by the investors. The loans have a maturity of 6 months and are non-interest bearing. The loans will be secured against all of our assets, including our Dun Glenn and Clayton Valley claims, as well as the assets of our subsidiaries. The Company closed this transaction on October 19, 2010.
Equity Compensation Plan Information
We currently do not have any stock option or equity plans.
Item 6. Selected Financial Data
Not required
Item 7. Management’s Discussion and Analysis or Plan of Operation.
Overview
You should read the following discussion of our financial condition and results of operations together with the consolidated audited financial statements and the notes to consolidated audited financial statements included elsewhere in this filing prepared in accordance with accounting principles generally accepted in the United States. This discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those anticipated in these forward-looking statements.
Plan of Operations
Cash Requirements
On October 19, 2009 Black Hawk announced that it had entered into an equity financing agreement for up to $1,000,000 from private investors. Under the terms of the agreement, Black Hawk has the right to call upon funds as needed. Black Hawk has received its first tranche which will be used for additional claim evaluations and operating expenses. Black Hawk may draw up to $1,000,000 in total by issuing units consisting of one share of its common stock at $0.85 US and one common stock purchase warrant exercisable for the purchase of one additional share of common stock at $1.05 for the first 12 months and $1.25 if exercised by the end of the second year. The securities to be issued under the agreement have not been registered under the Securities Act of 1933 and may not be offered or sold in the United States absent a registration or an applicable exemption from the registration requirements.
On November 2, 2009, the Company announced plans to advance the Blue Lithium 56 claim 1,120 acre land position in the Clayton Valley, Esmeralda County Nevada. Hunsaker, Inc., consulting geologists to Black Hawk have recommended an initial drill program for Lithium bearing brines. The brines are expected to occur between 600 and 800 feet based on the 1980’s U.S. Geological Survey work completed in the 1980’s by the U.S. Geological Survey and the nearby producing wells at the Chemetall-Foote Silver Peak operation also in Clayton Valley. Drilling costs are estimated to be $30 a foot and the drill program is designed to identify the depth of the Brines, Lithium concentration, chemical characteristics and the geologic/aquifer settings.
On November 20, 2009 the Company received the first draw down of $200,000 from the financing commitment The Company has received $600,000 total draw to date and still has $400,000 available if needed, subject to new terms to be mutually agreed upon at the time of draw down.
On October 19, 2010 the Company issued 2,272,728 shares of its common stock previously registered on a Form S-l to investors at $0.22 per share for aggregate proceeds of $500,000. The Company also entered into an original issue discount senior secured promissory notes of $600,000 face value and a $500,000 original discount amount to the same investors. The investors also received Series A Warrants to acquire 15,000,000 shares of the Company’s common stock at $0.22 per share for a period of 30 months from the date of issuance and Series B Warrants to acquire 2,272,728 shares of the Company’s common stock at $0.22 per share for a period of 5 years from the date of issuance.
Debt Retirement And Replacement Debt Instruments
Over the next twelve months we intend to use funds to expand on the exploration and development of our mineral properties, as follows:
Estimated Funding Required During the Next Twelve Months
Financial Condition, Liquidity and Capital Resources
Since inception on April 14, 2005, we have been engaged in exploration and acquisition of mineral properties. Our principal capital resources have been acquired through the issuance of common stock.
At August 31, 2011, we had negative working capital of $264,674.
At August 31, 2011, our total assets of $992,433 which consists of current assets of $183,912, fixed assets of $61,078, and other assets of $747,443. This compares with our assets at August 31, 2010 of $410,591, which consisted of current assets of $60,420, and other assets of $350,171.
At August 31, 2011, our total liabilities were $480,733, compared to our liabilities of $12,800 as at August 31, 2010.
Results of Operations.
During the year ended August 31, 2011 we earned revenues of $69,402 from the sale of oil and gas. This represents the first revenues realized by the Company since its inception, and was a primary consideration leading to the Company exiting the exploration stage.
During the year ended August 31, 2011 the Company recognized operating expenses totaling $733,677, compared to $706,839, marking a four percent increase. This increase is attributable primarily to increases in lease operating expenses ($10,988 increase), depletion, depreciation and amortization ($25,462 increase), executive and director compensation ($63,466 increase), bad debt expense (60,161 increase), professional fees ($171,033 increase), and impairment expense ($34,250 increase). These items were partially offset by decreases in mineral exploration costs ($135,768 decrease) and general and administrative expense ($206,754 decrease).
During the year ended August 31, 2011 the Company recognized a $109,936 gain on the sale of assets compared to $-0- in 2010, and recorded interest expense of $255,956 compared to $-0- in 2010.
We posted losses of $810,295 for the year ending August 31, 2011 compared to losses of $706,839 for the year ended August 31, 2010, an increase of $103,456 (a 15 percent increase).
Product Research and Development
Our business plan is focused on the long-term exploration and development of our mineral properties once acquired.
Purchase of Significant Equipment
During the year ended August 31, 2011 we purchased fixed assets in the amount of $69,995. Additionally, we purchased oil and gas pumping and support equipment in the amount of $73,468.
Employees
Currently there are no full time or part-time employees of our company (other than our directors and officer who, at present, have not signed employment or consulting agreements with us). We do not expect any material changes in the number of employees over the next 12 month period (although we may enter into employment or consulting agreements with our officer or directors). We do and will continue to outsource contract employment as needed. However, if we are successful in our initial and any subsequent drilling programs we may retain additional employees.
Going Concern
Our auditors have included an explanatory paragraph in their report regarding concerns about our ability to continue as a going concern in the consolidated financial statements for the year ended August 31, 2011. Our consolidated financial statements contain additional note disclosures describing the circumstances that lead to this disclosure.
The continuation of our business is dependent upon us raising additional financial support. The issuance of additional equity securities by us could result in a significant dilution in the equity interests of our current stockholders. Obtaining commercial loans, assuming those loans would be available, will increase our liabilities and future cash commitments.
Recently Issued Accounting Standards
Black Hawk does not expect the adoption of recently issued accounting pronouncements to have a significant impact on Black Hawk’s results of operations, financial position or cash flow.
APPLICATION OF CRITICAL ACCOUNTING POLICIES
Our financial statements and accompanying notes are prepared in accordance with generally accepted accounting principles in the United States. Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. These estimates and assumptions are affected by management’s application of accounting policies. We believe that understanding the basis and nature of the estimates and assumptions involved with the following aspects of our consolidated financial statements is critical to an understanding of our financials.
We have historically incurred losses, and through August 31, 2011 have incurred losses of $2,213,234 since our inception. During this period, we have successfully raised $1,189,300 from our S-1 offering and subsequent private placements. Because of these historical losses, we will require additional working capital to develop our business operations.
We intend to raise additional working capital through private placements. There are no assurances that we will be able to either (1) achieve a level of revenues adequate to generate sufficient cash flow from operations; or (2) obtain additional financing and/or bank financing necessary to support our working capital requirements. To the extent that funds generated from operations, our S-1 public offerings and/or bank financing are insufficient, we will have to raise additional working capital. No assurance can be given that additional financing will be available, or if available, will be on terms acceptable to us. If adequate working capital is not available we may not increase our operations.
These conditions raise substantial doubt about our ability to continue as a going concern. The financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might be necessary should we be unable to continue as a going concern.
Item 8. Financial Statements.
Our consolidated financial statements are stated in United States dollars (US$) and are prepared in accordance with United States Generally Accepted Accounting Principles.
The following consolidated financial statements are filed as part of this annual report:
Report of Independent Registered Public Accounting Firm, dated February 27, 2013
Consolidated Balance Sheets as at August 31, 2011 and 2010
Consolidated Statements of Operations for each of the years ended August 31, 2011 and 2010 and the period from April 14, 2005 (inception) to August 31, 2011
Consolidated Statements of Stockholders’ Equity for the years ended August 31, 2011 and 2010 and for the period from April 14, 2005 (inception) to August 31, 2011
Consolidated Statements of Cash Flows for each of the years ended August 31, 2011 and 2010 and the period from April 14, 2005 (inception) to August 31, 2011.
Notes to the Consolidated Financial Statements
BLACK HAWK EXPLORATION
AUDIT REPORT OF INDEPENDENT ACCOUNTANTS
AND
CONSOLIDATED FINANCIAL STATEMENTS
August 31, 2011 and 2010
C O N T E N T S
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
Black Hawk Exploration
We have audited the accompanying consolidated balance sheet of Black Hawk Exploration as of August 31, 2011, and the related consolidated statements of operations, stockholders’ equity and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. The consolidated financial statements of Black Hawk Exploration as of August 31, 2010, were audited by other auditors whose report dated December 3, 2010, expressed an unqualified opinion on those statements.
We conducted our audit in accordance with the 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 consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of Black Hawk Exploration as of August 31, 2011, and the results of their operations and their cash flows for the year then ended, in conformity with U.S. generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company has not yet established an ongoing source of revenue sufficient to cover its operating costs which raises substantial doubt about its ability to continue as a going concern. Management’s plans concerning these matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ Sadler, Gibb & Associates, LLC
Sadler, Gibb & Associates, LLC
Salt Lake City, UT
March 1, 2013
LBB & ASSOCIATES LTD., LLP
Westheimer Road, Suite 310
Houston, TX 77042
Phone: (713) 800-4343 Fax: (713) 456-2408
Report of Independent Registered Public Accounting Firm
To the Board of Directors of
Black Hawk Exploration
Fox Island, WA
We have audited the accompanying consolidated balance sheet of Black Hawk Exploration (the “Company”) as of August 31, 2010, and the related consolidated statements of operations, stockholders’ equity, and cash flows for the year then ended. 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 the 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. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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 consolidated financial position of Black Hawk Exploration as of August 31, 2010, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.
As discussed in Note 2 to the consolidated financial statements, the Company’s absence of significant revenues, recurring losses from operations, and its need for additional financing in order to fund its projected loss in 2011 raise substantial doubt about its ability to continue as a going concern. The 2010 consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
LBB & Associates Ltd., LLP
Houston, Texas
December 3, 2010
BLACK HAWK EXPLORATION
Consolidated Balance Sheets
The accompanying notes are an integral part of these consolidated financial statements
BLACK HAWK EXPLORATION
Consolidated Balance Sheets (Continued)
The accompanying notes are an integral part of these consolidated financial statements
BLACK HAWK EXPLORATION
Consolidated Statements of Operations
The accompanying notes are an integral part of these consolidated financial statements
BLACK HAWK EXPLORATION
Consolidated Statements of Stockholders’ Equity
The accompanying notes are an integral part of these consolidated financial statements
BLACK HAWK EXPLORATION
Consolidated Statements of Stockholders’ Equity (Continued)
The accompanying notes are an integral part of these consolidated financial statements
BLACK HAWK EXPLORATION
Consolidated Statements of Cash Flows
The accompanying notes are an integral part of these consolidated financial statements.
BLACK HAWK EXPLORATION
Consolidated Statements of Cash Flows (Continued)
The accompanying notes are an integral part of these consolidated financial statements.
BLACK HAWK EXPLORATION
Notes to Consolidated Financial Statements
August 31, 2011 and 2010
NOTE 1 - ORGANIZATION AND NATURE OF BUSINESS
Black Hawk Exploration (“the Company”) was incorporated in Nevada on April 14, 2005, to engage in the acquisition, exploration and production of oil and gas and mineral properties.
On August 11, 2009, the Company formed Blue Lithium Energy, Inc. a wholly-owned subsidiary under the laws of the State of Nevada to acquire, explore and develop lithium properties in the United States and Canada.
On December 8, 2009 the Company formed Golden Black Hawk, Inc., a second wholly-owned subsidiary under the laws of the State of Nevada to acquire, explore and develop gold properties in the United States and Canada.
NOTE 2 - GOING CONCERN
The Company’s financial statements are prepared using generally accepted accounting principles in the United States of America applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has not yet established an ongoing source of revenues sufficient to cover its operating costs and allow it to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund operating losses until it becomes profitable. If the Company is unable to obtain adequate capital, it could be forced to cease operations.
In order to continue as a going concern, the Company will need, among other things, additional capital resources. Management’s plan is to obtain such resources for the Company by obtaining capital from management and significant shareholders sufficient to meet its minimal operating expenses and seeking equity and/or debt financing. However management cannot provide any assurances that the Company will be successful in accomplishing any of its plans.
The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described in the preceding paragraph and eventually secure other sources of financing and attain profitable operations. The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES
Consolidation
The accompanying consolidated financial statements included all of the accounts of the Company and its wholly-owned subsidiaries, Blue Lithium Energy Inc., and Golden Black Hawk, Inc., both Nevada Corporations. All intercompany transactions have been eliminated.
Cash and Cash Equivalents
Cash and cash equivalents are defined as cash on hand, demand deposits and short-term, highly liquid investments with an original maturity of ninety days or less. “The Company’s bank accounts are held by insured institutions. The funds are insured up to $250,000. At August 31, 2011 and 2010, the Company’s bank deposits did not exceed the insured amounts.”
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
BLACK HAWK EXPLORATION
Notes to Consolidated Financial Statements
August 31, 2011 and 2010
NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Mineral Properties
Acquisition Costs - The costs of acquiring mineral properties are capitalized and amortized over their estimated useful lives following the commencement of production or expensed if it is determined that the mineral property has no future economic value or the properties are sold or abandoned. Cost includes cash consideration and the fair market value of shares issued on the acquisition of mineral properties. Properties acquired under option agreements, whereby payments are made at the sole discretion of the Company, are recorded in the accounts at such time as the payments are made.
The recoverable amounts for mineral properties is dependent upon the existence of economically recoverable reserves; the acquisition and maintenance of appropriate permits, licenses and rights; the ability of the Company to obtain financing to complete the exploration and development of the properties; and upon future profitable production or alternatively upon the Company’s ability to recover its spent costs from the sale of its interests. The amounts recorded as mineral properties reflect actual costs incurred and are not intended to express present or future values.
Exploration and Development Costs - Exploration costs are expensed as incurred. When it is determined that a mining deposit can be economically and legally extracted or produced based on established proven and probable reserves, further exploration costs and development costs incurred after such determination will be capitalized. The establishment of proven and probable reserves is based on results of final feasibility studies which indicate whether a property is economically feasible. Upon commencement of commercial production, capitalized costs will be transferred to the appropriate asset category and amortized over their estimated useful lives. Capitalized costs, net of salvage values, relating to a deposit which is abandoned or considered uneconomic for the foreseeable future, will be written off.
Impairment of Mineral Rights - The Company reviews mineral rights for indicators of impairment on a quarterly basis and whenever events or changes in circumstances indicate that the carrying value may not be fully recoverable. The capitalized amounts may be written-down if potential future cash flows, including potential sales proceeds, related to the property are estimated to be less than the carrying value of the property. If the review indicates that the carrying amount of the asset may not be fully recoverable, the potential impairment is measured based on a projected discounted cash flow method using a discount rate that is considered to be commensurate with the risk inherent in the company’s current business model. Reductions in the carrying value of each property would be recorded to the extent the carrying value of the investment exceeds the estimated future net cash flows. During the years ended August 31, 2011 and 2010, the Company recorded impairment to mineral rights of $-0- and $-0-, respectively.
Oil and Gas Properties
The Company uses the full cost method of accounting for oil and natural gas properties. Under this method, all acquisition, exploration and development costs, including certain payroll, asset retirement costs, other internal costs, and interest incurred for the purpose of finding oil and natural gas reserves, are capitalized. Internal costs that are capitalized are directly attributable to acquisition, exploration and development activities and do not include costs related to production, general corporate overhead or similar activities. Costs associated with production and general corporate activities are expensed in the period incurred. Sales of oil and natural gas properties are accounted for as adjustments to the net full cost pool with no gain or loss recognized, unless the adjustment would significantly alter the relationship between capitalized costs and proved reserves. If it is determined that the relationship is significantly altered, the corresponding gain or loss will be recognized in the statements of operations. During the years ended August 31, 2011 and 2010 the Company recognized net gains on the sales of certain oil and gas properties in the aggregate amounts of $109,936 and $-0-, respectively.
BLACK HAWK EXPLORATION
Notes to Consolidated Financial Statements
August 31, 2011 and 2010
NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Oil and Gas Properties (Continued)
Capitalized costs associated with impaired properties and capitalized costs related to properties having proved reserves, plus the estimated future development costs, and asset retirement costs under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 410 “Asset Retirement and Environmental Obligations,” are amortized using the units-of-production method based on proved reserves. Capitalized costs of oil and natural gas properties, net of accumulated amortization and deferred income taxes, are limited to the total of estimated future net cash flows from proved oil and natural gas reserves, discounted at ten percent, plus the cost of unevaluated properties. Previously, under certain specific conditions, companies could elect to use subsequent prices for determining estimated future cash flows. The use of subsequent pricing is no longer allowed. There are many factors, including global events that may influence the production, processing, marketing and price of oil and natural gas. A reduction in the valuation of oil and natural gas properties resulting from declining prices or production could adversely impact depletion rates and capitalized cost limitations. Capitalized costs associated with properties that have not been evaluated through drilling or seismic analysis, including exploration wells in progress at August 31, 2011, are excluded from the units-of-production amortization. Exclusions are adjusted annually based on drilling results and interpretative analysis. For the year ended August 31, 2011, the Company recognized $8,922 of depletion expense related to oil and gas production.
Ceiling Test - In applying the full cost method and in accordance with ASC 932, the Company performs an impairment test (ceiling test) at each reporting date, whereby the carrying value of property and equipment is compared to the value of its proved reserves discounted at a ten percent interest rate of future net revenues, based on current economic and operating conditions, plus the cost of properties not being amortized, plus the lower of cost or fair market value of unproved properties included in costs being amortized, less the income tax effects related to book and tax basis differences of the properties. As of August 31, 2011, no impairment has been recorded in connection with the full cost ceiling test calculation.
Revenue Recognition - Revenues from the sale of oil and natural gas are recognized when the product is delivered at a fixed or determinable price, title has transferred, and collectability is reasonably assured. For oil sales, this occurs when the customer takes delivery of oil from the operators’ storage tanks.
Impairment of Oil and Gas Properties - The Company reviews oil and gas leases for indicators of impairment on a quarterly basis and whenever events or changes in circumstances indicate that the carrying value may not be recoverable. If the review indicates that the carrying amount of the asset may not be recoverable, the potential impairment is measured based on a projected discounted cash flow method using a discount rate that is considered to be commensurate with the risk inherent in the company’s current business model. During the years ended August 31, 2011 and 2010, the Company recorded impairment to oil and gas properties of $-0- and $-0-, respectively.
Asset Retirement Obligations
The Company records the fair value of a liability for an asset retirement obligation in the period in which it is incurred and a corresponding increase in the carrying amount of the related long-lived asset. The liability is accreted to its present value each period, and the capitalized cost is depreciated over the useful life of the related asset. If the liability is settled for an amount other than the recorded amount, a gain or loss is recognized.
BLACK HAWK EXPLORATION
Notes to Consolidated Financial Statements
August 31, 2011 and 2010
NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Fair Value of Financial Instruments
The fair value accounting guidance defines fair value as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.” The definition is based on an exit price rather than an entry price, regardless of whether the entity plans to hold or sell the asset. This guidance also establishes a fair value hierarchy to prioritize inputs used in measuring fair value as follows:
● Level 1: Observable inputs such as quoted prices in active markets;
● Level 2: Inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and
● Level 3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.
The carrying value of recorded assets and liabilities are considered to approximate their fair value due to their short-term nature. Marketable securities are remeasured at each reporting period based on quoted prices in active markets.
Income Taxes
Income taxes are provided in accordance with FASB Codification Topic 740, Accounting for Income Taxes. A deferred tax asset or liability is recorded for all temporary differences between financial and tax reporting and net operating loss-carry forwards.
Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax asset will not be realized. Deferred tax assets and liabilities are adjusted for the effect of changes in tax laws and rates on the date of enactment.
The asset and liability approach is used to account for income taxes by recognizing deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax basis of assets and liabilities. The Company records a valuation allowance to reduce the deferred tax assets to the amount that is more likely than not to be realized.
Financial Instruments
As of August 31, 2011, the Company’s financial instruments consist of cash. Unless otherwise noted, it is management’s opinion that the Company is not exposed to significant interest, currency or credit risks arising from these financial instruments. Because of the short maturity of such assets and liabilities the fair value of the financial instrument approximates its carrying value, unless otherwise noted.
Basic and Diluted Loss per Share
Basic and diluted loss per share is calculated by dividing the Company’s net loss applicable to common shareholders by the weighted average number of common shares during the period. Diluted earnings per share is calculated by dividing the Company’s net income available to common shareholders by the diluted weighted average number of shares outstanding during the year. The diluted weighted average number of shares outstanding is the basic weighted number of shares adjusted for any potentially dilutive debt or equity. There were 4,285,714 such common stock equivalents outstanding as of August 31, 2011.
BLACK HAWK EXPLORATION
Notes to Consolidated Financial Statements
August 31, 2011 and 2010
NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Marketable Securities
The Company reports its investments in marketable securities under the provisions of ASC 320, Investments in Debt and Equity Securities. All the Company’s marketable securities are classified as “available for sale” securities, as the market value of the securities are readily determinable and the Company’s intention upon obtaining the securities was neither to sell them in the short term nor to hold them to maturity. Pursuant to ASC 320, securities which are classified as “available for sale” are recorded on the Company’s balance sheet at fair market value, with the resulting unrealized holding gains and losses excluded from earnings and reported as other comprehensive income until realized.
The Company evaluates securities for other-than-temporary impairment at least on a yearly basis, and more frequently when economic or market conditions warrant such evaluation. Consideration is given to the length of time and amount of the loss relative to cost, the nature and financial condition of the issuer and the ability and intent of the Company to hold the investment for a time sufficient to allow any anticipated recovery in fair value. Pursuant to ASC 320-5, other than temporary impairment losses are recorded as impairment expense in the statement of operations during the period in which the impairment is determined. The Company recognized other-than-temporary impairment to marketable securities in the amount of $34,250 and $-0- during the years ended August 31, 2011 and 2010, respectively.
Recent Accounting Pronouncements
The Company has evaluated recent accounting pronouncements and their adoption has not had or is not expected to have a material impact on the Company’s financial position or statements.
NOTE 4 - NON-TRADE ACCOUNTS RECEIVABLE AND NOTES RECEIVABLE
Notes Receivable - Related Parties
On February 1, 2011 the Company sold a 100 percent working interest with an undivided 81.5 percent net revenue interest in various oil and gas leases to a related party for $80,000. The consideration was to be paid in cash and shares of the purchasing entity’s common stock. The Company received 250,000 shares of the purchaser’s common stock, valued at $0.18 per share, being the market price on the date of sale. These shares represented a payment to the Company in the amount of $45,000. The remaining $35,000 cash payment remains unpaid as of August 31, 2011. This amount has been classified as a note receivable - related party in the Company’s financial statements. The note bears no interest, has no specific payment terms, and is due on demand.
BLACK HAWK EXPLORATION
Notes to Consolidated Financial Statements
August 31, 2011 and 2010
NOTE 4 - NON-TRADE ACCOUNTS RECEIVABLE AND NOTES RECEIVABLE (CONTINUED)
Other Short-Term Receivables
During the year ended August 31, 2011 the Company paid $64,850 to a third party entity for certain drilling services to be rendered. An additional $148,407 was paid to the third party on the Company’s behalf by other entities. The third party made various payments for lease extensions and drilling services on the Company’s behalf totaling $153,095. Subsequent to August 31, 2011 the third party has made no additional payments on the Company’s behalf. Therefore, the Company elected to fully allow for the remaining $60,161 receivable, as collection was deemed by the Company to be unlikely. Consequently, the Company recorded bad debt expense in the amount of $60,161 for the year ended August 31, 2011.
During the year ended August 31, 2011 the Company sold a 70 percent working interest in certain oil and gas leases to a third party for total consideration of $284,361. As of August 31, 2011 the Company has received cash payments on this amount totaling $84,000. In addition, the purchaser has made $148,407 in cash payments to third-party vendors and land owners for lease extensions on the Company’s behalf. As of August 31, 2011, a total of $51,554 of this receivable remained uncollected. This amount is deemed by the Company to be fully collectible.
NOTE 5 - MARKETABLE SECURITIES
During the year ended August 31, 2011 the Company received marketable securities as consideration for the sale of mineral properties and oil and gas leases. The Company’s marketable securities are classified as “available for sale” because it is managements’ intent neither to sell them in the short-term nor to hold them until maturity. All of the Company’s available for sale securities are equity securities. Accordingly, the Company originally records the shares at the market value of the shares on the contracted sale date. The shares are evaluated quarterly using the specific identification method. Any unrealized holding gains or losses are reported as Other Comprehensive Income (Loss) and as a separate component of stockholder’s equity. Realized gains and losses and other-than-temporary impairments are included in earnings.
Marketable Securities-Available for Sale are as follows:
BLACK HAWK EXPLORATION
Notes to Consolidated Financial Statements
August 31, 2011 and 2010
NOTE 6 - PROPERTY AND EQUIPMENT
Fixed Assets
As of August 31, 2011 and 2010 the Company’s fixed assets consisted of the following:
Depreciation expense was $8,917 and $-0-, for the years ended August 31, 2011 and 2010, respectively.
Oil and Gas Pumping and Support Equipment
As of August 31, 2011 and 2010 the Company’s oil and gas pumping and support equipment consisted of the following:
Depreciation expense was $3,316 and $-0-, for the years ended August 31, 2011 and 2010, respectively.
NOTE 7 - MINERAL PROPERTIES
BMP Property
During the year ended August 31, 2009, a geologist engaged by the Company identified and acquired 56 lithium claims in the state of Nevada on behalf of the Company. The titles to these claims were transferred to the Company in November 2009. As of August 31, 2011 and 2010, respectively, the Company has incurred $25,311 and $25,171 of acquisition costs related to the mineral rights of the BMP Property.
Dun Glen Property
On December 10, 2009, the Company entered into a property interest purchase option agreement with an unrelated third-party entity that gave the Company the right to acquire a 100 percent interest in a total of 73 mining claims in Pershing County, Nevada.
The Option Agreement entitled the Company to acquire undivided legal and beneficial interests of up to 75 percent in the claims, free and clear of all liens, charges and claims of others. Considerations for the Option Agreement were as follows:
● An initial payment of $50,000 and issuance of 250,000 shares of common stock on the effective date. The common shares were issued on February 23, 2010.
● An additional payment of $25,000 and issuance of 100,000 restricted common shares on or before the first year anniversary of the signing of the agreement.
● A further payment of $25,000 on or before the second anniversary.
● Development expenditures on the property of not less than $700,000 on or before the fourth anniversary of the effective date of the agreement.
BLACK HAWK EXPLORATION
Notes to Consolidated Financial Statements
August 31, 2011 and 2010
NOTE 7 - MINERAL PROPERTIES (CONTINUED)
Dun Glen Property (Continued)
The Company also assumed an obligation to pay certain third parties an aggregate of $72,500 in 2011 and each year thereafter as part of its option agreements with the seller. As of August 31, 2011 and 2010, respectively, the Company has incurred $460,855 and $325,000 of acquisition costs related to the mineral rights of the Dun Glen property. No impairment was recorded as of August 31, 2011 and 2010.
Utah Potash Claims
On January 24, 2011 the Company purchased the mineral rights to 640 acres of land in San Juan County, Utah at a price of $79.29 per acre, for an aggregate cost of $50,748.
In March 2011 the Company agreed to sell a 60 percent interest in these same mineral rights to a related party for $50,000 in cash, and 250,000 shares of the purchaser’s common stock, which were valued at an aggregate of $40,000 on the sale date. As of August 31, 2011 the Company has received $30,000 of the cash portion of the sales price and 250,000 shares of common stock valued at $40,000 for total consideration received of $70,000. The $70,000 in consideration received pursuant to this sales transaction is recorded as a customer deposit, and will remain recorded as such until the terms of the agreement are fully satisfied, the Company receives the remainder of the agreed-upon consideration, and the title to the property transfers to the purchaser.
NOTE 8 - OIL AND GAS PROPERTIES
On October 27, 2010, the Company entered into an agreement with Tiger Oil & Energy, Inc., a related party, to purchase a 100 percent working and net revenue interest in 13 oil and gas leases located in Cowley County, Kansas covering approximately 2,553 acres of land. The Company paid $193,980 to acquire the leases and the related support equipment. An additional $40,000 was paid as finder’s fees associated with the purchase. Of the aggregate purchase price of $233,980, $213,274 was applied to oil and gas properties, and the remaining $20,246 was applied to support equipment. Under the lease agreement, the Company agreed to pay for 100 percent of the approved costs and expenses incurred in connection with rework of specific wells on the leased property.
On February 1, 2011 the Company agreed to sell a 100 percent working and net revenue interest in three leases to a related-party. The consideration for this sale was $80,000, to be paid in the form of a $35,000 promissory note, and 250,000 shares of the buyer’s common stock, which was valued at the market rate of $0.18 per share on the date of the sale. Collectively, these three leases had a cost basis of $35,988, plus an additional $867 in capitalized exploration costs at the time of sale. The excess of sales price over the total cost basis of the leases was $43,147, which the Company recorded as a reduction to oil and gas properties.
On April 13, 2011 the Company agreed to sell a 70 percent working interest and 76 percent net revenue interest in eight leases to an unrelated third-party. The consideration for this sale was to be $284,361. Of this amount, the Company received $84,400 in cash, and a total of $148,407 was paid directly to Company creditors by the purchaser. The remaining $51,554 was determined to be uncollectible and written-off as bad debt expense during the year ended August 31, 2011.
BLACK HAWK EXPLORATION
Notes to Consolidated Financial Statements
August 31, 2011 and 2010
NOTE 8 - OIL AND GAS PROPERTIES (Continued)
On June 10, 2011 the Company repurchased a 30 percent working interest and revenue interest in three oil and gas leases from a related-party. The consideration for the purchase was $42,000, executed in the form of a note payable to the seller. The note does not accrue interest and is due on demand. As of August 31, 2011, the entire balance of the note remains unpaid and outstanding.
Oil and gas properties are stated at cost. The Company recognized depletion expense totaling $8,922 and $-0- during the years ended August 31, 2011 and 2010, respectively. As of August 31, 2011 and 2010 oil and gas properties consisted of the following:
NOTE 9 - RELATED PARTY TRANSACTIONS
During the years ended August 31, 2011 and 2010, the Company paid consulting fees of $144,000 and $113,000, respectively, to a private company that has a common director with the Company.
During the years ended August 31, 2011 and 2010, the Company paid rent of $4,800 and $4,000 to a company with a common director and CEO with the Company.
NOTE 10 - NOTES PAYABLE
On October 19, 2010, the Company issued a note payable with a face value of $600,000 to two unrelated third-party entities. Of this amount, the Company received $500,000 cash. The remaining $100,000 was accounted for as a note discount, and was amortized to interest expense over the six-month life of the note. The Company also entered into a security agreement with its creditors to pledge all of its assets as security for the note. As of August 31, 2011 the Company had amortized the entire $100,000 note discount, leaving a net note balance of $600,000. During the year ending August 31, 2011, the Company made cash payments on the note principal totaling the full $600,000 note principal and interest payments totaling $12,250
On June 3, 2011, the Company issued a convertible note with a face value of$600,000. Of this total, $300,000 was received by the Company on May 16, 2011, with the remaining $300,000 received on June 3, 2012. The note bears interest at a rate of six percent per annum and is due on October 19, 2012. The note maybe converted at the option of the holder into common shares of the Company at $0.14 per share. The proceeds from the convertible note were used to partially satisfy the commitment to repay two secured notes. The terms of the note also entitle the holder to warrants to purchase up to 8,500,000 shares of the Company’s common stock at $0.14 per share.
BLACK HAWK EXPLORATION
Notes to Consolidated Financial Statements
August 31, 2011 and 2010
NOTE 11 - COMMITMENTS AND CONTINGENCIES
On October 19, 2009, the Company entered into an equity financing agreement whereby the Company may draw up to $1,000,000 by issuing units at $0.85 per unit with each unit consisting of one share of the Company’s common stock and one common stock purchase warrant exercisable into one common share for two years at $1.05 for the first 12 months and $1.25 for the second 12 months. Under the term of the agreement the Company has the right to call upon funds as needed, subject to approval by the other party to the agreement. On November 20, 2009 the Company made a $200,000 draw against a $1,000,000 Equity Line of Credit financing commitment. The Company has received $600,000 in total draws to date and still has $400,000 available if needed, with funding subject to the sole discretion and approval of the counterparty to the agreement. As of August 31, 2010, the Company has issued 705,882 common shares under the terms of the agreement.
In accordance with the amended consulting agreements dated January 1, 2010 with a related party, the Company agreed to pay consulting fees of $10,000 up front and $6,000 per month, as well as pre approved office expenses of $1,000 through July 2010. The consulting agreement is automatically renewed for a further seven months unless a notice of termination is received. The contract was extend for an additional year, and as of August 31, 2011 the agreements are operating on a month-to-month basis.
On December 1, 2009, the Company entered into an office rent agreement with a related party to pay $400 per month for office space in Nevada. The term of the agreement is on a month by month basis starting December 1, 2009. A deposit of $1,200 was paid upon signing the agreement.
The Company agreed to compensate two of its directors at a rate of $2,000 per month. The agreement is for a term of 12 months commencing on the 1st day of January 2011. The agreement will be automatically renewed for another 12 months unless notice of termination is received 30 days in advance. The Company also agreed to grant a director an option to purchase 200,000 common shares at a price of $0.15 per share for a period commencing April 15, 2011 and expiring on April 14, 2016.
NOTE 12 - ASSET RETIREMENT OBLIGATIONS
The total future asset retirement obligation is estimated by management based on the Company’s net working interests in all wells and facilities, estimated costs to reclaim and abandon wells and facilities and the estimated timing of the costs to be incurred in future periods. At August 31, 2011, the Company estimates the undiscounted cash flows related to asset retirement obligation to total approximately $225,000. The fair value of the liability at August 31, 2011 is estimated to be $32,147 using a risk free rate of 4.81 percent and an inflation rate of two percent. The actual costs to settle the obligation are expected to occur in approximately 25 years.
Changes to the asset retirement obligation were as follows:
BLACK HAWK EXPLORATION
Notes to Consolidated Financial Statements
August 31, 2011 and 2010
NOTE 13 - COMMON STOCK
The Company’s authorized stock consists of 300,000,000 common shares at a par value of $0.001. There were 63,581,721 and 60,488,993 shares of common stock issued and outstanding at August 31, 2011 and 2010, respectively.
On October 16, 2009, the Company received gross proceeds of $55,000 for subscriptions of 64,706 shares of the Company’s common stock at $0.85 per share. The shares were issued in February 2010.
On October 19, 2009, the Company entered into an equity financing agreement whereby the Company may draw up to $1,000,000 by issuing units at $0.85 per unit with each unit consisting of one share of the Company’s common stock and one common stock purchase warrant exercisable into one common share for two years at $1.05 for the first 12 months and $1.25 for the second 12 months. Under the term of the agreement the Company has the right to call upon funds as needed, subject to approval by the other party to the agreement. As of August 31, 2010, the Company has issued 705,882 common shares under the terms of the agreement.
In February 2010, the Company issued 250,000 common shares in accordance with the Dun Glen Property Option agreement. The shares were valued at $1.00 per share for a total of $250,000 based upon the fair market value of the Company’s stock on December 10, 2009; the effective date of the Option Agreement.
During the year period ended August 31, 2010, the Company issued 250,000 common shares to a consulting firm in accordance with a letter agreement effective February 1, 2010 for consulting services on the Company’s website and shareholder presentation and investment opportunities. The shares were valued at $0.54 per share for a total value of $135,000 based on the fair market value of the stock on February 1, 2010.
During the year ended August 31, 2010, the Company issued 16,977 shares of its common stock for mineral exploration services valued at $0.85 per shares for a total of $14,430, based upon the fair market value of the Company’s stock at the time of the transaction.
On March 10, 2010, the Company’s Chief Executive Officer, purchased 12,000,000 shares of common stock in a private transaction with an unrelated third-party stockholder disclosed in a Form 8-K filed by the Company on March 1, 2010. The Chief Executive Officer owns a total of 12,010,000 common shares. The selling shareholder purchased shares in the Company in a private transaction and by multiple private placements disclosed in Form 8-K filings by the Company. The selling shareholder beneficially owns 9,370,588 common shares.
On October 19, 2010, the Company issued 2,272,728 units for $0.22 per share for gross proceeds of $500,000. Each unit consisted of one share of common stock, one Series A warrant to acquire 15,000,000 shares of the Company’s common stock at $0.22 per share for a period of 30 months from the date of issuance, and one Series B warrant to acquire 2,363,638 shares of the Company’s common stock at $0.22 per share for a period of 5 years from the date of issuance. In conjunction with this financing the Company incurred $55,000 in stock offering costs which have been recorded as a reduction to additional paid-in capital.
On December 10, 2010 the Company issued 100,000 shares of common stock as a required payment to maintain certain mineral leases. The stock was valued at $0.15 per share, for a total expense of $15,000.
On January 1, 2011, the Company issued 720,000 shares of common stock for services. The stock was valued at $0.15per share, resulting in an aggregate value of $100,800, based on the market price of the common stock on the date of issuance.
BLACK HAWK EXPLORATION
Notes to Consolidated Financial Statements
August 31, 2011 and 2010
NOTE 14 - STOCK OPTIONS AND WARRANTS
On October 19, 2010, the Company issued 2,272,728 units for $0.22 per share for gross proceeds of $500,000. Each unit consisted of its par value $0.001 common stock for $0.22 per share for $500,000 cash. As part of the stock issuance, the Company issued Series A warrants to acquire 15,000,000 shares of the Company’s common stock at $0.22 per share for a period of 30 months from the date of issuance and issued Series B warrants to acquire 2,363,638 shares of the Company’s common stock at $0.22 per share for a period of five years from the grant date.
The Company used the Black-Scholes option price model to calculate the fair market value of the warrants granted using the following assumptions below. Based on the fair market value of the warrants, the Company allocated $553,384 of additional paid-in capital to the warrants. Through August 31, 2011 the Company had recognized compensation expense relating to the stock options granted in the amount of $27,088.
On June 3, 2011, the Company issued a convertible note with a face value of $600,000. The terms of the note also entitle the holder to warrants to purchase up to 8,500,000 shares of the Company’s common stock at $0.14 per share for a period of five years from the grant date.
The Company used the Black-Scholes option price model to calculate the fair market value of the warrants granted using the assumptions below. Based on the fair market value of the warrants, the Company recorded$276,692of additional paid-in capital and debt discount which was amortized to interest expense over the life of the note.
A summary of the Company’s stock option activity during the years ended August 31, 2011 and 2010 is presented below:
NOTE 15 - INCOME TAXES
The Company applies ASC 740, which requires the asset and liability method of accounting for income taxes. The asset and liability method requires that the current or deferred tax consequences of all events recognized in the financial statements are measured by applying the provisions of enacted tax laws to determine the amount of taxes payable or refundable currently or in future years. Deferred tax assets are reviewed for recoverability and the Company records a valuation allowance to reduce its deferred tax assets when it is more likely than not that all or some portion of the deferred tax assets will not be recovered.
The Company adopted ASC 740, at the beginning of fiscal year 2008. This interpretation requires recognition and measurement of uncertain tax positions using a “more-likely-than-not” approach, requiring the recognition and measurement of uncertain tax positions. The adoption of ASC 740 had no material impact on the Company’s financial statements.
BLACK HAWK EXPLORATION
Notes to Consolidated Financial Statements
August 31, 2011 and 2010
NOTE 15 - INCOME TAXES (CONTINUED)
The provision for income taxes differs from the amounts which would be provided by applying the statutory federal income tax rate of 34 percent to the net loss before provision for income taxes for the following reasons:
Net deferred tax assets consist of the following components as of:
Due to the change in ownership provisions of the Tax Reform Act of 1986, net operating loss carry forwards of $759,025 for federal income tax reporting purposes are subject to annual limitations. Should a change in ownership occur net operating loss carry forwards may be limited as to use in future years.
In accordance with generally accepted accounting principles, the Company has analyzed its filing positions in all jurisdictions where it is required to file income tax returns for the open tax years in such jurisdictions. The Company has identified its federal income tax returns for the previous five years remain subject to examination. The Company’s income tax returns in state income tax jurisdictions also remain subject to examination for the previous five years. The Company currently believes that all significant filing positions are highly certain and that all of its significant income tax filing positions and deductions would be sustained upon audit. Therefore, the Company has no significant reserves for uncertain tax positions, and no adjustments to such reserves were required by generally accepted accounting principles. No interest or penalties have been levied against the Company and none are anticipated, therefore no interest or penalty has been included in the provision for income taxes in the consolidated statements of operations.
NOTE 16 - SUBSEQUENT EVENTS
Subsequent to August 31, 2011 the Company issued 1,333,334 shares of common stock to an unrelated third party for cash at $0.15 per share, for total cash proceeds of $200,000.
On August 13, 2012 the Company paid $42,000 to a related-party in order to satisfy in full the Company’s note payable to the related party.
On December 16, 2011 the Company borrowed $25,000 from an unrelated third-party pursuant to a note payable agreement. The note accrues interest at a rate of six percent per annum, and requires the Company to make payments of $483.32 per month. The note has a maturity date of December 16, 2015.
On August 13 2012 the Company borrowed $15,600 from an unrelated third-party pursuant to a note payable agreement. The note accrues interest at a rate of six percent per annum, and requires the Company to make payments of $1,300 per month. The note has a maturity date of August 13, 2013.
BLACK HAWK EXPLORATION
Notes to Consolidated Financial Statements
August 31, 2011 and 2010
SUPPLEMENTAL INFORMATION TO
FINANCIAL STATEMENTS (Unaudited)
Oil and Gas Producing Activities
In January 2010, the Financial Accounting Standards Board (FASB) issued FASB Accounting Standards Update (ASU) No. 2010-03, “Oil and Gas Reserve Estimations and Disclosures” (ASU No. 2010-03). This update aligns the current oil and gas reserve estimation and disclosure requirements of the Extractive Industries - Oil and Gas topic of the FASB Accounting Standards Codification (ASC Topic 932) with the changes required by the final rule of the Securities and Exchange Commission (the “SEC”), “Modernization of Oil and Gas Reporting.” ASU No. 2010-03 must be applied prospectively as a change in accounting principle that is inseparable from a change in accounting estimate and is effective for entities with annual reporting periods ending on or after December 31, 2009.
Oil and Gas Reserves. Users of this information should be aware that the process of estimating quantities of “proved,” “proved developed,” “proved undeveloped” and “probable” crude oil, natural gas liquids and natural gas reserves is complex, requiring significant subjective decisions in the evaluation of all available geological, engineering and economic data for each reservoir. The data for a given reservoir may also change substantially over time as a result of numerous factors including, but not limited to, additional development activity, evolving production history and continual reassessment of the viability of production under varying economic conditions. Consequently, material revisions (upward or downward) to existing reserve estimates may occur from time to time. Although reasonable effort is made to ensure that reserve estimates reported represent the most accurate assessments possible, the significance of the subjective decisions required and variances in available data for various reservoirs make these estimates generally less precise than other estimates presented in connection with financial statement disclosures. See ITEM 1A.
Item 9A. Controls and Procedures
As required by Rule 13a-15 under the Securities Exchange Act of 1934, as of the end of the period covered by the annual report, being August 31, 2010, we have carried out an evaluation of the effectiveness of the design and operation of our company’s disclosure controls and procedures. This evaluation was carried out under the supervision and with the participation of our company’s management, including our company’s president along with our company’s secretary. Based upon that evaluation, our company’s president along with our company’s secretary concluded that our company’s disclosure controls and procedures are not effective as at the end of the period covered by this report. There have been no significant changes in our internal controls over financial reporting that occurred during our most recent fiscal year that have materially affected, or are reasonably likely to materially affect our internal controls over financial reporting.
Disclosure controls and procedures and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time period 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 in our reports filed under the Securities Exchange Act of 1934 is accumulated and communicated to management including our president and secretary as appropriate, to allow timely decisions regarding required disclosure.
Internal Controls over Financial Reporting
Internal control over financial reporting refers to the process designed by, or under the supervision of, our Chief Executive Officer and Chief Financial Officer, and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles, and includes those policies and procedures that:
(1) Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;
(2) Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorization of our management and directors; and
(3) Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisitions, use or disposition of our assets that could have a material effect on the financial statements.
Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of its inherent limitations. Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting also can be circumvented by collusion or improper management override. Because of such limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk. Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company.
Management conducted an assessment of the effectiveness of the Company’s internal control over financial reporting as of August 31, 2011, including (i) the control environment, (ii) risk assessment, (iii) control activities, (iv) information and communication, and (v) monitoring, based on the framework in Internal Control - Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). As of August 31, 2011, management has determined that the Company’s internal control over financial reporting as of August 31, 2011 was not effective.
This Annual Report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. Our internal control over financial reporting was not subject to attestation by our independent registered public accounting firm pursuant to temporary rules of the SEC that permit us to provide only management’s report in this Annual Report.
There has been no change in our internal controls over financial reporting during our most recent fiscal year that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.
Item 9B.
Item 9B. Other Information
None.
PART III
Item 10.
Item 10. Directors, Executive Officer, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act.
DIRECTORS AND EXECUTIVE OFFICER, PROMOTERS AND CONTROL PERSONS
As of August 31, 2011, our directors and executive officer, their ages, positions held, and duration of such, are as follows:
Business Experience
The following is a brief account of the education and business experience during at least the past five years of each director, executive officer and key employee, indicating the principal occupation during that period, and the name and principal business of the organization in which such occupation and employment were carried out.
Kevin M. Murphy
Mr. Murphy, age 66, is an international consultant, with many years of executive management experience in corporate reorganization, finance, administration, and new business development. He has served on the Board of Directors of several companies. Mr. Murphy currently serves as President and CEO of United Potash Corp (UPCO) on the OTC/BB (formerly Utah Uranium Inc.) and as President and Director of Convenientcast Inc.(CVCT) on the OTC/BB(formerly Lone Mountain Mines, Inc.). He is also President and Chairman of the Board of Directors of, a private investment banking firm. He is CEO and President of a private company, Neighborhood Choices, Inc., in the International Domain registration and resale industry. Mr. Murphy is an alumnus of the University of California (UCLA), Los Angeles School of Economics and the California State University (CSULA) at Los Angeles’s School of Business, and is an Alumni of Sigma Alpha Epsilon.
Howard Bouch
Howard Bouch, age 69, is a Private Practice Chartered Accountant with over 36 years of Public and Private international experience. Mr. Bouch originally qualified as a Chartered Accountant (English and Wales Institute) in 1968. Mr. Bouch joined Deloitte & Co, Lusaka, Zambia from 1970 - 1972. Mr. Bouch joined Anglo American Corp, Zambia working as Head Office Chief Accountant for Nchanga Consolidated Copper Mines (world’s 2nd largest) from 1972 - 1976. In 1976, Mr. Bouch returned to the UK and joined Babcock and Wilcox, Engineers, Nottinghamshire, England as Chief Accountant for one of their subsidiaries. Mr. Bouch was Chief Accountant of a private building firm in Cumbria, England from 1978 - 1984. In 1984 Mr. Bouch established a Private Practice as a Chartered Accountant and continues to provide professional services to Cumbrian firms to the present. Mr. Bouch is a Director of Viavid Broadcasting Inc., (symbol VVDB), Tiger Oil and Energy, Inc. (symbol TGRO), Convenientcast, Inc, (symbol CVCT), Universal Potash Corp. (symbol UPCO) and Black Hawk Exploration symbol BHWX).
Committees of the Board
Currently our company has the following committees:
● Audit Committee;
● Nominating and Corporate Governance Committee; and
● Compensation Committee.
Our Audit Committee is currently made up of Howard Bouch. The Audit Committee is governed by the Audit Committee Charter adopted by the board of directors on November 15, 2006.
Our Nominating and Corporate Governance Committee is currently made up of Kevin M. Murphy. The Nominating and Corporate Governance Committee is governed by the Nominating and Corporate Governance Committee Charter adopted by the board of directors on November 15, 2006.
Our Compensation Committee is currently made up of Kevin M. Murphy and Howard Bouch. The Compensation Committee is governed by the Compensation Committee Charter adopted by the board of directors on November 15, 2006.
Family Relationships
There are no family relationships between any of our directors or executive officer.
Involvement in Certain Legal Proceedings
Other than as discussed below, none of our directors, executive officer, promoters or control persons have been involved in any of the following events during the past five years:
1. Any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time;
2. Any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offences);
3. Being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; or
4. Being found by a court of competent jurisdiction (in a civil action), the Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None of our directors, executive officer, future directors, 5% shareholders, or any members of the immediate families of the foregoing persons have been indebted to us during the last fiscal year or the current fiscal year in an amount exceeding $60,000. None of the current directors or officer of our company are related by blood or marriage.
On April 14, 2005, we issued a total of 2,000,000 shares of restricted common stock to Mr. Ainsworth, a former officer and director of our company for a subscription receivable of $2,000. On September 11, 2008 Mr. Ainsworth transferred all of his shares to our former President Sterling Mcleod for cash consideration of $2,000.
Section 16(a) Beneficial Ownership Compliance
Section 16(a) of the Securities Exchange Act requires our executive officer and directors, and persons who own more than 10% of our common stock, to file reports regarding ownership of, and transactions in, our securities with the Securities and Exchange Commission and to provide us with copies of those filings. Based solely on our review of the copies of such forms received by us, or written representations from certain reporting persons, we believe that during fiscal year ended August 31, 2011, all filing requirements applicable to its officer, directors and greater than ten percent beneficial owners were complied with.
Code of Ethics
Effective November 15, 2006, our company’s board of directors adopted a Code of Business Conduct and Ethics that applies to, among other persons, our company’s president (being our principal executive officer) and our company’s secretary (being our principal financial and accounting officer and controller), as well as persons performing similar functions. As adopted, our Code of Business Conduct and Ethics sets forth written standards that are designed to deter wrongdoing and to promote:
1) Honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships;
2) Full, fair, accurate, timely, and understandable disclosure in reports and documents that we file with, or submit to, the Securities and Exchange Commission and in other public communications made by us;
3) Compliance with applicable governmental laws, rules and regulations;
4) The prompt internal reporting of violations of the Code of Business Conduct and Ethics to an appropriate person or persons identified in the Code of Business Conduct and Ethics; and
5) Accountability for adherence to the Code of Business Conduct and Ethics.
Our Code of Business Conduct and Ethics requires, among other things, that all of our company’s personnel shall be accorded full access to our president and secretary with respect to any matter which may arise relating to the Code of Business Conduct and Ethics. Further, all of our company’s personnel are to be accorded full access to our company’s board of directors if any such matter involves an alleged breach of the Code of Business Conduct and Ethics by our president or secretary.
In addition, our Code of Business Conduct and Ethics emphasizes that all employees, and particularly managers and/or supervisors, have a responsibility for maintaining financial integrity within our company, consistent with generally accepted accounting principles, and federal, provincial and state securities laws. Any employee who becomes aware of any incidents involving financial or accounting manipulation or other irregularities, whether by witnessing the incident or being told of it, must report it to his or her immediate supervisor or to our company’s president or secretary. If the incident involves an alleged breach of the Code of Business Conduct and Ethics by the president or secretary, the incident must be reported to any member of our board of directors. Any failure to report such inappropriate or irregular conduct of others is to be treated as a severe disciplinary matter. It is against our company policy to retaliate against any individual who reports in good faith the violation or potential violation of our company’s Code of Business Conduct and Ethics by another.
Our Code of Business Conduct and Ethics is filed herewith with the Securities and Exchange Commission as Exhibit 14.1 to our annual report filed December 21, 2006. We will provide a copy of the Code of Business Conduct and Ethics to any person without charge, upon request. Requests can be sent to: Black Hawk Exploration, PO Box 363, Fox Island, WA 98333.
Audit Committee Financial Expert
Our Board of Directors has determined that it does not have a member of its audit committee that qualifies as an “audit committee financial expert” as defined in Item 401(e) of Regulation S-B, and is “independent” as the term is used in Term 7(d)(3)(iv) of Schedule 14A under the Securities Exchange Act of 1934, as amended.
We believe that the members of our Board of Directors are collectively capable of analyzing and evaluating our financial statements and understanding internal controls and procedures for financial reporting. In addition, we believe that retaining an independent director who would qualify as an “audit committee financial expert” would be overly costly and burdensome and is not warranted in our circumstances given the early stages of our development and the fact that we have not generated revenues to date.
Item 11.
Item 11. Executive Compensation.
Our two Directors each receive $2,000 a month Compensation for their Board service. In addition, during the year ended August 31, 2011 the Company granted stock options to purchase 200,000 shares of the Company’s common stock at $0.22 per share. The options were valued at $11,839 on the grant date. There has not been any other compensation awarded to, earned by, or paid to our directors and executive officer for the last three completed financial years other than 10,000 common shares each and the compensation listed.
Employment/Consulting Agreements
There are no written employment or consulting agreements between us and any of our directors and executive officer.
Long-Term Incentive Plans
There are no arrangements or plans in which we provide pension, retirement or similar benefits for directors or executive officer, except that our directors and executive officer may receive stock options at the discretion of our board of directors. We do not have any material bonus or profit sharing plans pursuant to which cash or non-cash compensation is or may be paid to our directors or executive officer, except that stock options may be granted at the discretion of our board of directors.
We have no plans or arrangements in respect of remuneration received or that may be received by our executive officer to compensate such officer in the event of termination of employment (as a result of resignation, retirement, change of control) or a change of responsibilities following a change of control, where the value of such compensation exceeds $60,000 per executive officer.
Stock Option Plan
Currently, there are no stock option plans in favor of any officer, directors, consultants or employees of ours.
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year End Values
There were no stock options outstanding as at August 31, 2010.
On October 19, 2010, the Company issued 2,272,728 units for $0.22 per share for gross proceeds of $500,000. Each unit consisted of its par value $0.001 common stock for $0.22 per share for $500,000 cash. As part of the stock issuance, the Company issued Series A warrants to acquire 15,000,000 shares of the Company’s common stock at $0.22 per share for a period of 30 months from the date of issuance and issued Series B warrants to acquire 2,363,638 shares of the Company’s common stock at $0.22 per share for a period of five years from the date of issuance.
The Company used the Black-Scholes option price model to calculate the fair market value of the warrants using the following assumptions below. Based on the fair market value of the warrants, the Company allocated $468,770 of the total $497,727 of additional paid-in capital to the warrants with the remaining $31,230 being allocated to the common stock. Through August, 2011 the Company had recognized compensation expense relating to the stock options granted in the amount of $27,088.
Directors Compensation
We reimburse our directors for expenses incurred in connection with attending board meetings and $2,000 in director’s fees or other cash compensation for services rendered as a director in the year ended August 31, 2011.
We have no present formal plan for additionally compensating our directors for their service in their capacity as directors, although in the future, such directors are expected to receive compensation and options to purchase shares of common stock as awarded by our board of directors or (as to future options) a compensation committee which may be established in the future. Directors are entitled to reimbursement for reasonable travel and other out-of-pocket expenses incurred in connection with attendance at meetings of our board of directors. The board of directors may award special remuneration to any director undertaking any special services on behalf of our company other than services ordinarily required of a director. Other than indicated in this annual report, no director received and/or accrued any compensation for his or her services as a director, including committee participation and/or special assignments.
Report on Executive Compensation
Our compensation program for our executive officer is administered and reviewed by our board of directors. Historically, executive compensation consists of a combination of base salary and bonuses. Individual compensation levels are designed to reflect individual responsibilities, performance and experience, as well as the performance of our company. The determination of discretionary bonuses is based on various factors, including implementation of our business plan, acquisition of assets, development of corporate opportunities and completion of financing.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The following table sets forth, as at December 15, 2011, certain information with respect to the beneficial ownership of our common stock by each shareholder known by us to be the beneficial owner of more than five percent (5%) of our common stock, and by each of our current directors and executive officer. Each person has sole voting and investment power with respect to the shares of common stock, except as otherwise indicated. Beneficial ownership consists of a direct interest in the shares of common stock, except as otherwise indicated.
(1) Based on 63,581,721 shares of common stock issued and outstanding as of August 31, 2011. Except as otherwise indicated, we believe that the beneficial owners of the common stock listed above, based on information furnished by such owners, have sole investment and voting power with respect to such shares, subject to community property laws where applicable. Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities. Shares of common stock subject to options or warrants currently exercisable, or exercisable within 60 days, are deemed outstanding for purposes of computing the percentage ownership of the person holding such option or warrants, but are not deemed outstanding for purposes of computing the percentage ownership of any other person
Future Changes in Control
We are unaware of any contract or other arrangement, the operation of which may, at a subsequent date, result in a change in control of our company.
Item 13.
Item 13. Certain Relationships and Related Transactions.
Other than as described under the heading “Executive Compensation”, or as set forth below, there are no material transactions with any of our directors, officer or control person that have occurred during the last fiscal year.
Item 14.
Item 14. Principal Accountant Fees and Services
Audit Fees
The aggregate fees billed by Sadler, Gibb & Associates, LLC and LBB & Associates Ltd., LLP for professional services rendered in connection with the audit of our annual consolidated financial statements included in our Annual Report on Form 10-K, and review of the consolidated financial statements included on our Forms 10-Q, for the fiscal years ended August 31, 2011 and 2010 were approximately $27,000 and 11,480, respectively.
Audit Related Fees
For the fiscal years ended August 31, 2011 and 2010, the aggregate fees billed for assurance and related services by Sadler, Gibb & Associates, LLC and LBB & Associates Ltd., LLP relating to the performance of the audit of our consolidated financial statements which are not reported under the caption “Audit Fees” above, were approximately $__ and $5,085, respectively.
Tax Fees
For the fiscal year ended August 31, 2011, the aggregate fees billed by Sadler, Gibb & Associates, LLC for other non-audit professional services, other than those services listed above, totaled $0.
We do not use Sadler, Gibb & Associates, LLC for financial information system design and implementation. These services, which include designing or implementing a system that aggregates source data underlying the financial statements or generates information that is significant to our financial statements, are provided internally or by other service providers. We do not engage Sadler, Gibb & Associates, LLC to provide compliance outsourcing services.
Effective May 6, 2003, the Securities and Exchange Commission adopted rules that require that before Sadler, Gibb & Associates, LLC is engaged by us to render any auditing or permitted non-audit related service, the engagement be:
● approved by our audit committee (which consists of entire Board of Directors); or
● entered into pursuant to pre-approval policies and procedures established by the audit committee, provided the policies and procedures are detailed as to the particular service, the audit committee is informed of each service, and such policies and procedures do not include delegation of the audit committee’s responsibilities to management.
The audit committee pre-approves all services provided by our independent auditors. The pre-approval process has just been implemented in response to the new rules, and therefore, the audit committee does not have records of what percentage of the above fees were pre-approved. However, all of the above services and fees were reviewed and approved by the audit committee either before or after the respective services were rendered.
The audit committee has considered the nature and amount of fees billed by Sadler, Gibb & Associates, LLC and believes that the provision of services for activities unrelated to the audit is compatible with maintaining Sadler, Gibb & Associates, LLC’s independence.
Part IV
Item 15.
Item 15.Exhibits.
Exhibit Number and Exhibit Title
(3) Charter and By-laws
3.1 Articles of Incorporation (incorporated by reference from our SB-2 Registration Statement filed January 17, 2006).
3.2 Bylaws (incorporated by reference from our SB-2 Registration Statement filed January 17, 2006).
(10) Material Contracts
10.1
Securities Purchase Agreements (incorporated by reference from our Form 8K filed October 18, 2010).
10.2 Secured Loan Agreements (incorporated by reference from our Form 8K filed October 18, 2010).
(14) Code of Ethics
14.1 Code of Business Conduct and Ethics (incorporated by reference from our SB-2 Registration Statement filed January 17, 2006).
(31) Section Certification
31.1
Certification of Kevin M. Murphy
31.2 Certification of Howard Bouch
(32) Section 906 Certification
32.1 Certification of Kevin M. Murphy & Howard Bouch
101**
The following materials from the Company’s Annual Report on Form 10-K for the fiscal year ended August 31, 2011 formatted in Extensible Business Reporting Language (XBRL): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statements of Stockholder’s Equity (iv) the Consolidated Statements of Cash Flows and (v) Notes to the Financial Statements..
**Filed herewith.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Black Hawk Exploration
By: /s/ Kevin M. Murphy
Kevin M. Murphy, President, CEO
/s/ Howard Bouch
Howard Bouch, Secretary CFO
Date: March 27, 2013
In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.