SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-KSB

[X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2006.

[_] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM

COMMISSION FILE NO. 000-32829

PALOMAR ENTERPRISES, INC.

(Exact name of issuer as specified in its charter)

NEVADA                                     88-0470235

---------------------------------                  -----------------------

(State or other jurisdiction                  (I.R.S. Employer

of incorporation or organization)        Identification No.)

1802 N. CARSON STREET, NO. 212-275

CARSON CITY, NEVADA 89701

(Address of principal executive offices) (Zip Code)

(775) 887-0670

Registrant's telephone number, including area code

Securities registered under Section 12(b) of the Exchange Act: NONE

Securities registered under Section 12(g) of the Exchange Act:

COMMON STOCK, PAR VALUE $0.00001 PER SHARE

(Title of class)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [_]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [  ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer, as defined in Rule 12b-2 of the Exchange Act.

Large accelerated filer [  ] Accelerated filer [  ] Non-accelerated filer [ X]

Indicate by check mark whether the registrant is a shell company (as defined By rule 12b-2 of the Securities Exchange Act) Yes [ ] No [ X ] 

State issuer's revenues for its most recent fiscal year: $683,223.

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of February 15, 2007 : $520,666

Indicate the number of shares outstanding of each of the registrant's classes of common stock as of March 15, 2007:   523,048,758 shares of common stock.

Documents incorporated by reference: None.

Transitional Small Business Disclosure Format (Check one):  Yes [_] No [X]

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TABLE OF CONTENTS

ITEM 1. BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

ITEM 2 DESCRIPTION OF PROPERTY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12

ITEM 3. LEGAL PROCEEDINGS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 12

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY                      

HOLDERS.  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED                                

STOCKHOLDER MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF           

OPERATION. . .  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15

ITEM 7. FINANCIAL STATEMENTS . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON     

ACCOUNTING AND FINANCIAL DISCLOSURE . . . . . . . . . . . . . . . . . . . . . . . . .19

ITEM 8A. CONTROLS AND PROCEDURES. . . . . . . .. . . . . . . . . . . . . . . . . . . . . .  20

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL  

PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT . 21

ITEM 10. EXECUTIVE COMPENSATION . . . . . . . . . . .  . . . . . . . . . . . . . . . .. . . . .. 22

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND  

        MANAGEMENT AND RELATED STOCKHOLDER MATTERS.. . . . . . . . . 23

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS .  . . 24

ITEM 13. EXHIBITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES . . .  . . . . . . . . . . .25

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PART I

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ITEM 1. BUSINESS.

COMPANY OVERVIEW

We were organized in the State of Nevada on March 10, 1999.

On or about May 16, 2003, our board of directors appointed Steve Bonenberger to serve as our president secretary, chief operating officer and director, and Brent Fouch in the capacity of treasurer, chief operating officer and director. As a result of such appointments, we entered into agreements to secure the employment of Messrs. Bonenberger and Fouch in their respective positions.

Pursuant to the duly executed employment agreements, Messrs. Bonenberger and Fouch each elected to accept 6,000,000 shares of our restricted common stock in lieu of cash compensation in the amount of $60,000 per person. The aggregate of 12,000,000 shares subject to this transaction were restricted securities as that term is defined in Paragraph (a)(3) of Rule 144, under the Securities Act of 1933, as amended.

We currently service the residential mortgage market. As a licensed real estate mortgage broker.

On May 16, 2003, the new board of directors elected the following officers:

NAME                                             OFFICE(S)                                                                              

Steven Bonenberger                     President, Secretary and Chief Executive Officer

Brent Fouch                                   Chief Operating Officer and Treasurer

On November 29, 2004, we acquired control of Zanwell Inc., a Nevada corporation , by purchasing shares of the series A, series B and series C preferred stock of Zanwell. Zanwell’s business was the selling of higher end previously owned automobiles. On January 3, 2005, We changed the name to the Blackhawk Fund, our 99% owned subsidiary and have now entered the Media and Real Estate Development Business.

CURRENT BUSINESS PLAN

Our current business is buying, renovating and selling residential real estate properties, with providing residential real estate sales, listings and mortgage brokerage services. The Company actively seeks out foreclosed and financially distressed properties to purchase and re-sell. As part and parcel of that, we also look for land opportunities for development. We currently employ 4 full time employees. We also have 7 independent full time licensed real estate agents and licensed mortgage brokers.

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KEY PERSONNEL

Our future financial success depends to a large degree upon the efforts of Messrs. Bonenberger and Fouch, our officers and directors. Messrs. Bonenberger and Fouch have played major roles in developing and executing our business strategy. The loss of Messrs. Bonenberger and Fouch could have an adverse effect on our business and our chances for profitable operations. While we intend to employ additional management and marketing personnel in order to minimize the critical dependency upon any one person, there can be no assurance that we will be successful in attracting and retaining the persons needed. If we do not succeed in retaining and motivating our current employees and attracting new high quality independent agents, our business could be adversely affected.

We do not maintain key man life insurance on the lives of Messrs. Bonenberger and Fouch.

OUR FINANCIAL RESULTS MAY BE AFFECTED BY FACTORS OUTSIDE OF OUR CONTROL

Our future operating results may vary significantly from quarter to quarter due to a variety of factors, many of which are outside our control. Our anticipated expense levels are based, in part, on our estimates of future revenues and may vary from our projections. We may be unable to adjust spending rapidly enough to compensate for any unexpected revenues shortfall. Accordingly, any significant shortfall in revenues in relation to our planned expenditures would materially adversely affect our business, operating results, and financial condition.

We cannot predict with certainty our revenues and operating results. Further, we believe that period-to-period comparisons of our operating results are not necessarily a meaningful indication of future performance.

CORPORATE OFFICES

Our executive office is located at 1802 N. Carson Street, Suite 212, Carson City, Nevada, 89701, telephone number (775) 887-0670.

EMPLOYEES

We have four full-time employees and two part-time employees as of December 31, 2006. We also have seven independent agents working for The Company. As we grow, we will need to attract an unknown number of additional qualified employees and independent agents. Although we have experienced no work stoppages and believe our relationships with our employees are good, we could be unsuccessful in attracting and retaining the persons needed. None of our employees are currently represented by a labor union. We expect to have a ready source of available labor to support our growth.

MARKETS AND MARKETING

We currently have the following operating divisions:

Financial Services Division, which focuses upon mortgage and home loan origination, real state sales and client services, and property acquisition and development. This division operates from the facility owned by us and located at 2585 Pio Pico Drive in Carlsbad, California. The division was established in the third fiscal quarter of 2004 and is currently operating and generating revenue. We currently have independent real estate agents and loan brokers.

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Our goal is to double the work force of the Financial Services Division in the fiscal year 2007. For further reference, please visit www.thepalomargroup.com.

We believe that building awareness of our company is important in expanding our customer base. We currently advertise over the Internet via our website, newspaper and direct mail. We also rely upon referrals from past and current customers, as well as from personal and professional contacts of our management and independent contractors. The recurring costs of our marketing efforts have risen commensurate with our revenue.

We cannot assure you that we will be successful in attracting new customers, or retaining the future business of existing customers. If we fail to attract and retain customers, we would be unable to generate revenues to support continuing operations.

Business Development Division, which operates under our subsidiary, “The Blackhawk Fund”. This division develops and acquires businesses that have the highest potential profit margins and growth. The division recently signed an Agreement with Maximum Impact Television Group, of Carlsbad California to develop and market ten cable television shows. These shows will generate revenue through advertising sponsors looking to reach a target audience through the national airing of these television shows. The division currently holds two real estate properties for sale, which have been developed, improved and ready for sale.

RISK FACTORS

NEED FOR ONGOING FINANCING.

We will need additional capital to continue our operations and will endeavor to raise funds through the sale of equity shares and revenues from operations.

There can be no assurance that we will generate revenues from operations or obtain sufficient capital on acceptable terms, if at all. Failure to obtain such capital or generate such operating revenues would have an adverse impact on our financial position and results of operations and ability to continue as a going concern. Our operating and capital requirements during the next fiscal year and thereafter will vary based on a number of factors, including the level of sales and marketing activities for our services and products. There can be no assurance that additional private or public financing, including debt or equity financing, will be available as needed, or, if available, on terms favorable to us. Any additional equity financing may be dilutive to stockholders and such additional equity securities may have rights, preferences or privileges that are senior to those of our existing common stock.

Furthermore, debt financing, if available, will require payment of interest and may involve restrictive covenants that could impose limitations on our operating flexibility. Our failure to successfully obtain additional future funding may jeopardize our ability to continue our business and operations.

If we raise additional funds by issuing equity securities, existing stockholders may experience a dilution in their ownership. In addition, as a condition to giving additional funds to us, future investors may demand, and may be granted, rights superior to those of existing stockholders.

INFLATION.

In our opinion, inflation has not had a material effect on our financial condition or results of our operations.

TRENDS, RISKS AND UNCERTAINTIES.

We have sought to identify what we believe to be the most significant risks to our business, but we cannot predict whether, or to what extent, any of such risks may be realized nor can we guarantee that we have identified all possible risks that might arise. Investors should carefully consider all of such risk factors before making an investment decision with respect to our common stock.

CAUTIONARY FACTORS THAT MAY AFFECT FUTURE RESULTS.

We provide the following cautionary discussion of risks, uncertainties and possible inaccurate assumptions relevant to our business and our products. These are factors that we think could cause our actual results to differ materially from expected results. Other factors besides those listed here could adversely affect us.

POTENTIAL FLUCTUATIONS IN QUARTERLY OPERATING RESULTS.

Our quarterly operating results may fluctuate significantly in the future as a result of a variety of factors, most of which are outside our control, including the demand for our services, seasonal trends in real estate and to a certain extent interest rates; general economic conditions, and economic conditions specific to our industry. Our quarterly results may also be significantly impacted by the impact of the accounting treatment of acquisitions, financing transactions or other matters. Particularly at our early stage of development, occurrences such as accounting treatment can have a material impact on the results for any quarter. Due to the foregoing factors, among others, it is likely that our operating results will fall below our expectations or those of investors in some future quarter.

LACK OF INDEPENDENT DIRECTORS.

We cannot guarantee that our board of directors will have a majority of independent directors in the future. In the absence of a majority of independent directors, our executive officers, could establish policies and enter into transactions without independent review and approval thereof. This could present the potential for a conflict of interest between us and our stockholders generally and the controlling officers, stockholders or directors.

LIMITATION OF LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS.

Our officers and directors are required to exercise good faith and high integrity in our management affairs. Our articles of incorporation provide, however, that our officers and directors shall have no liability to our stockholders for losses sustained or liabilities incurred which arise from any transaction in their respective managerial capacities unless they violated their duty of loyalty, did not act in good faith, engaged in intentional misconduct or knowingly violated the law, approved an improper dividend or stock repurchase, or derived an improper benefit from the transaction. Our articles and bylaws also provide for the indemnification by us of the officers and directors against any losses or liabilities they may incur as a result of the manner in which they operate our business or conduct the internal affairs, provided that in connection with these activities they act in good faith and in a manner that they reasonably believe to be in, or not opposed to, our best interests, and their conduct does not constitute gross negligence, misconduct or breach of fiduciary obligations.

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MANAGEMENT OF POTENTIAL GROWTH.

While our auditors have issued a going concern opinion, we feel that during the next twelve months we will be substantially increasing our revenue through broker fees on sales of homes and mortgage fees which may cause rapid growth which will place a significant strain on our managerial, operational, and financial systems resources. To accommodate our current size and manage growth, we must continue to implement and improve our financial strength and our operational systems, and expand, train and manage our sales and distribution base. There is no guarantee that we will be able to effectively manage the expansion of our operations, or that our facilities, systems, procedures or controls will be adequate to support our expanded operations. Our inability to effectively manage our future growth would have a material adverse effect on us.

QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.

We believe that we do not have any material exposure to interest or commodity risks. Our financial results are quantified in U.S. dollars and a majority of our obligations and expenditures with respect to our operations are incurred in U.S. dollars. Although we do not believe we currently have any materially significant market risks relating to our operations resulting from foreign exchange rates, if we enter into financing or other business arrangements denominated in currency other than the U.S. dollars, variations in the exchange rate may give rise to foreign exchange gains or losses that may be significant.

We currently have no material long-term debt obligations. We do not use financial instruments for trading purposes and we are not a party to any leverage derivatives.

RISKS RELATING TO OUR BUSINESS

WE ARE NOT LIKELY TO SUCCEED UNLESS WE CAN OVERCOME THE MANY OBSTACLES WE FACE.

As an investor, you should be aware of the difficulties, delays and expenses we encounter, many of which are beyond our control, including unanticipated market trends, employment costs, and administrative expenses. We cannot assure our investors that our proposed business plans as described in this report will materialize or prove successful, or that we will ever be able to finalize development of our products or services or operate profitably. If we cannot operate profitably, you could lose your entire investment. As a result of the nature of our business, initially we expect to sustain substantial operating expenses without generating significant revenues.

OUR AUDITORS HAVE STATED WE MAY NOT BE ABLE TO STAY IN BUSINESS.

Our auditors have issued a going concern opinion, which means that there is doubt that we can continue as an ongoing business for the next 12 months. Unless we can raise additional capital, we may not be able to achieve our objectives and may have to suspend or cease operations. See "Management's Discussion and Analysis of Financial Condition and Results of Operations."

We have developed the following financing methods to assist us in the process of generating the funds necessary to maintain our operations:

- Increasing revenue from our divisions, described above;

- Other stock, Private Placement Options and notes.

It should be noted that our independent auditors have included a going concern opinion and related discussion in the notes to our financial statements. The auditors have included the going concern provision because we have incurred significant and recurring losses and have a large working capital deficit that the auditors believe raises substantial doubt about our ability to continue as a going concern. Until such time we receive additional debt or equity financing, there is a risk that our auditors will continue to include a going concern provision in the notes to our financial statements. Our plan to remove the threat to our continuation as a going concern and achieve profitability includes the following:

- Real Estate Sales and Mortgage Originations: We have continued to grow the sales and revenue of these two groups. Quarter by quarter, we have been reporting increasing revenue and reducing our cost basis per sale.  This is reflected in our quarterly reports.

- Consolidation of our Corporate Finance Division into a separate, wholly owned subsidiary company (The Blackhawk Fund). Please see "Markets and Marketing."

As a result of our recent efforts, we have:

- increased revenue from the real estate and home loan origination groups;

- established a wholly-owned subsidiary which has commenced operations in the Media business, as well as completed the renovation of two real estate properties which are ready to be sold.

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- improved and enhanced our real estate facility; and

- expanded real estate sales and increased the number of our mortgage home loan agents.

RISKS RELATING TO OUR STOCK

WE MAY NEED TO RAISE ADDITIONAL CAPITAL. IF WE ARE UNABLE TO RAISE NECESSARY ADDITIONAL CAPITAL, OUR BUSINESS MAY FAIL OR OUR OPERATING RESULTS AND OUR STOCK PRICE MAY BE MATERIALLY ADVERSELY AFFECTED.

Due to the lack of revenue and expenses, we need to secure adequate funding. If we are unable to obtain adequate funding, we may not be able to successfully develop and market our products and services and our business will most likely fail. We do not have commitments for additional financing. To secure additional financing, we may need to borrow money or sell more securities, which may reduce the value of our outstanding securities. Under these circumstances, we may be unable to secure additional financing on favorable terms or at all.

Selling additional stock, either privately or publicly, would dilute the equity interests of our stockholders. If we borrow more money, we will have to pay interest and may also have to agree to restrictions that limit our operating flexibility. If we are unable to obtain adequate financing, we may have to curtail business operations which would have a material negative effect on operating results and most likely result in a lower stock price.

OUR COMMON STOCK HAS EXPERIENCED IN THE PAST, AND IS EXPECTED TO EXPERIENCE IN THE FUTURE, SIGNIFICANT PRICE AND VOLUME VOLATILITY, WHICH SUBSTANTIALLY INCREASES THE RISK THAT YOU MAY NOT BE ABLE TO SELL YOUR SHARES AT OR ABOVE THE PRICE THAT YOU PAY FOR THE SHARES.

Because of the limited trading market for our common stock, and because of the possible price volatility, you may not be able to sell your shares of common stock when you desire to do so. During 2006 and 2005, our common stock was sold and purchased at prices that ranged from a high of $.03 to a low of $.0045 per share. The inability to sell your shares in a rapidly declining market may substantially increase your risk of loss because of such illiquidity because theprice for our common stock may suffer greater declines due to its price volatility.

The price of our common stock that will prevail in the market after this offering may be higher or lower than the price you pay. Certain factors, some of which are beyond our control, that may cause our share price to fluctuate significantly include, but are not limited to, the following:

- Variations in our quarterly operating results;

- The development of a market in general for our products and services;

- Changes in market valuations of similar companies;

- Announcement by us or our competitors of significant contracts, acquisitions, strategic partnerships, joint ventures or capital commitments;

- Loss of a major customer or failure to complete significant transactions;

- Additions or departures of key personnel; and

- Fluctuations in stock market price and volume.

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Additionally, in recent years the stock market in general, and the OTC Bulletin Board and technology stocks in particular, have experienced extreme price and volume fluctuations. In some cases, these fluctuations are unrelated or disproportionate to the operating performance of the underlying company. These market and industry factors may materially and adversely affect our stock price, regardless of our operating performance.

Over the past few months, there have been periods of significant increases in trading volume of our common stock during which the price of our stock has both increased and decreased. The historical trading of our common stock is not necessarily an indicator of how it will trade in the future and our trading price as of the date of this report does not necessarily portend what the trading price of our common stock might be in the future.

In the past, class action litigation has often been brought against companies following periods of volatility in the market price of the common stock of those companies. If we become involved in this type of litigation in the future, it could result in substantial costs and diversion of management attention and resources, which could have a further negative effect on your investment in our stock.

OUR DIRECTORS HAVE THE RIGHT TO AUTHORIZE THE ISSUANCE OF PREFERRED STOCK AND ADDITIONAL SHARES OF OUR COMMON STOCK.

Our directors, within the limitations and restrictions contained in our articles of incorporation and without further action by our stockholders, have the authority to issue shares of preferred stock from time to time in one or more series and to fix the number of shares and the relative rights, conversion rights, voting rights, and terms of redemption, liquidation preferences and any

other preferences, special rights and qualifications of any such series. We have no intention of issuing preferred stock at the present time. Any issuance of preferred stock could adversely affect the rights of holders of our common stock.

Should we issue additional shares of our common stock at a later time, each investor's ownership interest in Palomar Enterprises, Inc. would be proportionally reduced. No investor will have any preemptive right to acquire additional shares of our common stock, or any of our other securities.

IF WE FAIL TO REMAIN CURRENT ON OUR REPORTING REQUIREMENTS, WE COULD BE REMOVED FROM THE OTC BULLETIN BOARD WHICH WOULD LIMIT THE ABILITY OF BROKER-DEALERS TO SELL OUR SECURITIES AND THE ABILITY OF STOCKHOLDERS TO SELL THEIR SECURITIES IN THE SECONDARY MARKET.

Companies trading on the OTC Bulletin Board, such as Palomar Enterprises, Inc., must be reporting issuers under Section 12 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and must be current in their reports under Section 13, in order to maintain price quotation privileges on the OTC Bulletin Board.

OUR COMMON STOCK IS SUBJECT TO THE "PENNY STOCK" RULES OF THE SEC AND THE TRADING MARKET IN OUR SECURITIES IS LIMITED, WHICH MAKES TRANSACTIONS IN OUR STOCK CUMBERSOME AND MAY REDUCE THE VALUE OF AN INVESTMENT IN OUR STOCK.

The Securities and Exchange Commission has adopted Rule 15g-9 which establishes the definition of a "penny stock," for the purposes relevant to us, as any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions.

Inasmuch as that the current bid and ask price of common stock is less than $5.00 per share, our shares are classified as "penny stock" under the rules of the SEC. For any transaction involving a penny stock, unless exempt, the rules require:

- That a broker or dealer approve a person's account for transactions in penny stocks; and

- The broker or dealer receives from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased.

In order to approve a person's account for transactions in penny stocks, the broker or dealer must:

- Obtain financial information and investment experience objectives of the person; and

- Make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.

The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the Commission relating to the penny stock market, which, in highlight form:

- Sets forth the basis on which the broker or dealer made the suitability determination; and

- That the broker or dealer received a signed, written agreement from the investor prior to the transaction.

Generally, brokers may be less willing to execute transactions in securities subject to the "penny stock" rules. This may make it more difficult for investors to dispose of our common stock and cause a decline in the market value of our stock.

Disclosure also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.

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ITEM 2. DESCRIPTION OF PROPERTY.

We lease office space at 1802 N. Carson Street, Suite 212, Carson City, Nevada, 89701. Our Carson Street lease costs $100 per month and is scheduled to expire on December 31, 2007. Our management team occupies office space at 120 Birmingham, Suite 120-C, Cardiff, California 92007. The Birmingham lease costs $950 per month and is scheduled to expire on December 31, 2007.

ITEM 3. LEGAL PROCEEDINGS.

None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

PART II

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ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

Our common stock is noted on the OTC Bulletin Board under the symbol "PLMIF.OB" These quotations reflect inter-dealer prices, without mark-up, mark-down or commission, and may not represent actual transactions.

CALENDAR YEAR 2006	HIGH	LOW
First Quarter	.095	.03
Second Quarter	.03	.02
Third Quarter	.014	.03
Fourth Quarter	.0045	.013

CALENDAR YEAR 2005	HIGH	LOW
First Quarter	.04	.01
Second Quarter	.01	.01
Third Quarter	.01	.01
Fourth Quarter	.11	.01

As of February 1, 2007, we had 74,039,643 shares of our common stock outstanding. Our shares of common stock are held by approximately 600 stockholders of record. The number of record holders was determined from the records of our transfer agent and does not include beneficial owners of common stock whose shares are held in the names of various security brokers, dealers, and registered clearing agencies.

SECTION 15(g) OF THE EXCHANGE ACT

The shares of our common stock are covered by Section 15(g) of the Exchange Act, and Rules 15g-1 through 15g-6 promulgated thereunder, which impose additional sales practice requirements on broker-dealers who sell our securities to persons other than established customers and accredited investors.

Rule 15g-2 declares unlawful any broker-dealer transactions in "penny stocks" unless the broker-dealer has first provided to the customer a standardized disclosure document.

Rule 15g-3 provides that it is unlawful for a broker-dealer to engage in a "penny stock" transaction unless the broker-dealer first discloses and subsequently confirms to the customer the current quotation prices or similar market information concerning the penny stock in question.

Rule 15g-4 prohibits broker-dealers from completing "penny stock" transactions for a customer unless the broker-dealer first discloses to the customer the amount of compensation or other remuneration received as a result of the penny stock transaction.

Rule 15g-5 requires that a broker-dealer executing a "penny stock" transaction, other than one exempt under Rule 15g-1, disclose to its customer, at the time of or prior to the transaction, information about the sales person's compensation.

Our common stock may be subject to the foregoing rules. The application of the "penny stock" rules may affect our stockholders' ability to sell their shares because some broker-dealers may not be willing to make a market in our common stock because of the burdens imposed upon them by the "penny stock"

rules.

The following table provides information about purchases by us and our affiliated purchasers during the quarter ended December 31, 2006 of equity securities that are registered by us pursuant to Section 12 of the Exchange Act:

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SMALL BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES

Maximum			Total number
number (or			of shares (or
approximate			units)
dollar value) of			purchased as
shares (or			part of
units) that may			publicly
yet be		Average price	announced
purchased	Total number	paid per	plans or
under the plans	of shares (or	Period	purchased
share (or unit)	units)	programs	or programs
October-05	-0-	-0-	-0-
November-05	-0-	-0-	-0-
December-05	-0-	-0-	-0-
Total	-0-	-0-	-0-

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS

FORWARD-LOOKING INFORMATION

Actual operations and results may materially differ from present plans and projections due to changes in economic conditions, new business opportunities, changed business conditions, and other developments. Other factors that could cause results to differ materially are described in our filings with the Securities and Exchange Commission.

There are several factors that could cause actual results or events to differ materially from those anticipated, and include, but are not limited to general economic, financial and business conditions, changes in and compliance with governmental laws and regulations, including various state and federal environmental regulations, our ability to obtain additional financing from outside investors and/or bank and mezzanine lenders and our ability to generate sufficient revenues to cover operating losses and position us to achieve positive cash flow.

Readers are cautioned not to place undue reliance on the forward-looking statements contained herein, which speak only as of the date hereof. We believe the information contained in this Form 10-KSB to be accurate as of the date hereof. Changes may occur after that date. We will not update that information except as required by law in the normal course of its public disclosure practices.

MANAGEMENT'S PLAN OF OPERATIONS

GENERAL.

RESULTS OF OPERATIONS

TWELVE MONTHS ENDED DECEMBER 31, 2006 COMPARED TO THE TWELVE MONTHS ENDED DECEMBER 31, 2005.

REVENUE

Revenue for the 12 months ended December 31, 2006 was 683,223 compared to $531,230 for the 12 months ended December 31, 2005, an increase of $151,993 or approximately 22.2 percent. Revenue increased as a result of increases in real estate business and sales of developer property.

We expect to generate additional revenues during the coming 12 months due to increased marketing and real estate personnel.

COST OF REVENUE

Cost of revenue was $435,974 for the year ended December 31, 2006, compared to 399,199 cost of revenue for the year ended December 31, 2005. Costs as a percentage of sales was 64% in 2006 compared to 75% in 2005.

GENERAL AND ADMINISTRATIVE EXPENSES

General and administrative expenses ("G&A") were $1,060,773 for the 12 months ended December 31, 2006, compared to $1,063,825 for the 12 months ended December 31, 2005, an decrease of $3,052 or approximately .003 percent.

10

CONSULTING, LEGAL AND PROFESSIONAL

Consulting, Legal and Professional was 444,923 compared to 569,771 or a decrease of 124,848. The cause of the decrease was less stock for services.

PAYROLL AND RELATED

Payroll and Related Services increased to $818,013 from $445,871. An increase of $372,142 or approximately 45.5%, the increase was due to both additional employees and brokers as well as higher compensation to officers Companies.

LIQUIDITY AND CAPITAL RESOURCES

We intend to continue to find ways to expand our business through increased marketing and word of mouth. We believe that revenues and earnings will increase as we grow. We anticipate that we will incur smaller losses in the near future if we are able to expand our business. Our operating losses as shown may be perceived as alarming and possibly indicate a downward spiral leading to the demise of the company; however, from management's point of view, there is a bright side to the operating losses which are tapering off due to increased revenue and virtually made a commitment for a reduction in stock issued for services, should lead to a more balanced result.

During the 12 months ended December 31, 2006, we generated cash from financing activities of $2,959,488. We used cash in operating activities of $2,153,492, and investing activities of $815,170.

At December 31, 2006 our current liabilities exceeded our current assets by $2,232,713 which results in a capital deficiency.

In order to maximize our business plan, we will need to acquire additional capital from debt or equity financing. Even without additional funding we will be able to grow and increase our revenues substantially. With funding we could acquire substantial properties, renovate them, then sell them at a profit, and grow

significantly faster. We have targeted a funding of 1 million to accomplish our plan for fast growth.

Our independent certified public accountants have stated in their report, included in this Form 10-KSB, that due to our net loss and negative cash flows from operations, in addition to a lack of profitable history, there is a substantial doubt about our ability to continue as a going concern. In the absence of significant revenue and profits, we will be completely dependent on additional debt and equity financing arrangements. There is no assurance that any financing will be sufficient to fund our capital expenditures, working capital and other cash requirements for the fiscal year ending December 31, 2007. No assurance can be given that any such additional funding will be available or that, if available, can be obtained on terms favorable to us. If we are unable to raise needed funds on acceptable terms, we will not be able to execute our business plan, develop or enhance existing services, take advantage of future opportunities or respond to competitive pressures or unanticipated requirements. A material shortage of capital will require us to take drastic steps such as further reducing our level of operations, disposing of selected assets or seeking an acquisition partner. If cash is insufficient, we will not be able to continue operations.

Our anticipated objectives currently include:

- An increase in the market share for our real estate sales and client services group;

- An increase in the market share for our mortgage and home loan origination group;

- An increase the number of individual parcels we can purchase, improve and profitably re-sell to capture as many commissions as possible per transaction;

- Bringing all of our divisions to profitability as soon as is possible.

CRITICAL ACCOUNTING POLICIES

The preparation of our consolidated financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and judgments that affect our reported assets, liabilities, revenues, and expenses, and the disclosure of contingent assets and liabilities. We base our estimates and judgments on historical experience and on various other assumptions we believe to be reasonable under the circumstances. Future events, however, may differ markedly from our current expectations and assumptions. While there are a number of significant accounting policies affecting our consolidated financial statements, we believe the following critical accounting policy involve the most complex, difficult and subjective estimates and judgments.

STOCK-BASED COMPENSATION

In December 2002, the FASB issued SFAS No. 148 - Accounting for Stock-Based Compensation - Transition and Disclosure. This statement amends SFAS No. 123 - Accounting for Stock-Based Compensation, providing alternative methods of voluntarily transitioning to the fair market value based method of accounting for stock based employee compensation. SFAS 148 also requires disclosure of the method used to account for stock-based employee compensation and the effect of the method in both the annual and interim financial statements. The provisions of this statement related to transition methods are effective for fiscal years ending after December 15, 2002, while provisions related to disclosure requirements are effective in financial reports for interim periods beginning after December 31, 2002.

11

RECENT ACCOUNTING PRONOUNCEMENTS

We adopted SFAS No. 142. Under the new rules, we will no longer amortize goodwill and other intangible assets with indefinite lives, but such assets will be subject to periodic testing for impairment. On an annual basis, and when there is reason to suspect that their values have been diminished or impaired, these assets must be tested for impairment, and write-downs to be included in results from operations may be necessary. SFAS No. 142 also requires us to complete a transitional goodwill impairment test six months from the date of adoption.

Any goodwill impairment loss recognized as a result of the transitional goodwill impairment test will be recorded as a cumulative effect of a change in accounting principle no later than the end of fiscal year 2002. The adoption of SFAS No. 142 had no material impact on our consolidated financial statements. SFAS No. 143 establishes accounting standards for the recognition and measurement of an asset retirement obligation and its associated asset retirement cost. It also provides accounting guidance for legal obligations associated with the retirement of tangible long-lived assets. SFAS No. 143 is effective in fiscal years beginning after June 15, 2002, with early adoption permitted. We expect that the provisions of SFAS No. 143 will not have a material impact on our consolidated results of operations and financial position upon adoption. We plan to adopt SFAS No. 143 effective January 1, 2003.

SFAS No. 144 establishes a single accounting model for the impairment or disposal of long-lived assets, including discontinued operations. SFAS No. 144 superseded Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" (SFAS No. 121), and APB Opinion No. 30, "Reporting the Results of Operations - Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions." We adopted SFAS No. 144 effective January 1, 2002. The adoption of SFAS No. 144 had no material impact on our consolidated financial statements.

In April 2002, the FASB issued Statement No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections." This Statement rescinds FASB Statement No. 4, "Reporting Gains and Losses from Extinguishment of Debt," and an amendment of that Statement, FASB Statement No. 64, "Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements" and FASB Statement No. 44, "Accounting for Intangible Assets of Motor Carriers." This Statement amends FASB Statement No. 13, "Accounting for Leases," to eliminate an inconsistency between the required accounting for sale-leaseback transactions and the required accounting for certain lease modifications that have economic effects that are similar to sale-leaseback transactions. We do not expect the adoption to have a material impact to our financial position or results of operations.

In June 2002, the FASB issued Statement No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." This Statement addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." The provisions of this statement are effective for exit or disposal activities that are initiated after December 31, 2002, with early application encouraged. We do not expect the adoption to have a material impact to our financial position or results of operations.

In October 2002, the FASB issued Statement No. 147, "Acquisitions of Certain Financial Institutions-an amendment of FASB Statements No. 72 and 144 and FASB Interpretation No. 9," which removes acquisitions of financial institutions from the scope of both Statement 72 and Interpretation 9 and requires that those transactions be accounted for in accordance with Statements No. 141, Business Combinations, and No. 142, Goodwill and Other Intangible Assets. In addition, this Statement amends SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, to include in its scope long-term customer-relationship intangible assets of financial institutions such as depositor and borrower-relationship intangible assets and credit cardholder intangible assets. The requirements relating to acquisitions of financial institutions are effective for acquisitions for which the date of acquisition is on or after October 1, 2002. The provisions related to accounting for the impairment or disposal of certain long-term customer-relationship intangible assets are effective on October 1, 2002. The adoption of this statement did not have a material impact to our financial position or results of operations as we have not engaged in either of these activities.

In December 2002, the FASB issued Statement No. 148, "Accounting for Stock-Based Compensation-Transition and Disclosure," which amends FASB Statement No. 123, Accounting for Stock-Based Compensation, to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, this statement amends the disclosure requirements of Statement 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The transition guidance and annual disclosure provisions of Statement 148 are effective for fiscal years ending after December 15, 2002.

In January 2003, the FASB issued Interpretation No. 46, "Consolidation of Variable Interest Entities." Interpretation 46 changes the criteria by which one company includes another entity in its consolidated financial statements. Previously, the criteria were based on control through voting interest. Interpretation 46 requires a variable interest entity to be consolidated by a company if that company is subject to a majority of the risk of loss from the variable interest entity's activities or entitled to receive a majority of the entity's residual returns or both. A company that consolidates a variable interest entity is called the primary beneficiary of that entity. The consolidation requirements of Interpretation 46 apply immediately to variable interest entities created after January 31, 2003. The consolidation requirements apply to older entities in the first fiscal year or interim period beginning after June 15, 2003. Certain of the disclosure requirements apply in all financial statements issued after January 31, 2003, regardless of when the variable interest entity was established. We do not expect the adoption to have a material impact to our financial position or results of operations.

12

In April 2003, the FASB issued Statement of Financial Accounting Standards (SFAS) No. 149, Amendment of Statement No. 133 on Derivative Instruments and Hedging Activities. SFAS 149 amends SFAS No. 133 to provide clarification on the financial accounting and reporting of derivative instruments and hedging activities and requires that contracts with similar characteristics be accounted for on a comparable basis. The provisions of SFAS 149 are effective for contracts entered into or modified after June 30, 2003, and for hedging relationships designated after June 30, 2003. The adoption of SFAS 149 did not have a material impact on our results of operations or financial position.

In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity. SFAS 150 establishes standards on the classification and measurement of certain financial instruments with characteristics of both liabilities and equity. The provisions of SFAS 150 are effective for financial instruments entered into or modified after May 31, 2003 and to all other instruments that exist as of the beginning of the first interim financial reporting period beginning after June 15, 2003. The adoption of SFAS 150 did not have a material impact on our results of operations or financial position.

OFF-BALANCE SHEET ARRANGEMENTS

We do not have any off-balance sheet arrangements.

ITEM 7. FINANCIAL STATEMENTS.

The financial statements and related notes are included as part of this report after the signature pages.

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

On June 22,2005 we engaged Beckstad & Watts CPA's to be our new auditors.

On February 16,2006 we dismissed Beckstad & Watts.

On February 16,2006 we engaged Gruber & Company, LLC to be our new independent auditors.

The above was all approved by the board of directors.

ITEM 8A. CONTROLS AND PROCEDURES.

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file under the Exchange Act is accumulated and communicated to our management, including our principal executive and financial officers, as appropriate to allow timely decisions regarding required disclosure.

Evaluation of disclosure and controls and procedures. As of the end of the period covered by this Annual report, we conducted an evaluation, under the supervision and with the participation of our chief executive officer and chief financial officer, of our disclosure controls and procedures (as defined in Rules 13a-15(e) of the Exchange Act). Based on this evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.

Changes in internal controls over financial reporting. There was no change in our internal controls, which are included within disclosure controls and procedures, during our most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal controls.

ITEM 8B. OTHER INFORMATION.

None.

PART III

========

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.

Our directors and executive officers are:

NAME                                                              AGE                    POSITIONS                                                                                                             POSITION HELD SINCE

Brent Fouch                                                       37                      Secretary, director and chief financial officer                                                                   2003

Steve Bonenberger                                           50                      President, director and chief executive officer                                                                 2003

Our executive officers are elected annually by our board of directors.

Steve Bonenberger: During the past five years, Mr. Bonenberger was the managing director of B.M.M., LLC, a corporate consulting firm. Going forward, he intends to devote a significant portion of his time to the furtherance of our operations.

Brent Fouch: Over the past four years, Mr. Fouch has served as our chief operating officer, director and treasurer full-time. Prior to this, Mr. Fouch worked with a prominent investment banking firm and provided corporate consulting services.

Both executive officers are officers and directors of the Blackhawk Fund.

13

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Under Section 16(a) of the Exchange Act, our directors and certain of our officers, and persons holding more than 10 percent of our common stock are required to file forms reporting their beneficial ownership of our common stock and subsequent changes in that ownership with the Securities and Exchange Commission. Such persons are also required to furnish us with copies of all forms so filed.

Based solely upon a review of copies of such forms filed on Forms 3, 4, and 5, and amendments thereto furnished to us, we believe that during the year ended December 31, 2006, our executive officers, directors and greater than 10 percent beneficial owners complied on a timely basis with all Section 16(a) filing requirements.

CODE OF ETHICS

We have adopted a code of ethics that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. The code of ethics is designed to deter wrongdoing and to promote:

- Honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships;

- Full, fair, accurate, timely, and understandable disclosure in reports and documents that we file with, or submits to, the SEC and in other public communications made by us;

- Compliance with applicable governmental laws, rules and regulations;

- The prompt internal reporting of violations of the code to an appropriate person or persons identified in the code; and

- Accountability for adherence to the code.

A copy of our code of ethics that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions was filed as an exhibit to our Annual report for the fiscal year ended December 31, 2005. We have posted a copy of the code of ethics on our website at www.palomarenterprises.com.

We will provide to any person without charge, upon request, a copy of our code of ethics. Any such request should be directed to our corporate secretary at 1802 N. Carson Street, No.212-2705 Carson City, Nevada 89701.

ITEM 10. EXECUTIVE COMPENSATION.

SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION

SUMMARY COMPENSATION TABLE

The following table provides certain summary information concerning the compensation earned by the named executive officers (determined as of the end of the last fiscal year) for services rendered in all capacities to Palomar Enterprises, Inc. and our subsidiaries, which includes “The Blackhawk Fund” (OTC BB- BHWF). The compensation below includes wages earned as officers of both publicly traded companies.

SUMMARY COMPENSATION TABLE

                                                                                                                    Annual Compensation                                         Long-Term Comp.

                                                                                                                                                                                                   Awards         Payouts

Name and                                                                                             Annual                           Other 

Position(s)                                                                       Year             Salary            Bonus     Comp.                                                                           

Steven Bonenberger                                                      2006           $359,304              0              0                                            0                     0

President, Director, CEO and Principal

Executive Officer 

Brent Fouch                                                                     2006          $359,303              0              0                                            0                     0

Secretary, Director, CFO

and Principal Financial Officer

14

EMPLOYMENT AGREEMENTS

On May 7, 2003, we entered i, nto an employment and stock purchase agreement with Steven Bonenberger. Pursuant to the agreement, Mr. Bonenberger agreed to remain in our employ for the term of one year. Mr. Bonenberger's minimum annual compensation is $60,000. In addition to the minimum annual compensation, Mr. Bonenberger is entitled to receive payments under our incentive compensation and/or bonus program(s) (as in effect from time to time), if any, in such amounts as are determined by us to be appropriate for similarly

situated employees. In lieu of the $60,000 minimum annual compensation, Mr. Bonenberger elected to purchase from us 6,000,000 shares of our restricted common stock at the price of $0.01 per share.

On May 7, 2003, we entered into an employment and stock purchase agreement with Brent Fouch. Pursuant to the agreement, Mr. Fouch agreed to remain in our employ for the term of one year. Mr. Fouch's minimum annual compensation is $60,000. In addition to the minimum annual compensation, Mr. Fouch is entitled to receive payments under our incentive compensation and/or bonus program(s) (as in effect from time to time), if any, in such amounts as are determined by us to be appropriate for similarly situated employees. In lieu of the $60,000 minimum annual compensation, Mr. Fouch elected to purchased from us 6,000,000 shares of our restricted common stock at the price of $0.01 per share.

CONFIDENTIALITY AGREEMENTS

None.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

EQUITY COMPENSATION PLAN INFORMATION

SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

The following table provides information as of the end of the most recently completed fiscal year with respect to compensation plans (including individual compensation arrangements) under which equity securities of the registrant are authorized for issuance, aggregated as follows:

All compensation plans previously approved by security holders; and

All compensation plans not previously approved by security holders.

	Number of	Weighted	Number of
	Securities	Average	Securities
	to be Issued	Exercise	Available for
	Upon Exercise	Price of	Future Issuance
	of Outstanding	Outstanding	Under Equity
	Options,	Options,	Compensation
	Warrants and	Warrants and	Plans
	Rights	Rights	(Excluding
			securities
			reflected in
			column (a))
Plan Category	(a)	(b)	(c)
----------------------------	--------------------------------------------	--------------------------------------------	------------------------------------------------
			<C>
Equity compensation plans
approved by security holders	3,145,000,000	.001	2,819,740,000
Equity compensation plans not
approved by security holders	-0-	N/A	N/A

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth, as of December 31, 2006, information concerning ownership of our securities by:

- Each person who owns beneficially more than five percent of the outstanding shares of our common stock;

- Each person who owns beneficially outstanding shares of our preferred stock;

- Each director;

- Each named executive officer; and

- All directors and officers as a group.

15

Name and Address of                                                                    Shares of Common Stock Beneficially Owned (2)

Beneficial Owner (1)                                                                       Number  Percent           Number              Percent         

Steve Bonenberger                                                                            2,308        0.02            4,500,000 (3)          50 (3)

Brent Fouch                                                                                        2,308        0.02            4,500,000 (3)          50 (3)

====================================================================================

All directors and officers as a group (two persons)                    4,616        0.04             9,000,000 (3)        100 (3)

====================================================================================

(1) Unless otherwise indicated, the address for each of these stockholders is c/o Palomar Enterprises, Inc., 1802 N. Carson Street, No.212-2705 Carson City, Nevada 89701. Also, unless otherwise indicated, each person named in the table above has the sole voting and investment power with respect to the shares of our common and preferred stock which he beneficially owns.

(2) Beneficial ownership is determined in accordance with the rules of the SEC. As of December 31, 2006, the total number of outstanding shares of the common stock is and the number of shares of our Series A preferred stock is .

(3) Series A preferred stock.

There are no arrangements, known to us, including any pledge by any person of our securities, the operation of which may at a subsequent date result in a change in control of Palomar Enterprises, Inc.

There are no arrangements or understandings among members of both the former and the new control groups and their associates with respect to election of directors or other matters.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

ITEM 13. EXHIBITS.

EXHIBIT

NO.                  IDENTIFICATION OF EXHIBIT

3.1**      Articles of Incorporation.

3.2**                Articles of Amendment to Articles of Incorporation.

3.3**                Articles of Amendment to Articles of Incorporation

3.4**   Certificate of Change.

3.5**                Certificate of Correction to the Certificate of Change.

3.6**                Certificate of Amendment to the Certificate of Designation for the Series B Preferred Stock.

3.7**                Certificate of Designation for the Series A Preferred Stock.

3.8* *               Certificate of Designation for the Series C Preferred Stock.

3.9**                Bylaws.

10.1**              Steven Bonenberger Employment and Stock Purchase Agreement.

10.2**              Brent Fouch Employment and Stock Purchase Agreement.

10.3**              Joint Venture Agreement with Prize Pizza, LLC

10.4**              Joint Venture Agreement with K&S Family Entertainment.

10.5**              Purchase Agreement dated November 9, 2004, between Robert C. Simpson and Palomar Enterprises, Inc.

14**                 Code of Ethics

21**                 Subsidiaries

23                      Consent of Gruber & Company, LLC

31.1                   Certification of Steven Bonenberger, President, Director and Chief Executive Officer of Palomar Enterprises, Inc., pursuant to 18 U.S.C. Sec.1350, as adopted pursuant to

                          Sec.302 of the Sarbanes-Oxley Act of 2002.

31.2                   Certification of Brent Fouch, Treasurer, Chief Financial Officer and Director of Palomar Enterprises, Inc., pursuant to 18 U.S.C. Sec. 1350, as adopted pursuant to Sec.

                         302  of the Sarbanes-Oxley Act of 2002.

32.1                  Certification of Steven Bonenberger, President, Director and Chief Executive Officer of Palomar Enterprises, Inc.,  pursuant to 18 U.S.C. Sec. 1350, as adopted pursuant to

                         Sec. 906 of the Sarbanes-Oxley Act of 2002.

32.2                  Certification of Brent Fouch, Treasurer, Chief Financial Officer and Director of Palomar Enterprises, Inc., pursuant to 18 U.S.C. Sec. 1350, as adopted pursuant to

                         Sec. 906 of the Sarbanes-Oxley Act of 2002

_____________________

** Previously Filed

* Filed Herewith

16

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

AUDIT FEES

The aggregate fees billed by Gruber & Company, LLC for professional services rendered for the audit of Palomar Enterprises, Inc.'s financial statements for the fiscal year 2006 were $60,000.

AUDIT-RELATED FEES

The aggregate fees billed by Gruber & Company, LLC for assurance and related services that are reasonably related to the performance of the audit or review of Palomar Enterprises, Inc.'s financial statements for fiscal year 2006 were $0.

The aggregate fees billed by Gruber & Company, LLC  for assurance and related services that are reasonably related to the performance of the audit or review of our financial statements for fiscal year 2006 were $0.

ALL OTHER FEES

There were no other fees billed by Gruber & Company, LLC for professional services rendered, other than as stated under the captions Audit Fees, Audit-Related Fees, and Tax Fees.

POLICY ON AUDIT COMMITTEE PRE-APPROVAL OF AUDIT AND PERMISSIBLE NON-AUDIT SERVICES OF INDEPENDENT AUDITORS

The Company currently does not have a designated Audit Committee, and accordingly, the Company's Board of Directors' policy is to pre-approve all audit and permissible non-audit services provided by the independent auditors. These services may include audit services, audit-related services, tax services and other services. Pre-approval is generally provided for up to one year and any pre-approval is detailed as to the particular service or category of services and is generally subject to a specific budget. The independent auditors and management are required to periodically report to the Company's Board of Directors regarding the extent of services provided by the independent auditors in accordance with this pre-approval, and the fees for the services performed to date. The Board of Directors may also pre-approve particular services on a case-by-case basis.

SIGNATURES

In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Annual report to be signed on its behalf by the undersigned, thereunto duly authorized.

Palomar Enterprises, Inc.

Date: March 15, 2007

By /s/Steve Bonenberger

--------------------------------------

Steve Bonenberger,

President, Director and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Annual report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature                                                                      Title                                                                           Date                                                     

/s/ Steve Bonenberger                                               President, Director                                                   March 15, 2007

                                                                                       and Chief Executive Office

/s/ Brent Fouch                                                          Treasurer, Director                                                   March 15, 2007

                                                                                      Chief Financial Officer

                                                                                      and Principal Accounting Officer

17

GRUBER & COMPANY, LLC

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF

PALOMAR ENTERPRISES, INC.

We have audited the accompanying consolidated balance sheet of Palomar Enterprises, Inc. as of December 31, 2006 and the related consolidated statements of operations, shareholders’ equity, and cash flows for the years ended December 31, 2006 and 2005. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Palomar Enterprises, Inc. as of December 31, 2006 and the results of its consolidated operations and cash flows for the years ended December 31, 2006 and 2005 in conformity with accounting principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As described in Note 2 to the financial statements conditions exist which raise substantial doubt about the Company’s ability to continue as a going concern unless it is able to generate sufficient cash flows to meet its obligations and sustain its operations. Those conditions raise substantial doubt about its ability to continue as a going concern. Management’s plans regarding those matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Gruber & Company, LLC

Lake Saint Louis, Missouri

February 25, 2007

18

PALOMAR ENTERPRISES, INC.

CONSOLIDATED BALANCE SHEET

AS OF DECEMBER 31, 2006

Assets
Current assets
Cash and equivalents	35,187
Prepaid expenses	21,000
Total current assets	56,187
Property and equipment, net of accumulated depreciation
of $82,892	3,147,400
Deposits	69,082
Goodwill	377,248
Total assets	3,649,917
Liabilities and shareholders' equity
Current liabilities
Notes payable	2,134,265
Accounts payable	18,321
Accrued expenses	136,314
Total current liabilities	2,288,900
Notes payable, net of current maturities	2,090,673
Total liabilities	4,379,573
Minority interest	3,836
Stockholders' equity
Series A preferred stock, $0.00001 par value, 10,000,000 shares
authorized, 9,000,000 shares issued or outstanding	90
Series B preferred stock, $0.00001 par value, 50,000,000 shares
authorized, 30,000,000 shares issued and outstanding	300
Series C preferred stock, $0.00001 par value, 30,000,000 shares
authorized, no shares issued or outstanding
Common stock, $0.00001 par value, 25,000,000,000 shares authorized,
74,039,643 issued and outstanding	740
Additional paid-in capital	14,154,009
Subscription receivable	(207,235)
Accumulated deficit	(14,681,396)
Total shareholders' equity	(733,492)
Total liabilities and shareholder's equity	3,649,917

The accompanying notes are an integral part of these financial statements.

19

PALOMAR ENTERPRISES, INC.

CONSOLIDATED STATEMENT OF OPERATIONS

		Year Ended
		December 31,		December 31,
		2006		2005
Revenues	$	683,223	$	531,230
Cost of sales		435,972		399,199
Gross margin		247,251		132,031
		.		.
Operating expenses
General and administrative		1,060,773		1,063,825
Facitlities and rent		115,520		61,273
Consulting, legal and professional		444,923		569,771
Payroll and related costs		818,013		445,871
Total costs and expenses		2,439,229		2,140,740
Operating loss		(2,191,978)		(2,008,709)
Other income (expense)
Interest expense		(269,080)		(111,143)
Minority interest in net loss		21,529		17,806
Total other income (expense)		(247,551)		(93,337)
Net income (loss)	$	(2,439,529)	$	(2,102,046)
Weighted average number of common
shares outstanding		43,037,163		27,218,258
Net income (loss) per share	$	(0.057)	$	(0.078)

The accompanying notes are an integral part of these financial statements.

20

PALOMAR ENTERPRISES, INC.

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005

			Series A	Series A	Series B	Series B	Additional		Shares				Retained	Total
	Common	Common	Preferred	Preferred	Preferred	Preferred	Paid-in		Not Yet	Treasury  Stock		Subscription	Earnings	Shareholders'
	Shares	Stock	Shares	Stock	Shares	Stock	Capital		Earned	Shares	Amount	Receivable	(Deficit)	Equity
Balance,
December 31, 2004	10,661,120	$       107	9,000,000	$          90		$	$  10,725,132	$		3	$       (27,418)	$	$(10,139,821)	$       558,090
Treasury stock
reversal	--	--	--	--	--	--	--		--	(3)	27418	--	--	27,415
Series B preferred
issued	--	--	--		33,000,000	330	--		--	--	--	--	--	330
Subscription receivable	--	--	--	--	--	--	--		(13,125)	--	--	(1,230,769)	--	(1,243,894)
Common stock issued
for services	16,557,638	166	--	--	--	--	3,302,255		--		--	--	--	3,302,421
Net loss for the
year ended
December 31, 2005	--	--	--	--	--	--	--		--	--	--	--	(2,102,046)	(2,102,046)
Balance,
December 31, 2005	27,218,758	273	9,000,000	90	33,000,000	330	14,027,387		(13,125)	--	--	(1,230,769)	(12,241,867)	542,316
Common stock issued
for services	29,130,000	291	--	--	--	--	235,859		--	--	--	--	--	236,150
Common stock issued
for cash	17,690,885	176	--	--	--	--	843,177		--	--	--	--	--	843,353
Subscription received	--	--	--	--	--	--	--		13,125	--	--	1,023,534	--	1,036,659
Preferred stock
cancelled	--	--	--	--	(3,000,000)	(30)	--		--	--	--	--	--	(30)
Minority interest	--	--	--	--	--	--	(952,414)		--	--	--	--	--	(952,414)
Net loss for the
year ended
December 31, 2006	--	--	--	--	--	--	--		--	--	--	--	(2,439,529)	(2,439,529)
	74,039,643	740	9,000,000	90	33,000,000	300	14,154,009		--	--	--	(207,235)	(14,681,396)	(733,492)

21

PALOMAR ENTERPRISES, INC.

STATEMENT OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005

		Year Ended		Year Ended
		December 31,		December 31,
		2006		2005
Cash flows from operating activities
Net (loss)	$	(2,439,529)	$	(2,102,046)
Minority interest in net loss		(3,836)		(7,854)
Adjustments to reconcile net income to net
cash provided by (used by) operations:
Depreciation		33,738		31,013
Common stock issued for services		236,150		821,647
Changes in assets and liabilities:
Other assets		(10,015)		53,616
Accounts payable and accrued liabilities		30,000		81,662
Net cash used by operating activities		(2,153,492)		(1,121,962)
Cash flows from investing activities
Capital expenditures		(815,170)		(474,543)
Net cash used in investing activities		(815,170)		(474,543)
Cash flows from financing activities
Proceeds from notes payable, net		2,053,615		379,219
Proceeds from sale of common stock		905,903		628,453
Cancelled sale of preferred stock		(30)		142,510
Proceeds from options		-		474,827
Cash flows from financing activities		2,959,488		1,625,009
Net increase (decrease) in cash		(9,174)		28,504
Cash, beginning of period		44,361		15,857
Cash at end of period	$	35,187	$	44,361
Supplemental cash flow information:
Interest paid	$	111,143	$	41,850
Supplemental schedule of noncash investing and financing activities:
Acquisition of interest in subsidiary in exchange for
notes payable	$	-	$	172,248
Property acquired under note payable		-		980,000
Common stock issued to acquire sixty percent interest in
Prize Pizza		-		200,000

The accompanying notes are an integral part of these financial statements.

22

Palomar Enterprises, Inc.

Notes to Consolidated Financial Statements

Note 1 - Organization and Principal Activities

Organization and Description of Business

Palomar Enterprises, Inc. was incorporated on March 10, 1999 in accordance with the laws of the State of Nevada. The Company is in the real estate development and mortgage business employing over thirteen real estate brokers.

Note 2 - Summary of Significant Accounting Policies

Basis of Presentation

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures 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. Management further acknowledges that it is solely responsible for adopting sound accounting practices, establishing and maintaining a system of internal accounting control and preventing and detecting fraud. The Company’s system of internal accounting control is designed to assure, among other items, that (1) recorded transactions are valid; (2) valid transactions are recorded; and (3) transactions are recorded in the proper period in a timely manner to produce financial statements which present fairly the financial condition, results of operations and cash flows of the Company for the respective periods being presented.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its ninety nine percent interest in The Blackhawk Fund. All significant inter-company accounts and transactions have been eliminated.

Cash Equivalents

The Company considers all cash on hand and in banks, including accounts in book overdraft positions, certificates of deposit and other highly-liquid investments with maturities of three months or less, when purchased, to be cash and cash equivalents.

Intangible Assets

In accordance with SFAS No. 142, "Goodwill and Other Intangible Assets," the Company evaluates intangible assets and other long-lived assets for impairment, at least on an annual basis and whenever events or changes in circumstances indicate that the carrying value may not be recoverable from its estimated future cash flows. Recoverability of intangible assets and other long-lived assets is measured by comparing their net book value to the related projected undiscounted cash flows from these assets, considering a number of factors including past operating results, budgets, economic projections, market trends and product development cycles. If the net book value of the asset exceeds the related undiscounted cash flows, the asset is considered impaired, and a second test is performed to measure the amount of impairment loss.

Revenue Recognition

The Company generates revenue from the sale of real estate, brokerage commissions, and rental properties. Revenues from real estate sales and commissions are recognized on execution of the sales contract. Rental income is recognized in the period earned.

The Company records gross commissions on the sales of properties closed. The Company pays the broker of record five percent of all transactions and 100 percent of personal sales. This is in accordance with standard procedures. The Company compensates its independent agents on a sliding scale between 70 and 80 percent based on productivity.

Stock - Based Compensation

The Company had adopted the disclosure - only provisions of Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation,” and continues to account for stock based compensation using the intrinsic value method prescribed by Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretation (APB 25). In accordance with APB 25, compensation cost for stock options is recognized in income based on the excess, if any, of the market price of the stock at the grant date of the award or other measurement date over the amount an employee must pay to acquire the stock. There have been no stock options issued since 2003, all of which have been exercised.

23

Palomar Enterprises, Inc.

Notes to Consolidated Financial Statements

Income Taxes

The Company utilizes the asset and liability method of accounting for income taxes. Temporary differences represent differences in the recognition of assets and liabilities for tax and financial reporting purposes, primarily accumulated depreciation and amortization.

As of December 31, 2006, the deferred tax asset is related solely to the Company’s net operating loss carryforward and is fully reserved.

Earnings Per Common Share

Statement of Financial Accounting Standards No. 128, “EarningsPer Share”, requires presentation of basic earnings per share (”Basic EPS”) and diluted earnings per share (“Diluted EPS”). Basic earnings (loss) per share is computed by dividing earnings (loss) available to common stockholders by the weighted average number of common shares outstanding (including shares reserved for issuance) during the period. Diluted earnings per share gives effect to all dilutive potential common shares outstanding during the period. As of December 31, 2006 and 2005, the Company’s outstanding warrants are considered anti-dilutive. Accordingly, basic and diluted loss per common share is the same.

In May and June, 2002, in connection with the sale of Units pursuant to a Private Placement Memorandum, dated may 15, 2002, the Company issued stock warrants (5/15/02 Warrants) to the purchasers of six shares of common stock to purchase up to an additional six shares of restricted, unregistered common stock at a price of $100,000 per share.

In August and September, 2002, in connection with the sale of Units pursuant to a Private Placement Memorandum, dated August 1, 2002, the Company issued stock warrants (8/1/02 Warrants) to the purchasers of five shares of common stock to purchase up to an additional five shares of restricted, unregistered common stock at a price of $1.00 per share.

Warrants Outstanding

at December 31, 2006Exercise price

5/15/02 Warrants                                   6            $1.00

8/1/02 Warrants                                     6                                          1.00

                                                                12

The warrants have no stated expiration date.

Advertising

The costs of advertising, promotion and marketing programs are charged to operations in the calendar year incurred. Advertising costs included in operating expenses for the years ended December 31, 2006 and 2005 were $367,837 and $45,567 respectively.

Concentration of Credit Risk

Financial instruments, which potentially subject the Company to concentrations of credit risk, consist of cash and cash equivalents and accounts receivables. The Company places its cash with high quality financial institutions and at times may exceed the FDIC $100,000 insurance limit.

Special - purpose entities

The Company does not have any off-balance sheet financing activities.

Going Concern

The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of the Company as a going concern. As of December 31, 2006 the Company had a retained deficit of $14,681,396. This condition raises substantial doubt as to the Company’s ability to continue as a going concern. These financial statements do not include any adjustments that might result from the outcome of this uncertainty. These financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts, or amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

The Company is operating as a mortgage broker and developer. However, the Company is dependent upon the available cash on hand and either future sales of securities or upon its current management and / or advances or loans from controlling shareholders or corporate officers to provide sufficient working capital.

There is no assurance that the Company will be able to obtain additional funding through the sales of additional securities or, that such funding, if available, will be obtained on terms favorable to or affordable by the Company. It is the intent of management and controlling shareholders to provide sufficient working capital necessary to support and preserve the integrity of the corporate entity.

There is no legal obligation for either management and / or controlling shareholders to provide such additional funding.

Use of estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles (GAAP) requires management to make estimates and assumptions that affect the amounts reported in the financial statements. The Company bases its estimates on historical experience, management expectations for future performance, and other assumptions as appropriate. Key areas affected by estimates include the assessment of the recoverability of long-lived assets, which is based on such factors as estimated future cash flows. The Company re-evaluates its estimates on an ongoing basis. Actual results may vary from those estimates.

24

Palomar Enterprises, Inc.

Notes to Consolidated Financial Statements

Property and equipment

The Company depreciates property and equipment over its’ estimated useful life ranging from five to forty years using the straight line method, with the exception of building held for sale, which are investment property and hence not depreciated.

Depreciation expense for the years ended December 31, 2005 and 2004 was $33,738 and $31,013 respectively.

Impairment of long-lived assets

In accordance with Statement of Financial Accounting Standards (SFAS) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” the Company periodically assesses the impairment of long-lived assets when conditions indicate a possible loss. When necessary, we record charges for impairments of long-lived assets for the amount by which the present value of future cash flows, or some other fair value measure, is less than the carrying value of these assets. The Company has recorded no impairment charges.

Fair value of financial instruments

The Company uses the following methods and assumptions to estimate the fair value of derivative and other financial instruments at the relative balance sheet date:

·   Short-term financial statements (cash equivalents, accounts payable, short-term borrowings, and accrued liabilities) - cost approximates fair value because of the short maturity period.

·   Long-term debt - fair value is based on the amount of future cash flows associated with each debt instrument discounted at our current borrowing rate for similar debt instruments of comparable terms.

The fair value of the related party notes payable cannot be determined because of the Company’s affiliation with the parties with whom the agreements exist. The use of different assumptions or methodologies may have a material effect on the estimates of fair values.

Note 3 - Recently issued accounting pronouncements

In March 2004, the FASB approved the consensus reached on the Emerging Issues Task Force (EITF) Issue No. 03-1, "The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments." The objective of this Issue is to provide guidance for identifying impaired investments. EITF 03-1 also provides new disclosure requirements for investments that are deemed to be temporarily impaired. In September 2004, the FASB issued a FASB Staff

Position (FSP) EITF 03-1-1 that delays the effective date of the measurement and recognition guidance in EITF 03-1 until after further deliberations by the FASB. The disclosure requirements are effective only for annual periods ending after June 15, 2004. The Company has evaluated the impact of the adoption of the disclosure requirements of EITF 03-1 and does not believe it will have an impact to the Company's overall combined results of operations or combined financial position. Once the FASB reaches a final decision on the measurement and recognition provisions, the Company will evaluate the impact of the adoption of EITF 03-1.

In November 2004, the FASB issued SFAS No. 151 "Inventory Costs, an amendment of ARB No. 43, Chapter 4”, (" SFAS No. 151"). The amendments made by SFAS 151 clarify that abnormal amounts of idle facility expense, freight, handling costs, and wasted materials (spoilage) should be recognized as current-period charges and require the allocation of fixed production overheads to inventory based on the normal capacity of the production facilities. The guidance is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. Earlier application is permitted for inventory costs incurred during fiscal years beginning after November 23, 2004. The Company has evaluated the impact of the adoption of SFAS 151, and does not believe the impact will be significant to the Company's overall results of operations or financial position.

In December 2004, the FASB issued SFAS No.152, "Accounting for Real Estate Time-Sharing Transactions-an amendment of FASB Statements No. 66 and 67" ("SFAS 152") SFAS 152 amends SFAS No. 66, "Accounting for Sales of Real Estate", to reference the financial accounting and reporting guidance for real estate time-sharing transactions that is provided in

AICPA Statement of Position (SOP) 04-2, "Accounting for Real Estate Time-Sharing Transactions". SFAS 152 also amends SFAS No. 67, "Accounting for Costs and Initial Rental Operations of Real Estate Projects", to state that the guidance for (a) incidental operations and (b) costs incurred to sell real estate projects does not apply to real estate time-sharing transactions. The accounting for those operations and costs is subject to the guidance in SOP 04-2. SFAS 152 is effective for financial statements for fiscal years beginning after June 15, 2005, with earlier application encouraged. The Company has evaluated the impact of the adoption of SFAS 152, and does not believe the impact will be significant if any, to the Company's overall results of operations or financial position since the Company does not enter into such transactions.

In December 2004, the FASB issued SFAS No.153, "Exchanges of Nonmonetary Assets, an amendment of APB Opinion No. 29, Accounting for Nonmonetary Transactions." The amendments made by SFAS 153 are based on the principle that exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged. Further, the amendments eliminate the narrow exception for nonmonetary exchanges of similar productive assets and replace it with a broader exception for exchanges of nonmonetary assets that do not have commercial substance. Previously, Opinion 29 required that the accounting for an exchange of a productive asset for a similar productive asset or an equivalent interest in the same or similar productive asset should be based on the recorded amount of the asset relinquished. Opinion 29 provided an exception to its basic measurement principle (fair value) for exchanges of similar productive assets. That exception required that some nonmonetary exchanges, although commercially substantive, to be recorded on a carryover basis. By focusing the exception on exchanges that lack commercial substance, the FASB believes SFAS No.153 produces financial reporting that more faithfully represents the economics of the transactions. SFAS No.153 is effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. Earlier application is permitted for nonmonetary asset exchanges occurring in fiscal periods beginning after the date of issuance. The provisions of SFAS No.153 shall be applied prospectively. The Company has evaluated the impact of the adoption of SFAS 153, and does not believe the impact will be significant to the Company's overall results of operations or financial position.

In December 2004, the FASB issued SFAS No.123 (revised 2004), "Share-Based Payment" ("SFAS 123(R)"). SFAS 123(R) will provide investors and other users of financial statements with more complete and neutral financial information by requiring that the compensation cost relating to share-based payment transactions be recognized in financial statements. That cost will be measured based on the fair value of the equity or liability instruments issued. SFAS 123(R) covers a wide range of share-based compensation arrangements including share options, restricted share plans, performance-based awards, share appreciation rights, and employee share purchase plans. SFAS 123(R) replaces SFAS No. 123, "Accounting for Stock-Based Compensation", and supersedes APB Opinion No. 25, "Accounting for Stock Issued to Employees". SFAS 123, as originally issued in 1995, established as preferable a fair-value-based method of accounting for share-based payment transactions with employees. However, that statement permitted entities the option of continuing to apply the guidance in Opinion 25, as long as the footnotes to financial statements disclosed what net income would have been had the preferable fair-value-based method been used. Public entities (other than those filing as small business issuers) will be required to apply SFAS 123(R) as of the first interim or annual reporting period that begins after June 15, 2005. This pronouncement is effective for the Company, a small business issuer, as of the first interior annual reporting period that begins after December 15, 2005. The Company has evaluated the impact of the adoption of SFAS 123(R), and does not believe the impact will be significant to the Company's overall results of operations or financial position.

25

Palomar Enterprises, Inc.

Notes to Consolidated Financial Statements

 

In May, 2005, The FASB issued SFAS No. 154, entitled Accounting Changes and Error Corrections - a replacement of APB Opinion No. 20 and FASB Statement No. 3. This Statement replaces APB Opinion No. 20, Accounting Changes and FASB Statement No. 3, Reporting Accounting Changes in Interim Financial Statements, and changes the requirements for the accounting for and reporting of a change in accounting principle. This statement applies to all voluntary changes in accounting principle. It also applies to changes required by an accounting pronouncement in the unusual instance that the pronouncement does not include specific transition provisions. Opinion 20 previously required that most voluntary changes in accounting principle be recognized by including in net income of the period of the change the cumulative effect of changing to the new accounting principle. This Statement requires retrospectiveapplication to prior periods’ financial statements of changes in accounting principle, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. This Statement defines as the application of a different accounting principle to prior accounting periods as if that principle had always been used or as the adjustment of previously issued financial statements to reflect a change in the reporting entity. This statement also redefines restatement as the revising of previously issued financial statements to reflect the correction of an error. The adoption of SFAS 154 did not impact the financial statements.

In February, 2006, FASB issued SFAS No. 155, “Accounting for Certain Hybrid Financial Statements”. SFAS No. 155 amends SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” and SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities”. SFAS No. 155, permits fair value measurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation, clarifies which interest-only strips and principal-only strips are not subject to the requirements of SFAS No. 133, establishes a requirement to evaluate interest in securitized financial assets to identify interests that are freestanding derivatives or that are hybrid financial statements that contain an embedded derivative requiring bifurcation, clarifies that concentrations of credit risk in the form of subordination are not embedded derivatives, and amends SFAS No. 140 to eliminate the prohibition on the qualifying special-purpose entity from holding a derivative financial instrument that pertains to a beneficial interest other than another derivative financial instrument. This statement is effective for all financial instruments acquired or issued after the beginning of the Company’s first fiscal year that begins after September 15, 2006. Management believes that this statement will not have a significant impact on the financial statements.

In March, 2006 FASB issued SFAS 156 “Accounting For Servicing of Financial Assets” this Statement amends FASB Statement No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities”, with respect to the accounting for separately recognized servicing assets and servicing liabilities. This Statement:

1.   Requires an entity to recognize a servicing asset or servicing liability each time it undertakes an obligation to service a financial asset by entering into a servicing contract.

2.   Requires all separately recognized servicing assets and servicing liabilities to be initially measured at fair value, if practicable.

3.   Permits an entity to choose “Amortization method” or “Fair value measurement method” for each class of separately recognized servicing assets and servicing liabilities.

4.   At its initial adoption, permits a one-time reclassification of available-for-sale securities to trading securities by entities with recognized servicing rights, without calling into question the treatment of other available-for-sale securities under Statement 115, provided that the available-for-sale securities are identified in some manner as offsetting the entity’s exposure to changes in fair value of servicing assets or servicing liabilities that a servicer elects to subsequently measure at fair value.

5.   Requires separate presentation of servicing assets and liabilities subsequently measured at fair value in the statement of financial position and additional disclosures for all separately recognized servicing assets and servicing liabilities.

Management believes that this statement will not have a significant impact on the financial statements.

In June, 2006, the FASB issued FIN 48 “Accounting for Uncertainty in Income Taxes” (“FIN 48”). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB Statement No. 109, “Accounting for Income Taxes”. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. FIN 48 is effective in fiscal years beginning after December 15, 2006. Management believes that this statement will not have a significant impact on the financial statements.

26

Palomar Enterprises, Inc.

Notes to Consolidated Financial Statements

Note 4- Related party transactions

The Company pays consulting fees to entities owned by two controlling shareholders. These two controlling shareholders are also the two senior officers and directors of the Company. During the year ended December 31, 2006 and 2005, the Company paid fees totaling $718,607 and $467,000 to these two entities.

Note 5 - Property and equipment

Property and equipment consists of the following at December 31, 2006:

Building           $ 1,395,612 

Office equipment                                             27,080

Buildings held for resale                            1,807,600

                                                                                       3,230,292

Less - Accumulated depreciation                  82,892

                                                                                    $ 3,147,400

Note 6 - Notes payable

Notes payable consist of the following at December 31, 2006:

Note payable to lending institution, original balance of $980,000, interest at 7.5% per annum.

Requires monthly principal and  interest payments of $6,852 through 2034. Collateralized by building.                             $      808,182

Convertible debentures payable to investor group, original balance $1,350,000 interest at 6% per annum, interest

payable quarterly. Convertible at maximum monthly amounts, balance no later than March 31, 2009                                      1,290,893

Credit line from a bank up to $500,000 with interest only at one over prime.                                                                                    304,863

Promissory note to a bank, amortized over 30 years, interest at 7.875%, with interest only for ten years,

collateralized by property.                                                                                                                                                                        496,000

Promissory note assumed in conjunction with property interest only, at 7.85%. Amortized over thirty years.                    1,000,000

Convertible debentures payable to investor group, interest at 8% per year, payable quarterly. Principal and accrued

interest are convertible at any time at a rate of 80% of their average three lowest closing bid prices of the twenty

trading days immediately preceeding the conversion, limited to a maximum of 4.99% of the total outstanding common

stock on the date of conversion.                                                                                                                                                            325,000

                                                                                                 $4,224,938

Less current portion                                                                                                                                                                               2,134,265

                                                                                                                                                                                                                 $2,090,673

Note 7 - Risk management

Management of risk is an essential element of the Company’s operations. The main risks inherent to the Company’s operations are those related to interest rates.

Interest rate risk arises from the possibility that changes in interest rates will affect the value of the financial instruments.

The Company management approach to the interest risk limitation is borrowing for short periods.

Note 8 - Commitments

The Company’s lease at 120 Birmingham Drive, #110-G, Cardiff, California 92007 costs $975 per month. The Company is also a party to a lease agreement with IKON Financial Services. The Company leases a copier from IKON Financial Services at a cost of $445 per month.

Note 9 - Income tax

As of December 31, 2006, the Company had a net operating loss carryforward of approximately $12,448,000 to offset future taxable income. These carryforwards expire in 2021 to 2025.

Note 10 - Capital stock transactions

During the year ended December 31, 2006 the Company issued 46,820,885 shares of stock. Of this amount 17,690,885 were issued for services valued at $236,150 and 29,130,000 shares for cash and for conversion of debt valued at $843,353.

27