UNITED
      STATES SECURITIES AND EXCHANGE COMMISSION





Washington,
      D.C. 20549





**FORM
      10-QSB**





[X]
      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE


SECURITIES
      EXCHANGE ACT OF 1934.





For
      the
      quarterly period ended June 30, 2006





OR





[
      ]
      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES


EXCHANGE
      ACT OF 1934.





For
      the
      transition period from _______, 20___ to _______, 20___.








Commission
      File Number: 000-49672





**PALOMAR
      ENTERPRISES, INC.**


(Exact
      Name of Small Business Issuer as Specified in its Charter)











**NEVADA**
            
            06-1588136(State
                or Other Jurisdiction of
            
            (IRS
                EmployerIncorporation
                or Organization)
            
            Identification
                Number)








1802
      N.
      CARSON STREET, SUITE 212-3018


CARSON
      CITY, NEVADA 89701


Address
      of Principal Executive Offices





(775)
      887-0670


(Registrant's
      Telephone Number, Including Area Code)











Check
      whether the Issuer (1) has filed all reports required to be filed by Section
      13
      or 15(d) of the Exchange Act during the past 12 months (or for such shorter
      period that the Issuer was required to file such reports), and 2) has been
      subject to such filing requirements for the past 90 days. [
      X ] Yes
      [ ] No





State
      the
      number of shares outstanding of each of the Issuer’s classes of common equity as
      of the latest practicable date: As of July 18, 2006, the issuer had
      30,298,608  shares
      of
      its common stock issued and outstanding.





Transitional
      Small Business Disclosure Format (check one): Yes [ } No [X]


1


**TABLE
      OF CONTENTS**














PART
      I -
      FINANCIAL INFORMATION





Item
      1.
      Financial Statements 3


Consolidated
      Balance Sheet as of June 30, 2005 unaudited) 3-4


Consolidated
      Statement of Operations for the three and six months ended


June
      30,
      2005 and 2004 (unaudited) 5


Consolidated
      Statement of Cash Flows for the six months ended June 30, 2005


and
      2004
      (unaudited) 6-7


Notes
      to
      Consolidated Financial Statements (unaudited) 8





Item
      2.
      Management's Discussion and Analysis or Plan of Operation 20





Item
      3.
      Quantitative and Qualitative Disclosures of Market
      Risk 24





Item
      4.
      Controls and Procedures 24





PART
      II -
      OTHER INFORMATION




Item
      1.
      Legal Proceedings 25





Item
      2.
      Unregistered Sales of Equity Securities and Use of Proceeds 25





Item
      3.
      Defaults Upon Senior
      Securities 25





Item
      4.
      Submission of Matters to a Vote of Security
      Holders 25





Item
      5.
      Other
      Information 25





Item
      6.
      Exhibits 26





SIGNATURES 26





2


PART
      I -
      FINANCIAL INFORMATION





ITEM
      1.
      FINANCIAL STATEMENTS.








The
      accompanying unaudited interim consolidated financial statements of Palomar
      Enterprises ("Palomar") have been prepared in accordance with accounting
      principles generally accepted in the United States of America and the rules
      of
      the Securities and Exchange Commission ("SEC"), and should be read in
      conjunction with the audited financial statements and notes thereto contained
      in
      Palomar's Annual Report filed with the SEC on Form 10-KSB. In the opinion of
      management, all adjustments, consisting of normal recurring adjustments,
      necessary for a fair presentation of financial position and the results of
      operations for the interim periods presented have been reflected herein. The
      results of operations for interim periods are not necessarily indicative of
      the
      results to be expected for the full year. Notes to the financial statements
      which would substantially duplicate the disclosure contained in the audited
      financial statements for 2005 as reported in the 10-KSB have been
      omitted.











































































































3

















**Palomar
                Enterprises, Inc.****Consolidated
                Balance Sheet****as
                of June 30, 2006****(unaudited)**June
                30,2006ASSETS:Cash
            
            
            $
            1,182,459Prepaids
                and other current assets
            
            
            0Total
                current assets
            
            
            1,182,459Other
                assets
            
            
            
            
            
            86,236Property,
                plant and equipment, net of accumulated depreciation of
                $65,330
            
            2,978,375Goodwill
            
            
            377,249TOTAL
                ASSETS
            
            $
            4,624,318**LIABILITIES
                AND STOCKHOLDERS' EQUITY**LIABILITIES:Accounts
                payable
            
            $
            13,990Accrued
                expenses
            
            
            55,556Current
                portion of notes payable
            
            
            1,350,927Total
                current liabilities
            
            
            1,420,473Notes
                payable, long term
            
            
            2,095,962TOTAL
                LIABILITIES
            
            
            3,516,435MINORITY
                INTEREST
            
            
            27,566





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








4


**Palomar
                Enterprises, Inc.**Consolidated
                Balance Sheet, continuedAs
                of June 30, 2006(unaudited)June
                302006STOCKHOLDERS'
                EQUITY:Preferred
                stock, $0.00001 par value, 10,000,000 sharesauthorized,
                no shares issued or outstanding
            
            -Series
                A preferred stock, $0.00001 par value, 10,000,000
                sharesauthorized,
                9,000,000 shares issued and
              outstanding
            
            
            90Series
                B preferred stock, $0.00001 par value, 50,000,000 sharesauthorized,
                33,000,000 shares issued and outstanding
            
            330Series
                C preferred stock, $0.00001 par value, 30,000,000 sharesauthorized,
                no shares issued or outstanding
            
            -
                -Common
                stock, $0.00001 par value, 25,000,000,000 sharesauthorized,
                29,678,758 shares issued and outstanding
            
            297Shares
                not yet earned
            (567,480)-
                -Additional
                paid-in capital
            
            
            14,959,500Accumulated
                deficit
            
            
            (13,312,420)Total
                stockholders' equity
            
            
            1,080,317TOTAL
                LIABILITIES AND STOCKHOLDERS' EQUITY
            
            $
            4,624,318





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





5


**Palomar
                Enterprises, Inc.****Consolidated
                Statements of Operations****For
                the Three Months and Six Months Ended June 30, 2006 and
                2005****(unaudited)**For
                the Three Months Ended
            
            For
                the Six Months EndedJune
                30,
            
            June
                30,2006
            
            2005
            
            2006
            
            2005Revenue
            
            $
            204,0129
            
            $
            198,8196
            
            $
            378,716
            
            $
            285,3844Cost
                of goods sold
            
            
            100,3416
            
            
            161,196
            
            
            198,580
            
            
            221,5850Gross
                profit
            
            
            103,671
            
            
            37,6236
            
            
            180,136
            
            
            63,7994Operating
                expenses:General
                and administrative
            
            
            256,347
            
            
            162,9001
            
            
            426,0102
            
            
            833,3624Facilities
                and rent
            
            
            23,766
            
            
            16,4150
            
            
            42,6346
            
            
            29,2467Consulting,
                legal and professional
            
            
            121,640
            
            
            110,8911
            
            
            197,3342
            
            
            323,2726Payroll
                and related costs
            
            
            223,219
            
            
            15,9722
            
            
            492,3404
            
            
            25,6547Total
                operating expenses
            
            
            624,971
            
            
            306,1784
            
            
            1,158,317
            
            
            1,211,5344Loss
                from operations
            
            
            (521,300)
            
            
            (268,555)
            
            
            (978,181)
            
            
            (1,147,735)Other
                income or (expense)Interest
                expense
            
            
            (70,845)
            
            
            (22,278)
            
            
            (99,295))
            
            
            (51,203)Minority
                interest in net loss/jv loss other
            
            
            3,298
            
            
            147,0515
            
            
            6,9241
            
            
            297,181Total
                other income or (expense)
            
            
            67,547
            
            
            1247734
            
            
            (92,371)8
            
            
            245,978(Loss)
                before provision for taxes
            
            
            (588,847)
            
            
            (
                143,782)
            
            
            (1,070,552)
            
            
            (901,757)Provision
                for income taxes
            
            
            -
            
            
            -
            
            
            -
            
            
            -Net
                (loss)
            
            $
            (588,847)
            
            $
            (143,782)
            
            $
            (1,070,552)
            
            $
            (901,757)Weighted
                average number ofcommon
                shares outstanding - basic and fully diluted
            
            
            27,832,604
            
            
            930,0160
            
            
            27,601,686
            
            
            478,052Net
                (loss) per share - basic and fully diluted
            
            $
            (.02)
            
            $
            (0.152)
            
            $
            (.04)
            
            $
            (1.89)





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





6


**Palomar
                Enterprises, Inc.****Consolidated
                Statements of Cash Flows****For
                the Six Months Ended June 30, 2006 and 2005****(unaudited)**For
                the Six Months EndedJune
                30,2006
            
            2005**Cash
                flows from operating activities**Net
                (loss) for the period
            
            $
            (1,070,552)
            
            $
            (901,757)Minority
                interest in net loss
            
            
            1,803
            
            
            (297,181)Adjustments
                to reconcile net (loss) tonet
                cash (used) by operating activities:Depreciation
            
            
            16,178
            
            
            15,300Common
                stock issued for services
            
            
            58,150
            
            
            639,022Common
                stock issued to officers
            
            
            -
            
            
            -Changes
                in operating assets and liabilities:Decrease
                in inventory
            
            
            -
            
            
            -(Increase)
                decrease in prepaid expenses/other
            
            
            (6,169)
            
            
            16,451-Increase
                in accounts payable and accrued expenses
            
            
            (55,089)
            
            
            52,440Net
                cash (used) by operating activities
            
            
            (1,055,679)
            
            
            (
                475,725)**Cash
                flows from investing activities**Purchase
                of property and equipment
            
            
            (625,083)
            
            
            (
                10,621)Purchase
                of notes receivable
            
            
            -Net
                cash (used) by investing activities
            
            
            (625,083)
            
            
            (10,621)**Cash
                flows from financing activities**Proceeds
                from note payable/net of repayments
            
            
            1,275,596
                -Payments
                on note payable
            
            
            -
            
            
            (
                9,411)Proceeds
                from sale of common stock/stock subscribed
            
            
            1,543,264
            
            
            35,500Proceeds
                from exercise of stock options
            
            
            /
                -
            
            
            474,827Net
                cash provided by financing activities
            
            
            2,818,860
            
            
            500,916Net
                increase in cash
            
            
            1,138,098
            
            
            14,570Cash
                - beginning
            
            
            44,361
            
            
            15,857Cash
                - ending
            
            $
            1,182,459
            
            $
            30,427





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


7


**Palomar
                Enterprises, Inc****Consolidated
                Statements of Cash Flows, continued****For
                the Six Months Ended June 30, 2006 and 2005****(unaudited)**For
                the Six Months EndedJune
                30,2006
            
            2005Supplemental
                disclosures:Interest
                paid
            
            $
            43,739
            
            $
            22,505Income
                taxes paid
            
            $
            -
            
            $
            -Non-cash
                investing and financing activities:Common
                stock issued for services
            
            $
            58,150
            
            $
            639,022Property
                acquired under note payable
            
            $
            -
            
            $Common
                stock issued to officers
            
            $
            -
            
            $Common
                stock issued to acquire sixty percent interestin
                Prize Pizza, Inc.
            
            $
            -
            
            $








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








8


NOTE
      A -
      ORGANIZATION AND DESCRIPTION OF BUSINESS





Palomar
      Enterprises, Inc. (Company) was incorporated on March 10, 1999 in accordance
      with the laws of the State of Nevada. The Company was initially formed for
      the
      purpose of developing an aircraft service company for private aircraft owners
      that would offer on-site preventative maintenance and repair services.





NOTE
      B -
      PREPARATION OF FINANCIAL STATEMENTS





The
      preparation of financial statements in conformity with accounting principles
      generally accepted in the United States of America requires management to make
      estimates and assumptions that affect the reported amounts of assets and
      liabilities and disclosure of contingent assets and liabilities at the date
      of
      the financial statements and the reported amounts of revenues and expenses
      during the 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


The
      Company is presently a licensed real estate broker and real estate
      developer.





NOTE
      C -
      GOING CONCERN UNCERTAINTY





The
      Company has been unable to generate sufficient operating revenues and has
      incurred cumulative operating losses of $13,312,419.





The
      Company has implemented a business plan to operate as a mortgage broker and
      real
      estate 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.





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





The
      accompanying financial statements have been prepared assuming that the Company
      will continue as a going concern. The financial statements do not include any
      adjustments that might result from this uncertainty.





9


NOTE
      D -
      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES





1.  Cash
      and cash equivalents





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





2.  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. The
                Blackhawk Fund is a publicly traded company on the OTCB.B. (BHWK).
                The
                financials of Palomar are inclusive of all activity of the Blackhawk
                Fund
                and Palomar Enterprises, on a consolidated basis. This includes all
                revenue, expenses, losses and operations.





3.  Goodwill





The
      Financial Accounting Standard Board (“FASB”) recently issued Statements of
      Financial Accounting Standards Nos. 141 “Business Combinations”, 142 “Goodwill
      and Other Intangible Assets” and 144 “Accounting for the Impairment or Disposal
      of Long-Lived Assets”. (:SFAS 141”, “SFAS 142” and “SFAS 144”). All of these
      pronouncements are effective for fiscal years beginning after December 31,
      2001.
      Under SFAS 141, a company must use the purchase method of accounting for all
      business acquisitions. SFAS 142 requires a company to periodically evaluate
      for
      impairment (as opposed to amortize) goodwill and intangible assets.





Goodwill
      resulting from the acquisition of The Blackhawk Fund (:Blackhawk”) accounted for
      as a purchase. The Company follows SFAS No. 142 and as such, will test the
      goodwill balance for impairment at least on an annual basis. Such analysis
      will
      be based upon the expected future cash flows of Blackhawk. There was $-0- and
      $-0- as impairment of goodwill as of June 30, 2006 and 2005.





4.  Research
      and development expenses





Research
                and development expenses are charged to operations as incurred. There
                were
                no research and development costs incurred in the six month periods
                ending
                June 30, 2006 and 2005.





5.  Advertising
      expenses





Advertising
                and marketing expenses are charged to operations as incurred. Advertising
                expenses for the six month periods ending June 30, 2006 and 2005
                was
                $171,696 and $29,267, respectively.








10





NOTE
      D -
      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued





6.  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.





The
                Company also realizes revenue from its subsidiary, The Blackhawk
                Fund,
                from existing consulting services.





7.
            Income
                Taxes





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





As
      of
      June 30, 2006, the deferred tax asset is related solely to the Company's net
      operating loss carry forward and is fully reserved.





8.
            Earnings
                (loss) per share





Basic
                earnings (loss) per share are computed by dividing the net income
                (loss)
                by the weighted-average number of shares of common stock and common
                stock
                equivalents (primarily outstanding options and warrants). Common
                stock
                equivalents represent the dilutive effect of the assumed exercise
                of the
                outstanding stock options and warrants, using the treasury stock
                method.
                The calculation of fully diluted earnings (loss) per share assumes
                the
                dilutive effect of the exercise of outstanding options and warrants
                at
                either the beginning of the respective period presented or the date
                of
                issuance, whichever is later. As of June 30, 2006, the Company's
                outstanding warrants are considered
                anti-dilutive.


On
                July 5, 2005, the Company declared a 1,000 to one reverse stock split
                of
                its common stock. All stock numbers presented in the financial statements
                have been retroactively restated to reflect this reverse split.




9.
            Use
                of Estimates





The
                preparation of financial statements in conformity with accounting
                principles generally accepted in the United States of America requires
                management to make estimates and assumptions that affect the reported
                amounts of assets and liabilities and disclosure of contingent assets
                and
                liabilities at the date of the financial statements and the reported
                amounts of revenues and expenses during the accounting period. Actual
                results could differ from those
                estimates.





11


NOTE
      D -
      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued





RECENT
      ACCOUNTING PRONOUNCEMENTS





T he
      Company adopted SFAS No. 142. Under the new rules, the Company 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
      the Company 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 the Company's 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. The Company expects that the provisions of SFAS No. 143 will not
      have
      a material impact on its consolidated results of operations and financial
      position upon adoption. The Company plans 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". The Company adopted
      SFAS No. 144 effective January 1, 2002. The adoption of SFAS No. 144 had no
      material impact on Company's 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.























12




















NOTE
      D -
      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued





RECENT
      ACCOUNTING PRONOUNCEMENTS, continued





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


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





In
      December 2002, the FASB issued Statement No. 148, "Accounting for Stock-Based
      Compensation-Transition and Disclosure," which amends FASB Statement No. 123,
      Accounting for Stock-Based Compensation, to provide alternative methods of
      transition for a voluntary change to the fair value based method of accounting
      for stock-based employee compensation. In addition, this statement amends the
      disclosure requirements of Statement 123 to require prominent disclosures in
      both annual and interim financial statements about the method of accounting
      for
      stock-based employee compensation and the effect of the method used on reported
      results. The transition guidance and annual disclosure provisions of Statement
      148 are effective for fiscal years ending after December 15, 2002, with earlier
      application permitted in certain circumstances. The interim disclosure
      provisions are effective for financial reports containing financial statements
      for interim periods beginning after December 15, 2002. The adoption of this
      statement did not have a material impact on our financial position or results
      of
      operations as we have not elected to change to the fair value based method
      of
      accounting for stock-based employee compensation.





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


NOTE
      D -
      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued













13


RECENT
      ACCOUNTING PRONOUNCEMENTS, continued





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.





NOTE
      E -
      FAIR VALUE OF FINANCIAL INSTRUMENTS





The
      carrying amount of cash, prepaid expenses, notes receivable, accounts payable,
      accrued liabilities and notes payable, as applicable, approximates fair value
      due to the short-term nature of these items. 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
      F -
      RELATED PARTY TRANSACTIONS





The
      Company pays consulting fees to entities owned by two senior officers and
      directors of the Company for management services rendered to Palomar and to
      The
      Blackhawk Fund. During the six month periods ended June 30, 2006 and 2005,
      the
      Company paid 438,607 and 160,100 respectively. The company is also a 50% joint
      venture partner with one of its shareholders in property. All expenses are
      divided equally





NOTE
      G -
      INCOME TAXES





As
      of
      December 31, 2005 the Company had a net operating loss carryforward of
      approximately $9,230,000 to offset future taxable income. These carryforwards
      expire in 2019 to 2024. Other than the increase in the valuation allowance
      the
      company’s income tax expense (benefit) for the year ended December 31 2005 did
      not differ from statutory rate.




NOTE
      H -
      PROPERTY





Property
      and equipment consisted of the following at June 30, 2006:





Building
            
            $
                1,395,612Office
                equipment
            
            19,510Buildings
                Held For Sale
            
            1,628,583Less:
                Accumulated depreciation
            
            (65,330)Property
                & equipment, net
            
            $
                2,978,375





Assets
      are being depreciated from five to forty years using the straight line method,
      with the exception of buildings held for sale which are not being
      depreciated..











14


NOTE
      I -
      NOTES PAYABLE AND BANK LINE OF CREDIT





Notes
      payable and bank line of credit at June 30, 2006 are comprised of the
      following:





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. $ 
      818,757





Convertible
      debentures payable to investor group, original balance


interest
      at 6% per annum, interest payable quarterly.


Principal
      due March 2009.  500,000





Credit
      line from a bank up to $500,000 interest only at one per cent over
      prime    307,132





Promissory
      note to a bank, amortized over 30 years interest at 7.875%


interest
      only for ten years, collateralized by
      property 496,000





Promissory
      note assumed in conjunction with property interest only at 7.85%


Amortized
      over 30
      years                                                                                                                                         
1,000,000





Convertible
      debentures payable to investor group, interest at 8% per annum,
      interest


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 conversion. Principal was due July and


August
      2005. 325,000




Total                           
3,446,889


Less current
      portion                           1,350,927


Long
      term                          
**2,095,962**






NOTE
      J -
      COMMON STOCK TRANSACTIONS





During
      the six months ended June 30 2006 the Company issued 2,480,000 shares of it
      s
      common stock. Of
      the
      2,480,000, 1,880,000 were issued for services at prices


between
      .025 cents and .085 cents with the balance pursuant to stock subscription
      agreements.





NOTE
      K-
      LEASES- Our lease in Cardiff, California costs $875 per month. Our lease for
      a
      copier is at $445 per month.





NOTE
      L -
      SUBSEQUENT EVENTS





In
      July
      2006, the company purchased residential real estate to improve and sell. The
      purchase price was $138,000.








15


ITEM
      2.
      MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS.





FORWARD-LOOKING
      INFORMATION





Much
      of
      the discussion in this Item is "forward looking" as that term is used in Section
      27A of the Securities Act and Section 21E of the Securities Exchange Act of
      1934. 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-QSB 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.





Additionally,
      the following discussion regarding our financial condition and results of
      operations should be read in conjunction with the financial statements and
      related notes contained in Item 1 of Part I of this Form 10-QSB, as well as
      the
      financial statements in Item 7 of Part II of our Form 10-KSB for the fiscal
      year
      ended, December 31, 2005.





MANAGEMENT'S
      PLAN OF OPERATIONS.





CURRENT
      BUSINESS PLAN





Our
      current business plan is buying, renovating and selling residential real estate
      properties, residential real estate sales, and mortgage brokerage services.
      As
      part and parcel of that we also look for land opportunities and development.
      We
      currently employ three full time employees. We also have six full time licensed
      real estate agents and licensed mortgage brokers.





RESULTS
      OF OPERATIONS:





**Three
      months ended June 30, 2006 compared to the three months ended June 30,
      2005:**





Total
      net
      sales and revenue were at $204,012 for the three months ending June 30, 2005
      compared to $ 198,819 for the prior period. This represents an increase of
      3
      percent.





Our
      gross
      profit for the three months ended June 30, 2006 compared to 2005 increased
      to
      $103,671 from $37,623.





Gross
      margin percentage of sales increased to 51 percent in 2006 compared to 18.9
      percent in 2005.





Total
      operating expenses for the three months ended June 30, 2006 were $624,971
      compared to $306,178 for the same period in 2005.





Net
      loss
      for the period ending June 30, 2006 was $(588,847) compared to a net loss for
      the prior period in 2005 which was$(143,872). This represents a increase in
      net
      loss of $($444,975) for the period ending June 30, 2005 that represents a
      increase of approximately 309 percent.





Interest
      expense, net for the three months ending June 30, 2006 was $70,845 The interest
      expense for the prior period in 2005 was $22,278. This represents an increase
      of
      $48,567 which is an increase of approximately 218 percent for 2006.





**Six
      months ended June 30, 2006 compared to the six months ended June 30,
      2005.**





Total
      net
      sales and revenues were at $378,716 for the six months ended June 30, 2006
      compared to $285,384 for the prior period, a increase of 25 percent.





Our
      gross
      profit for the six months ended June 30, 2006 compared to 2005 increased to
      $180,136 from $63,799 Gross margin as a percentage of sales increased to 48
      percent in 2006compared to 22% in 2005.





Total
      operating expenses for the six months ended June 30, 2006 were $1,158,317
      compared to 2005, which were $1,211,534.





Net
      loss
      was ($1,070,552 for six-month period ending June 30, 2005, compared to a loss
      of
      ($901,757 for the same period in 2005.





Interest
      expense, net for the six months ended June 30, 2006 was $99,295 compared to
      51,203.




16


LIQUIDITY
      AND CAPTIAL RESOURCES:





As
      of
      June 30, 2006 we had a deficiency in working capital of $168,468.





Cash
      used
      by investing activities totaled $625,083, used for property, plant and equipment
      for the six months ending June 30, 2006.





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. FAS 148 also requires disclosure of
      the
      method used to account for stock-based employee compensation and the effect
      of
      the method in both the annual and interim financial statements. The provisions
      of this statement related to transition methods are effective for fiscal years
      ending after December 15, 2002, while provisions related to disclosure
      requirements are effective in financial reports for interim periods beginning
      after December 31, 2002.





We
      elected to continue to account for stock-based compensation plans using the
      intrinsic value-based method of accounting prescribed by APB No. 25, "Accounting
      for Stock Issued to Employees," and related interpretations. Under the
      provisions of APB No. 25, compensation expense is measured at the grant date
      for
      the difference between the fair value of the stock and the exercise
      price.





RECENT
      ACCOUNTING PRONOUNCEMENTS





In
      November 2004, the Financial Accounting Standards Board (FASB) issued SFAS
      151,
      Inventory Costs- an amendment of ARB No. 43, Chapter 4. This Statement amends
      the guidance in ARB No. 43, Chapter 4, "Inventory Pricing," to clarify the
      accounting for abnormal amounts of idle facility expense, freight, handling
      costs, and wasted material (spoilage). Paragraph 5 of ARB 43, Chapter 4,
      previously stated that "under some circumstances, items such as idle facility
      expense, excessive spoilage, double freight, and rehandling costs may be so
      abnormal as to require treatment as current period charges." This Statement
      requires that those items be recognized as current-period charges regardless
      of
      whether they meet the criterion of "so abnormal." In addition, this Statement
      requires that allocation of fixed production overheads to the costs of
      conversion be based on the normal capacity of the production facilities. This
      Statement is effective for inventory costs incurred during fiscal years
      beginning after June 15, 2005. Management does not believe the adoption of
      this
      Statement will have any immediate material impact on the Company.





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) The amendments made by Statement 152 This Statement amends FASB Statement
      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.
      This Statement also amends FASB Statement 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. This
      Statement is effective for financial statements for fiscal years beginning
      after
      June 15, 2005 with earlier application encouraged. We do not anticipate that
      the
      implementation of this standard will have a material impact on its financial
      position, results of operations or cash flows.





On
      December 16, 2004, the Financial Accounting Standards Board ("FASB") published
      Statement of Financial Accounting Standards No. 123 (Revised 2004), Share-Based
      Payment ("SFAS 123R"). SFAS 123R requires that compensation cost related to
      share-based payment transactions be recognized in the financial statements.
      Share-based payment transactions within the scope of SFAS 123R include stock
      options, restricted stock plans, performance-based awards, stock appreciation
      rights, and employee share purchase plans. The provisions of SFAS 123R are
      effective as of the first interim period that begins after June 15, 2005.
      Accordingly, the Company will implement the revised standard in the third
      quarter of fiscal year 2005. Currently, the Company accounts for its share-based
      payment transactions under the provisions of APB 25, which does not necessarily
      require the recognition of compensation cost in the financial statements.
      Management is assessing the implications of this revised standard, which may
      materially impact the Company's results of operations in the third quarter
      of
      fiscal year 2005 and thereafter.





17


On
      December 16, 2004, FASB issued Statement of Financial Accounting Standards
      No.
      153, Exchanges of Nonmonetary Assets, an amendment of APB Opinion No. 29,
      Accounting for Nonmonetary Transactions ("SFAS 153"). This statement amends
      APB
      Opinion 29 to eliminate the exception for nonmonetary exchanges of similar
      productive assets and replaces it with a general exception for exchanges of
      nonmonetary assets that do not have commercial substance. Under SFAS 153, if
      a
      nonmonetary exchange of similar productive assets meets a commercial-substance
      criterion and fair value is determinable, the transaction must be accounted
      for
      at fair value resulting in recognition of any gain or loss. SFAS 153 is
      effective for nonmonetary transactions in fiscal periods that begin after June
      15, 2005. We do not anticipate that the implementation of this standard will
      have a material impact on its financial position, results of operations or
      cash
      flows.





OFF-BALANCE
      SHEET ARRANGEMENTS.





We
      do not
      have any off-balance sheet arrangements.





ITEM
      3.
      QUANTITATIVE AND QUALITATIVE DISCLOSURES OF MARKET RISK





None





ITEM
      4.
      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 Quarterly 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.





PART
      II -
      OTHER INFORMATION





ITEM
      1.
      LEGAL PROCEEDINGS.





None.





ITEM
      1A. RISK FACTORS





In
      addition to the other information set forth in this report, you should carefully
      consider the risks and other factors set forth and discussed in our Annual
      Report on Form 10-KSB for the year ended December 31, 2005 and our initial
      registration statement on Form SB-2, which could materially affect our business,
      financial condition or future results. Our projected risks, as outlined in
      both
      our Annual Report and registration statement on Form SB-2 have not substantially
      or materially changed and are, therefore, not restated here. These risks may
      not
      the only risks facing our Company. Additional risks and uncertainties not
      currently known to us or that we currently deem to be immaterial also may
      materially adversely affect our business, financial condition and/or operating
      results.








ITEM
      2.
      UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.





None.





ITEM
      3.
      DEFAULTS UPON SENIOR SECURITIES





None.





18


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





None.





ITEM
      5.
      OTHER INFORMATION





None


ITEM
      6.
      EXHIBITS.





EXHIBIT


NUMBER  ESCRIPTION
      OF EXHIBIT





31.1   Certification
      of Chief Executive Officer 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 Chief Financial Officer 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 Chief Executive Officer, 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 Chief Financial Officer pursuant to 18 U.S.C. Sec.1350, as adopted pursuant
      to  Sec.906
      of the Sarbanes-Oxley Act of 2002.














SIGNATURES





In
      accordance with the requirements of the Exchange Act, the Registrant caused
      this
      report to be signed on its behalf by the undersigned, thereunto duly
      authorized.





PALOMAR
      ENTERPRISES, INC.


Dated:
      August 8, 2006


By /s/
      Steve Bonenberger


Steve
      Bonenberger, President, Chief


Executive
      Officer and Director





By: /s/
      Brent Fouch


Brent
      Fouch, Treasurer, Chief


Financial
      Officer and Director





19