802 N. Washington St.
NOTES TO THE FINANCIAL STATEMENTS
December 31, 2016
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS
Ironclad Encryption Corporation, formerly Butte Highlands Mining Company (hereinafter Butte or the Company) was incorporated in May 1929 under the laws of the State of Delaware for the purpose of exploring and mining the Butte Highlands (Only Chance) Mine, south of Butte, Montana. The Company was reorganized in October 1996 for the purpose of acquiring and developing mineral properties. As of the date of reorganization, stockholders representing approximately 76% of the outstanding capital stock could not be located. In order to obtain the quorum necessary for the special meetings, the Company obtained an order from the Superior Court of Spokane County, Washington appointing a trustee for the benefit of those stockholders which could not be located.
As of May 17, 2007 the Company had disposed of all of its historical mineral properties or claims, and reentered the development stage. On January 6, 2017, we changed the focus of our business when we acquired all of the ownership interests of InterLok Key Management, Inc., a Texas corporation engaged in the business of developing and licensing its patented key based encryption methods.
Attempts to safeguard information from unauthorized use have met with limited success. The increasing number of data thefts and security breaches, as well as new and pending legislation is driving many businesses to shift their focus and make data security a top priority.
Stronger encryption is a key component to the overall solution to this problem. InterLok was formed to develop and license a new approach that enhances the strength of todays key-based encryption methods. Through its patented Dynamic Synchronous Key Management technology, InterLok brings innovation to data encryption security. Its solutions increase the effectiveness of current encryption products. InterLoks unique design also prevents hacker attacks by providing perpetual authentication for communication sessions. As the next generation data security leader, InterLok technology addresses current market perception of encryption: cost, implementation and human interaction. As of March 28, 2017 InterLok is a wholly owned subsidiary of Ironclad Encryption Corporation.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of Butte Highlands Mining Company is presented to assist in understanding the Companys financial statements. The financial statements and notes are representations of the Companys management, which is responsible for their integrity and objectivity. These accounting policies conform to accounting principles generally accepted in the United States and have been consistently applied in the preparation of the financial statements.
Accounting Method
The Companys financial statements are prepared using the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America.
Earnings (Losses) Per Share
Basic net income/loss per share was computed by dividing the net income/loss by the weighted average number of shares outstanding during the year. The weighted average number of shares was calculated by taking the number of shares outstanding and weighting them by the amount of time they were outstanding. The Company presents EPS on a combined basis because Class B common stock has all of the rights and privileges of Class A common stock, except for voting rights. See Note 1 and 3. Additionally, if the two class method were used the EPS would be identical.
Cash Equivalents
The Company considers cash, certificates of deposit, and debt instruments with a maturity of three months or less when purchased to be cash equivalents.
Estimates
The preparation of financial statements in accordance with generally accepted accounting principles in the United States of America requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities known to exist as of the date the financial statements are published, and the reported amounts of revenues and expenses during the reporting period. Uncertainties with respect to such estimates and assumptions are inherent in the preparation of the Companys financial statements; accordingly, it is possible that the actual results could differ from these estimates and assumptions and could have a material effect on the reported amounts of the Companys financial position and results of operations.
13
IRONCLAD ENCRYPTION CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
December 31, 2016
Fair Value of Financial Instruments
The Company's financial instruments as defined by ASC 825-10-50, include cash, receivables, accounts payable and accrued expenses. All instruments are accounted for on a historical cost basis, which, due to the short maturity of these financial instruments, approximates fair value at December 31, 2016.
The standards under ASC 820 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles, and expands disclosures about fair value measurements. FASB ASC 820 establishes a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value as follows:
Level 1. Observable inputs such as quoted prices in active markets;
Level 2. Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and
Level 3. Unobservable inputs in which there is little of no market data, which require the reporting entity to develop its own assumptions.
The Company did not have any assets measured at fair value at December 31, 2016.
Going Concern
As shown in the accompanying financial statements, the Company has incurred operating losses since inception. As of December 31, 2016, the Company has no financial resources with which to achieve its objectives and obtain profitability and positive cash flows. As shown in the accompanying balance sheets and statements of operations, the Company has an accumulated deficit of $213,581 and the Company's working capital is $58,870. Achievement of the Company's objectives will be dependent upon the ability to obtain additional financing, and generate revenue from current and planned business operations, and control costs. The Company is in the development stage and has generated no operating income.
The Company plans to fund its future operations by joint venturing or obtaining additional financing from investors and/or lenders. However there is no assurance that the Company will be able to achieve these objectives, therefore substantial doubt about its ability to continue as a going concern exists. The financial statements do not include adjustments relating to the recoverability of recorded assets nor the implication of associated bankruptcy costs should the Company be unable to continue as a going concern.
Provision for Taxes
Income taxes are provided based upon the liability method of accounting pursuant to ASC 740-10-25
Income Taxes Recognition
. Under the approach, deferred income taxes are recorded to reflect the tax consequences in future years of differences between the tax basis of assets and liabilities and their financial reporting amounts at each year-end. A valuation allowance is recorded against deferred tax assets if management does not believe the Company has met the more likely than not standard imposed by ASC 740-10-25-5 to allow recognition of such an asset. See Note 5.
New Accounting Pronouncements
The Company has evaluated the authoritative guidance issued during the year ended December 31, 2016 and does not expect the adoption of these standards to have a material effect on its financial position or results of operations.
Reclassification
Certain amounts in prior period financial statements have been reclassified to conform to the presentation in the current period financial statements. The reclassification had no effect on reported net losses, total assets or total equity.
NOTE 3 COMMON STOCK
Upon formation in 1929, the Company issued 1,500,000 shares of its common stock in exchange for mineral claims. During 1937, the Companys total authorized common stock was increased to 2,500,000 under a reorganization plan.
During 1996, due to a long period of inactivity, stockholders representing approximately 76% of the outstanding common stock of the Company could not be located. The Company obtained an order from the Superior Court of Spokane County, Washington appointing a trustee for the benefit of those stockholders who cannot be located. After obtaining this order, the Company adopted a plan of reorganization. Under this plan of reorganization, the Company increased authorized common stock to 25,000,000 shares of which 23,292,907 were designated as Class A voting common stock and 1,707,093 were designated as Class B nonvoting common stock. All of the Companys locatable stockholders received share-for-share Class A voting common stock. All of the Companys unlocated stockholders received share-for-share Class B nonvoting common stock, which is held in trust for missing shareholders pending knowledge of their location.
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IRONCLAD ENCRYPTION CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
December 31, 2016
If a previously unlocated recorded owner or beneficiary of a record owner is subsequently located, they must present satisfactory evidence and presentation of a share certificate or an Affidavit of Loss with an agreement to indemnify the Company for any future damage as a result of the certificate having been sold or transferred but not lost. Upon satisfaction of these requirements, Class A voting common stock will be issued share-for-share in exchange for the Class B nonvoting common stock. The relevant shares of Class B nonvoting common stock will then be cancelled.
During the year ended December 31, 2007, the Company issued 500,000 shares of Class A common stock to two directors for $35,000 in cash, according to the Companys stock option plan.
During the years ended December 31, 2008 through December 31, 2011, the Company did not issue any shares of common stock.
During the year ended December 31, 2012, the Company increased its authorized capital to 521,707,093 shares and changed its par value to $0.001 per share, of which 500,000,000 shares are designated as Class A Common Stock, 1,707,093 shares are designated as Class B Common Stock and 20,000,000 designated as Preferred Stock. All amounts in the foregoing financials reflect this change.
During the period ending March 31, 2016 the Company identified 115,319 Class B shares that had previously been cancelled and re-issued as Class A shares. The shares have been reclassified and all affected periods have been updated to reflect this change.
NOTE 4 RELATED PARTY TRANSACTIONS
The Company utilized office facilities provided by its president. The value of the office facilities provided by the Companys president is nominal and immaterial to the financial statements, additionally the value of the services provided by the Companys president are nominal and immaterial to the financial statements.
NOTE 5 INCOME TAXES
Income taxes are provided based upon the liability method of accounting pursuant to ASC 740-10-25
Income Taxes Recognition.
Under this approach, deferred income taxes are recorded to reflect the tax consequences in future years of differences between the tax basis of assets and liabilities and their financial reporting amounts at each year-end. A valuation allowance is recorded against deferred tax assets if management does not believe the Company has met the more likely than not standard imposed by ASC 740-10-25-5.
Topic 740 in the Accounting Standards Codification (ASC 740) prescribes recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC 740 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. At December 31, 2016, the Company had taken no tax positions that would require disclosure under ASC 740.
The Company files income tax returns in the U.S. federal jurisdiction. The federal jurisdiction has a statute of limitations of three years. Federal income tax returns prior to year ending December 31, 2011 are closed.
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amount used for income tax purposes.
Significant components of the deferred tax assets at an anticipated tax rate of 35% for the periods ended December 31, 2016 and December 31, 2015 are as follows:
|
|
|
|
|
December 31, 2016
|
|
December 31, 2015
|
Net operating loss carryforwards
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215,479
|
|
175,750
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Deferred tax asset
|
75,418
|
|
61,500
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Valuation allowance for deferred asset
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(75,418)
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|
(61,500)
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Net deferred tax asset
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-
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|
-
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At December 31, 2016, the Company has net operating loss carryforwards of approximately $215,480 which will begin to expire in the year 2032. The change in the allowance account from December 31, 2015 to December 31, 2016 was $13,920.
15
IRONCLAD ENCRYPTION CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
December 31, 2016
NOTE 6 SUBSEQUENT EVENTS
On January 6, 2017, we entered into a Share Exchange Agreement with owners of InterLok Key Management, Inc., a Texas corporation wherein we agreed to issue 56,655,891 restricted shares of our common stock in exchange for 100% of the outstanding shares of InterLok Key Management, Inc. common stock. InterLok Key Management, Inc. is engaged in the business of developing and licensing its patented key based encryption methods. On January 6, 2017, we completed our Share Exchange Agreement with the owners of InterLok, and issued 56,655,891 restricted shares of our common stock to 29 persons and/or entities in exchange for all of the outstanding shares of InterLok Key Management, Inc. common stock. Immediately following completion of the share exchange agreement, the new Board changed the Company name to Ironclad Encryption Corporation, moved the Company from Delaware to Nevada, and changed the stock symbol to IRNC from BTHI.
On January 16, 2017, the Delaney Equity Group, LLC received 75,000 shares of restricted Class A Common Stock at a base value of $0.15 per share, and options to purchase 75,000 shares of Class A Common Stock at $0.75 per share over a three year period, as part of a compensation package for brokerage services.
On January 20, 2017 as previously reported on Form 3A these Ironclad Officers received the following Class A Common stock options at a purchase price of $0.15 per share that vest on January 6, 2018:
JD McGraw, President: 1,000,000 shares per year over four years, for a total of 4,000,000 shares. And, a performance based option to purchase 10,000,000 shares at $0.15 per share if the stock price reaches $15 per share.
Daniel Lerner, Chief Technology: 1,000,000 per year over three year, for a total of 3,000,000 shares.
Jeff Barrett, Vice President of Planning: 250,000 per year over four years, for a total of 1,000,000 shares.
Len Walker, General Council: 250,000 shares per year over four years, for a total of 1,000,000 shares.
On January 31, 2017, Ironclad issued a Private Placement Memorandum (PPM) to accredited investors to sell up to 9,333,334 shares of the Companys $0.001 par value restricted Class A Common Stock at a price of $0.15 per share and raise up to $1,400,000. As of March 27, 2017, 8,317,671 the shares have been sold to 31 investors. The PPM is expected to close on March 31, 2017.
On January 31, 2017, per the terms of the Share Exchange Agreement on January 6, 2017, Paul Hatfield received 250,000 shares of restricted Class A Common Stock at a base value of $0.03 per share, options to purchase 350,000 shares of Class A Common Stock at $0.15 per share over a two year period, and $25,000 in cash.
On February 1, 2017, Halliburton Investor Relations received options to purchase 100,000 shares of Class A Common Stock at $0.15 per share over a three year period, as part of a compensation package for investor relations services.
On March 13, 2017, Lisa Morgan, an Ironclad Encryption writing consultant, received options to purchase 100,000 shares of Class A Common Stock at $0.15 per share over a four year period at 25,000 shares per year, with an option period of twenty-four months.
On March 15, 2017, two convertible notes, each in the amount of $30,000 were converted to 200,000 shares of restricted Class A Common Stock at $0.15 per share. The total 400,000 shares are accounted for in the above mentioned PPM offering. As well, the two owners of the convertible notes were each granted options to purchase 250,000 shares of Class A Common Stock at a purchase price of $0.15 until August 9, 2018.
On March 21, 2017, Mendy Ouzillou, an Ironclad marketing consultant received options to purchase 20,000 shares of Class A Common Stock at $0.15 per share over a three year period.
All related financial information for the year ended December 31, 2016 for the private company, InterLok Key Management, Inc. is contained in a corresponding amended 8K dated March 29, 2017.
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