ITEM 5.06   CHANGE IN SHELL COMPANY STATUS.

On or about January 6, 2017, as a result of completing our Share Exchange Agreement and changing the focus of our business from mining to, encryption hardware and software we were, as a matter of law, no longer a “shell company” as that term is defined in Rule 405 of the Securities Act of 1933, as amended.  Rule 405 provides that:

Shell company. The term shell company means a registrant, other than an asset-backed issuer as defined in Item 1101(b) of Regulation AB (§229.1101(b) of this chapter), that has:

 (1)  No or nominal operations; and

 (2)  Either:

      (i)    No or nominal assets;

      (ii)   Assets consisting solely of cash and cash equivalents; or

     (iii)   Assets consisting of any amount of cash and cash equivalents and nominal other assets.

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Note: For purposes of this definition, the determination of a registrant’s assets (including cash and cash equivalents) is based solely on the amount of assets that would be reflected on the registrant’s balance sheet prepared in accordance with generally accepted accounting principles on the date of that determination.

We have determined that we were no longer a shell company at January 6, 2017 based upon the fact that we have more than nominal assets, other than cash and more than nominal operations.

CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

We are including the following discussion to inform our existing and potential security holders generally of some of the risks and uncertainties that can affect our company and to take advantage of the “safe harbor” protection for forward-looking statements that applicable federal securities law affords.

From time to time, our management or persons acting on our behalf may make forward-looking statements to inform existing and potential security holders about our company. All statements other than statements of historical facts included in this report regarding our financial position, business strategy, plans and objectives of management for future operations, industry conditions, and indebtedness covenant compliance are forward-looking statements. When used in this report, forward-looking statements are generally accompanied by terms or phrases such as “estimate,” “project,” “predict,” “believe,” “expect,” “anticipate,” “target,” “plan,” “intend,” “seek,” “goal,” “will,” “should,” “may” or other words and similar expressions that convey the uncertainty of future events or outcomes. Items contemplating or making assumptions about, actual or potential future sales, market size, collaborations, and trends or operating results also constitute such forward-looking statements.

Forward-looking statements involve inherent risks and uncertainties, and important factors (many of which are beyond our company’s control) that could cause actual results to differ materially from those set forth in the forward-looking statements, including the following: general economic or industry conditions, nationally and/or in the communities in which our company conducts business, changes in the interest rate environment, legislation or regulatory requirements, conditions of the securities markets, our ability to raise capital, changes in accounting principles, policies or guidelines, financial or political instability, acts of war or terrorism, other economic, competitive, governmental, regulatory and technical factors affecting our company’s operations, products, services and prices.

We have based these forward-looking statements on our current expectations and assumptions about future events. While our management considers these expectations and assumptions to be reasonable, they are inherently subject to significant business, economic, competitive, regulatory and other risks, contingencies and uncertainties, most of which are difficult to predict and many of which are beyond our control. Accordingly, results actually achieved may differ materially from expected results in these statements. Forward-looking statements speak only as of the date they are made. You should consider carefully the Risk Factors and other sections of this report, which describe factors that could cause our actual results to differ from those set forth in the forward-looking statements. We do not undertake, and specifically disclaim, any obligation to update any forward-looking statements to reflect events or circumstances occurring after the date of such statements.

Readers are urged not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. We assume no obligation to update any forward-looking statements in order to reflect any event or circumstance that may arise after the date of this report, other than as may be required by applicable law or regulation. Readers are urged to carefully review and consider the various disclosures made by us in our reports filed with the United States Securities and Exchange Commission (the “SEC”) which attempt to advise interested parties of the risks and factors that may affect our business, financial condition, results of operation and cash flows. If one or more of these risks or uncertainties materialize, or if the underlying assumptions prove incorrect, our actual results may vary materially from those expected or projected.

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GLOSSARY OF ENCRYPTION HARDWARE AND SOFTWARE TERMS

STATIC ENCRYPTION – (current 128 bit encryption) is like putting all of your data into one big “safe”. Once the encryption sequence is “hacked”, ALL data that is protected by that sequence key is deciphered and stolen by the hacker.  Added protection involves changing the key on static single key encryption, however, this change causes a large amount of overhead and slows the transmission time down significantly.

DYNAMIC ENCRYPTION – (InterLok’s patented encryption) incorporates a unique encryption sequence that changes continuously so there is never a correlation between data sent and data received.  This creates minimal impact in time or complexity to the encryption/decryption execution process, keeping things moving at an efficient pace.

SESSION HIJACKING - An attack designed to gain unauthorized access to information or services, typically by monitoring network traffic and capturing the cookie used for remote authentication.

MAN-IN-THE-MIDDLE (MITM) ATTACK - An attack in which an attacker is able to read, insert and modify at will messages between two parties without either party knowing that the link between them has been compromised.

PHARMING - An attempt to redirect a web site’s traffic to a bogus web site, either by changing the hosts file on the victim’s computer or by exploiting vulnerabilities in DNS server software. Victims can enter a legitimate URL and be redirected to a fake site, then be subject to ID theft.

ARP SPOOFING - A technique used to send fake ARP messages to confuse network switches as to the true identity of a computer or other network component. As a result, messages intended for one machine can be mistakenly sent to another machine allowing packets to be sniffed for passwords and other sensitive information.

BRUTE FORCE (DICTIONARY) ATTACK - An attack that consists of systematically enumerating all possible candidates for a solution to the secret attempting to compromise restricted information. Brute-force attacks benefit from the increase in processing power.  In a brute force attack, automated software is used to generate a large number of consecutive guesses as to the value of the desired data. Brute force attacks may be used by criminals to crack encrypted data, or by security analysts to test an organization's network security.

PHYSICAL THEFT OF ENCRYPTION KEYS - The loss of a set of user keys through the theft of a laptop, USB drive or hard drive.

JAILBREAKING – The removing of software restrictions imposed by iOS, Apple’s operating system, on devices running it through the use of software exploits; devices include the iPhone, iPod touch, iPad, and the AppleTV 2 and 4.  Jailbreaking permits root access to the iOS file system and manager, allowing the download of additional applications, extensions, and themes that are unavailable through the official Apple App Store.

BUSINESS DESCRIPTION

Ironclad Encryption Corporation, formerly known as Butte Highlands Mining Company (hereinafter “Ironclad” 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 Highland’s (Only Chance) Mine, south of Butte, Montana. 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. As well, we change our name to Ironclad Encryption Corporation to represent our new business focus, and moved the company from Delaware to Nevada.

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.

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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 today’s 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. InterLok’s 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.

COMPETITION AND COMPETITIVE ADVANTAGE

InterLok expects to see growth in competitive products offered from leading Cloud Storage Providers, IT network managers, and security software vendors who want to license InterLok’s method of encryption. Most of these companies currently offer some type of encryption as a standard option or feature. InterLok anticipates that many of these same companies will become licensees and offer the InterLok solution to keep unauthorized users and hackers out. We expect Original Equipment Manufacturer (OEM) customers to integrate our technology into their existing and future product lines.

InterLok enjoys a competitive advantage in that its technology does not directly displace existing products available in the market today: it enhances and adds new capabilities resulting in stronger, more effective data security.  InterLok will achieve its goals and objectives through product development and marketing of applications leveraging its proprietary U.S. patent:

• U.S. Patent No. 6,466,780 entitled "Method and Apparatus for Securing Digital Communications"

MARKET FOR ENCRYPTION HARDWARE AND SOFTWARE

Concern for information security is at an all-time high as reports of major corporate and governmental breaches continue to show up in news reports on a regular basis. At the State and Federal levels, laws have been passed mandating higher levels of privacy for data storage and notification of breaches of that privacy. While many look for a solution, Cybercrime continues to grow an alarming rate. Hackers from all over the world continue to attack our most sensitive records putting businesses and the government at a very high risk. As a result, growth in the total worldwide IT security market will continue to expand with much effort targeted toward encryption technology solutions. This market is very large and is driven by corporate governance and business realities to protect both corporate information as well as the individual’s private information.

MARKET DRIVERS

Concern for information security is at an all-time high as reports of corporate and governmental breaches continue to be in the news daily. The result of these breaches is new laws and regulations enacted globally. Several new State and Federal laws are in the process of being passed mandating higher levels of privacy for data storage and notification for breaches of privacy.  Many foreign governments also have their own information security laws. These laws typically require that data must be accurate, secure, and used only with respect for the rights of companies and individuals.

Companies conducting business with overseas clients or partners will be required to comply with complex laws regarding privacy.  Expanding legal requirements for personal information security means increased financial exposure.  Company executives, who have delegated data security responsibilities, must begin taking a more active role in information security.  It currently costs a breached company almost $200 for each record stolen.

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REVENUE GENERATION

InterLok will also generate royalty revenue by securing license agreements with leading vendors in each technology segment. The unit volume and dollar value of these license agreements can only be estimated in comparison to other similar products; these projections will be confirmed when the products are presented to potential customers during the initial start-up phase. InterLok branded software and security solutions are expected to be launched later in the first year of operation making significant contributions to revenue.

GOVERNMENTAL REGULATION

The Federal Information Processing Standard (FIPS) Publication 140-2, (FIPS PUB 140-2), is a U.S. government computer security standard used to accredit cryptographic modules. The title is Security Requirements for Cryptographic Modules.

COMPANY’S OFFICE

Our offices are located at 777 S. Post Oak Lane Suite 1700 Houston, Texas 77056

EMPLOYEES

We currently have two full-time employees and three part-time employees.

RISK FACTORS

We lack an operating history, have never had more than nominal revenues, have no current prospects for significant future revenues, and have losses which we expect to continue into the future. As a result, we may have to suspend or cease operations.

We were incorporated on May 1929 for the purpose of mining.  On January 6, 2017, we completed an exchange of restricted shares of our common stock for all of the ownership interests of InterLok Key Management, Inc. a Texas corporation and changed our business focus from mining to patented encryption technology.  We have no operating history upon which an evaluation of our future success or failure can be made. Losses are a result of the issuance of stock and, incorporation, legal and accounting. We have never had revenues and we do not have any current prospects for future revenues. Our ability to achieve and maintain profitability and positive cash flow is dependent upon:

*

our ability sell encrypted software and hardware

*

our ability to generate revenues from the sale of encrypted software and hardware

*

our ability to reduce development costs.

Based upon current plans, we expect to incur operating losses in future periods. This will happen because there are expenses associated with the research and development of encryption applications. As a result, we may not generate revenues in the future. Failure to generate revenues could cause us to suspend or cease operations.

Because we are small and do not have much capital, we may have to limit our development activity which may result in a loss of your investment.

Because we are small and do not have much capital, we must limit our development activity. As such we may not be able to complete a software and hardware program that is as thorough as we would like. Therefore, we have not considered and will not consider any activity beyond our current patented technology.

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Because our Chief Technology Officer has other outside business activities he will only be devoting 30% of his time or approximately twelve hours per week to our operations .

Risks associated with the Company:

Because our officers and directors will own more than 50% of the outstanding shares they will control the company and will be able to decide who will be directors.  As a result you may not be able to elect any directors .

Total shares following the merger:  59,637,780

Need for substantial additional capital.

We are in need of substantial additional capital, without which our ability to continue as a going concern will be jeopardized. In order to fund our ongoing, day-to-day operations, we will continue to require significant amounts of additional capital, and the failure to obtain such additional capital will materially adversely affect our operations. In order to fully implement our plan of operation, it will be necessary to raise at least an additional $1,250,000.  There is no assurance that we will be successful in raising additional capital. If we raise additional capital through the sale of common stock, you could experience dilution. If we are unsuccessful in raising such additional capital, you could lose your entire investment.

FINRA sales practice requirements may limit a stockholder’s ability to buy and sell our stock.

The Financial Industry Regulation Authority (FINRA) has adopted rules that apply to broker/dealers in recommending an investment to a customer. The broker/dealers must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative, low-priced securities to their non-institutional customers, broker/dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative, low-priced securities will not be suitable for at least some customers. The FINRA requirements make it more difficult for broker/dealers to recommend our common stock to their customers, which may have the effect of reducing the level of trading activity and liquidity of our common stock. Further, many brokers charge higher transactional fees for penny stock transactions. As a result, fewer broker/dealers may be willing to make a market in our common stock, reducing our stockholder’s ability to resell shares of our common stock.

Our future sales of our common shares could cause our stock price to decline.

There is no restriction on our ability to issue additional shares. We cannot predict the effect, if any, that market sales of our common shares or the availability of shares for sale will have on the market price prevailing from time to time. Sales by us of our common shares in the public market, or the perception that our sales may occur, could cause the trading price of our stock to decrease or to be lower than it might be in the absence of those sales or perceptions.

The market price of our common stock may be volatile.

The trading price of our common stock may be highly volatile and could be subject to wide fluctuations in response to various factors. Some of the factors that may cause the market price of our common stock to fluctuate include:

*

fluctuations in our quarterly financial results or the quarterly financial results of companies perceived to be similar to us;

*

changes in estimates of our financial results or recommendations by securities analysts;

*

failure of any of our products to achieve or maintain market acceptance;

*

changes in market valuations of similar companies;

*

significant products, contracts, acquisitions or strategic alliances of our competitors;

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*

Success of competing products or services;

*

changes in our capital structure, such as future issuances of securities or the incurrence of additional debt;

*

regulatory developments;

*

litigation involving our company, our general industry or both;

*

additions or departures of key personnel;

*

investors’ general perception of us; and

*

changes in general economic, industry and market conditions.

MANAGEMENT’S DISCUSSION/ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-looking Statements

This Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) contains forward-looking statements that involve known and unknown risks, significant uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed, or implied, by those forward-looking statements.  You can identify forward-looking statements by the use of the words may, will, should, could, expects, plans, anticipates, believes, estimates, predicts, intends, potential, proposed, or continue or the negative of those terms.  These statements are only predictions. In evaluating these statements, you should consider various factors which may cause our actual results to differ materially from any forward-looking statements.  Although we believe that the exceptions reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements.  Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements.  We undertake no obligation to revise or update publicly any forward-looking statements for any reason.

The following review of operations are for the years ending December 31, 2015 and December 31, 2014 and the nine month periods ending September 30, 2016 and September 30, 2015 and should be read in conjunction with our Condensed Consolidated Financial Statements and the Notes included in this Form 8-K and with the Consolidated Financial Statements, Notes and Management’s Discussion.

Discussion of Operation Ironclad Encryption Corporation, formerly (Butte Highlands Mining Company, Inc.)

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Year ended December 31, 2016 compared to the year ended December 31, 2015.

Result of Operations

During the year ended December 31, 2016, the Company had a net loss of $39,733 compared to a net loss of $32,750 during the year ended December 31, 2015.  This represents an increase in net loss in the amount of $6,983 over the year ended December 31, 2015. The increase in loss for these periods is due to increased professional fees and general and administrative expenses.

Total operating expenses increased to $39,733 during the year ended December 31, 2016 from $32,741 for the year ended December 31, 2015.  This increase in loss is due primarily to increased professional fees for services provided during the year ending December 31, 2016.

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Liquidity and Capital Resources

The Company’s working capital at December 31, 2016 was $58,870 compared to working capital of $98,603 at December 31, 2015. Working capital decreased primarily due to continuing operating expenses with no income and additional professional fees incurred in connection with the Share Exchange Agreement with InterLok.

Net cash used in operating activities was $42,694 during the year ended December 31, 2016 compared with $28,534 during the year ended December 31, 2015.

Cash flow from investing activities was $0 during the year ended December 31, 2016 compared to $0 during the year ended December 31, 2015.

Cash flow from financing activities was $0 during the year ended December 31, 2016 compared with $0 during the year ended December 31, 2015.

On January 6, 2017 we acquired 100% of the issued and outstanding common stock of InterLok in consideration for which we issued 56,655,891 restricted shares of our Class A Common Stock.  

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Critical Accounting Policies and Estimates

In the notes to the audited financial statements for the year ended December 31, 2016 included in the Company’s Form 10-K, the Company discussed those accounting policies that are considered to be significant in determining the results of operations and our financial position. We believe that the accounting principles utilized by us conform to accounting principles generally accepted in the United States of America.

The preparation of financial statements requires management to make significant estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. By their nature, these judgments are subject to an inherent degree of uncertainty. On an on-going basis, we evaluate our estimates, such as those related to bad debts, inventories, intangible assets, warranty obligations, product liability, revenue, and income taxes. We base our estimates on historical experience and other facts and circumstances that are believed to be reasonable, and the results form the basis for making judgments about the carrying value of assets and liabilities. The actual results may differ from these estimates under different assumptions or conditions.

Discussion of Operations (InterLok Key Management, Inc.)  

Software and Hardware Revenues

For the year ending December 31, 2015 encryption software and hardware revenues were $0.00 compared to $0.00 for the year ending December 31, 2016.

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Intangible assets with definite lives are subject to amortization. At December 31, 2016 and 2015 and such intangible assets consist of a purchased patent which is being amortized on a straight-line basis over the patent life of 20 years.  The patent 6,466,780 was initially granted on October 15, 2002. Intangible assets with definite lives are tested for impairment whenever events or changes in circumstances indicate the carrying value may not be recoverable. These conditions may include an economic downturn, regulations, or a change in the assessment of future operations.

General and Administrative Expenses

For the year ending December 31, 2016 general and administrative expenses increased to $69,868 compared to $12,160 for the year ending December 31,  2015  The increase was due to legal and accounting expenses incurred to prepare for our merger with a public company.

Depreciation and Amortization

For the year ending December 31, 2016, depreciation and amortization expense was $30 compared to $30 for the year ending December 31, 2015.

Net Income (Loss)

For the year ending December 31, 2015 our net loss was $12,190   compared to a net loss of $145,615 for the year ending December 31, 2016. The 2016 increase was legal and accounting expenses incurred to prepare for our merger with a public company.

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FINANCIAL SUMMARY OF SUCCESSOR COMPANY

Financial Condition, Liquidity and Capital Resources

The Company estimates that the annual costs associated with being a reporting public company will be approximately $40,000. This amount is comprised of accounting fees of approximately $25,000 and legal fees of $15,000.  In addition the Company anticipates that it will incur substantial operating and marketing expenses. It will be necessary for the Company to raise additional capital to continue its business activities in the next twelve months.

In addition to software and hardware prices, researching and developing sufficient amounts of products at economical costs are critical to our long-term success. For 2017, we expect to spend approximately $1 to $2 million in capital for research and development, using proceeds from the sale of our stock to supplement our cash flows from operations in order to fund our capital and development expenditures. We believe our existing cash on hand, operating cash flows and proceeds from the sale of stock may not be sufficient to fund our capital and development spending in the current year. We will continue to assess the software and hardware environment along with our liquidity position and may increase or decrease our capital and development expenditures accordingly.

Our 2017 strategy is to raise capital to complete research and development. While we may consider acquisitions from time to time, we intend to remain focused on pursuing research and development.  

Additionally, we intend to maintain spending discipline and manage our balance sheet in an effort to ensure sufficient liquidity, including cash resources and available credit. For 2017, we have allocated our planned program for capital and research and development expenditures primarily to the encryption cyber security market. We believe these strategies are appropriate for our portfolio of patents. Software and hardware pricing environments and will continue to add shareholder value over the long-term.

This discussion should be read in conjunction with other discussions included in this document and with prior year’s financial statements. Some of the statements are “Forward Looking Statements” and are thus prospective. As discussed, these forward-looking statements are subject to risks, uncertainties and other factors that could cause results to differ materially for the results expressed or implied by such statements.

Critical Accounting Policies and Estimates

The preparation of financial statements requires management to make significant estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. By their nature, these judgments are subject to an inherent degree of uncertainty. On an on-going basis, we evaluate our estimates, such as those related to bad debts, inventories, intangible assets, warranty obligations, product liability, revenue, and income taxes. We base our estimates on historical experience and other facts and circumstances that are believed to be reasonable, and the results form the basis for making judgments about the carrying value of assets and liabilities. The actual results may differ from these estimates under different assumptions or conditions.  

DESCRIPTION OF PROPERTY

The company maintains office space at:  777 S. Post Oak, Suite 1700, Houston, Texas 77056.

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table shows the beneficial ownership of our Common Stock as of January 6, 2017 held by (i) each person known to us to be the beneficial owner of more than five percent of our Common Stock; (ii) each director and director nominee; (iii) each executive officer; and (iv) all directors, director nominees and executive officers as a group. Beneficial ownership is determined in accordance with the rules of the SEC, and generally includes voting power and/or investment power with respect to the securities held. Shares of Common Stock subject to options and warrants currently exercisable or which may become exercisable within 60 days of December 30, 2016 are deemed outstanding and beneficially owned by the person holding such options or warrants for purposes of computing the number of shares and percentage beneficially owned by such person, but are not deemed outstanding for purposes of computing the percentage beneficially owned by any other person. Except as indicated in the footnotes to this table, the persons or entities named have sole voting and investment power with respect to all shares of our Common Stock shown as beneficially owned by them. The following table assumes 59,637,780 shares are outstanding as of January 6, 2017, consisting of 58,098,908 shares of Class A Common Stock and 1,538,872 shares of Class B Common Stock. Class A Common Stock following the completion of the share exchange pursuant to the terms of the Share Exchange Agreement.

The following table sets forth, as of the date of the date in the change of the majority of directors (as set forth on page 3 herein), the total number of shares owned beneficially by each of our directors, officers and key employees, individually and as a group, and the present owners of 5% or more of our total outstanding shares immediately after the Share Exchange with owners of InterLok Key Management, Inc. The stockholders listed below have direct ownership of his shares and possess voting and dispositive power with respect to the shares.  Immediately after the Share Exchange, there were 59,637,780 shares of common stock outstanding.

(1)

The address for each officer/director is our address at 777 S. Post Oak, Suite 1700 Houston, Texas 77056.

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Future sales by existing stockholders

Currently, Rule 144 of the Securities Act of 1933, as amended, (the “Act”) is unavailable for the resale of our shares of common stock because we are categorized as a “shell company” as that term is defined in Reg. 405 of the Act.  A “shell company” is a corporation with no or nominal assets or its assets consist solely of cash, and no or nominal operations.  One year from the date that we file this Form 8-K, Rule 144 will then be available for the resale of our restricted securities.

Related Party Transaction

In a related agreement, on June 20, 2016 Paul Hatfield entered into a Stock Purchase Agreement with JD McGraw, of Houston, Texas.  Mr. McGraw was instrumental in negotiating the LOI. Pursuant to the terms of the Stock Purchase Agreement, Mr. McGraw, or his assigns, have been granted the right to purchase from Mr. Hatfield a maximum of Five-Hundred Thousand (500,000) Shares at a price of $0.15 per share. The Stock Purchase Agreement is effective for a period of twenty-four (24) months commencing upon the closing of the transaction contemplated by the LOI.

DIRECTORS AND EXECUTIVE OFFICERS

Our directors serve until their successors are elected and qualified. Our officers are elected by the board of directors to a term of one (1) year and serves until their successor is duly elected and qualified, or until they are removed from office. The Board of Directors has no nominating, auditing or compensation committees.

The names, ages and positions of our officers and directors are set forth below:  

*In compliance with rule 14f-1 of the Securities Exchange Act of 1934, these directors will not assume their positions as previously disclosed in 5.02 of this document.

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Background of Officers and Directors

Involvement in Certain Legal Proceedings

During the past ten years Barrett, McGraw, Lipsker, Lerner, Dinhoble, Yanez, and Walker have not been the subject of the following events:

1.

A petition under the Federal bankruptcy laws or any state insolvency law was filed by or against, or a receiver, fiscal agent or similar officer was appointed by a court for the business or property of such person, or any partnership in which he was a general partner at or within two years before the time of such filing, or any corporation or business association of which he was an executive officer at or within two years before the time of such filing;

2.

Convicted in a criminal proceeding or is a named subject of a pending criminal proceeding (excluding traffic violations and other minor offenses);

3.

The subject of any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining him from, or otherwise limiting, the following activities;

i)

Acting as a futures commission merchant, introducing broker, commodity trading advisor, commodity pool operator,  floor broker, leverage transaction merchant, any other person regulated by the Commodity Futures Trading Commission, or an associated person of any of the foregoing, or as an investment adviser, underwriter, broker or dealer in securities, or as an affiliated person, director or employee of any investment company, bank, savings and loan association or insurance company, or engaging in or continuing any conduct or practice in connection with such activity;

ii)

Engaging in any type of business practice; or

iii)

Engaging in any activity in connection with the purchase or sale of any security or commodity or in connection with any violation of Federal or State securities laws or Federal commodities laws;

4.

The subject of any order, judgment or decree, not subsequently reversed, suspended or vacated, of any Federal or State authority barring, suspending or otherwise limiting for more than 60 days the right of such person to engage in any activity described in paragraph 3.i in the preceding paragraph or to be associated with persons engaged in any such activity;

5.

Was found by a court of competent jurisdiction in a civil action or by the Commission to have violated any Federal or State securities law, and the judgment in such civil action or finding by the Commission has not been subsequently reversed, suspended, or vacated;

6.

Was found by a court of competent jurisdiction in a civil action or by the Commodity Futures Trading Commission to have violated any Federal commodities law, and the judgment in such civil action or finding by the Commodity Futures Trading Commission has not been subsequently reversed, suspended or vacated;

7.

Was the subject of, or a party to, any Federal or State judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of:

i)

Any Federal or State securities or commodities law or regulation; or

ii)

Any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order, or

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iii)

Any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or

8.

Was the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act (15 U.S.C. 78c(a)(26))), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act (7 U.S.C. 1(a)(29))), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.

Audit Committee and Charter

We do not have a separately-designated audit committee of the board. Audit committee functions are performed by our Board of Directors. Gregory B. Lipsker is our only director deemed independent. Directors JD McGraw and Jeff Barrett also hold positions as our executive officers. Our audit committee is responsible for: (1) selection and oversight of our independent accountant; (2) establishing procedures for the receipt, retention and treatment of complaints regarding accounting, internal controls and auditing matters; (3) establishing procedures for the confidential, anonymous submission by our employees of concerns regarding accounting and auditing matters; (4) engaging outside advisors; and, (5) funding for the outside auditory and any outside advisors engagement by the audit committee.

Code of Ethics

We have adopted a corporate code of ethics. We believe our code of ethics is reasonably designed to deter wrongdoing and promote honest and ethical conduct; provide full, fair, accurate, timely and understandable disclosure in public reports; comply with applicable laws; ensure prompt internal reporting of code violations; and provide accountability for adherence to the code. A copy of the code of ethics was filed as an Exhibit to our Annual Report on Form 10-K for the fiscal year ended December 31, 2008 as filed with the Securities and Exchange Commission on April 4, 2009.

Disclosure Committee and Charter

We do not have a disclosure committee charter. Our disclosure committee is comprised of all of our officers and directors. The purpose of the committee is to provide assistance to the Chief Executive Officer and the Chief Financial Officer in fulfilling their responsibilities regarding the identification and disclosure of material information about us and the accuracy, completeness and timeliness of our financial reports.

Section 16(a) Beneficial Ownership Compliance