UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB/A
Amendment No. 1
(Mark One)
/ X / QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2002
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934.
For the transition period from ________ to ________.
Commission file number 0-26059
CIRTRAN CORPORATION
-------------------
(Exact name of registrant as specified in its charter)
Nevada 68-0121636
---------------------------- -----------
(State or other jurisdiction of (I.R.S. Employer Identification No)
incorporation or organization)
4125 South 6000 West
West Valley City, Utah 84128
---------------------- ------
Address of Principal Executive Offices) (Zip Code)
(801) 963-5112
(Registrant's telephone number)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the proceeding 12 months and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No
--- ----
The number of shares outstanding of the registrant's common stock as of
May 20, 2002: 212,272,191.
Transitional Small Business Disclosure Format (check one): Yes NO X
---- -----
Table of Contents
Page
PART I - FINANCIAL INFORMATION
Item 1 Condensed Consolidated Financial Statements
Balance Sheets as of March 31, 2002 (unaudited) and 3
December 31, 2000
Statements of Operations for the Three Months ended 4
March 31, 2002 (unaudited) and 2001 (unaudited)
Statements of Cash Flows for the Three Months ended 5
March 31, 2002 (unaudited) and 2001 (unaudited)
Notes to Condensed Consolidated Financial Statements 6
(unaudited)
Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operation 9
PART II - OTHER INFORMATION
Item 1 Legal Proceedings 14
Item 2 Changes in Securities 14
Item 5 Other Information 15
Item 6 Exhibits and Reports on Form 8-K 15
Signatures 16
PART I. FINANCIAL INFORMATION
CIRTRAN CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
March 31, December 31,
-------------------- -------------------
2002 2001
-------------------- -------------------
ASSETS
Current assets
Cash and cash equivalents $ 500 $ 499
Trade accounts receivable, net of allowance for doubtful accounts
accounts of $66,178 at March 31, 2002 and $66,316 at
December 31, 2001 663,861 369,250
Inventories 1,956,496 1,773,888
Other 93,626 97,037
-------------------- -------------------
Total current assets 2,714,483 2,240,674
Property and equipment, at cost, net 1,202,944 1,333,925
Other assets, net 10,887 10,887
-------------------- -------------------
Total Assets $ 3,928,314 $ 3,585,486
==================== ===================
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities
Checks written in excess of cash in bank $ 149,677 $ 159,964
Accounts payable 1,709,795 2,141,290
Accrued liabilities 3,090,199 3,071,191
Notes payable to stockholders - 1,390,125
Current maturities of capital lease obligations - 41,206
Current maturities of long-term notes payable 2,425,953 3,269,157
-------------------- -------------------
Total current liabilities 7,375,624 10,072,933
-------------------- -------------------
Long-Term Liabilities
Long-term notes payable, less current maturities 436,734 447,155
Capital lease obligations, less current maturities - 7,775
-------------------- -------------------
Total long-term liabilities 436,734 454,930
-------------------- -------------------
Commitments and Contingencies
Stockholders' Deficit
Common stock, par value $0.001; authorized 750,000,000 shares; issued and
outstanding 209,272,191 at March 31, 2002 before 3,000,000 shares held
in escrow at no cost and
160,951,005 at December 31, 2001 209,272 160,951
Additional paid-in capital 9,412,933 5,977,164
Accumulated deficit (13,506,249) (13,080,492)
-------------------- -------------------
Total Stockholders' Deficit (3,884,044) (6,942,377)
-------------------- -------------------
Total Liabilities and Stockholders' Deficit $ 3,928,314 $ 3,585,486
==================== ===================
See accompanying notes to unaudited condensed consolidated
financial statements.
CIRTRAN CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
For the Three Months Ended,
March 31,
---------------------------------------------
2002 2001
---------------------- ---------------------
Net Sales $ 641,330 $ 650,485
Cost of Sales (419,116) (545,478)
---------------------- ---------------------
Gross Profit 222,214 105,007
Selling, general and administrative expenses (520,608) (660,404)
---------------------- ---------------------
Loss From Operations (298,394) (555,397)
---------------------- ---------------------
Other income (expense)
Interest (136,880) (245,221)
Other, net 9,517 -
---------------------- ---------------------
(127,363) (245,221)
---------------------- ---------------------
Net Loss $ (425,757) $ (800,618)
====================== =====================
Basic and diluted loss per common share $ (0.00) $ (0.01)
====================== =====================
Basic and diluted weighted-average
common shares outstanding 201,077,784 156,301,005
====================== =====================
See accompanying notes to unaudited condensed consolidated
financial statements.
CIRTRAN CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Three Months Ended,
March 31,
------------------------------------------
2002 2001
------------------------------------------
Cash flows from operating activities
Net loss $ (425,757) $ (800,618)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 132,633 175,243
Settlement of litigation (25,000) -
Changes in assets and liabilities:
Trade accounts receivable (294,611) 329,082
Inventories (182,608) (27,382)
Other assets 3,411 (8,460)
Accounts payable (154,281) 137,032
Accrued liabilities 269,008 140,769
------------------------------------------
Total adjustments (251,448) 746,284
------------------------------------------
Net cash used in operating activities (677,205) (54,334)
------------------------------------------
Cash flows from investing activities
Purchase of property and equipment (1,652) (1,844)
------------------------------------------
Net cash used in investing activities (1,652) (1,844)
------------------------------------------
Cash flows from financing activities
Increase (decrease) in checks written in excess of cash in bank (10,287) 72,739
Payments on notes payable to stockholders (140,125) -
Principal payments on long-term notes payable (105,730) (27,429)
Proceeds from long-term notes payable 200,000 -
Proceeds from exercise of options to purchase common stock 235,000 -
Proceeds from issuance of common stock 500,000 -
------------------------------------------
Net cash provided by financing activities 678,858 45,310
------------------------------------------
Net increase (decrease) in cash and cash equivalents 1 (10,868)
Cash and cash equivalents at beginning of year 499 11,068
------------------------------------------
Cash and cash equivalents at end of year $ 500 $ 200
See accompanying notes to unaudited condensed consolidated
financial statements.
CIRTRAN CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(CONTINUED)
For the Three Months Ended,
March 31,
------------------------------------------
2002 2001
------------------------------------------
Supplemental disclosure of cash flow information
Cash paid for interest $ 44,891 $ 13,054
Noncash investing and financing activities
Notes payable issued for accounts payable $ 326,195 $ -
Common stock issued for notes payable to stockholders 1,250,000 -
Common stock issued for notes payable 1,499,090 -
Common stock issued to escrow - -
See accompanying notes to unaudited condensed consolidated
financial statements.
CIRTRAN CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Condensed Financial Statements -- The accompanying unaudited condensed
consolidated financial statements include the accounts of CirTran Corporation
and its subsidiary (the "Company"). These financial statements are condensed
and, therefore, do not include all disclosures normally required by generally
accepted accounting principles. These statements should be read in conjunction
with the Company's annual financial statements included in the Company's
December 31, 2001 Annual Report on Form 10-KSB. In particular, the Company's
significant accounting principles were presented as Note 1 to the consolidated
financial statements in that report. In the opinion of management, all
adjustments necessary for a fair presentation have been included in the
accompanying condensed consolidated financial statements and consist of only
normal recurring adjustments. The results of operations presented in the
accompanying condensed consolidated financial statements for the three months
ended March 31, 2002 are not necessarily indicative of the results that may be
expected for the full year ending December 31, 2002.
NOTE 2 - REALIZATION OF ASSETS
The accompanying condensed consolidated financial statements have been prepared
in conformity with accounting principles generally accepted in the United States
of America, which contemplate continuation of the Company as a going concern.
However, the Company sustained net losses of $425,757 and $2,933,084 for the
three months ended March 31, 2002 and the year ended December 31, 2001,
respectively. As of March 31, 2002 and December 31, 2001, the Company had an
accumulated deficit of $13,506,249 and $13,080,492, respectively and a total
stockholders' deficit of $3,884,044 and $6,942,377, respectively. In addition,
the Company used, rather than provided, cash in its operations in the amounts of
$677,205 and $288,724 for the three months ended March 31, 2002 and the year
ended December 31, 2001, respectively.
Since February of 2000, the Company has operated without a line of credit. Many
of the Company's vendors stopped credit sales of components used by the Company
to manufacture products and as a result, the Company converted certain of its
turnkey customers to customers that provide consigned components to the Company
for production. These conditions raise substantial doubt about the Company's
ability to continue as a going concern.
In view of the matters described in the preceding paragraphs, recoverability of
a major portion of the recorded asset amounts shown in the accompanying
consolidated balance sheets is dependent upon continued operations of the
Company, which in turn is dependent upon the Company's ability to meet its
financing requirements on a continuing basis, to maintain or replace present
financing, to acquire additional capital from investors, and to succeed in its
future operations. The financial statements do not include any adjustments
relating to the recoverability and classification of recorded asset amounts or
amounts and classification of liabilities that might be necessary should the
Company be unable to continue in existence.
Abacus Ventures, Inc. (Abacus) purchased the Company's line of credit from the
lender. During the quarter ended March 31, 2002, the Company has entered into an
agreement whereby the Company has exchanged common stock, issued to certain
principles of Abacus, for a portion of the debt. The Company's plans include
working with vendors to convert trade payables into long-term notes payable and
common stock and cure defaults with lenders through forbearance agreements that
the Company will
CIRTRAN CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
be able to service. The Company intends to continue to pursue this type of debt
conversion going forward with other creditors. The Company has initiated new
credit arrangements for smaller dollar amounts with certain vendors and will
pursue a new line of credit after negotiations with certain vendors are
complete. If successful, these plans may add significant equity to the Company.
There is no assurance that these transactions will occur.
NOTE 3 - RELATED PARTY TRANSACTIONS
Stockholder Notes Payable --The Company paid cash and issued stock as a
settlement of the principal amounts due on two separate notes payable to
stockholders. The balance due to stockholders at March 31, 2002 and December 31,
2001 was $0 and $1,390,125, respectively. Interest associated with amounts due
to stockholders is accrued at 10 percent, was $210,734 and $205,402 at March 31,
2002 and December 31, 2001, respectively, and is included in accrued
liabilities. These notes are due on demand.
Abacus Transactions -- During the three months ended March 31, 2002, Abacus
Ventures completed negotiations with several vendors of the Company, whereby
Abacus purchased various past due amounts for goods and services provided by
vendors, as well as capital leases. The total of these obligations was $326,195.
As a partial payment of the amount owed, the Company has agreed to pay certain
legal fees of Abacus that were incurred as part of the negotiations with the
vendors. The Company has recorded this transaction as a $326,195 non-cash
increase to the note payable owed to Abacus, pursuant to the terms of the Abacus
agreement.
Additionally, the Company entered into a bridge loan agreement with Abacus
Ventures. This agreement allows the Company to request funds from Abacus to
finance the build-up of inventory relating to specific sales. The loan bears
interest at 24% and is payable on demand. The principal balance cannot exceed
$600,000 at any point in time. During the three months ended March 31, 2002, the
Company was advanced $200,000 and made cash payments of $83,025 for an
outstanding balance on the bridge loan of $116,975. The total principal amount
owed to Abacus Ventures between the note payable and the bridge loan was
$1,349,587 as of March 31, 2002.
NOTE 4 - COMMITMENTS AND CONTINGENCIES
Delinquent Payroll Taxes -- As of March 31, 2002, the Company had accrued
liabilities in the amount of $2,129,123 for delinquent payroll taxes, including
interest estimated at $246,219 and penalties estimated at $253,001. Of this
amount, the Company owed the Internal Revenue Service ("IRS") approximately
$1,847,813, the State of Utah approximately $270,371 and the State of Colorado
approximately $10,939. The Company has negotiated payment schedules with the IRS
and the State of Utah in the amounts of $25,000 and $4,000 per month
respectively.
Settlement of Litigation - The Company settled the lawsuit that alleged a breach
of facilities sublease agreement involving facilities located in Colorado. The
Company's liability in this action was originally estimated to range up to $2.5
million. The Company subsequently filed a counter suit in the same court for an
amount exceeding $500,000 for missing equipment.
Effective January 18, 2002, the Company entered into a settlement agreement
which required the Company to pay the plaintiff the sum of $250,000, which had
previously been accrued as rent expense. The remainder, $170,000, was treated as
a reduction of rent during the year ended December 31, 2001, due to a change in
estimate of rent expense. Of this amount, $25,000 was paid upon execution of the
settlement, and the balance, together with interest at 8% per annum, is payable
by July 18, 2002. As security for payment of the balance, the Company executed
and delivered to the plaintiff a Confession of Judgment and also issued
3,000,000 shares of common stock, which are currently held in escrow and have
been treated as treasury stock recorded at a cost of $250,000. If seventy-five
percent (75%) of the balance has not been paid by May 18, 2002, the Company has
agreed to prepare and file with the Securities & Exchange Commission, at its own
expense, a registration statement with respect to the escrowed shares. If, by
July 18, 2002, the registration of the escrowed shares of the Company's common
stock is not completed and such shares are not replaced with registered,
free-trading common stock in an amount sufficient to cover the liability to
Sunborne, Sunborne may file the Confession of Judgment and proceed with
execution thereon.
Litigation - In December 1999, a vendor of the Company filed a lawsuit that
alleges breach of contract and seeks payment in the amount of approximately
$213,000 of punitive damages from the Company related to the Company's
non-payment for materials provided by the vendor. The Company denies all
substantive allegations made by the vendor and intends to vigorously contest the
case.
The Company is the defendant in numerous legal actions primarily resulting from
nonpayment of vendors for goods and services received. The Company has accrued
the payables and is currently in the process of negotiating settlements with
these vendors.
Registration Rights -In connection with the conversion of certain debt to
equity, the Company has granted the holders of 5,281,050 shares of common stock
the right to include 50% of the common stock of the holders in any registration
of common stock of the Company, under the Securities Act for offer to sell to
the public (subject to certain exceptions). The Company has also agreed to keep
any filed registration statement effective for a period of 180 days at its own
expense.
NOTE 5 - NOTES PAYABLE
During the quarter ended March 31, 2002, Abacus Ventures completed negotiations
with several vendors of the Company, whereby Abacus purchased various past due
amounts for goods and services provided by vendors, as well as capital leases.
The total of these obligations was $326,195. The Company has recorded this
transaction as a $326,195 increase to the note payable owed to Abacus, pursuant
to the terms of the Abacus agreement.
NOTE 6 - STOCKHOLDER'S EQUITY
Common Stock Issued for Cash and Debt - Effective January 14, 2002, the Company
entered into four substantially identical agreements with existing shareholders
pursuant to which the Company issued an aggregate of 43,321,186 shares of
restricted common stock at a price of $0.075 per share, the fair value of the
shares, for $500,000 in cash and the reduction of principle of $1,499,090 of
notes payable and $1,250,000 of notes payable to stockholders. No gain or loss
has been recognized on these transactions as the fair value of the stock issued
was equal to the consideration given by the shareholders
NOTE 7 - STOCK OPTIONS AND WARRANTS
Employee Grants -During March 2002, the Company granted options to purchase
5,000,000 shares of common stock to certain employees of the Company pursuant to
the 2001 Plan. These options vested on the date of grant. The related exercise
price for the options was $0.045 to $0.05 per share, the fair value of the
Company's common stock on the date of grant. The options are exercisable through
September 2006.
CIRTRAN CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The employees exercised all 5,000,000 options for $235,000 cash during the first
quarter. There were no employee options outstanding at March 31, 2002.
NOTE 8 -SEGMENT INFORMATION
Segment information has been prepared in accordance with SFAS No. 131,
"Disclosure About Segments of an Enterprise and Related Information." The
Company has two reportable segments; electronics assembly and Ethernet
technology. The electronics assembly segment manufactures and assembles circuit
boards and electronic component cables. The Ethernet technology segment designs
and manufactures Ethernet cards. The accounting policies of the segments are
consistent with those described in the summary of significant accounting
policies. The Company evaluates performance of each segment based on earnings or
loss from operations. Selected segment information is as follows:
March 31, 2002 Assembly Technology Total
-------------- ------------- ----------- -----------
Sales to external customers $ 338,358 $ 302,972 $ 641,330
Intersegment sales 154,246 __ 154,246
Segment loss (566,701) (13,302) (580,003)
Segment assets 3,270,995 628,091 3,899,086
Depreciation and amortization 127,396 5,236 132,632
March 31, 2001
Sales to external customers $ 381,534 $ 268,951 $ 650,485
Intersegment sales 177,749 -- 177,749
Segment loss (844,005) (134,362) (978,367)
Segment assets 3,581,888 511,986 4,093,874
Sales 2002 2001
----- ------------- -------------
Total sales for reportable segments $ 795,576 $ 828,234
Elimination of intersegment sales (154,246) (177,749)
------------- -------------
Consolidated net sales $ 641,330 $ 650,485
============= =============
Net Loss
Net loss for reportable segments (580,003) (978,367)
Elimination of intersegment losses $ 154,246 $ 177,749
------------- -------------
$ (425,757) $ (800,618)
============= =============
Total Assets March 31, December 31,
2002 2001
------------- -------------
Total assets for reportable segments $ 3,899,086 $ 3,296,098
Adjustment for intersegment amounts 29,228 289,388
------------- -------------
Consolidated total assets $ 3,928,314 $ 3,585,486
============= =============
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Overview
We provide a mixture of high and medium size volume turnkey
manufacturing services using surface mount technology, ball-grid array assembly,
pin-through-hole and custom injection molded cabling for leading electronics
OEMs in the communications, networking, peripherals, gaming, consumer products,
telecommunications, automotive, medical, and semiconductor industries. Our
services include pre-manufacturing, manufacturing and post-manufacturing
services. Through our subsidiary, Racore Technology Corporation, we design and
manufacture Ethernet technology products. Our goal is to offer customers the
significant competitive advantages that can be obtained from manufacture
outsourcing, such as access to advanced manufacturing technologies, shortened
product time-to-market, reduced cost of production, more effective asset
utilization, improved inventory management, and increased purchasing power.
Critical Accounting Policies
We considered the disclosure requirements of Financial Reporting Release No. 60
regarding critical accounting policies and Financial Reporting Release No. 61
regarding liquidity and capital resources, certain trading activities and
related party/certain other disclosures, and concluded that nothing materially
changed during the quarter that would warrant further disclosure beyond those
matters previously disclosed in our Annual Report on Form 10-KSB/A for the year
ended December 31, 2001.
Results of Operations
Sales and Cost of Sales
Net sales decreased marginally to $641,330 for the three-month period ended
March 31,2002 as compared to $650,485 during the same period in 2001. This
increase continues an upward trend started in the fourth quarter of 2001, from
lower quarterly sales figures of $420,480 and $279,055 during the second and
third quarters of 2001, respectively. Cost of sales decreased by 23%, from
$545,478 during the three-month period ended March 31, 2001 to $419,116 during
the same period in 2002. Our gross profit margin for the three-month period
ended March 31, 2002 was 34.6%, up from 16.1% for same period in 2001. We
believe this improvement is a reflection of our efforts to solicit higher margin
business and improve inventory control procedures.
Selling, General and Administrative Expenses
During the three-month period ended March 31, 2002 selling, general and
administrative expenses were $520,608, as compared to $660,404 during the same
period in 2001, representing a 21.2% decrease. This decrease was primarily
attributable to an almost 50% reduction in the size of our workforce.
Interest Expense
Interest expense for the three months ended March 31, 2002 was $136,880,
compared to $245,221 during the same period in 2001. This represents a decrease
of $108,341 and is primarily attributable to a decrease in delinquent payroll
tax penalties, which were previously recorded as part of interest expense, and
to the conversion of certain notes payable and stockholder notes payable in
January of 2002 into restricted shares of our common stock. As of March 31,
2002, we had accrued liabilities in the amount of $2,129,123 for delinquent
payroll taxes, including interest estimated at $246,219 and penalties estimated
at $253,001.
As a result of the above factors, our overall net loss decreased 46.8% to
$425,757 for the three-month period ended March 31, 2002, from $800,618 during
the same period in 2001.
Liquidity and Capital Resources
Our expenses are currently greater than our revenues. We have had a history of
losses. Our net loss from operations for the year ending December 31, 2001 was
$2,160,262, and our net loss from operations for the three-month period ending
March 31, 2002 was $298,394. Our accumulated deficit was $13,080,492 at December
31, 2001 and $13,506,249 at March 31, 2002. Our current liabilities exceeded our
current assets by $7,832,259 as of December 31, 2001 and by $4,661,141 as of
March 31, 2002. We recorded negative cash flows from operations for the year
ended December 31, 2001 and the three-month period ended March 31, 2002 of
$288,724 and $677,205, respectively.
Cash
On March 31, 2002, we had $500 cash on hand, as compared to $499 at December 31,
2001. The amount of checks written in excess of cash in bank decreased from
$159,964 at December 31, 2001 to $149,677 at March 31, 2002.
Net cash used in operating activities was $677,205 for the quarter ended March
31, 2002, compared to $54,334 used in operations for the quarter ended March 31,
2001. This significant change was primarily attributable to an increase in trade
accounts receivable of $294,611, an increase in inventories of $182,608 and a
decrease in accounts payable of $154,281. Off-setting amounts included a
non-cash charge of $132,633 for depreciation and an increase in accrued
liabilities of $269,008.
Net cash used in investing activities during the quarters ended March 31, 2002
and 2001, consisted of equipment purchases of $1,652 and $1,844, respectively.
Net cash provided by financing activities during the three-month period ended
March 31, 2002 was $678,858. Cash proceeds as follows: $500,000 from the
issuance of restricted common stock, $235,000 from the issuance of stock upon
exercise of stock options, and $200,000 from long-term notes payable. This last
amount represents cash advanced by Abacus Ventures, Inc. and added to the amount
payable to them. See below under "Liquidity and Financing Arrangements." These
amounts were offset by $105,730 in principal payments on long-term notes
payable, $140,125 in payments on notes payable to stockholders and a $10,287
decrease in checks written in excess of cash in bank.
Noncash investing and financing activities during the period ended March 31,
2002 consisted of reclassifying $326,195 from notes payable to accounts payable
(see below under "Accounts Payable"), the cancellation of $1,250,000 in notes
payable to stockholders in exchange for issuance of restricted common stock, the
cancellation of $1,499,090 in notes payable in exchange for the issuance of
restriced common stock (see below under "Liquidity and Financing Arrangements"),
and $225,000 of common stock issued to escrow in settlement of outstanding
ligitation. See below under "Legal Proceedings."
Accounts Receivable
By March 31, 2002 accounts receivable had increased to $663,681, net of an
allowance for doubtful accounts of $66,178, from $369,250, net of an allowance
for doubtful accounts of $66,316 at December 31, 2001. This significant increase
in accounts receivable is reflective of an increase in sales during the first
three months of 2002, the bulk of which occurred toward the end of the period,
resulting in a higher-than-normal amount for accounts receivable at period-end.
Accounts Payable
Accounts payable were $1,709,795 at March 31, 2002, as compared to $2,141,290 at
December 31, 2001. This decrease is primarily attributable to payments to
vendors from $500,000 in cash provided by the issuance of restricted common
stock in January 2002 and the conversion of $326,195 of accounts payable to
notes payable to Abacus Ventures, Inc. During the quarter ended March 31, 2002,
Abacus Ventures completed negotiations with several of our vendors, whereby
Abacus purchased various past due amounts for goods and services provided by the
vendors, as well as capital leases. The total of these obligations was $326,195.
We recorded this transaction as a $326,195 increase to the note payable owed to
Abacus, pursuant to the terms of our agreement with them.
Liquidity and Financing Arrangements
We sustained losses from operations of $298,394 and $555,397 for the quarters
ended March 31, 2002 and 2001, respectively. We had accumulated deficits of
$13,080,492 and $13,506,249 at March 31, 2002 and December 31, 2001,
respectively, and total stockholders' deficits of $3,884,044 and $6,942,377,
respectively, as of such dates. As of December 31, 2001, our monthly operating
costs and interest expenses averaged approximately $205,000 per month. As of
March 31, 2002, this amount had increased to to approximately $219,000 per
month. In addition, the total amount per month that we have committed to paying
against accrued liabilities and notes payable pursuant to various settlements
for outstanding debt, litigation and delinquent payroll taxes is currently
approximately $38,000.
Since February 2000, we have operated without a line of credit. Abacus Ventures,
Inc., an entity whose shareholders include the Saliba Private Annuity Trust, one
of our major shareholders, and a related entity, the Saliba Living Trust,
purchased our line of credit of $2,792,609, and this amount was converted into a
note payable to Abacus bearing an interest rate of 10%. As of December 31, 2001,
a total of $2,405,507, plus $380,927 in accrued interest, was owed to Abacus
pursuant to this note payable. In January 2002, we entered into agreements with
the Saliba Private Annuity Trust and the Saliba Living Trust to exchange
19,987,853 shares of our common stock for $1,499,090 in principal amount of this
debt and to issue an additional 6,666,665 shares to these trusts for $500,000
cash.
In January 2002, in addition to the above-described transactions with the Saliba
trusts, we also issued 16,666,666 shares of restricted common stock at a price
of $0.075 per share in exchange for the cancellation of $1,250,000 of notes
payable to two other stockholders.
During the three months ended March 31, 2002, Abacus Ventures completed
negotiations with several of our vendors, whereby Abacus purchased various past
due amounts for goods and services provided by vendors, as well as capital
leases. The total of these obligations was $326,195. As a partial payment of the
amount owed, we agreed to pay certain legal fees of Abacus that were incurred as
part of the negotiations with the vendors. We recorded this transaction as a
$326,195 non-cash increase to the note payable owed to Abacus, pursuant to the
terms of the Abacus agreement.
Additionally, we entered into a bridge loan agreement with Abacus Ventures. This
agreement allows us to request funds from Abacus to finance the build-up of
inventory relating to specific sales. The loan bears interest at 24% and is
payable on demand. The principal balance cannot exceed $600,000 at any point in
time. During the three months ended March 31, 2002, we were advanced $200,000
and made cash payments of $83,025 for an outstanding balance on the bridge loan
of $116,975. The total principal amount owed to Abacus Ventures between the note
payable and the bridge loan was $1,349,587 as of March 31, 2002.
Despite our efforts to make our debt-load more serviceable, significant amounts
of additional cash will be needed to reduce our debt and fund our losses until
such time as we are able to become profitable. As at December 31, 2001, we were
in default of notes payable whose principal amount, not including the amount
owing to Abacus Ventures, Inc., exceeded $666,000. In addition, the principal
amount of notes that either mature in 2002 or are payable on demand exceed
$165,000. The total amount per month that we have committed to paying pursuant
to various settlements for outstanding debt, litigation and delinquent payroll
taxes is currently approximately $38,000, all of which is against accrued
liabilities and notes payable. None of these settlements, however, have resulted
in the forgiveness of any amounts owed, but have simply resulted in a
restructuring in the terms of the various debts.
In conjunction with our efforts to improve our results of operations, discussed
above, we are also actively seeking infusions of capital from investors and are
seeking to replace our line of credit. It is unlikely that we will be able, in
our current financial condition, to obtain additional debt financing; and if we
did acquire more debt, we would have to devote additional cash flow to pay the
debt and secure the debt with assets. We may therefore have to rely on equity
financing to meet our anticipated capital needs. There can be no assurances that
we will be successful in obtaining such capital. If we issue additional shares
for debt and/or equity, this will serve to dilute the value of our common stock
and existing shareholders' positions.
Subsequent to our acquisition of Circuit in July 2000, we took steps to increase
the marketability of our shares of common stock and to make an investment in our
company by potential investors more attractive. There can be no assurance,
however, that we will ultimately be successful in obtaining more debt and/or
equity financing or that our results of operations will materially improve in
either the short- or the long-term. If we fail to obtain such financing and
improve our results of operations, we will be unable to meet our obligations as
they become due. That would raise substantial doubt about our ability to
continue as a going concern.
Forward-looking statements
All statements made herein, other than statements of historical fact, which
address activities, actions, goals, prospects, or new developments that we
expect or anticipate will or may occur in the future, including such things as
expansion and growth of operations and other such matters, are forward-looking
statements. Any one or a combination of factors could materially affect our
operations and financial condition. These factors include competitive pressures,
success or failure of marketing programs, changes in pricing and availability of
parts inventory, creditor actions, and conditions in the capital markets.
Forward-looking statements made by us are based on knowledge of our business and
the environment in which we currently operate. Because of the factors listed
above, as well as other factors beyond our control, actual results may differ
from those in the forward-looking statements.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
As of December 31, 2001, we had accrued liabilities in the amount of $1,982,445
for delinquent payroll taxes, including interest estimated at $215,268 and
penalties estimated at $242,989. Of this amount, approximately $257,510 was due
the State of Utah. Concerning the amount owed the State of Utah, during the
first quarter of 2002, we negotiated a monthly payment schedule of $4,000, which
did not provide for the forgiveness of any taxes, penalties or interest.
Approximately $1,713,996 was owed to the Internal Revenue Service as of December
31, 2001. During the first quarter of 2002, we negotiated a payment schedule
with respect to this amount, pursuant to which we are currently making monthly
payments of $25,000, and we have committed to keeping current on deposits of our
federal withholding amounts. In addition to the amounts owed to the State of
Utah and the IRS, approximately $10,939 was owed to the State of Colorado as of
December 31, 2001.
We (as successor to Circuit Technology, Inc.) were a defendant in an action in
El Paso County, Colorado District Court, brought by Sunborne XII, LLC, a
Colorado limited liability company, for alleged breach of a sublease agreement
involving facilities located in Colorado. Our liability in this action was
originally estimated to range up to $2.5 million, and we subsequently filed a
counter suit in the same court against Sunborne in an amount exceeding $500,000
for missing equipment. Effective January 18, 2002, we entered into a settlement
agreement with Sunborne with respect to the above-described litigation. The
settlement agreement required us to pay Sunborne the sum of $250,000. Of this
amount, $25,000 was paid upon execution of the agreement, and the balance,
together with interest at 8% per annum, is payable by July 18, 2002. As security
for payment of the balance, we executed and delivered to Sunborne a Confession
of Judgment and also issued to Sunborne 3,000,000 shares of our common stock,
which are currently held in escrow. If seventy-five percent (75%) of the balance
has not been paid by May 18, 2002, we have agreed to prepare and file with the
Securities & Exchange Commission, at our expense, a registration statement with
respect to the shares that have been escrowed. If, by July 18, 2002, any portion
of the balance remains outstanding and a registration statement with respect to
the escrowed shares has not been declared effective, Sunborne is entitled to
file the Confession of Judgment and proceed with execution thereon. Also
pursuant to the terms of the settlement agreement, Sunborne conditionally
assigned to us any rights it may have in a claim against our sublessee of
Sunborne's premises and agreed to apportion 75% of any net settlement or
collection proceeds from this claim to us. If, by July 18, 2002, a registration
statement with respect to the escrowed shares has not been declared effective,
or if we have abandoned or failed to diligently pursue the claim against the
sub-lessee, this conditional assignment shall expire and all rights to the claim
will revert back to Sunborne.
Item 2. Changes in Securities
Recent Sales of Unregistered Securities
Effective January 14, 2002, we entered into four substantially identical
agreements with existing shareholders, one of whom is our president, pursuant to
which we issued an aggregate of 43,321,186 shares of restricted common stock at
a price of $0.075 per share for $500,000 in cash and the cancellation of
$2,749,090 principal amount of our debt. See above under "Liquidity and
Financing Arrangements." The issuance of these securities was made in reliance
on Section 4 (2) of the Securities Act of 1933 as a transaction not involving
any public offering. No advertising or general solicitation was employed in
offering the securities, the offerings and sales were made to a limited number
of persons, all of whom were business associates and existing shareholders and,
in one case, one of our executive officers, and transfer was restricted by us in
accordance with the requirements of the Securities Act. Our officers executed
all sales of the securities and received no commission or other remuneration for
the solicitation of any person in connection with the respective sales of
securities described above. The recipients of the securities represented their
intention to acquire the securities for investment only and not with a view to
or for sale in connection with any distribution thereof and appropriate legends
were affixed to the share certificates and other instruments issued in such
transaction.
Pursuant to our settlement agreement with Sunborne XII, LLC (see "Part II - Item
1 - Legal Proceedings"), on February 7, 2002, we issued 3,000,000 restricted
shares of our common stock as security for the payment of up to $225,000 to
Sunborne. These shares were placed in escrow pending performance of our
obligations pursuant to the settlement agreement. In the event we pay all
amounts owing to Sunborne under the settlement, the certificate representing the
shares will be returned to us and the shares will be cancelled. The issuance of
these securities was made in reliance on Section 4(2) of the Securities Act of
1933 as a transaction not involving any public offering. No advertising or
general solicitation was employed in offering the securities, the offering and
sale was made to one entity that is a business associate, Sunborne represented
their intention to acquire the securities for investment purposes only and not
with a view to any further distribution thereof in violation of federal
securities laws, and appropriate legends restricting transfer were affixed to
the share certificate representing the shares.
Item 5. Other Information
On February 28, 2002, we filed a Form 8-A with the United States Securities &
Exchange Commission to register our shares of common stock, par value $0.001,
pursuant to section 12(g) of the Securities & Exchange Act of 1934.
On April 11, 2002, the United States Securities & Exchange Commission accepted
for filing our application to withdraw our previously-filed registration
statement on Form SB-2, SEC File No. 333-64832, with respect to a secondary
offering of 52,978,350 shares of common stock .
Item 6. Exhibits and Reports on Form 8-K
Reports on Form 8-K: The following reports on Form 8-K were filed by us
during the three-month period ended March 31, 2002:
(i) Form 8-K filed March 14, 2002 with respect to a change in our
certifying accountant.
(ii) Form 8-K filed March 19, 2002 with respect to settlement of
outstanding litigation and corporate debt.
Exhibits:
99.1 Certification pursuant to 18 U.S.C. Section 1350
SIGNATURES
In accordance with the Exchange Act, the registrant caused this report to be
signed on its behalf by the undersigned thereunto duly authorized.
CIRTRAN CORPORATION
Date: September 30, 2002 By: /s/ Iehab J. Hawatmeh,
President
CERTIFICATION
I, Iehab J. Hawatmeh, certify that:
1. I have reviewed this quarterly report on Form 10-QSB/A of CirTran
Corporation;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this quarterly
report; and
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly
present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for, the
periods presented in this quarterly report.
September 30, 2002 /s/ IEHAB J. HAWATMEH
Iehab J. Hawatmeh, President,
Chief Financial Officer and Director