U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2001
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 33-13674-LA
CIRTRAN CORPORATION
(Exact name of small business issuer as specified in its
charter)
Nevada 68-0121636
(State or other jurisdiction of (IRS Employer Identification
incorporation or organization) No.)
4125 South 6000 West, West Valley City, Utah 84128
(Address of principal executive offices)
(801) 963-5112
(Issuer's telephone number)
Not Applicable
(Former name, address and fiscal year, if changed since last
report)
Check whether the issuer (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the
preceding 12 months (or for such shorter period that the issuer
was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [ ]
State the number of shares outstanding of each of the issuer's
classes of common equity: As of June 30, 2001 there were
10,420,067 shares of common stock outstanding.
Transitional Small Business Format: Yes [ ] No [ X ]
TABLE OF CONTENTS
Page
PART I - FINANCIAL INFORMATION
Item 1 Condensed Consolidated Financial Statements
Balance Sheets as of June 30, 2001
(unaudited) and December 31, 2000 3
Statements of Operations for the Three
Months and Six Months Ended June 30,
2001 (unaudited) and 2000 (unaudited) 4
Statements of Cash Flows for the Six
Months ended
June 30, 2001 (unaudited) and 2000
(unaudited) 5
Notes to Condensed Consolidated
Financial Statements (unaudited) 6
Item 2 Managements Discussion and Analysis of
Financial Condition and Results of
Operation 8
PART II - OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K 9
Signatures 9
2
Part I. Financial Information
CirTran Corporation and Subsidiary
CONSOLIDATED BALANCE SHEETS
ASSETS
June 30, December31,
2001 2000
(Unaudited)
CURRENT ASSETS
Cash and cash equivalents $ 378 $ 11,068
Trade accounts receivable, net of allowance
for doubtful 503,909 883,825
accounts of $101,875 in 2001 and $72,774 in 2000
Inventories 2,019,072 2,056,686
Other 102,636 94,176
Total current assets 2,625,995 3,045,755
PROPERTY AND EQUIPMENT, NET 1,638,855 1,871,076
OTHER ASSETS, NET 45,057 46,072
$ 4,309,907 $ 4,962,903
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Current maturities of long-term obligations $ 3,414,090 $ 3,414,090
Current maturities of capital lease 39,274 39,274
obligations
Checks written in excess of cash in bank 73,407 5,491
Deferred revenue 37,052 -
Accounts payable 1,358,836 1,166,057
Accrued liabilities 2,013,353 1,711,991
Notes payable to stockholders 1,020,966 1,020,966
Total current liabilities 7,955,978 7,357,869
LONG-TERM OBLIGATIONS, less current maturities 423,041 529,964
CAPITAL LEASE OBLIGATIONS, less current 12,257 14,257
maturities
COMMITMENTS - -
STOCKHOLDERS' DEFICIT
Common stock, $0.001 par value; Authorized
500,000,000 shares; issued and outstanding; 10,420 10,420
10,420,067 in 2001 and 2000
Additional paid-in capital 5,810,035 5,810,035
Accumulated deficit (9,901,824) (8,759,642)
Total stockholders' deficit (4,081,369) (2,939,187)
$ 4,309,907 $ 4,962,903
The accompanying notes are an integral part of these statements.
3
CirTran Corporation and Subsidiary
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three months ended Six months ended
March 31, June 30,
2001 2000 2001 2000
Net sales $ 650,485 $ 728,537 $ 1,070,965 $ 2,680,038
Cost of sales 460,401 1,749,105 824,176 2,511,279
Gross profit (loss) 190,084 (1,020,568) 246,789 168,759
Selling, general and
administrative expenses 645,153 583,409 1,273,249 1,439,057
Plant closure expenses 15,250 - 15,250 -
Loss from operations (470,319) (1,603,977) (1,041,710) (1,270,298)
Other income (expense)
Interest expense (110,054) (2,247) (229,572) (308,317)
Other income - 32,433 129,100 67,660
(110,054) 30,186 (100,472) (240,657)
Loss before income taxes (580,373) (1,573,791) (1,142,182) (1,510,955)
Income tax expense - - - -
NET LOSS $ (580,373) $(1,573,791) $(1,142,182) $ (1,510,955)
Net loss per common
share - basic $ (0.06) $ (0.18) $ (0.11) $ (0.17)
Net loss per common
share - diluted $ (0.06) $ (0.18) $ (0.11) $ (0.17)
Weighted-average common
and diluted common
equivalent shares outstanding
Basic 10,420,067 8,807,511 10,420,067 9,150,489
Diluted 10,420,067 8,807,511 10,420,067 9,150,489
The accompanying notes are an integral part of these statements.
4
CirTran Corporation and Subsidiary
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Six Months ended June 30,
2001 2000
Increase (decrease) in cash and cash equivalents
Cash flows from operating activities
Net loss $ (1,142,182) $ (1,510,955)
Adjustments to reconcile net loss to net
cash used in operating activities
Depreciation and amortization 234,065 336,999
Provision for loss on trade receivables 29,101 (50,520)
Reserve for inventory obsolescence - 78,000
Changes in assets and liabilities
Trade accounts receivable 350,815 51,184
Inventories 37,614 (267,528)
Other assets (7,444) -
Deferred revenue 37,052 -
Accounts payable 192,778 74,090
Accrued liabilities 297,362 377,557
Total adjustments 1,171,343 599,782
Net cash provided by (used in) operating
activities 29,161 (911,173)
Cash flows from investing activities
Purchase of property and equipment (1,844) (7,553)
Acquisition costs - (5,693)
Net cash used in investing activities (1,844) (13,246)
Cash flows from financing activities
Decrease in receivable from stockholders - 30,000
Increase (decrease) in checks written in excess
of cash in bank 67,916 (8,844)
Net change in line of credit - 27,820
Principal payments on long-term obligations (103,923) (194,902)
Principal payments on capital leases (2,000) (1,555)
Purchase of outstanding stock - (80,000)
Issuance of common stock - 1,151,600
Net cash (used in) provided by financing
activities (38,007) 924,119
Net decrease in cash and cash equivalents (10,690) (300)
Cash and cash equivalents at beginning of period 11,068 500
Cash and cash equivalents at end of period $ 378 $ 200
Supplemental disclosure of cash flow
information
Cash paid during the period for
Interest $ 35,572 $ 308,317
The accompanying notes are an integral part of these statements.
5
CirTran Corporation and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
June 30, 2001 and 2000
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements
of CirTran Corporation and Subsidiary (the Company) have been
prepared in accordance with generally accepted accounting
principles for interim financial information and with the
instructions to Form 10-QSB. Accordingly, these financial
statements do not include all of the information and footnote
disclosures required by accounting principles generally
accepted in the United States of America for complete
financial statements. These financial statements and
footnote disclosures should be read in conjunction with the
audited consolidated financial statements and notes thereto
for the year ended December 31, 2000. In the opinion of
management, the accompanying unaudited consolidated financial
statements contain all adjustments (consisting of only normal
recurring adjustments) necessary to fairly present the
Company's consolidated financial position as of June 30,
2001, its consolidated results of operations and cash flows
for the six months ended June 30, 2001 and 2000. The results
of operations for the three months and six months ended June
30, 2001 and 2000, may not be indicative of the results that
may be expected for the year ending December 31, 2001.
NOTE B - INVENTORIES
Inventories consist of the following:
June 30, December 31,
2001 2000
Raw materials $ 1,776,570 $ 1,791,520
Work-in process 187,906 169,676
Finished goods 456,904 497,798
2,421,380 2,458,994
Less reserve for obsolescence 402,308 402,308
$ 2,019,072 $ 2,056,686
6
CirTran Corporation and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
June 30, 2001 and 2000
NOTE C - MERGER AGREEMENT
Effective July 1, 2000, all of the assets and certain
liabilities of Circuit Technology Corporation (Circuit) were
acquired by CTI Systems, Inc. (CTISI), a wholly owned
subsidiary of Vermillion Ventures, Inc. (VVI). Circuit
received 10,000,000 shares of VVI common stock in the
transaction of which 800,000 shares were paid by Circuit to
Cogent Capital Corp. for services performed in facilitating
the transaction. CTISI subsequently changed its name to
CirTran Corporation.
The merger was accounted for as a reverse acquisition of
CirTran Corporation by Circuit. Although CirTran Corporation
will be the surviving legal entity, for accounting purposes
Circuit was treated as the continuing entity. The equity at
June 30, 2000 was adjusted to give affect to this reverse
acquisition.
NOTE D - LITIGATION
Circuit is a defendant in an alleged breach of a facilities
sublease agreement in Colorado. A lawsuit was filed in which
the plaintiff seeks to recover past due rent, future rent,
and other lease charges. The range of potential loss is
estimated at between $0 and $2,500,000. The wide range is
due to two rent calculation methods written in the master
lease. Under one calculation, the amount would be minimal.
Under the other calculation, the amount would represent all
future rent (reduced by rent received from future tenants).
Currently, a new tenant on a short-term lease occupies the
premises. This new tenant's lease includes rent at two times
the monthly rate of the original lease under suit. Circuit
has also filed a countersuit against the landlord for missing
equipment. The amount of the countersuit claim exceeds
$500,000.
Circuit is also the defendant in numerous legal actions
primarily resulting from nonpayment of vendors for goods and
services received. Circuit has accrued the payables and is
currently in the process of negotiating settlements with
these vendors.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION
AND RESULTS OF OPERATIONS
Overview
CirTran Corporation provides a mixture of high and medium
size volume turnkey manufacturing services using surface mount
technology (SMT), ball-grid array (BGA) assembly, pin-through-
hole (PTH) and custom injection molded cabling for leading
electronics OEMs in the communications, networking, peripherals,
gaming, consumer products, telecommunications, automotive,
medical, and semiconductor industries. CirTran provides a wide
variety of pre-manufacturing, manufacturing and post-
manufacturing services. Through its subsidiary, Racore
Technology Corporation, CirTran designs, manufactures, and
markets high performance Local Area Network products with
emphasis on Fiber Optics and 10/100 Ethernet technologies. 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.
Results of Operations
Net Sales decreased 60.0% to $1,070,965 for the six months
ended June 30, 2001 as compared to $2,680,038 for the same period
in 2000. The decrease is due to a shift in our marketing effort
to focus on small and mid-sized customers that place orders of
100 to 5,000 pieces, which produce a higher gross profit, rather
than large volume sales with low gross profit. Cost of sales for
the six-month period ended June 30, 2001, was $824,176, a 67.2%
decrease as compared to $2,511,279 incurred during the comparable
six-month period for the prior year. Such costs as a percentage
of revenue were 77.0% during 2001 as compared to 93.7% during
2000. This redirection of Cirtran's marketing effort resulted in
a gross profit of $246,789 for the six months ended June 30,
2001, as compared to a gross profit of $168,759 for the six
months ended June 30, 2000.
CirTran uses just-in-time manufacturing, which is a
production technique that minimizes work-in-process inventory and
manufacturing cycle time while enabling the Company to deliver
products to customers in the quantities and time frame required.
This manufacturing technique requires Cirtran to maintain an
inventory of component parts to meet customer orders. Inventory
at June 30, 2001, was $2,019,072 as compared to $2,056,686 at
December 31, 2000. Management believes the amount of its
inventory that may be considered obsolete or slow moving is
properly reserved and that Cirtran will be able to maintain a
gross profit of at least 20% of net sales through the remainder
of 2001 based on current prices for assembled circuit boards and
the cost of inventory.
During the six-month period ended June 30, 2001, selling,
general and administrative expenses were $1,273,249, versus
$1,439,057 for the comparable period in 2000, an 11.5% decrease.
The decrease is attributable to reductions in employees and other
cost savings measures implemented by management. Interest
expense for the six months ended June 30, 2001, was $229,572 as
compared to $308,317 for the comparable period in 2000. The
decrease in interest expense is attributable to the restructuring
during the last calendar quarter of 2000 of Citran's accounts
payable accrued in 2000 to installment obligations bearing
interest.
As a result of the above factors, the overall net loss
decreased 24.4% to $1,142,182 for the six months ended June 30,
2001, as compared to $1,510,955 for the six months ended June 30,
2000.
Liquidity and Capital Resources
Cirtran's current ratio at June 30, 2001 was 0.33:1 and at
December 31, 2000, was 0.41:1. The primary reason for the change
was the reduction of trade accounts receivable from $883,825 at
December 31, 2000, to $503,909 at June 30, 2001. Cirtran had a
working capital deficit of $5,329,983 at June 30, 2001, and has
recognized a net loss from operations through 2000 and the first
six months of 2001. These factors raise substantial doubt about
the ability of Cirtran to continue as a going concern.
8
To address this issue, CirTran plans on working with vendors
to convert approximately 72 percent of trade payables into long-
term notes and common stock and cure defaults with lenders
through forbearance agreements that the Company will be able to
service. Also, Abacus Ventures, Inc., purchased the Company's
line of credit from the lending institution and, based on certain
criteria, has indicated its willingness to exchange the debt for
common stock. If successful, these plans will add significant
equity to the Company. During the last six months of 2000,
CirTran successfully extended payment terms on $940,000 of trade
payables to monthly installment obligations with interest
accruing at the rate of 8% per annum. It settled $646,283 of
trade payables with another creditor by paying $83,000 in cash,
issuing a non-interest bearing note in the principal amount of
$166,000 due in two installments in December 2000 and March 2001
(which has been paid), issuing a promissory note in the principal
amount of $73,000 bearing interest at 6% per annum payable in 18
monthly installments, and converting the remaining $324,283 to
352,070 shares of common stock. CirTran will continue to pursue
these restructuring efforts to improve its financial condition,
but there is no assurance that management will be successful in
these efforts.
Forward-Looking Statements
The Private Securities Litigation Reform Act of 1985
provides a safe harbor for forward-looking statements made by
Cirtran, except where such statements are made in connection with
an initial public offering. All statements, other than
statements of historical fact, which address activities, actions,
goals, prospects, or new developments that Cirtran expects or
anticipates will or may occur in the future, including such
things as improvement in results of operations and other such
matters are forward-looking statements. Any one or a combination
of factors could materially affect Cirtran's 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 Cirtran are based on knowledge of its business
and the environment in which it operates as of the date of this
report. Because of the factors listed above, as well as other
factors beyond its control, actual results may differ from those
in the forward-looking statements.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
Reports on Form 8-K: None
Exhibits: None
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: August 3, 2001 By:/s/ Iehab J. Hawatmeh, President
9