Attached files
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
(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, 2011
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 000-49654
CIRTRAN CORPORATION
(Exact name of registrant as specified in its charter)
Nevada 68-0121636
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4125 South 6000 West, West Valley City, Utah 84128
-------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
(801) 963-5112
--------------
(Registrant's telephone number, including area code)
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 preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically and
posted on its corporate Web site, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T during the
preceding 12 months (or for such shorter period that the registrant was required
to submit and post such files). Yes [ ] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] Smaller reporting company [X]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
The number of shares of the registrant's common stock outstanding at May 23,
2011, was 1,498,972,923 shares.
CIRTRAN CORPORATION
FORM 10-Q/A
For the Quarterly Period Ended March 31, 2011
EXPLANATORY NOTE
----------------
CirTran Corporation is filing this amendment to its Quarterly Report for the
quarter ended March 31, 2011, to correct certain typographical errors in
sections of the report (including notes to the financial statements and
Management's Discussion and Analysis) relating to segments and the inclusion of
Play Beverages LLC as a consolidated variable interest entity.
INDEX
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Page
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PART I - FINANCIAL INFORMATION
Item 1 Financial Statements (unaudited)
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Operations 4
Condensed Consolidated Statements of Cash Flows 5
Notes to Condensed Consolidated Financial Statements 7
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 22
Item 3 Quantitative and Qualitative Disclosures About Market Risk 29
Item 4 Controls and Procedures 29
PART II - OTHER INFORMATION
Item 1 Legal Proceedings 29
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds 32
Item 3 Defaults Upon Senior Securities 32
Item 4 (Removed and Reserved) 32
Item 5 Other Information 32
Item 6 Exhibits 33
Signatures 35
2
CIRTRAN CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
March 31, December 31,
2011 2010
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ASSETS
Current assets
Cash and cash equivalents $ 5,829 $ 4,767
Trade accounts receivable, net of allowance
for doubtful accounts of $445,253 and
$445,253, respectively 959,260 629,830
Inventory, net of reserve of $2,065,558 and
$2,065,558, respectively 809,942 542,356
Prepaid royalty - 500,000
Prepaid deposits 179,410 109,874
Other 471,751 379,929
--------------------------------------------------------------------------------
Total current assets 2,426,192 2,166,756
Investment in securities, at cost 300,000 300,000
Long-term receivable, net 1,215,871 1,215,871
Property and equipment, net 285,754 335,547
Intellectual property, net 162,824 169,459
Other assets, net 8,267 8,267
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Total assets $ 4,398,908 $ 4,195,900
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LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Checks written in excess of bank balance $ 237,263 $ 203,460
Accounts payable 3,141,696 3,331,092
Related party payable 483,000 420,000
Short term advances payable 3,948,288 3,827,538
Accrued liabilities 5,157,937 4,761,611
Accrued interest 1,861,282 1,930,355
Deferred revenue 2,373,784 1,882,191
Derivative liability 9,342,767 1,412,646
Convertible debenture 3,161,355 3,161,355
Current portion of refundable customer deposits 1,117,387 1,117,387
Current maturities of long-term debt 886,296 850,620
Note payable to stockholders 409,442 409,442
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Total current liabilities 32,120,497 23,307,697
--------------------------------------------------------------------------------
Total liabilities 32,120,497 23,307,697
Stockholders' deficit
CirTran Corporation stockholders' deficit:
Common stock, par value $0.001; authorized
1,500,000,000 shares; issued and outstanding
shares: 1,498,972,923 and 1,498,972,923,
respectively 1,498,968 1,498,968
Additional paid-in capital 29,128,672 29,128,672
Subscription receivable (17,000) (17,000)
Accumulated deficit (50,003,864) (41,969,908)
--------------------------------------------------------------------------------
Total CirTran Corporation stockholders'
deficit (19,393,224) (11,359,268)
--------------------------------------------------------------------------------
Noncontrolling interest (8,328,365) (7,752,529)
--------------------------------------------------------------------------------
Total stockholders' deficit (27,721,589) (19,111,797)
--------------------------------------------------------------------------------
Total liabilities and stockholders'
deficit $ 4,398,908 $ 4,195,900
--------------------------------------------------------------------------------
The accompanying notes are an integral part
of these consolidated financial statements.
3
CIRTRAN CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
For the Three Months Ended March 31, 2011 2010
--------------------------------------------------------------------------------
(As Adjusted)
Net sales $ 1,395,200 $ 1,782,859
Cost of sales (195,287) (1,147,433)
Royalty Expense (544,065) (525,383)
--------------------------------------------------------------------------------
Gross profit 655,848 110,043
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Operating expenses
Selling, general and administrative expenses 1,072,148 1,171,887
Non-cash compensation expense 98,759 43,577
--------------------------------------------------------------------------------
Total operating expenses 1,170,907 1,215,464
--------------------------------------------------------------------------------
Loss from operations (515,059) (1,105,421)
--------------------------------------------------------------------------------
Other income (expense)
Interest expense (271,790) (265,572)
Seperation expense - related party - (260,000)
Gain on sale/leaseback 20,268 20,268
Other income 28,500 -
Gain (loss) on derivative valuation (7,871,711) 247,357
--------------------------------------------------------------------------------
Total other expense, net (8,094,733) (257,947)
--------------------------------------------------------------------------------
Net loss $ (8,609,792) $ (1,363,368)
--------------------------------------------------------------------------------
Net loss attributable to
noncontrolling interest 575,836 531,291
--------------------------------------------------------------------------------
Net loss attributable to CirTran $ (8,033,956) $ (832,077)
--------------------------------------------------------------------------------
Basic and diluted loss per common share $ (0.01) $ (0.00)
--------------------------------------------------------------------------------
Basic and diluted weighted-average
common shares outstanding 1,498,972,923 1,498,972,923
The accompanying notes are an integral part
of these consolidated financial statements.
4
CIRTRAN CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Three Months Ended March 31, 2011 2010
--------------------------------------------------------------------------------
(As Adjusted)
Cash flows from operating activities
Net loss $ (8,609,792) $ (1,363,368)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 56,428 164,021
Accretion expense 35,865 57,640
Recovery of doubtful accounts - (22,877)
Provision for doubtful accounts - (44,407)
Gain on sale - leaseback (20,268) 20,268
Non-cash compensation expense 40,349 43,577
Issuance of warrants for settlement 58,410 -
Options issued to attorneys for services - 6,758
Change in valuation of derivative 7,871,711 (247,357)
Changes in assets and liabilities:
Trade accounts receivable (329,430) (23,659)
Inventories (267,586) 357,737
Prepaid expenses and other current assets 430,464 229,571
Accounts payable (189,398) (210,169)
Related party payable 63,000 -
Accrued liabilities 425,133 1,106,305
Deferred revenue 491,593 (129,203)
Other current assets (91,822) -
Customer deposits - (150,354)
--------------------------------------------------------------------------------
Net cash used in operating activities (35,343) (205,517)
--------------------------------------------------------------------------------
Cash flows from investing activities - -
Cash flows from financing activities
Payments on notes payable to related party - (2,937)
Principal payments on long-term debt - (42,937)
Checks written in excess of bank balance 33,803 108,752
Proceeds from short-term advances 387,290 144,200
Payments on short-term advances (384,688) -
--------------------------------------------------------------------------------
Net cash provided by financing activities 36,405 207,078
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Net increase in cash and cash equivalents 1,062 1,561
Cash and cash equivalents at beginning of year 4,767 8,588
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Cash and cash equivalents at end of year $ 5,829 $ 10,149
--------------------------------------------------------------------------------
The accompanying notes are an integral part
of these consolidated financial statements.
5
CIRTRAN CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) - CONTINUED
For the Three Months Ended March 31, 2011 2010
--------------------------------------------------------------------------------
(As Adjusted)
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 202,718 $ 7,863
Noncash investing and financing activities:
Accounts payable settled on behalf of the
Company for issuance of short term advances 117,960 51,220
Net assets assumed in consolidation of PlayBev - 8,651,323
The accompanying notes are an integral part
of these consolidated financial statements.
6
CIRTRAN CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation - CirTran Corporation and its subsidiaries (collectively,
the "Company" or "CirTran") consolidates all of its majority-owned subsidiaries
and companies over which the Company exercises control through majority voting
rights and companies in which it has a variable interest and the Company is the
primary beneficiary. The Company accounts for its investments in common stock of
other companies that the Company does not control but over which the Company can
exert significant influence using the cost method.
Condensed Financial Statements - The accompanying unaudited condensed
consolidated financial statements include the accounts of CirTran Corporation
and its subsidiaries. These financial statements have been prepared in
accordance with Article 10 of Regulation S-X promulgated by the Securities and
Exchange Commission ("SEC" or "Commission"). Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with accounting principles generally accepted in the United States of America
have been condensed or omitted pursuant to such rules and regulations. These
statements should be read in conjunction with the Company's annual financial
statements included in the Company's Annual Report on Form 10-K for the year
ended December 31, 2010. In particular, the Company's significant accounting
policies were presented as Note 1 to the consolidated financial statements in
that Annual 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, 2011, are
not necessarily indicative of the results that may be expected for the twelve
months ending December 31, 2011.
Principles of Consolidation - The consolidated financial statements include the
accounts of CirTran Corporation, and its wholly owned subsidiaries Racore
Technology Corporation, CirTran - Asia, Inc., CirTran Products Corp., CirTran
Media Corp., CirTran Online Corp., and CirTran Beverage Corp.
The consolidated financial statements also include the accounts of After
Beverage Group LLC, a majority controlled entity, and Play Beverages LLC
("PlayBev"), a consolidated variable interest entity. PlayBev holds a license
agreement with Playboy Enterprises International, Inc. ("Playboy") to
manufacture and distribute energy drinks and water under the Playboy name. In
prior years, PlayBev was not required to be consolidated due to lack of control
over significant decisions by the Company or its affiliates. Effective January
1, 2010, the Company determined that it was the primary beneficiary of PlayBev
and began to consolidate into its financial statements the accounts of PlayBev.
Inventories - Inventories are stated at the lower of average cost or market
value. Cost on manufactured inventories includes labor, material and overhead.
Overhead cost is based on indirect costs allocated to cost of sales,
work-in-process inventory, and finished goods inventory. Indirect overhead costs
have been charged to cost of sales or capitalized as inventory, based on
management's estimate of the benefit of indirect manufacturing costs to the
manufacturing process.
When there is evidence that the inventory's value is less than original cost,
the inventory is reduced to market value. The Company determines market value on
current resale amounts and whether technological obsolescence exists. The
Company has agreements with most of its manufacturing customers that require the
customer to purchase inventory items related to their contracts in the event
that the contracts are cancelled.
Impairment of Long-Lived Assets - The Company reviews its long-lived assets,
including intangibles, for impairment when events or changes in circumstances
indicate that the carrying value of an asset may not be recoverable. At each
balance sheet date, the Company evaluates whether events and circumstances have
occurred that indicate possible impairment. The Company uses an estimate of
future undiscounted net cash flows from the related asset or group of assets
over their remaining life in measuring whether the assets are recoverable.
Long-lived asset costs are amortized over the estimated useful life of the
asset, which are typically five to seven years. Amortization expense was $6,636
and $111,114 for the three months ended March 31, 2011 and 2010, respectively.
7
Financial Instruments with Derivative Features - The Company does not hold or
issue derivative instruments for trading purposes. However, the Company has
financial instruments that are considered derivatives, or contain embedded
features subject to derivative accounting. Embedded derivatives are valued
separate from the host instrument and are recognized as derivative liabilities
in the Company's balance sheet. The Company measures these instruments at their
estimated fair value, and recognizes changes in their estimated fair value in
results of operations during the period of change. The Company has estimated the
fair value of these embedded derivatives using the Black-Scholes model. The fair
value of the derivative instruments is re-measured each quarter.
Revenue Recognition - Revenue is recognized when products are shipped. Title
passes to the customer or independent sales representative at the time of
shipment. Returns for defective items are either repaired and sent back to the
customer, or returned for credit or replacement product. Historically, expenses
associated with returns have not been significant and have been recognized as
incurred.
Loss Per Share - Basic loss per share is calculated by dividing net loss
available to common shareholders by the weighted-average number of common shares
outstanding during each period. Diluted loss per share is similarly calculated,
except that the weighted-average number of common shares outstanding would
include common shares that may be issued subject to existing rights with
dilutive potential when applicable. The Company had 2,202,197,064 and
974,512,842 in potentially issuable common shares at March 31, 2011 and 2010,
respectively. These potentially issuable common shares were excluded from the
calculation of diluted loss per share because the effects were anti-dilutive.
Use of Estimates - In preparing the Company's financial statements in accordance
with accounting principles generally accepted in the United States of America,
management is required to make estimates and assumptions that affect the
reported amounts of assets and liabilities, the disclosure of contingent assets
and liabilities at the date of the financial statements, and the reported
amounts of revenues and expenses during the reported periods. Actual results
could differ from those estimates.
Reclassifications - Certain reclassifications have been made to the financial
statements to conform to the current year presentation.
Consolidation of PlayBev - At December 31, 2010, the Company determined that it
was the primary beneficiary of PlayBev, and that the assets, liabilities and
operations of PlayBev should be consolidated into its financial statements
beginning January 1, 2010. The Company has adjusted the previously reported,
March 31, 2010, consolidated statements of operations and cash flows for the
effects of the newly consolidated entity. The following table shows the effects
of the change.
8
March 31, March 31,
2010 2010 Changes
-------------------------------------------
(As Adjusted)
Condensed Consolidated Statement
of Operations
Net Sales (2,183,838) (1,782,859) 400,979
Cost of Sales 1,528,712 1,147,433 (381,279)
Royalty Expense 531,448 - (531,448)
Playboy Royalty Expense - 450,000 450,000
Royalty due LIB-MP - 75,383 75,383
Selling, General and administrative 790,608 1,171,887 381,279
Interest Expense 248,600 265,572 16,972
Interest Income (29,185) - 29,185
Condensed Consolidated Statement of Cash Flows
Cash flows from operating activities
Net loss (922,297) (1,363,368) (441,071)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Related party receivable 81,657 - (81,657)
Accrued liabilities 720,698 1,106,305 385,607
Taxes - At March 31, 2011, management had recorded a full valuation allowance
against the net deferred tax assets related to temporary differences and
operating losses in the current period because there is significant uncertainty
as to the realizability of the deferred tax assets. Based on a number of
factors, the currently available, objective evidence indicates that it is
more-likely-than-not that the net deferred tax assets will not be realized.
Restatement of Financial Statements - In previously issued financial statements
for the three months ended March 31, 2011 and 2010, the Company incorrectly
reported certain components of its segment information as disclosed in Note 13
to the financial statements. Subsequent to filing its quarterly information,
management of the Company determined that it had incorrectly allocated sales to
external customers and segment income (loss) among the appropriate segments for
the three months ended March 31, 2010. As a result, management has restated Note
13 to the condensed consolidated financial statements as of March 31, 2010 and
for the three months then ended. The effects of the restatement on Note 13 were
as follows:
Sales to external customers
Three Months Ended March 31, 2010
As
Previously As
Segment Shown Restated Difference
--------------------------------------------------------------------------------
Electronics Assembly $ 488,172 $ 170,444 $ (317,728)
Contract Manufacturing 175,148 1,045 (174,103)
Marketing and Media 847,697 490,436 (357,261)
Beverage Distribution 271,842 1,120,934 849,092
--------------------------------------------------------------------------------
Total $ 1,782,859 $ 1,782,859 $ -
--------------------------------------------------------------------------------
Segment income (loss)
Three Months Ended March 31, 2010
As
Previously As
Segment Shown Restated Difference
--------------------------------------------------------------------------------
Electronics Assembly $ (1,915,652) $ (414,845) $ 1,500,807
Contract Manufacturing (83,084) (64,947) 18,137
Marketing and Media (277,281) (37,135) 240,146
Beverage Distribution 912,649 (846,441) (1,759,090)
--------------------------------------------------------------------------------
Total $ (1,363,368) $ (1,363,368) $ -
--------------------------------------------------------------------------------
Recent Accounting Pronouncements
In January 2009, the Securities and Exchange Commission ("SEC") issued Release
No. 33-9002, "Interactive Data to Improve Financial Reporting." The final rule
requires companies to provide their financial statements and financial statement
schedules to the SEC and on their corporate websites in interactive data format
using the eXtensible Business Reporting Language ("XBRL"). The rule was adopted
by the SEC to improve the ability of financial statement users to access and
analyze financial data. The SEC adopted a phase-in schedule indicating when
registrants must furnish interactive data. Under this schedule, the Company will
be required to submit filings with financial statement information using XBRL
commencing with its June 30, 2011, quarterly report on Form 10-Q. The Company is
currently evaluating the impact of XBRL reporting on its financial reporting
process.
In April 2010, the FASB issued guidance to clarify classification of an employee
stock-based payment award when the exercise price is denominated in the currency
of a market in which the underlying equity security trades. The guidance is
effective for fiscal years and interim periods beginning after December 15,
2010, with early adoption permitted. The Company's adoption of the new standard,
on January 1, 2011, did not have a material impact on its consolidated
statements.
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.
The Company had a net loss of $8,609,792 and of $1,363,368 for the three months
ended March 31, 2011 and 2010, respectively. As of March 31, 2011, the Company
had an accumulated deficit of $50,003,864. In addition, the Company used cash in
its operations in the amount of $35,343 and $205,516 during the three months
ended March 31, 2011 and 2010, respectively. The Company had borrowed funds in
the form of short-term advances, notes, and convertible debentures. The Company
had a negative working capital balance of $29,694,305 as of March 31, 2011, and
$21,140,941 as of December 31, 2010. These conditions raise substantial doubt
about the Company's ability to continue as a going concern.
9
In view of the matters described in the preceding paragraph, 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 as a going concern. The Company feels that its
beverage business has the potential to have a substantial impact on its
business. The Company plans to focus on the beverage business and the contract
manufacturing business. For the beverage business, the Company plans to sell
existing products and develop new products under the license agreement with
Playboy to a globally expanding market. With regard to contract manufacturing,
the Company goal is to provide customers with manufacturing solutions for both
new and more mature products, as well as across product generations.
The Company currently provides product marketing services to the direct response
and retail markets for both proprietary and non-proprietary products. This
segment provides campaign management and marketing services for both the
Direct-response, Retail and Beverage Distribution markets. The Company intends
to continue to provide marketing and media services to support its own product
efforts, and offer to customers marketing service in channels involving
television, radio, print media, and the internet.
With respect to electronics assembly and manufacturing, the Company intends to
continue to serve these industries, although it anticipates that its focus will
shift more to providing services on a sub-contract basis.
NOTE 3 - INVENTORY
Inventory consisted of the following:
Inventory Summary
March 31, December 31,
2011 2010
--------------------------------------------------------------------------------
Raw Materials $ 1,765,489 $ 1,730,088
Work in Process 385,744 139,947
Finished Goods 724,267 737,879
Allowance / Reserve (2,065,558) (2,065,558)
----------------------------
Totals $ 809,942 $ 542,356
============================
NOTE 4 - INTELLECTUAL PROPERTY
Intellectual property and estimated service lives consisted of the following:
Estimated
March 31, December 31, Service Lives
2011 2010 in Years
--------------------------------------------------------------------------------
Infomercial development costs $ 54,946 $ 54,946 7
Patents 38,056 38,056 7
Website Development Costs 150,000 150,000 5
--------------------------------------------------------------------------------
Total intellectual property $ 243,002 $ 243,002
Less accumulated amortization (80,178) (73,543)
--------------------------------------------------------------------------------
Intellectual property, net $ 162,824 $ 169,459
--------------------------------------------------------------------------------
10
The estimated amortization expenses for the next five years are as follows:
Year Ending December 31,
-------------------------------------------
2011 $ 31,218
2012 34,352
2013 32,418
2014 32,418
2015 32,418
-------------------------------------------
Total $ 162,824
-------------------------------------------
NOTE 5 - RELATED PARTY TRANSACTIONS
Global Marketing Alliance
The Company entered into an agreement with Global Marketing Alliance ("GMA"),
and hired GMA's owner as the Vice President of CTO, one of the Company's
subsidiaries. Under the terms of the agreement, the Company outsources to GMA
the online marketing and sales activities associated with the Company's CTO
products. In return, the Company provides bookkeeping and management consulting
services to GMA, and pays GMA a fee equal to five percent of CTO's online net
sales. In addition, GMA assigned to the Company all of its web-hosting and
training contracts effective as of January 1, 2007, along with the revenue
earned thereon, and the Company also assumed the related contractual performance
obligations. The Company recognizes the revenue collected under the GMA
contracts, and remits back to GMA a management fee approximating their actual
costs. The Company recognized revenues from GMA related products and services in
the amount of zero and $490,435 for the three months ended March 31, 2011 and
2010, respectively.
The GMA agreement remained in place as of March 31, 2011, but there was no
activity under the agreement for the period ending March 31, 2011.
Transactions involving Officers, Directors, and Stockholders
Don L. Buehner was appointed to the Company's Board of Directors during 2007.
Prior to his appointment as a director, Mr. Buehner bought the Company's
building in a sale/leaseback transaction. The term of the lease is for 10 years,
with an option to extend the lease for up to three additional five-year terms.
The Company pays Mr. Buehner a monthly lease payment of $10,000, which is
subject to annual adjustments in relation to the Consumer Price Index. Mr.
Buehner retired from the Company's Board of Directors following the Company's
Annual Meeting of Shareholders on June 18, 2008.
In 2007, the Company appointed Fadi Nora to its Board of Directors. In addition
to compensation the Company normally pays to non-employee members of the Board,
Mr. Nora is entitled to a quarterly bonus equal to 0.5 percent of any gross
sales earned by the Company directly through Mr. Nora's efforts. As of March 31,
2011 the Company owed $49,632 under this arrangement. In 2010, Mr. Nora loaned
the Company a total of $667,560. Mr. Nora received cash payments totaling
$96,500 from the Company. For the period ending March 31, 2011, Mr. Nora loaned
the company $238,963 and received cash payments totaling $100,000. As of March
31, 2011, the Company still owed Mr. Nora $825,959 in the form of unsecured
advances. These advances and short term bridge loans were approved by the Board
of Directors under a 5% borrowing fee. The borrowing fees were waived by Mr.
Nora on these loans. In addition, the Company owed Mr. Nora $1,310,362 in
accounts payable as of March 31, 2011, for selling, general and administrative
expenses that were paid for by Mr. Nora on a personal credit card.
The Company has agreed to issue 2,400,000 options to Mr. Nora as compensation
for services provided as a director of the company. The terms of the director
agreement requires the Company to grant to Mr. Nora options to purchase
2,400,000 shares of the Company's stock each year, with the exercise price of
the options being the market price of the Company's common stock as of the grant
date.
In addition, on July 14, 2009, the Company entered into a Stock Purchase
Agreement with Mr. Nora to sell to Mr. Nora 75,000,000 shares of common stock of
the Company at a purchase price of $.003 per share, for a total of $225,000,
payable through the conversion of outstanding loans made by the director to the
Company. Mr. Nora and the Company acknowledged in the purchase agreement that
the Company did not have sufficient shares to satisfy the issuances, and agreed
that the shares would be issued once the Company has sufficient shares to do so.
As of March 31, 2011, the Company showed the balance of $225,000 as an accrued
liability on the balance sheet.
11
In 2007, the Company issued a 10 percent promissory note to a family member of
the Company president in exchange for $300,000. The note was due on demand after
May 2008. During the years ended December 31, 2010 and 2009, the Company repaid
principal and interest totaling $71,013 and $22,434, respectively. At March 31,
2011, the principal amount owing on the note was $159,442. On March 31, 2008,
the Company issued to this same family member, along with four other Company
shareholders, promissory notes totaling $315,000. The family member's note was
for $105,000. Under the terms of all the notes, the Company received total
proceeds of $300,000, and agreed to repay the amount received plus a five
percent borrowing fee. The notes were due April 30, 2008, after which they were
due on demand, with interest accruing at 12 percent per annum. During 2010, the
Company paid $52,500 towards the outstanding notes. The principal balance owing
on the promissory notes as of March 31, 2011, totaled $51,916.
On April 2, 2009, the Company President and a Director of the Company borrowed
from a third party a total of $890,000 in the form of four short-term promissory
notes. The Company President and a Director of the Company signed personally for
the notes. Because the loans were used to pay obligations of the Company, the
Company has assumed full responsibility for the notes. Two of the notes were for
a term of 60 days, with a 60 day grace period; a third note was for a term of 90
days, and a fourth note was for 24 days. Loan fees totaling $103,418 were
incurred with the issuance of the notes and are payable upon maturity of the
notes. During the years ended December 31, 2010 and 2009, the Company paid
$140,000 and $125,000, respectively, against the loans, offset by an additional
$75,000 in borrowings. As of March 31, 2011, the balance of the loans totaled
$695,162. As of March 31, 2011, all four notes were in default and are accruing
interest at the default rate of 36 percent per year.
As of March 31, 2011, the Company owed the Company president a total of $287,047
in unsecured advances, and $148,695 in accrued options. These advances and short
term bridge loans were approved by the Board of Directors under a 5% borrowing
fee. The borrowing fees were waived by our president on these loans.
On July 14, 2009, the Company entered into a Stock Purchase Agreement with Iehab
Hawatmah, the president of the Company, to sell to him 50,000,000 shares of
common stock of the Company at a purchase price of $.003 per share, for a total
amount of $150,000, payable through the conversion of outstanding loans made by
Mr. Hawatmah to the Company. Mr. Hawatmeh and the Company acknowledged in the
purchase agreement that the Company did not have sufficient shares to satisfy
the issuances, and agreed that the shares would be issued once the Company has
sufficient shares to do so. As of March 31, 2011, the Company showed the balance
of $150,000 as an accrued liability on the balance sheet.
On March 5, 2010, the Company entered into a Separation Agreement ("Agreement")
with Shaher Hawatmeh. As of the date of the Agreement, Shaher Hawatmeh's
employment with the Company was terminated and he no longer had any further
employment obligations with the Company. In consideration of his execution of
the Agreement, the Company agreed to pay Shaher Hawatmeh's "Separation Pay" of
$210,000 in twenty-six bi-weekly payments. The company recorded $40,385 and
$8,077 of compensation expense for the three months ended March 31, 2011 and
2010, under the terms of the agreement, respectively. On April 2, 2010, the
Company made the first payment to Shaher Hawatmeh. Additional terms of the
separation agreement included the issuance and delivery to Shaher Hawatmeh of
ten million (10,000,000) shares of the Company's common stock within a
reasonable time following authorization by the Company's shareholders of
sufficient shares to cover such issuance. The grant date fair value of the
shares aggregated to $50,000 as of March 5, 2010, based on the $.005 per share
value as of the effective date of the separation agreement, and has been
included in accrued liabilities as of March 31, 2011.
Sublease
In an effort to operate more efficiently and focus resources on higher margin
areas of the Company's business, on March 5, 2010, the Company and Katana
Electronics, LLC, a Utah limited liability company ("Katana") entered into
certain agreements (collectively, the 'Agreements") to reduce the Company's
costs. The Agreements include an Assignment and Assumption Agreement, an
Equipment Lease, and a Sublease Agreement relating to the Company's property.
Pursuant to the terms of the Sublease, the Company agreed to sublease a certain
portion of the Company's Premises to Katana, consisting of the warehouse and
office space used as of the close of business on March 4, 2010. The term of the
Sublease is for two (2) months with automatic renewal periods of one month each.
The base rent under the Sublease is $8,500 per month. The Sublease contains
normal and customary use restrictions, indemnification rights and obligations,
default provisions and termination rights. Under Agreements signed, the Company
continues to have rights to operate as a contract manufacturer in the future in
the US and offshore. The income from the sublease to Katana for the period
ending March 31, 2011, was $28,500 and was recognized as other income.
12
NOTE 6 - COMMITMENTS AND CONTINGENCIES
Litigation and Claims - Various vendors and service providers have notified the
Company that they believe they have claims against the Company totaling
approximately $1,255,000. The Company has determined the probability of
realizing any loss on these claims is remote. The Company has made no accrual
for these claims and is currently in the process of negotiating the dismissal of
these claims.
Registration rights agreements - In connection with the Company's issuance of
convertible debentures to YA Global Investments, L.P., formerly known as Cornell
Capital Partners, L.P. ("YA Global"), the Company granted to YA Global certain
registration rights, pursuant to which the Company agreed to file, a
registration statements to register the resale of shares of the Company's common
stock issuable upon conversion of the debentures. The Company agreed to keep the
registration statement effective until all of the shares issuable upon
conversion of the debenture have been sold. The Company has not accrued a
liability for potential losses.
Previously, YA Global has agreed to extensions of the filing deadlines inherent
in the terms of the convertible debentures mentioned above. On January 24, 2011,
the Company and YA Global entered into a forbearance agreement related to the
convertible debentures issued by the Company to YA or its predecessor entities.
Forbearance agreements - In previous periods the Company has defaulted on
certain obligations under its convertible debentures and related agreements. The
Company has entered into several forbearance agreements with YA Global in an
attempt to restructure the agreement. As of December 31, 2010, the Company had
defaulted under the terms of the previous forbearance agreement. On January 24,
2011, the Company, and YA Global Investments finalized an amended and restated
forbearance agreement and related agreements ("A&R Forbearance Agreement"). The
A&R Forbearance Agreement was dated as of January 7, 2011, but the final
conditions for closing were met on January 24, 2011.
The Obligors (discussed below) agreed to waive any claims against YA, and
released any such claims the Obligors may have had. The Obligors also ratified
their respective obligations under the Financing Documents, and agreed to the
satisfaction of certain conditions precedent, including the following: payment
of certain funds to YA at the time of execution of the A&R Forbearance
Agreement; the entry by Iehab Hawatmeh, President of the Company, into a
Guaranty Agreement and a Pledge Agreement (both discussed below); the entry into
a Ratification and Joinder Agreement by the Obligors (discussed below); the
execution of a confession of judgment in a litigation matter between YA, the
Company, and Katana Electronics, LLC ("Katana"); and the delivery of a new
warrant (the "Warrant") to YA (discussed below).
Additionally, the Obligors agreed to seek to obtain waivers from their
respective landlords at their properties in Utah and Arkansas; agreed to seek to
obtain deposit account control agreements from the Company's banks and
depository institutions; and to repay the Company's obligations under the
Debentures on the following schedule:
i. $225,000.00, on or before the date of the A&R Forbearance Agreement to be
applied as follows (x) $75,000.00 in reimbursement of the legal fees and
expenses incurred by the Lender as required by Paragraph 18, below, and (y)
$150,000.00 applied first to accrued but unpaid interest and then to the
principal balance of the Obligations;
ii. $75,000.00 on February 1, 2011;
iii. $75,000.00 on March 1, 2011;
iv. $75,000.00 on April 1, 2011;
13
v. $200,000.00 on May 1, 2011;
vi. $200,000.00 on June 1, 2011;
vii. $200,000.00 on July 1, 2011;
viii. $200,000.00 on August 1, 2011;
ix. $200,000.00 on September 1, 2011;
x. $200,000.00 on October 1, 2011;
xi. $200,000.00 on November 1, 2011;
xii. $200,000.00 on December 1, 2011; and
xiii. the remaining balance of the Obligations shall be paid in full in
good and collected funds by federal funds wire transfer on or before
the earlier of (i) the occurrence of a Termination Event (as defined
in the A&R Forbearance Agreement), or (ii) 3:00 P.M. (prevailing
Eastern time) on December 31, 2011 (the "Termination Date").
The Company made its required payments through April 30, 2011, as required under
the schedule above. As of the date of this filing it had not made the required
May 1, 2011, payment.
Pursuant to the A&R Forbearance Agreement, the parties agreed that the Company,
subject to the consent of YA, may choose to pay all or any portion of the
payments listed above in common stock, with the conversion price to be used to
determine the number of shares of common stock being equal to 85% of the lowest
closing bid price of the Company's common stock during the ten trading days
prior to the payment date.
In exchange for the satisfaction of such conditions and agreements from the
Obligors, YA agreed to forbear from enforcing its rights and remedies as a
result of the existing defaults until the earlier of (i) the occurrence of a
Termination Event (as defined in the A&R Forbearance Agreement), or (ii) the
Termination Date, which is given as December 31, 2011. Notwithstanding the
foregoing, nothing contained in the A&R Forbearance Agreement or the other
Forbearance Documents will be deemed to constitute a waiver by YA of any default
or event of default, whether now existing or hereafter arising (including,
without limitation, the existing defaults listed in the A&R Forbearance
Agreement), and/or its right to convert the Debentures into shares of the
Company's common stock.
In connection with the A&R Forbearance Agreement, Mr. Hawatmeh entered into a
Guaranty Agreement and a Pledge Agreement. Pursuant to the Guaranty Agreement,
Mr. Hawatmeh agreed to guarantee to YA the full payment and prompt performance
of all of the obligations in the A&R Forbearance Agreement. Pursuant to the
Pledge Agreement, Mr. Hawatmeh agreed to pledge a first priority security
interest in 7,000 class A membership units in Play Beverages, LLC ("PlayBev") to
secure the payment of the obligations under the A&R Forbearance Agreement and
the Guaranty Agreement.
The Company, the Company's Utah-based subsidiary (also name of CirTran
Corporation) ("CirTranSub"), and the other Obligors also entered into a
Ratification and Joinder to Collateral Agreements, pursuant to which CirTranSub
agreed to be bound by the terms and conditions of, and to be a party to, the
Global Security Agreement (entered into in connection with a Prior Forbearance
Agreement) and the Global Guaranty Agreement (entered into in connection with a
Prior Forbearance Agreement). (The terms of the Global Guaranty Agreement and
the Global Security Agreement were described in, and attached as exhibits to,
the Company's Current Report on Form 8-K, filed with the SEC on August 17, 2009.
For a more complete description of these agreements, please see that filing.) In
conjunction with the Forbearance Agreement, the Company issued five-year
warrants to purchase up to 25,000,000 shares of common stock at an exercise
price of $0.02 per share. (See note 12).
Instruments Convertible to stock in excess of authorized amounts - The Company
currently has issued and outstanding options, warrants, convertible notes and
other instruments for the acquisition of the Company's common stock in excess of
the available authorized but non-issued shares of common stock provided for
under the Company's Articles of Incorporation, as amended. As a consequence, in
the event that the holders of such instruments requiring the issuance, in the
aggregate, of a number of shares of common stock that would, when combined with
the previously issued and outstanding common stock of the Company exceed the
authorized capital of the Company, seek to exercise their rights to acquire
shares under those instruments, the Company will be required to increase the
number of authorized shares or effect a reverse split of the outstanding shares
in order to provide sufficient shares for issuance under those instruments.
14
Employment Agreements - The Company has entered into an employment agreement
with Mr. Hawatmeh, our President. The terms of the employment agreement requires
the Company to grant to Mr. Hawatmeh options to purchase a minimum of 6,000,000
shares of the Company's stock each year, with the exercise price of the options
being the market price of the Company's common stock as of the grant date. The
employment agreement also includes additional incentive compensation as follows:
a quarterly bonus equal to 5 percent of the Company's earnings before interest,
taxes, depreciation and amortization for the applicable quarter; bonus(es) equal
to 1.0 percent of the net purchase price of any acquisitions completed by the
Company that are directly generated and arranged by Mr. Hawatmeh; and an annual
bonus (payable quarterly) equal to 1 percent of the gross sales, net of returns
and allowances of all beverage products of the Company and its affiliates for
the most recent fiscal year. For the periods ending March 31, 2011, and 2010 the
Company incurred $11,868 and $42,581, respectively, of non-cash compensation
expense related to accrual for employee stock options to be awarded per the
employment contract for compensation related to the bonuses under the Employment
Agreements.
Pursuant to the employment agreement, Mr. Hawatmeh's employment may be
terminated for cause, or upon death or disability, in which event the Company is
required to pay Mr. Hawatmeh any unpaid base salary and unpaid earned bonuses.
In the event that Mr. Hawatmeh is terminated without cause, the Company is
required to pay to Mr. Hawatmeh (i) within thirty (30) days following such
termination, any benefit, incentive or equity plan, program or practice (the
"Accrued Obligations") paid when the bonus would have been paid Employee if
employed; (ii) within thirty (30) days following such termination (or on the
earliest later date as may be required by Internal Revenue Code Section 409A to
the extent applicable), a lump sum equal to thirty (30) month's annual base
salary, (iii) bonus(es) owing under the employment agreement for the two year
period after the date of termination (net of an bonus amounts paid as Accrued
Obligations) based on actual results for the applicable quarters and fiscal
years; and (iv) within twelve (12) months following such termination (or on the
earliest later date as may be required by Internal Revenue Code Section 409A to
the extent applicable), a lump sum equal to thirty (30) month's Annual Base
Salary; provided that if Employee is terminated without cause in contemplation
of, or within one (1) year, after a change in control, then two (2) times such
annual base salary and bonus payment amounts.
On May 1, 2009, PlayBev, a consolidated entity of CirTran, entered into
compensation agreements with its managers, Mr. Hawatmeh and Mr. Nora. The agreed
compensation consists of a monthly fee of $10,000 for each manager,
reimbursement of reasonable expenses on behalf of the Company, a car allowance
for Mr. Nora of $1,000 per month to cover the cost of use, fuel and repairs. The
Company recorded expenses of $63,000 and $63,000 relating to the compensation
agreements for the three months ended March 31, 2011 and 2010, respectively. As
of March 31, 2011 and December 31, 2010, the Company had $483,000 and $420,000,
respectively, accrued as related party payables for management compensation
associated with PlayBev.
The Company has active employment contracts with several of its employees that
require annual payment of non-cash compensation in a fixed number of shares.
During the period ended March 31, 2011 and 2010, the Company did not grant
options to purchase shares of common stock to employees due to the
unavailability of issuable stock. The Company accrued an expense of $40,350 and
$43,577 for the period ending March 31, 2011 and 2010, respectively, for
employee options relating to the employment contracts of these employees.
15
NOTE 7 - NOTES PAYABLE
Notes payable consisted of the following at March 31, 2011, and December 31,
2010:
March 31, December 31,
2011 2010
--------------------------------------------------------------------------------
Settlement note, ten monthly payments,
no interest 59,581 59,769
Promissory note to a stockholder, 10% stated
interest rate, unsecured, interest due
quarterly, due February 2011 to
related party. 159,442 159,442
Promissory note to an investor, 10% stated
interest rate, face value discounted and to
be accreted over the life of the note.
Due on demand. 699,800 663,935
Promissory note to an unrelated member of
AfterBev, 10% stated interest interest
payable quarterly. Due on demand. 75,000 75,000
Promissory notes to 3 investors, 12% stated
interest, 5% borrowing fee, due on demand
to related party. 51,915 51,916
Promissory note to an unrelated member of
PlayBev, 10% stated interest interest payable
quarterly. Due on demand to related party. 250,000 250,000
--------------------------------------------------------------------------------
1,295,738 1,260,062
Less current maturities (1,295,738) (1,260,062)
--------------------------------------------------------------------------------
Long-term portion of notes payable $ - $ -
--------------------------------------------------------------------------------
In February 2008, the Company issued a 10 percent, three-year, $700,000
promissory note to an investor. No interim principal payments are required, but
accrued interest is due quarterly. The investor also received five-year warrants
to purchase up to 75,000,000 shares of common stock at exercise prices ranging
from $0.02 to $0.50 per share. The Company determined that the warrants fell
under derivative accounting treatment, and recorded the initial carrying value
of a derivative liability equal to the fair value of the warrants at the time of
issuance (See note 12). At the same time, a discount equal to the face amount of
the note was recorded, to be recognized ratably to interest expense. Interest
expense of $35,865 and $57,640 was accreted during the three months ended March
31, 2011 and 2010, respectively. A total of $699,800 has been accreted against
the note as of March 31, 2011. The carrying value of the note will continue to
be accreted over the life of the note until the carrying value equals the face
value of $700,000. As of March 31, 2011, the balance of the note was $699,800.
In March 2008, the Company converted $75,000 owed to an unrelated member of
AfterBev into a one-year, 10 percent promissory note, with interest payable
quarterly. The balance as of March 31, 2011, was $75,000. The note renews
monthly. The Company was in default on this note as of March 31, 2011.
NOTE 8 - CONVERTIBLE DEBENTURES
Convertible Debentures consisted of the following as of March 31, 2011 and
December 31, 2010:
16
March 31, December 31,
2011 2010
--------------------------------------------------------------------------------
Convertible debenture, 12% stated interest
rate, secured by all of the Company's assets,
Due on December 31, 2011. $ 620,137 $ 620,137
Convertible debenture, 12% stated interest
rate, secured by all of the Company's assets,
Due on December 31, 2011. 1,500,000 1,500,000
Convertible debenture, 12% stated interest
rate, secured by all of the Company's assets,
Due on December 31, 2011. 1,041,218 1,041,218
--------------------------------------------------------------------------------
3,161,355 3,161,355
Less current maturities (3,161,355) (3,161,355)
--------------------------------------------------------------------------------
Long-term portion of convertible debenditures $ - $ -
--------------------------------------------------------------------------------
The convertible debentures and accrued interest are convertible into shares of
the Company's common stock at the lowest bid price for the 20 trading days prior
to conversion. As of December 31, 2010, the Company was in default on the all
three convertible debentures. On January 24, 2011, the Company entered into a
forbearance agreement which requires the Company to make payments according to
the agreement (see note 6). As of March 31, 2011 and December 31, 2011, the
Company had accrued interest owed on the convertible debentures in the amount of
$751,999 and $958,458, respectively. The Company recorded interest expense of
$93,541 and $93,541 for the three months ended March 31, 2011 and 2010,
respectively.
The Company determined that certain conversion features of the convertible
debentures and accrued interest fell under derivative accounting treatment. As
of March 31, 2011, and December 31, 2010, the fair value of the conversion
feature was determined to be $8,978,981 and $1,339,192, respectively.
The Company made the required payments through April 30, 2011 as required by the
January 24, 2011 forbearance agreement. As of the date of this report, the
Company had not made the required May 1, 2011 payment.
17
NOTE 9 - FINANCIAL INSTRUMENTS
The Company has financial instruments that are considered derivatives, or
contain embedded features subject to derivative accounting. Embedded derivatives
are valued separate from the host instrument and are recognized as derivative
liabilities in the Company's balance sheet. The Company measures these
instruments at their estimated fair value, and recognizes changes in their
estimated fair value in results of operations during the period of change. The
Company has estimated the fair value of these embedded derivatives using the
Black-Scholes model. The fair value of the derivative instruments are measured
each quarter. As of March 31, 2011, and December 31, 2010, the fair market value
of the derivatives aggregated $9,342,767 and $1,412,646, respectively, using the
following assumptions: term of between 0.15 - 1.92 year, estimated volatility of
between 155.84 and 208.90 percent and a discount rate of between 0.00% and 0.30
percent.
NOTE 10 - FAIR VALUE MEASUREMENTS
For asset and liabilities measured at fair value, the Company uses the following
hierarchy of inputs:
o Level one -- Quoted market prices in active markets for identical
assets or liabilities;
o Level two -- Inputs other than level one inputs that are either
directly or indirectly observable; and
o Level three -- Unobservable inputs developed using estimates and
assumptions, which are developed by the reporting entity and reflect
those assumptions that a market participant would use.
Liabilities measured at fair value on a recurring basis at March 31, 2011 are
summarized as follows:
Level 1 Level 2 Level 3 Total
-----------------------------------------------
Fair value of derivatives $ - $ 9,342,767 $ - $ 9,342,767
Liabilities measured at fair value on a recurring basis at December 31, 2010 are
summarized as follows:
Level 1 Level 2 Level 3 Total
-----------------------------------------------
Fair value of derivatives $ - $ 1,412,646 $ - $ 1,412,646
As further described in Note 9, the fair value of the derivative liability was
determined using the Black-Scholes option pricing model.
NOTE 11 - STOCKHOLDERS' DEFICIT
Cirtran stockholders' deficit increased by $8,033,956 and $827,606, as a result
of net loss for the three months ended March, 31, 2011 and 2010, respectively.
Noncontrolling interest in consolidated subsidiaries increased stockholders'
deficit by $575,836 and $531,291 for the three months ended March 31, 2011 and
2010, respectively, due to the net loss of the noncontrolling subsidiary.
During the three months ended March 31, 2011, the Company did not issue shares
of common stock.
NOTE 12 - STOCK OPTIONS AND WARRANTS
Stock Option Plans - As of March 31, 2011, options to purchase a total of
59,200,000 shares of common stock had been issued from the 2006 Stock Option
Plan, out of which a maximum of 60,000,000 can be issued. As of March 31, 2011,
options and share purchase rights to acquire a total of 22,960,000 shares of
common stock had been issued from the 2008 Stock Option Plan, also, out of which
a maximum of 60,000,000 can be issued. The Company's Board of Directors
administers the plans, and has discretion in determining the employees,
directors, independent contractors, and advisors who receive awards, the type of
awards (stock, incentive stock options, non-qualified stock options, or share
purchase rights) granted, and the term, vesting, and exercise prices.
18
Employee Options - During the three months ended March 31, 2011 and 2010, the
Company did not grant options to purchase shares of common stock to employees.
During the three months ending March 31, 2011, the Company accrued for
20,400,000 employee options relating to the employment contract of the Company
president, directors and officers. The fair market value of the options accrued
aggregated $40,350, using the following assumptions: 5 year term, volatility of
167.47 percent and a discount rate of 2.02 percent.
A summary of the stock option activity under the Plans as of March 31, 2011, and
changes during the three months then ended is presented below:
Weighted
Weighted Average
Average Remaining Aggregate
Exercise Contractual Intrinsic
Shares Price Life Value
--------------------------------------------------------------------------------
Outstanding at
December 31, 2010 53,160,000 $ 0.014 2.48 $ -
--------------------------------------------------------------------------------
Granted - $ 0.000
Exercised - $ 0.000
Expired (2,400,000) $ 0.000
Outstanding at
March 31, 2011 50,760,000 $ 0.014 2.23 $ -
--------------------------------------------------------------------------------
Exercisable at
March 31, 2011 50,760,000 $ 0.014 2.23 $ -
As of March 31, 2011 and December 31, 2010, the company had a total of
81,600,000 and 61,200,000 options not issued but accrued.
Warrants - On January 24, 2011, as part of the A&R Forbearance Agreement, a
warrant to purchase 25,000,000 shares of common stock was issued to YA Global.
The warrant had an exercise price of $0.02 per share and vested immediately. The
fair market value of the warrants aggregated $58,410, using the following
assumptions: 5 year term, volatility of 170.22 percent and a discount rate of
2.03 percent.
In connection with the private placement with ANAHOP, the Company issued
five-year warrants to purchase 30,000,000 shares of common stock at prices
ranging from $0.15 to $0.50. All of these warrants were subject to adjustment in
the event of a stock split. Accordingly, as a result of the 1:1.20 forward stock
split that occurred in 2007, there were warrants outstanding at March 31, 2011
to purchase a total of 36,000,000 shares of common stock in connection with
these transactions. The exercise price per share of each of the aforementioned
warrants was likewise affected by the stock split, in that each price was
reduced by 20 percent.
As of March 31, 2011, the Company also had outstanding and exercisable warrants
issued in prior years to purchase 75,000,000 shares of the Company's common
stock related to a debt issuance at prices ranging from $0.02 to $0.50 per share
and expire on February 28, 2013. The Company had outstanding and exercisable
warrants issued in prior years to purchase 6,000,000 shares of the Company's
common stock issued to a shareholder at a price of $0.0125 per share and an
expiration date of April 5, 2012.
The Corporation currently has an insufficient number of authorized shares to
enable warrant holders to fully exercise their warrants, assuming all warrants
holders desired to do so. Accordingly, the warrants are subject to derivative
accounting treatment, and are included as part of the company's derivative
liability. The value of the derivative liability related to the warrants were
$363,786 as of March 31, 2011 (see note 9).
NOTE 13 - SEGMENT INFORMATION
Segment information has been prepared in accordance with ASC 280-10, Disclosure
about Segments of an Enterprise and Related Information. The Company has four
reportable segments: Electronics Assembly, Contract Manufacturing, Marketing and
Media, and Beverage Distribution. The Electronics Assembly segment manufactures
and assembles circuit boards and electronic component cables. The Contract
Manufacturing segment manufactures, either directly or through foreign
subcontractors, various products under manufacturing and distribution
agreements. The Marketing and Media segment provides marketing services to
online retailers, along with beverage development and promotional services to
PlayBev. The Beverage Distribution segment manufactures, markets, and
distributes Playboy-licensed energy drinks domestically and internationally. The
Beverage Distribution segment continues to grow, and the distribution channels,
across the country and internationally, continues to gain traction. The Company
anticipates this segment to become more significant in relation to overall
Company operations.
19
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:
Electronics Contract Marketing Beverage
Assembly Manufacturing and Media Distribution Total
-----------------------------------------------------------------------------------------------------------------
Three Months Ended March 31, 2011
---------------------------------
Sales to external customers $ - $ 53,941 $ - $ 1,341,259 $ 1,395,200
Segment income (loss) (8,232,716) (522) (5,788) (370,766) (8,609,792)
Segment assets 1,728,782 727,148 348,169 1,594,809 4,398,908
Depreciation and amortization 8,735 42,178 5,515 - 56,428
Three Months Ended March 31, 2010
---------------------------------
Sales to external customers $ 170,444 $ 1,045 $ 490,436 $ 1,120,934 $ 1,782,859
Segment income (loss) (418,845) (64,947) (37,135) (846,441) (1,363,368)
Segment assets 2,954,277 1,185,025 680,884 593,876 5,414,062
Depreciation and amortization 93,733 64,447 5,841 - 164,021
NOTE 14 - GEOGRAPHIC INFORMATION
The Company currently maintains $199,598 of capitalized tooling costs in China.
All other revenue-producing assets are located in the United States of America.
Revenues are attributed to the geographic areas based on the location of the
customers purchasing the products.
NOTE 15 - VARIABLE INTEREST ENTITY
Consolidation of PlayBev - During the year ended December 31, 2007, the Company,
through AfterBev, a 51% voting and 4% economic interest consolidated subsidiary,
purchased a 50% ownership in PlayBev for $750,000. As condition of the purchase,
AfterBev was to develop an acceptable operating plan for PlayBev, procure a
credit facility with a third party at prevailing market rates sufficient to fund
PlayBev's working capital needs, and provide a third party vendor to develop,
manufacture, and distribute the energy drink product. Upon satisfactory
completion of these events, AfterBev was granted an additional 1% ownership
interest in PlayBev, bringing its total investment to 51%. Certain participating
rights held by the minority interest holders of PlayBev prevented it being
consolidated with the Company under the majority ownership accounting guidance.
The Company was selected to develop, manufacture, and distribute the energy
drinks as well as provide the credit facility to support the working capital
needs of PlayBev.
Effective January 1, 2010, the Company adopted the new provisions under
Generally Accepted Accounting Principles ("GAAP"), ASC 810-10, "Consolidation of
Variable Interest Entities," which caused it to re-evaluate its involvement with
PlayBev. At year end, the Company determined that it was the primary beneficiary
of PlayBev, and that the assets, liabilities and operations of PlayBev should be
consolidated into its financial statements beginning January 1, 2010.
Included in the accompanying financial statements are the following assets and
liabilities of PlayBev as of March 31, 2011, and December 31, 2010, and for the
three months ended March 31, 2011 and 2010:
20
March 31, December 31,
2011 2010
--------------------------------------------------------------------------------
Other Assets $ 361 $ 361
Prepaid Royalty - 500,000
--------------------------------------------------------------------------------
Total Assets $ 361 $ 500,361
================================================================================
Accrued Interest $ 309,891 $ 266,129
Royalty Payable 547,982 552,150
Notes Payable to Shareholders 250,000 250,000
--------------------------------------------------------------------------------
Total Liabilities $ 1,107,873 $ 1,068,279
================================================================================
The assets included above primarily relate to prepayments under the Playboy
license agreement that expires in March 2012. The parties have the option to
extend the license agreement at the end of the term. These assets can not be
used to settle PlayBev's liabilities.
NOTE 16 - SUBSEQUENT EVENTS
As of May 23, 2011 the May payment under the A&R Forbearance Agreement had not
been made (see note 6, Forbearance Agreements). The Company has negotiated an
extension of the payment with YA Global to extend the payment date to May 27,
2011.
21
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This discussion should be read in conjunction with Management's Discussion and
Analysis of Financial Condition and Results of Operations included in our Annual
Report on Form 10-K for the year ended December 31, 2010.
Overview
In our U.S. operations, we provide a mix of high and medium size volume turnkey
manufacturing services and products using various high-tech applications for
leading electronics OEMs in the communications, networking, peripherals, gaming,
law enforcement, consumer products, telecommunications, automotive, medical, and
semiconductor industries. Our services include pre-manufacturing, manufacturing
and post-manufacturing services. Our goal is to offer customers the significant
competitive advantages that can be obtained from manufacture outsourcing. We
also market an energy drink under the Playboy brand pursuant to a license
agreement with Playboy Enterprises, Inc. ("Playboy").
We conduct business through our subsidiaries and divisions: CirTran Beverage,
CirTran USA, CirTran Asia, CirTran Products, CirTran Media Group, and CirTran
Online. CirTran Beverage manufactures, markets, and distributes Playboy-licensed
energy drinks in accordance with an agreement we, entered into with PlayBev, a
consolidated variable interest entity who holds the Playboy license. Sales of
energy drink beverages during the three months ended March 31, 2011 and 2010,
amounted to 96 percent and 63 percent of total sales, respectively.
CirTran USA accounted for zero percent and ten percent of our total revenues
during the three months ended March 31, 2011 and 2010, respectively, generated
by low-volume electronics assembly activities consisting primarily of the
placement and attachment of electronic and mechanical components on printed
circuit boards and flexible (i.e., bendable) cables.
Through CirTran Asia we manufacture and distribute electronics, consumer
products and general merchandise to companies selling in international markets.
Royalty revenue was 4 percent and zero percent of our total revenues during the
three months ended March 31, 2011 and 2010, respectively.
CirTran Products pursues contract-manufacturing relationships in the U.S.
consumer products markets, including licensed merchandise sold in the sports and
entertainment markets. Sales comprised zero percent of total sales for both
periods ended March 31, 2011 and 2010.
CirTran Media provides end-to-end services to the direct response and
entertainment industries. The company had no revenues relating to this
subsidiary for both the three months ended March 31, 2011 and 2010.
CirTran Online sells products via the Internet, and provides services and
support to Internet retailers. In conjunction with partner GMA, revenues from
this division were 0 and 27 percent of total revenues for the periods ended
March 31, 2011 and 2010.
Forward-Looking Statements and Certain Risks
The statements contained in this report that are not purely historical are
considered to be "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995 and Section 21E of the Securities
Exchange Act. These statements represent our expectations, hopes, beliefs,
anticipations, commitments, intentions, and strategies regarding the future.
They may be identified by the use of words or phrases such as "believes,"
"expects," "anticipates," "should," "plans," "estimates," and "potential," among
others. Forward-looking statements include, but are not limited to, statements
contained in Management's Discussion and Analysis of Financial Condition and
Results of Operations regarding our financial performance, revenue, and expense
levels in the future and the sufficiency of our existing assets to fund future
operations and capital spending needs. Readers are cautioned that actual results
could differ materially from the anticipated results or other expectations that
are expressed in these forward-looking statements. The fact that some of these
risk factors may be the same or similar to our past reports filed with the SEC
means only that the risks are present in multiple periods. We believe that many
of the risks are part of doing business in the industry in which we operate and
compete and will likely be present in all periods reported. The fact that
certain risks are common in the industry does not lessen their significance. The
forward-looking Statements contained in this report, are made as of the date of
this report and we assume no obligation to update them or to update the reasons
why our actual results could differ from those that we have projected in such
forward-looking Statements. We expressly disclaim any obligation or intention to
update any forward-looking statement.
22
Results of Operations
Comparison of the Three months ended March 31, 2011 and 2010
Sales and Cost of Sales
Net sales decreased to $1,395,200 for the three months ended March 31, 2011, as
compared to $1,782,859 for the three months ended March 31, 2010. The decrease
in revenues was due to a shift in focus to the manufacture and distribution of
Playboy energy drinks. Sales decreased as a result of changing the focus from
electronics assembly, contract manufacturing and marketing and media services
during 2010 and increasing beverage distribution sales. The beverage
distribution did not make up for the loss of sales in the assembly,
manufacturing, and media services in total, due to the time necessary to comply
with regulatory and administrative requirements for opening and operating
international sales channels in the beverage distribution segment. The change
was made to focus on beverage distribution due to the increased margins
associated with that segment.
Cost of sales, as a percentage of sales, decreased to 53 percent from 94 percent
for the three months ended March 31, 2011, as compared to the three months ended
March 31, 2010, respectively. Consequently, the gross profit margin increased to
47 percent from 6 percent, for the three months ended March 31, 2011 and 2010,
respectively. The increase in gross profit margin were attributable to the
significant shift in the sales mix of products and services experienced during
2011 as compared to 2010 and increases in product royalty expenses, which are
included in the cost of sales. The company shifted its focus to the manufacture
and distribution of beverages. In addition, CirTran Beverage records products
sales and costs on sales made directly to distributors and end customer, which
sales provide a more favorable gross profit margin. We anticipate that gross
profit margins for CirTran Beverage will increase in the future as we increase
our distribution of the Playboy energy drink beverages to both domestic and
international markets.
The following charts present comparisons of sales, cost of sales and gross
profits generated by our four operating segments, i.e., Contract Manufacturing,
Electronics Assembly, Marketing and Media and Beverage Distribution during the
three months ended March 31, 2011 and 2010.
Three Months Ended March 31:
Cost of Royalty Gross Loss
Segment Year Sales Sales Expense / Margin
--------------------------------------------------------------------------------
Electronics 2011 $ - $ - $ - $ -
Assembly 2010 170,444 198,340 - (27,896)
--------------------------------------------------------------------------------
Contract 2011 53,941 331 - 53,610
Manufacturing 2010 1,045 (11,608) 12,653
--------------------------------------------------------------------------------
Marketing / 2011 - - - -
Media 2010 490,436 463,146 - 27,290
--------------------------------------------------------------------------------
Beverage 2011 1,341,259 194,956 544,065 602,238
Distribution 2010 1,120,934 497,555 525,383 97,996
--------------------------------------------------------------------------------
Selling, General and Administrative Expenses
During the three months ended March 31, 2011, selling, general and
administrative expenses decreased $99,739 as compared to the same period during
2010. The decrease was the result of the shift from assembly and Media and
Marketing to Beverage Distribution that reduced payroll and administrative
costs. We continue to reposition our business structure to take advantage of our
core strengths.
23
Non-cash compensation expense
Compensation expense in connection with accounting for options owed or granted
to employees to purchase common stock was $40,349 for the three months ended
March 31, 2011, as compared to $43,577 for the three months ended March 31,
2010, respectively. The increase was primarily a result of the 6,000,000 options
accrued for our Company President per his employment agreement.
Other income and expense
The combined interest expense for three months ended March 31, 2011, was
$271,790 as compared to $265,572 for the three months ended March 31, 2010, an
increase of two percent. Interest expense recorded in the Consolidated
Statements of Operations combines both accretion expense and interest expense.
Actual interest expense increased to $192,163 for the three months ended March
31, 2011, as compared to the interest expense of $190,690 for the three months
ended March 31, 2010.
Interest income for the three months ending March 31, 2011 and 2010 was $0 as a
result of the consolidation and elimination of PlayBev as of January 1, 2010.
We recorded a loss of $7,871,711 on our derivative valuation for the three
months ending March 31, 2011, as compared to a gain of $247,357 recorded for the
three months ending March 31, 2010. The unfavorable swing in the derivative
valuation is primarily the result of factors relating to the differing debt
levels of the underlying convertible securities, together with the varying
market values of our common stock.
As a result of these factors, our overall net loss increased to $8,609,792 for
the three months ended March 31, 2011, as compared to a net loss of $1,363,368
for the three months ended March 31, 2010. The net loss attributable to the
Company was $8,033,956 for the three months ended March 31, 2011, and net loss
of $575,836 was attributable to a non-controlling equity interest in PlayBev.
Liquidity and Capital Resources
We have had a history of losses from operations, as our expenses have been
greater than our revenues. Our accumulated deficit was $50,003,864 at March 31,
2011, and $41,969,908 at March 31, 2010. Net loss for the three months ended
March 31, 2011, was $8,609,792 as compared to $1,363,368 for the three months
ended March 31, 2010. Our current liabilities exceeded our current assets by
$29,694,305 as of March 31, 2011, and by $21,140,941 as of March 31, 2010. For
the three months ended March 31, 2011 and 2010, we experienced negative cash
flows from operating activities of $35,343 and $205,516, respectively.
Cash
The amount of cash used in operating activities during the three months ended
March 31, 2011 decreased by $170,173, driven primarily by increasing payables
and deferred revenue balances.
Accounts Receivable
Trade accounts receivable, net of allowance for doubtful accounts, increased
$329,430 during the three months ended March 31, 2011. We continue to monitor
individual customer accounts and are working to improve collections on trade
accounts receivable. The company eliminates the receivables associated with
PlayBev as part of consolidation in accordance with GAAP treatment as a Variable
Interest Entity ("VIE").
Accounts payable and accrued liabilities
During the three months ended March 31, 2011, accounts payable, accrued
liabilities and short-term debt increased $390,680 to a combined balance of
$12,730,921. The increase was driven primarily by an increase of $120,750 of
short-term advances and an increase of $396,326 in accrued liabilities. At March
31, 2011, we owed $483,000 to investors from whom we had borrowed funds in the
form of either unsecured or short-term advances.
24
Liquidity and financing arrangements
We have a history of substantial losses from operations, as well of history of
using rather than providing cash in operations. We had an accumulated deficit of
$50,003,864 along with a total stockholders' deficit of $27,721,589, at March
31, 2011. In addition, we have used, rather than provided, cash in our
operations for the three months ended March 31, 2011 and 2010, of $35,343 and
$205,516, respectively. During the three months ended March 31, 2011, our
monthly operating costs and interest expense averaged approximately $481,000 per
month.
In conjunction with our efforts to improve our results of operations we are also
actively seeking infusions of capital from investors, and are seeking sources to
repay our existing convertible debentures. In our current financial condition,
it is unlikely that we will be able to obtain additional debt financing. Even if
we did acquire additional debt, we would be required to devote additional cash
flow to servicing the debt and securing the debt with assets. Accordingly, we
are looking to obtain 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 dilute the value
of our common stock and existing shareholders' positions.
There can be no assurance that we will be successful in obtaining more debt
and/or equity financing in the future 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.
Convertible Debentures
Highgate House Funds, Ltd. - In May 2005, the Company entered into an agreement
with Highgate, to issue a $3,750,000, 5 percent Secured Convertible Debenture
(the "Debenture"). The Debenture was originally due December 2007, and is
secured by all of the Company's assets. Highgate extended the maturity date of
the Debenture to December 31, 2008. As of January 1, 2008 the interest rate
increased to 12 percent. On August 11, 2009, the Company and YA Global, an
assignee of Highgate, entered into a forbearance agreement and related
agreements. The Company agreed to repay the Company's obligations under the
Debentures per an agreed schedule. Subsequently, the Company defaulted on its
payment obligation. However, in January 2011, the Company and YA Global entered
into an amended and restated forbearance agreement, described below.
Accrued interest was originally payable at the time of maturity or conversion.
Per the Forbearance Agreement, the scheduled payments are to be applied first to
outstanding accrued interest. The Company may, at its option, elect to pay
accrued interest in cash or shares of our common stock, with the conversion
price to be used to determine the number of shares of common stock being equal
to 85 percent of the lowest closing bid price of the Company's common stock
during the ten trading days prior to the payment day. Interest accrued during
the three months ending March 31, 2011, totaled $18,349. The balance of accrued
interest owed at March 31, 2011, was $97,748.
On January 24, 2011, the Company, and YA Global Investments finalized an amended
and restated forbearance agreement (the "A&R Forbearance Agreement") and related
agreements, which related to certain financing arrangements and agreements
between the Company and YA and its predecessors. The A&R Forbearance Agreement
was dated as of January 7, 2011, but the final conditions for closing were met
on January 24, 2011.
The Company and certain of its subsidiaries, which also guaranteed the Company's
obligations (the "Guarantors" and collectively with the Company, the "Obligors")
agreed to waive any claims against YA, and released any such claims the Obligors
may have had. The Obligors also ratified their respective obligations under the
Financing Documents, and agreed to the satisfaction of certain conditions
precedent, including the following: payment of certain funds to YA at the time
of execution of the A&R Forbearance Agreement; the entry by Iehab Hawatmeh,
President of the Company, into a Guaranty Agreement and a Pledge Agreement (both
discussed in Note 6); the entry into a Ratification and Joinder Agreement by the
Obligors (discussed below); the execution of a confession of judgment in a
litigation matter between YA, the Company, and Katana Electronics, LLC
("Katana"); and the delivery of a new warrant (the "Warrant") to YA (see Note
6).
The Company determined that certain conversion features of the Debenture fell
under derivative accounting treatment. Since May 2005, the carrying value has
been accreted over the life of the debenture until December 31, 2007, the
original maturity date. As of that date, the carrying value of the Debenture was
$970,136, which was the remaining face value of the debenture.
In connection with the issuance of the Debenture, $2,265,000 of the proceeds was
used to repay earlier promissory notes. Fees of $256,433, withheld from the
proceeds, were capitalized and were amortized over the life of the note.
25
During 2006, Highgate converted $1,000,000 of Debenture principal and accrued
interest into a total of 37,373,283 shares of common stock. During 2007,
Highgate converted $1,979,864 of Debenture principal and accrued interest into a
total of 264,518,952 shares of common stock. During the year ended December 31,
2008 Highgate converted $350,000 of debenture principle into a total of
36,085,960 shares of common stock. The carrying value of the Debenture as of
March 31, 2011 was $620,136. The fair value of the derivative liability stemming
from the debenture's conversion feature was determined to be $1,647,147 as of
March 31, 2011.
YA Global December Debenture - In December 2005, the Company entered into an
agreement with YA Global to issue a $1,500,000, 5 percent Secured Convertible
Debenture (the "December Debenture"). The December Debenture was originally due
July 30, 2008, and has a security interest in all the Company's assets,
subordinate to the Highgate security interest. YA Global also agreed to extend
the maturity date of the December Debenture to December 31, 2008. As of January
1, 2008 the interest rate was increased to 12 percent. The Company agreed to
repay the Company's obligations under the Debentures per an agreed schedule.
Accrued interest was originally payable at the time of maturity or conversion.
Per the Forbearance Agreement, the scheduled payments are to be applied first to
outstanding accrued interest. The Company may, at its option, elect to pay
accrued interest in cash or shares of our common stock, with the conversion
price to be used to determine the number of shares of common stock being equal
to 85 percent of the lowest closing bid price of the Company's common stock
during the ten trading days prior to the payment day. Accrued interest of
$300,000 was paid during the three months ended March 31, 2011. Interest accrued
during the three months ending March 31, 2011, totaled $44,384. The balance of
accrued interest owed at March 31, 2011, was $90,237.
As noted above, on January 24, 2011, the Company, and YA Global Investments
entered into the A&R Forebearance Agreement, discussed above.
The December Debenture was issued with 10,000,000 warrants, with an exercise
price of $0.09 per share. The warrants vested immediately and had a three-year
life. As a result of the May 2007 1.2-for 1 forward stock split, the effective
number of vested warrants increased to 12,000,000. On December 31, 2008, all
12,000,000 warrants expired.
The Company also granted YA Global registration rights related to the shares of
the Company's common stock issuable upon the conversion of the December
Debenture and the exercise of the warrants. As of the date of this Report, no
registration statement had been filed.
The Company determined that the conversion features on the December Debenture
and the associated warrants fell under derivative accounting treatment. The
carrying value was accreted over the life of the December Debenture until August
31, 2008, a former maturity date, at which time the value of the December
Debenture reached $1,500,000.
In connection with the issuance of the December Debenture, fees of $130,000,
withheld from the proceeds, were capitalized and are being amortized over the
life of the December Debenture.
As of March 31, 2011, YA Global had not converted any of the December Debenture
into shares of the Company's common stock. As a result, the carrying value of
the debenture as of March 31, 2011, remains $1,500,000. The fair value of the
derivative liability stemming from the December Debenture's conversion feature
as of March 31, 2011, was determined to be $3,648,714.
YA Global August Debenture - In August 2006, the Company entered into another
agreement with YA Global relating to the issuance by the Company of another 5
percent Secured Convertible Debenture, due in April 2009, in the principal
amount of $1,500,000 (the "August Debenture").
Accrued interest was originally payable at the time of maturity or conversion.
Per the Forbearance Agreement, the scheduled payments are to be applied first to
outstanding accrued interest. The Company may, at its option, elect to pay
accrued interest in cash or shares of our common stock, with the conversion
price to be used to determine the number of shares of common stock being equal
to 85 percent of the lowest closing bid price of the Company's common stock
during the ten trading days prior to the payment day. Interest accrued during
the three months ending March 31, 2011, totaled $30,805. The balance of accrued
interest owed at March 31, 2011, was $564,014.
26
As noted above, on January 24, 2011, the Company, and YA Global Investments
entered into the A&R Forebearance Agreement, discussed above.
In connection with the August Debenture, the Company also agreed to grant to YA
Global warrants (the "Warrants") to purchase up to an additional 15,000,000
shares of our common stock. The Warrants had an exercise price of $0.06 per
share, and originally were to expire three years from the date of issuance. In
connection with the Forbearance Agreement, the term of the warrants was extended
to August 23, 2010. The Warrants also provide for cashless exercise if at the
time of exercise there is not an effective registration statement or if an event
of default has occurred. As a result of the May 2007 1.2-for 1 forward stock
split, the effective number of outstanding warrants increased to 18,000,000.
In connection with the issuance of the August Debenture, the Company also
granted YA Global registration rights related to the common stock issuable upon
conversion of the August Debenture and the exercise of the Warrants. As of the
date of this report, no registration statement had been filed.
The Company determined that the conversion features on the August Debenture and
the associated warrants fell under derivative accounting treatment. The carrying
value will be accreted each quarter over the life of the August Debenture until
the carrying value equals the face value of $1,500,000. During the year ended
December 31, 2008, YA Global chose to convert $341,160 of the convertible
debenture into 139,136,360 shares of common stock.
YA Global chose to convert $117,622 of the convertible debenture into 72,710,337
shares of common stock during the year ended December 31, 2009. As of March 31,
2011, the carrying value of the August Debenture was $1,041,218. The fair value
of the derivative liability arising from the August Debenture's conversion
feature was $3,683,120 as of March 31, 2011.
In connection with the issuance of the August Debenture, fees of $135,000,
withheld from the proceeds, were capitalized and are being amortized over the
life of the August Debenture.
Other Convertible Instruments
We currently have issued and outstanding options, warrants, convertible notes
and other instruments for the acquisition of our common stock in excess of the
available authorized but unissued shares of common stock provided for under our
Articles of Incorporation, as amended. As a consequence, in the event that the
holders of such instruments requiring the issuance, in the aggregate, of a
number of shares of common stock that would, when combined with the previously
issued and outstanding common stock of the Company exceed the authorized capital
of the Company, seek to exercise their rights to acquire shares under those
instruments, we will be required to increase the number of authorized shares or
effect a reverse split of the outstanding shares in order to provide sufficient
shares for issuance under those instruments.
Critical accounting estimates
Revenue Recognition - Revenue is recognized when products are shipped. Title
passes to the customer or independent sales representative at the time of
shipment. Returns for defective items are repaired and sent back to the
customer. Historically, expenses associated with returns have not been
significant and have been recognized as incurred.
Shipping and handling fees are included as part of net sales. The related
freight costs and supplies directly associated with shipping products to
customers are included as a component of cost of goods sold.
We signed an Assignment and Exclusive Services Agreement with GMA, a related
party, whereby revenues and all associated performance obligations under GMA's
web-hosting and training contracts were assigned to us. Accordingly, this
revenue is recognized in our financial statements when it is collected, along
with our revenue of CirTran Online Corporation.
We sold our Salt Lake City, Utah, building in a sale/leaseback transaction, and
reported the gain on the sale as deferred revenue to be recognized over the term
of lease pursuant to ASC 840-10, Accounting for Leases.
27
We have entered into a Manufacturing, Marketing and Distribution Agreement with
PlayBev, a related party, whereby we are the vendor of record in providing
initial development, promotional, marketing, and distribution services marketing
and distribution services. Accordingly, all amounts billed to PlayBev in
connection with the development and marketing of its new energy drink have been
included in revenue.
Impairment of Long-Lived Assets - We review our long-lived assets, including
intangibles, for impairment when events or changes in circumstances indicate
that the carrying value of an asset may not be recoverable. At each balance
sheet date, we evaluate whether events and circumstances have occurred that
indicate possible impairment. We use an estimate of future undiscounted net cash
flows from the related asset or group of assets over their remaining life in
measuring whether the assets are recoverable. Long-lived asset costs are
amortized over the estimated useful life of the asset, which is typically 5 to 7
years. Amortization expense was $111,113 and $111,113 for the three months ended
March 31, 2011 and 2010, respectively.
Financial Instruments with Derivative Features - We do not hold or issue
derivative instruments for trading purposes. However, we have financial
instruments that are considered derivatives, or contain embedded features
subject to derivative accounting. Embedded derivatives are valued separate from
the host instrument and are recognized as derivative liabilities in our balance
sheet. We measure these instruments at their estimated fair value, and recognize
changes in their estimated fair value in results of operations during the period
of change. We have estimated the fair value of these embedded derivatives using
the Black-Scholes model. The fair value of the derivative instruments are
measured each quarter.
Registration Payment Arrangements - On January 1, 2007, we adopted ASC 815-40
Accounting for Registration Payment Arrangements. Under ASC 815-40, and ASC
450-10, Accounting for Contingencies, a registration payment arrangement is an
arrangement where (a) we have agreed to file a registration statement for
certain securities with the SEC and have the registration statement declared
effective within a certain time period; and/or (b) we will endeavor to keep a
registration statement effective for a specified period of time; and (c)
transfer of consideration is required if we fail to meet those requirements.
When we issues an instrument coupled with these registration payment
requirements, we estimate the amount of consideration likely to be paid under
the agreement, and offsets such amount against the proceeds of the instrument
issued. The estimate is then reevaluated at the end of each reporting period,
and any changes recognized as a registration penalty in the results of
operations. As further described in Note 6 to the consolidated financial
statements, we have instruments that contain registration payment arrangements.
The effect of implementing this has not had a material effect on the financial
statements because we consider probability of payment under the terms of the
agreements to be remote.
Stock-Based Compensation - Effective January 1, 2006, we adopted the provisions
of ASC 718-10, Accounting for Stock Issued to Employees, for our stock-based
compensation plans. We previously accounted for our plans under the recognition
and measurement principles of Accounting Standards No. 25, Accounting for Stock
Issued to Employees ("APB 25") and related interpretations and disclosure
requirements established by ASC 718-10, Accounting for Stock-Based Compensation,
as amended by SFAS No. 148, Accounting for Stock-Based Compensation - Transition
and Disclosure.
Under APB 25, no compensation expense was recorded in earnings for our
stock-based options granted under our compensation plans, since the intrinsic
value of the options was zero. The pro forma effects on net income and earnings
per share for the options and awards granted under the plans were instead
disclosed in a note to the consolidated financial statements. Under ASC 718-10,
all stock-based compensation is measured at the grant date, based on the fair
value of the option or award, and is recognized as an expense in earnings over
the requisite service period, which is typically through the date the options
vest.
We adopted ASC 718-10 using the modified prospective method. Under this method,
compensation cost would've been recognized over the remaining service periods
for the unvested portion of all stock-based options and awards granted prior to
January 1, 2006, that remained outstanding, based on the grant-date fair value
measured under the original provisions of ASC 718-10 for pro forma and
disclosure purposes. However, no such options were outstanding as of January 1,
2006. There were 5.5 million options granted from the 2004 Stock Plan during
2006 that resulted in $65,616 in compensation cost which would have previously
been presented in a pro forma disclosure, as discussed above.
We utilized the Black-Scholes model for calculating the fair value pro forma
disclosures under ASC 718-10, and will continue to use this model, which is an
acceptable valuation approach under ASC 718-10.
28
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
Not required
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
The Company carried out an evaluation, under the supervision and with the
participation of management, including our Chief Executive Officer / Chief
Financial Officer, of the effectiveness of the design and operation of the
Company's disclosure controls and procedures (as defined in Rule 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934, as amended) as of March 31,
2011. Based on our evaluation, our Chief Executive Officer / Chief Financial
Officer has concluded that the Company's disclosure controls and procedures were
not effective at March 31, 2011, due to the fact that the material weaknesses in
the Company's internal control over financial reporting described in the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
2010, had not been remediated as of March 31, 2011.
These weaknesses are continuing. Management and the Board of Directors are aware
of these weaknesses that result because of limited resources and staff. Efforts
to design and implement controls and processes have been put on hold due to
limited resources, but we anticipate a renewed focus on this effort in the near
future. Due to our limited financial and managerial resources, we cannot assure
when we will be able to implement effective internal controls over financial
reporting.
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting that
occurred in the first quarter of 2011 that has materially affected, or is
reasonably likely to materially affect our internal control over financial
reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Advanced Beauty Solutions, LLC, v. CirTran Corporation, Case
No.1:08-ap-01363-GM. In connection with prior litigation between Advanced Beauty
Solutions ("ABS") and the Company, ABS claimed non-performance by the Company
and filed an adversary proceeding in ABS's bankruptcy case proceeding in the
United States Bankruptcy Court, Central District of California, and San Fernando
Valley Division. On March 17, 2009, the Bankruptcy Court entered judgment in
favor of ABS and against the Company in the amount of $1,811,667 plus interest.
On September 11, 2009, the Bankruptcy Court denied the Company's motion to set
aside the judgment. As of the date of this report, ABS is pursuing collection
efforts on this judgment.
On September 8, 2010, the Company executed an Assignment of Copyrights, thereby
assigning the Company's Copyright Registration No. TX-6-064-955, Copyright
Registration No. TX-6-064-956, and Copyright to the True Ceramic Pro - Live Ops
(TCPS) infomercial and related master tapes (collectively the "Copyrights") to
ABS. The Company assigned and transferred the Copyrights without reservation or
exclusion, making ABS the owner of the Copyrights. On February 23, 2011, the
Company filed a Motion to Declare Judgment Fully Satisfied or Alternatively to
Recoup Mutual Debts, requesting that the Court determine that the Company's
assignment of the Copyrights resulted in full satisfaction of the ABS judgment.
On March 3, 2011, ABS brought a Motion for Order to Show Cause re Civil Contempt
by the Company and CirTran Beverage Corp., CirTran Products Corp., CirTran Media
Corp., and Iehab Hawatmeh, alleging that the Company had failed to make payments
on ABS's judgment in violation of the Court's orders.
On April 6, 2011, the Court held a hearing on (1) the Company's Motion to
Declare Judgment Fully Satisfied or Alternatively to Recoup Mutual Debts; and
(2) ABS's Motion for an Order to Show Cause re Civil Contempt. The Court denied
the Company's Motion to declare the judgment fully satisfied, and granted ABS's
motion but did not hold the Company in civil contempt. The Court set a hearing
on the motion for the Order to Show Cause for July 8, 2011, regarding the
Company's compliance with collection orders. As of the date of this Report, the
Company had appealed the denial of the motion to declare the judgment satisfied,
and was reviewing its options with respect to how to proceed.
29
Apex Maritime Co. (LAX), Inc. v. CirTran Corporation, CirTran Asia, Inc., et
al., California Superior Court, Los Angeles County, SC098148. Plaintiff Apex
Maritime Co. (LAX), Inc. ("Apex") filed a complaint on May 8, 2008, against the
Company and CirTran Asia, the Company's subsidiary, claiming breach of contract,
nonpayment on open book account, non-payment of an account stated, and
non-payment for services, seeking approximately $62,000 against the Company and
$121,000 against CirTran Asia. The Company and CirTran Asia answered on June 9,
2008. The parties subsequently entered into a Release and Settlement Agreement
pursuant to which the Company and CirTran Asia agreed to pay an aggregate of
$195,000 in monthly payments. In the event of default under the Release and
Settlement Agreement, the Plaintiffs could file a Stipulation for Entry of
Judgment in the amount of $195,000, minus any amounts paid under the Release and
Settlement Agreement. On February 26, 2009, the Stipulation of Judgment was
filed, granting the California court jurisdiction to enforce the Release and
Settlement Agreement. On March 3, 2009, the court entered its judgment pursuant
to the Release and Settlement Agreement. On April 23, 2009, a Judgment Enforcing
Settlement was entered against CirTran Corporation and CirTran Asia, Inc.,
jointly and severally in the principal amount of $173,000, plus fees of $1,800
and costs of $40. On October 28, 2009, the Third Judicial District Court,
District of Utah, West Jordan Department, entered an Order in Supplemental
Proceedings, with which the Company complied. The parties have previously
engaged in settlement negotiations. These amounts have been accrued in full as a
liability.
Fortune Resources LLC v. CirTran Beverage Corp, Civil No. 090401259, Third
Judicial District Court, Salt Lake County, State of Utah. On February 5, 2009,
the plaintiff filed a complaint against CirTran Beverage, claiming non-payment
for goods in the amount of $121,135. CirTran Beverage filed its answer on
March10, 2009, denying the allegations in the Complaint. CirTran Beverage and
Fortune Resources engaged in settlement negotiations, and on May 3, 2010,
pursuant to which Fortune Resources agreed to dismiss the suit upon receipt from
CirTran of $50,000 pursuant to a payment schedule. As of August 22, 2010, the
Company has made its scheduled payments timely. The Plaintiff has filed a
request for entry of judgment against CirTran, claiming that CirTran failed to
make the required payments. These amounts have been accrued in full as a
liability. An Order for Supplementary Proceedings was entered on January 12,
2011. Subsequently, the parties reached a settlement, and a satisfaction of
judgment has been filed in the case.
Global Freight Forwarders v. CirTran Asia, Civil No. 080925731, Third Judicial
District Court, Salt Lake County, State of Utah. On December 18, 2008, the
plaintiff filed a complaint against CirTran Asia, claiming breach of contract,
breach of the duty of good faith and fair dealing, and unjust enrichment,
seeking approximately $260,000. The Complaint was served on CirTran Asia on
January 5, 2009. On February 12, 2009, CirTran Asia filed its answer.
Thereafter, CirTran Asia filed an amended answer and counterclaim. Discovery is
complete, and the plaintiff filed a certificate of readiness for trial with the
Court. The Parties have engaged in settlement negotiations, and have reached a
tentative agreement, and a final written settlement agreement has been executed.
Dr. Najib Bouz v. CirTran Beverage Corp, Iehab Hawatmeh and Does 1-20, Superior
Court for the State of California, County of Los Angeles, Civil No. KC053818. On
September 12, 2008, the plaintiff filed a complaint, seeking a judgment for
$52,500 plus attorneys' fees and certain costs, against CirTran Beverage, Iehab
Hawatmeh and unnamed others, claiming breach of contract and fraud in connection
with a certain promissory note. CirTran Beverage and Mr. Hawatmeh answered,
denying liability. On August 11, 2009, the parties entered into a settlement
agreement whereby the claims against Mr. Hawatmeh were dismissed with prejudice,
and the Company agreed to pay Dr. Bouz $63,000 over a twelve month period. The
Company has made 9 monthly payments but is in default of the $5,250 monthly
payments that were due on May 28, 2010, June 28, 2010, and July 28, 2010. These
amounts have been accrued in full as a liability.
Dr. Paul Bouz v. CirTran Beverage Corp, Iehab Hawatmeh and Does 1-20, Superior
Court for the State of California, County of Los Angeles, Civil No. KC053819. On
September 12, 2008, the plaintiff filed a complaint, seeking a judgment for
$52,500 plus attorneys' fees and certain costs, against CirTran Beverage, Iehab
Hawatmeh and unnamed others, claiming breach of contract and fraud in connection
with a certain promissory note. CirTran Beverage and Mr. Hawatmeh answered,
denying liability. On August 11, 2009, the parties entered into a settlement
agreement whereby the claims against Mr. Hawatmeh were dismissed with prejudice,
and the Company agreed to pay Dr. Bouz $63,000 over a twelve month period. The
Company has made 10 monthly payments but is in default of the $5,250 monthly
payments that were due on June 28, 2010, and July 28, 2010. These amounts have
been accrued in full as a liability.
30
NA CL&D Graphics v. CirTran Beverage Corp., Case No. 09V01154, Circuit Ct,
Waukesha County, Wisconsin. On or about March 23, 2009, CL&D filed an action in
the above court, alleging claims for breach of contract, unjust enrichment,
promissory estoppel, and seeking damages of at least $25,488 along with
attorneys' fees and costs. CirTran Beverage Corp is reviewing the matter and
intends to defend vigorously against the allegations in the complaint. These
amounts have been accrued in full as a liability.
Old Dominion Freight Line v. CirTran Corporation, Civil No. 090426290, Third
Judicial District Court, Salt Lake County, State of Utah. On May 5, 2010, the
Court entered an Order in Supplemental Proceedings in connection with a judgment
in favor of Old Dominion and against CirTran in the amount of $33,187. The
parties agreed to resolve this matter under terms requiring CirTran to pay
$20,000 over time. To date, the required payments have not been made. These
amounts have been accrued in full as a liability.
YA Global Investments, LP v. CirTran Corporation, Third Judicial District Court
of Salt Lake County, State of Utah, case no. 100911400. On January 24, 2011, the
Company entered into a Forbearance Agreement with YA Global Investments, LP
("YA"), including a confession of judgment in favor of YA. On February 23, 2011,
the court entered judgment based on the confession of judgment against the
Company in the amount of $3,161,354 in principal, plus $825,858 in interest.
LIB-MP Beverage, LLC v. PlayBeverages, LLC, CirTran Beverage Corporation,
CirTran Corporation, Iehab Hawatmeh, and Fadi Nora, United States District
Court, Central District of California, Case No. CV10-2814. On March 25, 2010,
LIB-MP Beverages, LLC, filed a complaint asserting claims for fraud, specific
performance, breach of contract, breach of the implied covenant of good faith
and fair dealing, declaratory relief and accounting (the "California
Litigation"). The amount of damages claimed in the California Litigation was not
specified. On April 29, 2010, the Company filed claims against LIB-MP Beverage,
LLC, American Sales & Merchandising, LLC, Warner Depuy, Michael Liberty and
Jeffrey Pollack in the Third Judicial District Court, Salt Lake County, State of
Utah, seeking a declaratory judgment on the claims asserted in the California
litigation, and further asserting claims for tortious interference with
contractual relations, breaches of fiduciary duties, fraud and negligent
misrepresentations. On June 21, 2010, the complaint filed in the California
Litigation was dismissed without prejudice for lack of jurisdiction.
Jimmy Esebag v. CirTran Corporation and Fadi Nora, Superior Court of the State
of California, Los Angeles County, Case No. BC296162. On July 15, 2010, the
court entered judgment against the Company in the amount of $68,270 based upon
the Company's failure to make payments when due under a settlement with Mr.
Esebag. Mr. Esebag has engaged in some actions to collect on the judgment. These
amounts have been accrued in full as a liability.
Desiree Liston v. CirTran Media Corp. d/b/a Diverse Media Group Corp., Circuit
Court of Benton County, Arkansas, Case No. CV2010-2448-6. On July 28, 2010,
Desiree Liston filed a complaint seeking an unspecified amount in excess of
$75,000 based on allegations of breach of an Employment Agreement. The Company
has filed its answer. The Company believes that this claim has no merit and
intends to defend it vigorously.
Gordon Jensen, d/b/a Gordon Jensen Trucking v. CirTran Corp., Third Judicial
District Court of Salt Lake County, State of Utah, case no.108900934. On May 28,
2010, plaintiff brought an action seeking $7,145 for nonpayment of services.
Judgment was entered against CirTran on October 7, 2010, for $6,703. These
amounts have been accrued in full as a liability.
General Distributors, Inc., v. Iehab Hawatmeh and CirTran Beverage Corp., dba
Play Beverages LLC dba Playboy Beverages, in the Circuit Court of the State of
Oregon, for the County of Clackamas, Case No. CV 10110087. On November 8, 2010,
General Distributors, Inc., filed a complaint asserting claims for breach of
contract, liability under the Uniform Commercial Code, quasi contract - unjust
enrichment, goods sold and delivered, account state, and attorneys fees. The
complaint seeks judgment in the amount of $49,999 plus interest and attorneys
fees. The Company and the other defendants have answered the complaint and deny
liability.
Playtime Distributing of Oklahoma LLC v. CirTran Corporation, CirTran Beverage
Corporation, and PlayBeverages LLC, in the District Court of Oklahoma County,
State of Oklahoma, Case No. CJ-2010-1058. On December 30, 2010, Playtime
Distributing of Oklahoma LLC filed suit asserting claims for breach of a
distribution agreement, bad faith breach of a distribution agreement, rescission
of the distribution agreement, accounting, breach of an independent sales
agreement, bad faith breach of an independent sales agreement, and punitive
damages. The petition seeks judgment in an unspecified amount in excess of
$75,000, plus interest and attorneys fees. The Company and the other defendants
have answered and deny liability.
31
USS Cal Builders, Inc. v, CirTran Beverage Corp., Iehab Hawatmeh, and Fadi Nora,
in the Superior Court of the State of California, County of Orange, Case No.
00425093. On November 16, 2010, USS Cal Builders, Inc., filed a complaint
asserting various claims which were challenged by the Company. On February 8,
2011, USS Cal Builders, Inc., replaced its original complaint with an amended
complaint, in which it asserts claims for breach of promissory note, breach of
oral contract, common count money had and received, and common count money lent.
The amended complaint seeks damages in the sum of at least $100,000 plus
interest, costs, and attorneys fees. The Company and the individual defendants
deny liability and intend to defend the claims.
RDS Touring and Promotions, Inc. v. CirTran Beverage Corp., CirTran Corp., and
CirTran Media Corp., in the Superior Court of the State of California, County of
Los Angeles, Case No. BC454112. On January 31, 2011, RDS Touring and Promotions,
Inc., filed a complaint asserting claims for breach of settlement agreement,
fraud in the inducement, and fraud and deceit (false promise). The Company has
filed a motion to dismiss the fraud claims and the contract claim against all
defendants other than the Company. The Company disputes the allegations of
fraud. The Company does not deny that it is currently in breach of the
settlement agreement.
American Express Travel Related Services Company, Inc., v. CirTran Corporation,
dba Diverse Media Group and Iehab Hawatmeh, in the Third District Court, State
of Utah, Salt Lake County. In this action, American Express asserts a claim for
$108,029 in principal and $24,269 in interest due on a credit card account. On
May 18, 2011, the defendants were served with a First Amended Complaint. The
Company denies liability and intends to defend the claims.
Ayad Jaber, Ramzy Fakhoury, Haya Enterprises, LLC. V. CirTran Beverage
Corporation, Play Beverages LLC, Iehab Hawatmeh, and Fadi Nora, in the Superior
Court of the State of California, County of Orange, Case No. 0443807. On January
24, 2011, these plaintiffs filed a complaint asserting claims based on alleged
breaches of various written and oral promises, seeking damages of $700,000 in
principal from the Company, plus $1,219,520 in principal from all defendants,
plus $200,000 from Fadi Nora, plus other unspecified amounts. On April 20, 2011,
the court entered default judgments against Fadi Nora, the Company, and Play
Beverages, LLC. On May 18, 2011, each of these defendants filed a motion to set
aside the default judgments and seeking an order permitting the defendants to
file their responsive pleadings.
In re Play Beverages, LLC, involuntary Chapter 7 petition, United States
Bankruptcy Court for the District of Utah, Case No. 11-26046. Three alleged
creditors, LIB-MP Beverage, LLC, George Denney, and Martin K. Dupuy, filed an
involuntary Chapter 7 petition against Play Beverages, LLC, on April 26, 2011.
The petition and a summons were served on Play Beverages, LLC on May 18, 2011,
and Play Beverages, LLC is required to answer the involuntary petition on or
before June 8, 2011. Play Beverages, LLC denies the allegations in the
involuntary petition and intends to contest the petition.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None
Item 3. DEFAULTS UPON SENIOR SECURITIES
None
Item 4. (Removed and Reserved)
None
Item 5. Other Information
None.
32
Item 6. Exhibits
Exhibit No. Document
----------- --------
3.1 Articles of Incorporation (previously filed as Exhibit No. 2 to our
Current Report on Form 8-K, filed with the Commission on July 17,
2000, and incorporated herein by reference).
3.2 Bylaws (previously filed as Exhibit No. 3 to our Current Report on
Form 8-K, filed with the Commission on July 17, 2000, and
incorporated herein by reference).
10.1 Securities Purchase Agreement between CirTran Corporation and
Highgate House Funds, Ltd., dated as of May 26, 2005 (previously
filed as an exhibit to the Company's Current Report on Form 8-K,
filed with the Commission on June 3, 2005, and incorporated herein
by reference).
10.2 Form of 5 percent Convertible Debenture, due December 31, 2007,
issued by CirTran Corporation (previously filed as an exhibit to the
Company's Current Report on Form 8-K, filed with the Commission on
June 3, 2005, and incorporated herein by reference).
10.3 Investor Registration Rights Agreement between CirTran Corporation
and Highgate House Funds, Ltd., dated as of May 26, 2005 (previously
filed as an exhibit to the Company's Current Report on Form 8-K,
filed with the Commission on June 3, 2005, and incorporated herein
by reference).
10.4 Security Agreement between CirTran Corporation and Highgate House
Funds, Ltd., dated as of May 26, 2005 (previously filed as an
exhibit to the Company's Current Report on Form 8-K, filed with the
Commission on June 3, 2005, and incorporated herein by reference).
10.5 Escrow Agreement between CirTran Corporation, Highgate House Funds,
Ltd., and David Gonzalez dated as of May 26, 2005 (previously filed
as an exhibit to the Company's Current Report on Form 8-K, filed
with the Commission on June 3, 2005, and incorporated herein by
reference).
10.6 Amendment No. 1 to Investor Registration Rights Agreement, between
CirTran Corporation and Highgate House Funds, Ltd., dated as of June
15, 2006.
10.7 Amendment No. 1 to Investor Registration Rights Agreement, between
CirTran Corporation and Cornell Capital Partners, LP, dated as of
June 15, 2006.
10.8 Asset Purchase Agreement, dated as of June 6, 2006, by and between
Advanced Beauty Solutions, LLC, and CirTran Corporation (previously
filed as an exhibit to the Company's Current Report on Form 8-K
filed with the Commission on June 13, 2006, and incorporated here in
by reference).
10.9 Lockdown Agreement by and between CirTran Corporation and Cornell
Capital Partners, LP, dated as of July 20, 2006 (previously filed as
an exhibit to the Company's Registration Statement on Form SB-2/A
(File No. 333-128549) filed with the Commission on July 27, 2006,
and incorporated herein by reference).
10.10 Amendment No. 2 to Investor Registration Rights Agreement, between
CirTran Corporation and Highgate House Funds, Ltd., dated as of
August 10, 2006 (filed as an exhibit to Registration Statement on
Form SB-2 (File No. 333-128549) and incorporated herein by
reference).
10.11 Amendment No. 2 to Investor Registration Rights Agreement, between
CirTran Corporation and Cornell Capital Partners, LP, dated as of
August 10, 2006 (filed as an exhibit to Registration Statement on
Form SB-2 (File No. 333-128549) and incorporated herein by
reference).
10.12 Amended Lock Down Agreement by and between the Company and Cornell
Capital Partners, L.P., dated as of October 30, 2006 (filed as an
exhibit to the Company's Quarterly Report for the quarter ended
September 30, 2006, filed with the Commission on November 20, 2006,
and incorporated herein by reference).
33
10.13 Amendment to Debenture and Registration Rights Agreement between the
Company and Cornell Capital Partners, L.P., dated as of October 30,
2006 (filed as an exhibit to the Company's Quarterly Report for the
quarter ended September 30, 2006, filed with the Commission on
November 20, 2006, and incorporated herein by reference).
10.14 Amendment Number 2 to Amended and Restated Investor Registration
Rights Agreement, between CirTran Corporation and Cornell Capital
Partners, LP, dated January 12, 2007 (previously filed as an exhibit
to the Company's Current Report on Form 8-K filed with the
Commission on January 19, 2007, and incorporated here in by
reference).
10.15 Amendment Number 4 to Investor Registration Rights Agreement,
between CirTran Corporation and Cornell Capital Partners, LP, dated
January 12, 2007(previously filed as an exhibit to the Company's
Current Report on Form 8-K filed with the Commission on January 19,
2007, and incorporated here in by reference).
10.16 Amendment to Employment Agreement for Iehab Hawatmeh, dated January
1, 2007 (previously filed as an exhibit to the Company's Annual
Report for the year ended December 31, 2006, filed with the
Commission on April 17, 2007, and incorporated herein by reference)
10.17 Assignment and Exclusive Services Agreement with Global Marketing
Alliance, LLC, dated April 16, 2007 (previously filed as an exhibit
to the Company's' Current Report on Form 8-K filed with the
Commission on April 20, 2007, and incorporated herein by reference).
10.18 Employment Agreement for Mr. Sovatphone Ouk dated April 16, 2007
(previously filed as an exhibit to the Company's' Current Report on
Form 8-K filed with the Commission on April 20, 2007, and
incorporated herein by reference).
10.19 Triple Net Lease between CirTran Corporation and Don L. Buehner,
dated as of May 4, 2007 (previously filed as an exhibit to the
Company's' Current Report on Form 8-K filed with the Commission on
May 10, 2007, and incorporated herein by reference).
10.20 Commercial Real Estate Purchase Contract between Don L. Buehner and
PFE Properties, L.L.C., dated as of May 4, 2007 (previously filed as
an exhibit to the Company's' Current Report on Form 8-K filed with
the Commission on May 10, 2007, and incorporated herein by
reference).
10.21 Exclusive Manufacturing, Marketing, and Distribution Agreement,
dated as of May 25, 2007 (previously filed as an exhibit to the
Company's' Current Report on Form 8-K filed with the Commission on
June 1, 2007, and incorporated herein by reference).
10.22 Amended and Restated Exclusive Manufacturing, Marketing, and
Distribution Agreement, dated as of August 21, 2007 (previously
filed as an exhibit to the Company's Current Report on Form 8-K
filed with the Commission on September 24, 2007, and incorporated
herein by reference).
10.23 Exclusive Sales Distribution/Representative Agreement, dated as of
August 23, 2007 (previously filed as an exhibit to the Company's
Current Report on Form 8-K filed with the Commission on September
24, 2007, and incorporated herein by reference).
10.24 Amendment Number 3 to Amended and Restated Investor Registration
Rights Agreement, between CirTran Corporation and YA Global
Investments, L.P. (previously filed as an exhibit to the Company's
Current Report on Form 8-K, filed with the Commission on February
12, 2008, and incorporated herein by reference).
10.25 Amendment Number 6 to Investor Registration Rights Agreement,
between CirTran Corporation and YA Global Investments, L.P.
(previously filed as an exhibit to the Company's Current Report on
Form 8-K, filed with the Commission on February 12, 2008, and
incorporated herein by reference).
34
10.26 Agreement between and among CirTran Corporation, YA Global
Investments, L.P., and Highgate House Funds, LTD (previously filed
as an exhibit to the Company's Current Report on Form 8-K, filed
with the Commission on February 12, 2008, and incorporated herein by
reference).
10.27 Agreement between and among CirTran Corporation, YA Global
Investments, L.P., and Highgate House Funds, LTD (previously filed
as an exhibit to the Current Report on Form 8-K, filed with the
Commission on October 15, 2008, and incorporated herein by
reference).
10.28 Forbearance Agreement between CirTran Corporation and YA Global
Investments (previously filed as an exhibit to a Current Report on
Form 8-K, filed with the Commission on August 17, 2009, and
incorporated herein by reference).
10.29 Stock Purchase Agreement between CirTran Corporation and Iehab
Hawatmeh (previously filed as an exhibit to the Quarterly Report
filed August 19, 2009, and incorporated herein by reference).
10.30 Stock Purchase Agreement between CirTran Corporation and Fadi Nora
(previously filed as an exhibit to the Quarterly Report filed August
19, 2009, and incorporated herein by reference).
10.31 Amended and Restated Forbearance Agreement, dated as of January 24,
2011 (previously filed as an exhibit to our current report filed
January 28, 2011 and incorporated herein by reference).
32 Certification of President / Chief Financial Officer
33 Certification pursuant to 18 U.S.C. Section 1350 - President / Chief
Financial Officer
SIGNATURES
In accordance with Section 13 or 15 (d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
CIRTRAN CORPORATION
/s/ Iehab Hawatmeh
----------------------------------------
Dated: May 26, 2011 By: Iehab Hawatmeh
President, Chief Financial Officer
(Principal Executive Officer, Principal
Financial Officer)
In accordance with the Exchange Act, this report has been signed by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
/s/ Iehab Hawatmeh
----------------------------------------
Dated: May 26, 2011 By: Iehab Hawatmeh
President, Chief Financial Officer,
Principal Executive Officer, Principal
Financial Officer and Director
35
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