U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 33-13674-LA
CIRTRAN CORPORATION
(Exact name of small business issuer as specified in its
charter)
Nevada 68-0121636
(State or other jurisdiction of (IRS Employer Identification
incorporation or organization) No.)
4125 South 6000 West, West Valley City, Utah 84128
(Address of principal executive offices)
(801) 963-5112
(Issuer's telephone number)
Not Applicable
(Former name, address and fiscal year, if changed since last
report)
Check whether the issuer (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the
preceding 12 months (or for such shorter period that the issuer
was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [ X] No [ ]
State the number of shares outstanding of each of the issuer's
classes of common equity, as of November 17, 2000: 10,495,637
shares of common stock.
Transitional Small Business Format: Yes [ ] No [ X ]
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TABLE OF CONTENTS
Page
PART I - FINANCIAL INFORMATION
Item 1 Condensed Consolidated Financial Statements
Balance Sheets as of September 30,
2000 and 1999 (unaudited) 3
Statements of Operations for the Three
Months and Nine Months Ended September
30, 2000 (unaudited) and 1999
(unaudited) 4
Statements of Cash Flows for the Nine
Months ended September 30, 2000 (unaudited)
and 1999 (unaudited) 5
Notes to Condensed Consolidated
Financial Statements (unaudited) 7
Item 2 Managements Discussion and Analysis of
Financial Condition and Results of
Operation 9
PART II - OTHER INFORMATION
Item 2 Changes in Securities and Use of Proceeds 11
Item 4 Submission of Matters to a Vote of Security
Holders 11
Item 6 Exhibits and Reports on Form 8-K 12
Signatures 12
2
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CirTran Corporation and Subsidiary
UNAUDITED CONSOLIDATED BALANCE SHEET
September 30,
ASSETS
2000 1999
CURRENT ASSETS
Cash and cash equivalents $ 40,250 $ 5,321
Trade accounts receivable, net of allowance for
doubtful accounts of $3,366 in 2000 and $75,100
in 1999 1,925,766 1,771,074
Inventories 3,009,396 3,325,397
Other 312,098 430,985
Total current assets 5,287,510 5,532,777
PROPERTY AND EQUIPMENT, NET 2,190,246 3,104,865
OTHER ASSETS, NET 115,397 588,176
$7,593,153 $9,225,818
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
CURRENT LIABILITIES
Line of credit $2,734,429 $3,646,212
Current maturities of long-term obligations 456,550 871,485
Current maturities of capital lease obligations 100,920 296,464
Checks written in excess of cash in bank - 111,339
Accounts payable 2,959,657 4,938,805
Accrued liabilities 1,305,622 553,051
Notes payable to stockholders 1,035,966 250,000
Total current liabilities 8,593,144 10,667,356
LONG-TERM OBLIGATIONS, less current maturities 448,702 530,818
CAPITAL LEASE OBLIGATIONS, less current maturities 22,762 55,877
COMMITMENTS - -
STOCKHOLDERS' EQUITY
Common stock, $0.001 par value; Authorized
500,000,000 shares; issued and outstanding;
10,143,567 in 2000 and 8,798,701 in 1999 10,144 8,799
Additional paid-in capital 5,836,527 3,761,272
Receivables from stockholders - (225,000)
Accumulated deficit (7,318,126) (5,573,304)
Total stockholders' deficit (1,471,455) (2,028,233)
$7,593,153 $9,225,818
The accompanying notes are an integral part of these statements.
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CirTran Corporation and Subsidiary
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Net sales $ 2,501,970 $ 1,779,625 $ 5,182,008 $ 8,937,827
Cost of sales 1,695,854 2,222,005 4,207,133 9,209,250
Gross profit 806,116 (442,380) 974,875 (271,423)
Selling, general and administrative
expenses 630,971 326,877 2,070,028 2,799,306
Income (loss) from
operations 175,145 (769,257) (1,095,153) (3,070,729)
Other income (expense)
Interest expense (18,220) (211,343) (326,537) (511,122)
Other income 3,658 53,532 71,318 207,396
(14,562) (157,811) (255,219) (303,726)
Earnings (loss) before
income taxes 160,583 (927,068) (1,350,372) (3,374,455)
Income tax expense - - - -
NET EARNINGS (LOSS) $ 160,583 $ (927,068) $ (1,350,372) $ (3,374,455)
Net earnings (loss) per common
share-basic $ 0.07 $ (0.46) $ (0.19) $ (0.56)
Net earnings (loss) per common
share-diluted $ 0.07 $ (0.46) $ (0.19) $ (0.56)
Weighted-average common and
diluted common equivalent
shares outstanding
Basic 2,387,893 2,020,538 7,163,679 6,061,613
Diluted 2,387,893 2,020,538 7,163,679 6,061,613
</TABLE>
The accompanying notes are an integral part of these statements.
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CirTran Corporation and Subsidiary
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months ended September 30,
2000 1999
Increase (decrease) in cash and cash equivalents
Cash flows from operating activities
Net loss $(1,350,372) $(3,374,455)
Adjustments to reconcile net loss to net
cash used in operating activities
Depreciation and amortization 580,909 485,206
Provision for loss on trade receivables 15,028 -
Reserve for inventory obsolescence 78,000 50,000
Changes in assets and liabilities
Trade accounts receivable (967,443) 2,353
Inventories (31,013) (83,342)
Other assets (239,545) (438,352)
Accounts payable 593,470 2,283,336
Accrued liabilities 706,836 300,951
Total adjustments 736,242 2,600,152
Net cash used in
operating activities (614,130) (774,303)
Cash flows from investing activities
Purchase of property and equipment (11,227) (456,272)
Net cash used in
investing activities (11,227) (456,272)
(Continued)
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CirTran Corporation and Subsidiary
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
For the Nine Months ended September 30,
2000 1999
Cash flows from financing activities
Increase in receivable from stockholders 86,000 -
Decrease in checks written in excess
of cash in bank (77,656) (91,076)
Net change in line of credit (58,180) (288,221)
Principal payments on long-term obligations (297,102) (20,854)
Principal payments on capital lease obligations (59,555) (10,710)
Purchase and retirement of outstanding stock (80,000) -
Issuance of common stock 1,151,600 931,235
Borrowings from stockholders - 250,000
Proceeds from long-term obligations - 463,283
Net cash provided by
financing activities 665,107 1,233,657
Net increase in cash and
cash equivalents 39,750 3,082
Cash and cash equivalents at beginning of period 500 2,239
Cash and cash equivalents at end of period $ 40,250 $ 5,321
Supplemental disclosure of cash flow information
Cash paid during the period for
Interest $ 326,537 $ 511,123
Noncash investing and financing activities
Capital lease obligation incurred for equipment $ - $ 26,954
The accompanying notes are an integral part of these statements.
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CirTran Corporation and Subsidiary
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000 and 1999
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements
of CirTran Corporation and Subsidiary (the Company) have been
prepared in accordance with generally accepted accounting
principles for interim financial information and with the
instructions to Form 10-QSB. Accordingly, these financial
statements do not include all of the information and footnote
disclosures required by generally accepted accounting
principles for complete financial statements. These
financial statements and footnote disclosures should be read
in conjunction with the audited consolidated financial
statements and notes thereto for the year ended December 31,
1999. In the opinion of management, the accompanying
unaudited consolidated financial statements contain all
adjustments (consisting of only normal recurring adjustments)
necessary to fairly present the Company's consolidated
financial position as of September 30, 2000, its consolidated
results of operations and cash flows for the three months
ended September 30, 2000 and 1999 and its consolidated
results of operations and cash flows for the nine months
ended September 30, 2000 and 1999. The results of operations
for the three months and nine months ended September 30, 2000
and 1999, may not be indicative of the results that may be
expected for the year ending December 31, 2000.
NOTE B - INVENTORIES
Inventories consist of the following at September 30:
2000 1999
Raw materials $ 1,964,547 $1,635,516
Work-in process 985,925 567,997
Finished goods 470,827 1,253,138
3,421,299 3,456,651
Less reserve for obsolescence (411,903) (131,254)
$ 3,009,396 $3,325,397
NOTE C - ISSUANCE OF STOCK
During the period ended September 30, 2000, the Company
issued 177,444 shares of its common stock to investors for
$1,151,600 in cash.
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CirTran Corporation and Subsidiary
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000 and 1999
NOTE D - MERGER AGREEMENT
Effective July 1, 2000, all of the assets and liabilities of
Circuit Technology Corporation (Circuit) were acquired by CTI
Systems, Inc. (CTISI), a wholly owned subsidiary of
Vermillion Ventures, Inc. (VVI). Circuit received 10,000,000
shares of VVI common stock in the transaction of which
800,000 shares were paid by Circuit to Cogent Capital Corp.
for services performed in facilitating the transaction.
CTISI subsequently changed its name to CirTran Corporation.
The merger was accounted for as a reverse acquisition of
CirTran Corporation by Circuit. Although CirTran Corporation
will be the surviving legal entity, for accounting purposes
Circuit was treated as the continuing entity. The equity at
September 30, 1999 was adjusted to give affect to this
reverse acquisition.
NOTE E - LITIGATION
The Company is a defendant in an alleged breach of a
facilities sublease agreement in Colorado. A lawsuit was
filed in which the plaintiff seeks to recover past due rent,
future rent, and other lease charges. The range of potential
loss is estimated at between $0 and $2,500,000. The range is
widespread due to two rent calculation methods written in the
master lease. Under one calculation, the amount would be
minimal. Under the other calculation, the amount would
represent all future rent (reduced by rent received from
future tenants). Currently, a new tenant on a short-term
lease occupies the premises. The new tenants lease includes
rent at two times the monthly rate of the original lease
under suit. The Company has also filed a counter suit
against the landlord for missing equipment. The amount of
the counter suit claim exceeds $500,000
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION
AND RESULTS OF OPERATIONS
Overview
CirTran provides a mixture of high and medium size volume
turnkey manufacturing services using surface mount technology
(SMT), ball-grid array (BGA) assembly, pin-through-hole (PTH) and
custom injection molded cabling for leading electronics OEMs in
the communications, networking, peripherals, gaming, consumer
products, telecommunications, automotive, medical, and
semiconductor industries. The Company provides a wide variety of
pre-manufacturing, manufacturing and post-manufacturing services.
Our goal is to offer customers the significant competitive
advantages that can be obtained from manufacture outsourcing,
such as access to advanced manufacturing technologies, shortened
product time-to-market, reduced cost of production, more
effective asset utilization, improved inventory management, and
increased purchasing power.
Results of Operations
Net Sales decreased 42% to $5,152,008 for the nine months
ended September 30, 2000 as compared to $8,937,827 for the same
period in 1999. The decrease is due to loss of a major customer,
Andrew Corporation, which accounted for approximately 46% of
Cirtran's net sales in 1999. Cost of sales for the nine-month
period ended September 30, 2000 was $4,207,133, a 54% decrease as
compared to $9,209,250 incurred during the comparable nine-month
period for the prior year. Such costs as a percentage of revenue
were 81% during 2000 as compared to 103% during 1999. Sales to
Andrew Corporation in 1999 accounted for a large volume of sales
through large orders averaging 35,000 pieces, but these orders
resulted in very low or negative margins, which was substantially
responsible for Cirtran's negative gross profit for the nine
months ended September 30, 1999. Since the first quarter of
2000, Cirtran has shifted its marketing effort to small and mid-
sized customers that place orders of 100 to 5,000 pieces, which
produce a higher gross profit.
This redirection of Cirtran's marketing effort began to see
success in the third quarter of 2000. In the third quarter,
Cirtran had net sales of $2,501,970 as compared to $1,779,625 in
the third quarter of 1999, a 41% improvement over net sales
during the 1999 period. Cost of sales was $1,695,854 for the
three months ended September 30, 2000 as compared to $2,222,005
for the comparable period in 1999, a decrease of 24%. Gross
profit increased from a negative $442,380 for the three months
ended to a positive net profit of $806,116.
CirTran uses just-in-time manufacturing, which is a
production technique that minimizes work-in-process inventory and
manufacturing cycle time while enabling the Company to deliver
products to customers in the quantities and time frame required.
This manufacturing technique requires Cirtran to maintain an
inventory of component parts to meet customer orders. Inventory
at September 30, 2000, was $3,009,396 as compared to $3,325,397
at September 30, 1999. The decrease of approximately 10% in
inventory is attributable to the decreased sales in 2000 that
reduced Cirtran's need to replace inventory at the same level as
in 1999. Management believes the amount of its inventory that
may be considered obsolete or slow moving is properly reserved
and that Cirtran will be able to maintain a gross profit of at
least 15% through the remainder of 2000 based on current prices
for assembled circuit boards and the cost of inventory.
During the nine-month periods ended September 30, selling,
general and administrative expenses for 2000 were $2,070,028,
versus $2,799,306 for 1999, a 26% decrease. The change in
marketing
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strategy to small and medium sized clients enabled Cirtran to
reduce staff, especially in the areas of mid-level management and
assembly staff, and to implement other cost savings measures.
Management believes that a significant portion of the losses in
1999 are attributable to expenses related to opening and
subsequently closing of Cirtran's Colorado Springs facility. The
Colorado Springs facility was opened in November of 1998 and a
decision to close the facility was made in June of 1999. The
closing process was completed in February of 2000. The foregoing
cost savings measures account for the reduction in operating
expenses for the nine months ended September 30 2000 as compared
to 1999.
Interest expense for the nine months ended September 30,
2000 was $326,537 as compared to $511,122 for the comparable
period in 1999. The 36% decrease in interest expense is
attributable to the reduction in Citran's interest bearing
liabilities from approximately $5,700,000 at September 30, 1999,
to approximately $4,800,000 at September 30, 2000.
As a result of the above factors, the overall net loss
decreased 60% to $1,350,372 for the nine months ended September
30, 2000 as compared to $3,374,455 for the nine months ended
September 30, 1999. For the three months ended September 30,
2000, Cirtran realized earnings of $160,583 as compared to a loss
of $927,068 for the comparable period in 1999.
Liquidity and Capital Resources
Cirtran's current ratio during the nine months ended
September 30, 2000 improved to 0.6:1 from 0.5:1 at September 30,
1999. The primary reason for the improvement was the reduction
of current liabilities from $10,667,356 at September 30, 1999, to
$8,593,144 at September 30, 2000. Nevertheless, Cirtran has a
working capital deficit of $3,305,634 at September 30, 2000, and
has recognized a net loss from operations through 1999 and the
first nine months of 2000, although Cirtran did have net earnings
of $160,583 for the three months ended September 30, 2000. These
factors raise substantial doubt about the ability of Cirtran to
continue as a going concern.
To address this issue, plans on working with vendors to
convert approximately 80 percent of trade payables into long-term
notes and common stock and cure defaults with lenders through
forbearance agreements that the Company will be able to service.
Also, Abacus Ventures, Inc., purchased the Company's line of
credit from the lending institution and, based on certain
criteria, has indicated its willingness to exchange the debt for
common stock. If successful, these plans will add significant
equity to the Company. During the quarter ended September 30,
2000, Cirtran successfully extended payment terms on $199,647 of
trade payable to monthly installments of $6,256 over a term of 32
months with interest accruing at the rate of 8% per annum.
Following the end of the quarter, Cirtran extended payment terms
on an additional $97,259 of trade payables with one creditor. It
settled $646,283 of trade payables with another creditor by
paying $83,000 in cash, issuing a non-interest bearing note in
the principal amount of $166,000 due in two installments in
December 2000 and March 2001, issuing a promissory note in the
principal amount of $73,000 bearing interest at 6% per annum
payable in 18 monthly installments, and converting the remaining
$324,283 to 352,070 shares of common stock. Cirtran will
continue to purse these restructuring efforts to improve its
financial condition, but there is no assurance that management
will be successful in these efforts.
Year 2000 Compliance
Cirtran experienced no significant disruptions in mission
critical information technology and manufacturing systems and
believes those systems successfully responded to the Year 2000
date change. The costs associated with Year 2000 compliance were
nominal. Cirtran is not aware of any material
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problems resulting from Year 2000 issues with its internal
systems or the services of third parties. Cirtran will continue
to monitor its mission critical computer applications and those
of its supplier and vendors throughout the year to ensure that
any latent Year 2000 matters that may arise are addressed
properly.
Forward-Looking Statements
The Private Securities Litigation Reform Act of 1985
provides a safe harbor for forward-looking statements made by
Cirtran, except where such statements are made in connection with
an initial public offering. All statements, other than
statements of historical fact, which address activities, actions,
goals, prospects, or new developments that Cirtran expects or
anticipates will or may occur in the future, including such
things as improvement in results of operations and other such
matters are forward-looking statements. Any one or a combination
of factors could materially affect Cirtran's operations and
financial condition. These factors include competitive
pressures, success or failure of marketing programs, changes in
pricing and availability of parts inventory, creditor actions,
and conditions in the capital markets. Forward-looking
statements made by Cirtran are based on knowledge of its business
and the environment in which it operates as of the date of this
report. Because of the factors listed above, as well as other
factors beyond its control, actual results may differ from those
in the forward-looking statements.
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
On July 1, 2000, Cirtran issued 10,000,000 shares of its
common stock to acquire substantially all of the assets of
Circuit Technology, Inc., a Utah corporation ("CTI"), through the
Cirtran's wholly owned subsidiary, CTI Systems, Inc. ("CTSI"),
which is now the operating subsidiary of the Company. The shares
issued to CTI represent approximately 99% of the issued and
outstanding common stock of the Company immediately following the
acquisition. The shares were issued in reliance on the exemption
from registration set forth in Section 4(2) of the Securities Act
of 1933, based on the Company's belief that CTI was an accredited
investor. Prior to the transaction, management of CTI was given
full access to all information on the Company to enable it to
make an informed investment decision. CTI paid 800,000 of the
shares received to Cogent Capital Corp. for services performed in
facilitating the transaction.
Item 4. Submission of Matters to a Vote of Security Holders
By majority written consent dated July 6, 2000, signed by
the holders of 9,200,000 shares of the 10,143,567 shares of
common stock outstanding, the stockholders approved the following
matters:
1. Amendment of Cirtran's articles of incorporation to:
(a) Change the name of the corporation to CirTran
Corporation;
(b) Add the following paragraph
The Corporation elects not to be governed by the
terms and provisions of Sections 78.378 through
78.3793, inclusive, and Sections 78.411 through
78.444, inclusive, of the Nevada Revised Statutes,
as the same may be amended, superseded, or
replaced by any successor section, statute, or
provision. No
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amendment to these Articles of Incorporation,
directly or indirectly, by merger or consolidation
or otherwise, having the effect of amending or
repealing any of the provisions of this paragraph
shall apply to or have any effect on any
transaction involving acquisition of control by
any person or any transaction with an interested
stockholder occurring prior to such amendment or
repeal.
(c) Add the following paragraph
A director or officer of the Corporation shall
have no personal liability to the Corporation or
its stockholders for damages for breach of
fiduciary duty as a director or officer, except
for damages for breach of fiduciary duty resulting
from (a) acts or omissions which involve
intentional misconduct, fraud, or a knowing
violation of law, or (b) the payment of dividends
in violation of section 78.300 of the Nevada
Revised Statutes as it may from time to time be
amended or any successor provision thereto.
2. Adopt new Bylaws for Cirtran; and
3. Elect Iehab J. Hawatmeh as the sole director of
Cirtran.
Item 6. Exhibits and Reports on Form 8-K.
Reports on Form 8-K: On July 14, 2000, Cirtran filed a
report on Form 8-K reporting under Items 1, 2, and 5 the
acquisition of the assets of Circuit Technology, Inc., and the
resulting change in control, and certain amendments to Cirtran's
articles of incorporation. This report was amended on October 5,
2000, through the filing of Amendment No. 1 that reported under
Item 7 the financial statements pertaining to the acquisition,
including the following:
1. Circuit Technology Corporation and Subsidiary
Unaudited Consolidated Financial Statements, June 30,
2000 and 1999
2. Circuit Technology Corporation and Subsidiary
Audited Consolidated Financial Statements, December 31,
1999 and 1998
3. Unaudited Combined Pro Forma Financial Statements
Exhibits: Included only with the electronic filing of this
report is the Financial Data Schedule for the nine-month period
ended September 30, 2000 (Exhibit ref. No. 27).
SIGNATURES
In accordance with the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned
thereunto duly authorized.
CIRTRAN CORPORATION
Date: November 17, 2000 By: /s/ Iehab J. Hawatmeh, President
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