CirTran Corporation specializes in product development, manufacturing services, and distribution across various business sectors. The company offers a broad range of services from concept design, engineering, and prototyping to manufacturing, packaging, and global distribution for consumer products including tobacco, medical devices, and beverages. CirTran primarily serves sectors such as the adult lifestyle and entertainment marketplace, offering both proprietary and licensed branded consumer goods. It was founded in 1987 and is based in West Valley City, Utah.
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Aug 22, 2022
08/22/2022 | 06:06am EDT Message : For the quarterly period ended June 30, 2022 ☐ For the transition period from _______________ to _______________ Commission File No. 000-49654 Nevada (Address of principal executive offices and zip code) (801)963-5112 Securities registered pursuant to Section 12(b) of the Exchange Act: Title of each class None None 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☒ No ☐ Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes☒ No ☐ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act. Large accelerated filer ☐ Emerging growth company ☐ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No☒ Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. As of August 8, 2022, there were 4,945,417shares of common stock, $0.001 par value, outstanding. TABLE OF CONTENTS JUNE 30, 2022 NOTE 1 - ORGANIZATION AND NATURE OF OPERATIONS In 1987, CirTran Corporation was incorporated in Nevada under the name Vermillion Ventures, Inc., for the purpose of acquiring other operating corporate entities. We were largely inactive until July 1, 2000, when our wholly owned subsidiary, CirTran Corporation (Utah), acquired substantially all the assets and certain liabilities of Circuit Technology, Inc., founded by our president, Iehab Hawatmeh. We, together with our majority-owned subsidiaries, manufacture, distribute, and sell condoms, electronic tobacco products, cigars, energy drinks, water beverages, and related merchandise, all using the HUSTLER® brand name. Since entering our 2019 five-year manufacturing and distribution agreement with an unrelated party, our efforts have been devoted to phase one of our development of all HUSTLER®-branded products, which led us to generating revenue during 2020 for the first time in several years. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation Our unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America ("U.S. GAAP"), and pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC"). These financial statements and the notes attached hereto should be read in conjunction with the financial statements and notes included in our Form 10-K for the fiscal year ended December 31, 2021. In the opinion of our management, all adjustments, including normal recurring adjustments necessary to present fairly our financial position, as of June 30, 2022, and the results of our operations and cash flows for the six months then ended have been included. The results of operations for the interim period are not necessarily indicative of the results for the full year ending December 31, 2022. Use of Estimates The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates include the estimated useful lives of property and equipment. Actual results could differ from those estimates. Principles of Consolidation The consolidated financial statements include the accounts of the company and our wholly owned subsidiaries: CirTran Products Corp., LBC Products, Inc., and CirTran Asia, Inc. All intercompany accounts and transactions have been eliminated in consolidation Revenue Recognition We follow Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 606, Revenue from Contracts with Customers, for revenue recognition. Adoption of ASC 606 did not have a significant impact on our financial statements. We generate revenue by providing product design services and through the sales of tangible product. We recognize revenue upon transfer of control of promised products or services to customers in an amount that reflects the consideration expected to be received in exchange for those products or services. We determine the transaction price associated with each deliverable based on the unique contract with the customer, which is a stand-alone contract that we retain the right to accept or reject. Revenue is recognized net of allowances for returns and any taxes collected from customers, which are subsequently remitted to governmental authorities. 7 During the six months ended June 30, 2022 and 2021, we recognized revenue of $227,404and $30,000, respectively, and $97,106and $15,000, during the three months ended June 30, 2022 and 2021, respectively, related to the performance obligations under product development service agreements with customers. These contracts are long term in nature and revenue is recognized at certain milestone intervals upon our delivery and customer acceptance of work product related to those milestones: namely, product design, packaging, branding display, and prototypes. There were no costs to obtain the contracts identified, and therefore, no asset has been recorded for customer acquisition costs. Additionally, we recognized revenue of $991,285and $1,290,055during the six months ended June 30, 2022 and 2021, respectively, and $429,816and $55,656, during the three months ended June 30, 2022 and 2021, respectively, related to the delivery of product to our customers. Each delivery is based on the unique contract with the customer, which is a stand-alone contract that we retain the right to accept or reject. Upon acceptance, we oblige delivery of such product to the customer at an agreed-upon place, time, and price. We recognize revenue under the unique contract upon fulfilment of our performance obligations therein, typically limited to the delivery of product. Leases In February 2016, the FASB issued Accounting Standard Update ("ASU") 2016-02, Leases (Topic 842), which superseded guidance in ASC 840, Leases, which we adopted for the year ended December 31, 2019, under the modified retrospective transition approach by applying the new standard to all leases existing at the date of initial application. We account for short-term leases, those lasting fewer than 12 months, using the practical expedient as outlined in the guidance, which does not include recording such leases on the balance sheet. The adoption of the standard resulted in recording right-of-use ("ROU") assets and operating lease liabilities of $22,291as of December 31, 2021. Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As the lease does not provide an implicit rate, we use our incremental borrowing rate based on information available at the commencement date in determining the present value of future payments. The operating lease ROU asset also includes any lease payments made and excludes lease incentives and initial direct costs incurred. Lease terms may include options to extend or terminate the lease when it is reasonably certain we will exercise that option. Although considered, we determined it was appropriate to exclude future renewal terms from the capitalization of our operating lease. We have one lease in effect requiring minimum monthly payments of $2,500through October 2022. We have determined the appropriate discount rate to be 5% based on our other borrowings secured by assets. A summary of future payments due under the terms of the lease as of June 30, 2022, is as follows: Total future payments Investment in Securities Our cost-method investment consists of an investment in a private digital multi-media technology company that totalled $300,000at June 30, 2022, and December 31, 2021. Because we owned less than 20% of that company's stock as of each date, and no significant influence or control exists, the investment is accounted for using the cost method. We evaluated the investment for impairment and determined there was none during the periods presented. Inventories Inventories are stated at the lower of average cost or net realizable 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. 8 When there is evidence that the inventory's value is less than original cost, the inventory is reduced to market value. We determine market value on current resale amounts and whether technological obsolescence exists. We will seek agreements with manufacturing customers that require them to purchase their inventory items in the event they cancel their business with us. From time to time, we will place deposits on inventory to be delivered in the future. These deposits are carried as a separate balance sheet component and totalled $40,410(non-related-party) and $245,007(related-party) as of June 30, 2022, and $11,639(non-related-party) and $87,042(related-party) as of December 31, 2021. Inventory balances consisted of the following: June 30, 2022 Fair Value of Financial Instruments ASC 820-10-15, Fair Value Measurement-Overall-Scope and Scope Exceptions, defines fair value, thereby eliminating inconsistencies in guidance found in various prior accounting pronouncements, and increases disclosures surrounding fair value calculations. ASC 820-10-15 establishes a three-tiered fair value hierarchy that prioritizes inputs to valuation techniques used in fair value calculations. The three levels of inputs are defined as follows: Level 1-Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities. Level 2-Level 2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability, such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data. Level 3-Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities. Accounts payable and related-party payables have fair values that approximate the carrying value due to the short-term nature of these instruments. Derivative liabilities are measured using level 3 inputs. Total Fair 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. There were 79,146,472potentially issuable shares from the conversions of convertible debentures outstanding that were excluded in dilutive outstanding shares as of June 30, 2022, due to the anti-dilutive effect these would have on net loss per share. There were 141,554,300such shares issuable as of June 30, 2021. We do not currently have adequate authorized but unissued shares to satisfy our obligations should all instruments eligible to convert to common stock be exercised. We are not currently contemplating an increase in our authorized shares but may do so in the future. Recently Issued Accounting Pronouncements We have implemented all new accounting pronouncements that are in effect. These pronouncements did not have any material impact on our financial statements unless otherwise disclosed, and we do not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on our financial position or results of operations. NOTE 3 - GOING CONCERN The accompanying unaudited consolidated financial statements have been prepared in conformity with U.S. GAAP, which contemplate our continuation as a going concern. We had a working capital deficiency of $38,923,561as of June 30, 2022, and a net loss from continuing operations of $535,316for the six months ended June 30, 2022. As of June 30, 2022, we had an accumulated deficit of $78,414,878. These conditions raise substantial doubt about our ability to continue as a going concern. Our ability to continue as a going concern is dependent upon our ability to successfully accomplish our business plan and eventually attain profitable operations. The accompanying financial statements do not include any adjustments that may be necessary if we are unable to continue as a going concern. In the coming year, our foreseeable cash requirements will relate to development of business operations and associated expenses. We may experience a cash shortfall and be required to raise additional capital. Historically, we have mainly relied upon shareholder loans and advances to finance operations and growth. Management may raise additional capital by retaining net earnings, if any, or through future public or private offerings of our stock or loans from private investors, although we cannot assure that we will be able to obtain such financing. Our failure to do so could have a material and adverse effect upon our shareholders and us. NOTE 4 - PROPERTY AND EQUIPMENT We incur certain costs associated with the design and development of molds and dies for our contract-manufacturing segment. These costs are held as deposits on the balance sheet until the molds or dies are finished and ready for use. At that point, the costs are included as part of production equipment in property and equipment and are amortized over their useful lives. We hold title to all molds and dies used in the manufacture of products. Property and equipment and estimated service lives consist of the following: June 30, 2022 10 NOTE 5 - RELATED PARTY TRANSACTIONS In 2007, we issued a 10% promissory note to a family member of our president in exchange for $300,000. The note was due on demand after May 2008.There were no repayments made during the periods presented. At June 30, 2022, and December 31, 2021, the principal amount owing on the note was $151,833and $151,833, respectively. No demand for payment has been made. On March 31, 2008, we issued to this same family member, along with two other company shareholders, promissory notes totaling $315,000($105,000each). Under the terms of these three $105,000notes, we received total proceeds of $300,000and agreed to repay the amount received plus a 5% borrowing fee. The notes were due April 30, 2008, after which they were due on demand, with interest accruing at 12% per annum. We made no payments towards the outstanding notes during the periods presented. The principal balance owing on the notes as of June 30, 2022, and December 31, 2021, was $72,466and $72,466, respectively. No demand for payment has been made. During the six months ended June 30, 2022, we made repayments to related parties of $107,482and had other noncash reductions of $166,747. There were $21,882and $21,882of short-term advances due to related parties as of June 30, 2022, and December 31, 2021, respectively. The advances are due on demand and included in current liabilities. No demand for payment has been made. We have agreed to issue stock options to Iehab Hawatmeh, our president, as compensation for services provided as our chief executive officer. The terms of his employment agreement require us to grant options to purchase 6,000shares of our stock each year, with an exercise $0.10. Mr. Hawatmeh held outstanding options to purchase 24,000and 30,000shares of common stock as of June 30, 2022, and December 31, 2021, respectively. See Note 12-Stock Options. As of June 30, 2022, and December 31, 2021, we owed our president a total of $433,379and $433,379, respectively, in unsecured advances. The advances and short-term bridge loans were approved by our board of directors under a 5% borrowing fee. The borrowing fees were waived by our president on these loans. These amounts are included in our liabilities from discontinued operations. As of June 30, 2022, and December 31, 2021, we owed a total of $13,740and $13,740, respectively, to a related party through trade payables incurred in the normal course of business. These amounts are shown as a separate related-party payable on the balance sheet as of each reporting date. During the six months ended June 30, 2022, we had a net increase in deposits with a related-party inventory supplier totaling $157,965. The related party is an entity controlled by our chief executive officer. All transactions were at a 2% markup over the related-party's cost paid for inventory in arm's-length transactions. Total inventory purchases from the related party were $548,606and $819,882during the six months ended June 30, 2022 and 2021, respectively. NOTE 6 - OTHER ACCRUED LIABILITIES Accrued tax liabilities consist of delinquent payroll taxes, interest, and penalties owed by us to the Internal Revenue Service ("IRS") and other tax entities. Accrued liabilities consist of the following: June 30, 2022 Litigation and Claims Various vendors, service providers, and others have asserted legal claims in previous years. These creditors generally are not actively seeking collection of amounts due to them, and we have determined that the probability of realizing any loss on these claims is remote and will seek to compromise and settle at a deep discount any of such claims that are asserted for collection. These amounts are included in our current liabilities, except where we believe collection or enforcement of the judgments is barred by the applicable statute of limitations, in which case the liabilities have been eliminated. We have not accrued any liability for claims or judgments that we have determined to be barred by the applicable statute of limitations, which generally is eight years for judgments in Utah. Playboy Enterprises, Inc. Our affiliate, Play Beverages, LLC, filed suit against Playboy Enterprises, Inc., in Cook County, Illinois, Circuit Court in October 2012 asserting numerous claims, including breach of contract and tortious interference. Playboy responded with a counterclaim of breach of contract and trademark infringement. After proceedings in October 2016, the court awarded a judgment of $6.6million to Playboy against Play Beverages and CirTran Beverage Corp., our subsidiary. The court denied our motion for a new trial and awarded Playboy treble patent infringement damages and attorney's fees. We filed a notice of appeal in July 2017 and again in March 2018. Playboy has initiated collection efforts but has recovered no funds. In September 2018, the appellate court affirmed the judgment of the circuit court. We have accrued $17,205,599as of June 30, 2022, and December 31, 2021, related to this judgment, which is included in liabilities in discontinued operations. Delinquent Payroll Taxes, Interest, and Penalties In November 2004, the IRS accepted our amended offer in compromise (the "Offer") to settle delinquent payroll taxes, interest, and penalties, which required us to pay $500,000, remain current in our payment of taxes for five years, and forego claiming any net operating losses for the years 2001 through 2015 or until we paid taxes on future profits in an amount equal to the taxes of $1,455,767waived by the Offer. In June 2013, we entered into a partial installment agreement to pay $768,526in unpaid 2009 payroll taxes, which required us to pay the IRS 5% of cash deposits. The monthly payments were to continue until the account balances were paid in full or until the collection statute of limitation expired on October 6, 2020. We are currently in communication with the IRS regarding the statute of limitations on this settlement and appropriate next steps. Amounts of $517,684and $525,238were due as June 30, 2022, and December 31, 2021, respectively. Employment Agreements We engage Iehab Hawatmeh, our president and chief executive officer, through an employment agreement entered in August 2009 and amended in September 2017. In July 2017, Mr. Hawatmeh had resigned all positions with us to pursue other business activities, thereby effectively terminating the agreement. However, the amendment to his employment agreement in September 2017 reinstated Mr. Hawatmeh to his previous positions, with a salary in an amount to be determined. Among other things, the reinstated employment agreement: (a) grants options to purchase a minimum of 6,000shares of our stock each year, with an exercise price equal to the market price of our common stock as of the grant date, for the maximum term allowed under our stock option plan; (b) provides for health insurance coverage, cell phone, car allowance, life insurance, and director and officer liability insurance, as well as any other bonus approved by our board; and (c) includes additional incentive compensation as follows: (i) a quarterly bonus equal to 5% of our earnings before interest, taxes, depreciation, and amortization for the applicable quarter; (ii) bonuses equal to 1% of the net purchase price of any acquisitions we complete that are directly generated and arranged by Mr. Hawatmeh; and (iii) an annual bonus (payable quarterly) equal to 1% of our gross sales of all products, net of returns and allowances. On January 1, 2020, we resumed accruing wages for our chief executive officer. A total of $172,500was accrued during the six months ended June 30, 2022. 12 We also have an oral agreement with our other director that requires us to issue options to purchase 2,000shares of our common stock each year. License Agreements We have entered into agreements requiring us to pay certain royalties for the manufacture and distribution of licensed products. Fees are based on a percentage of sales and remitted quarterly and are included in cost of sales for financial reporting purposes. NOTE 8 - NOTES PAYABLE 1,876,621 The convertible debentures and accrued interest are convertible into shares of our common stock at the lower of $100or the lowest bid price for the 20trading days prior to conversion. During the year ended December 31, 2021, the convertible debenture holder converted $6,750of accrued but unpaid interest into 225,000shares of our common stock. As of June 30, 2022, and December 31, 2021, we had accrued interest on the convertible debentures totaling $1,721,128and $1,655,037, respectively. 13 NOTE 10 - DERIVATIVE LIABILITIES As discussed in Note 9-Convertible Debentures, we have entered into five separate agreements to borrow a total of $2,665,528with the outstanding principal and interest being convertible at the holder's option into common stock of the company at the lesser of $100(notes one through four) or $0.10 (note five) or the lowest closing bid price in the prior 20 trading days. Embedded derivatives are valued separately 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 for convertible debentures using a Monte Carlo simulation as of June 30, 2022, using the following assumptions: Volatility 0.25- 4.83years The fair values of the derivative instruments are measured each quarter, which resulted in a loss of $33,949and $114,660during the six months ended June 30, 2022 and 2021, respectively. As of June 30, 2022, and December 31, 2021, the fair market value of the derivatives aggregated $972,746and $938,794, respectively. NOTE 11 -COMMON STOCK TRANSACTIONS We are authorized to issue up to 100,000,000shares of $0.001par value common stock. During the year ended December 31, 2021, we issued a total of 225,000shares of common stock for the conversion of $6,750of accrued interest. NOTE 12 - STOCK OPTIONS Stock Incentive Plans During the six months ended June 30, 2022, and the year ended December 31, 2021, we granted to employees 0and 8,000options to purchase shares of common stock, respectively. The 8,000options granted during the year ended December 31, 2021, were valued using the following assumptions: estimated five-year term, estimated volatility of 91%, and a risk-free rate of 1.61%. As of June 30, 2022, and December 31, 2021, we hadnounrecognized compensation related to outstanding options that have not yet vested at year-end that would be recognized in subsequent periods. As of June 30, 2022, there were 32,000options issued and vested with a weighted average exercise price of $0.06and a weighted average remaining life of 2.66years. Outstanding options as of June 30, 2022, consisted of: Exercise Price NOTE 14 - SUBSEQUENT EVENTS In accordance with SFAS 165 (ASC 855-10), management has performed an evaluation of subsequent events through the date that the financial statements were issued and has determined that it does not have any material subsequent events to disclose in these consolidated financial statements. 15 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with our condensed consolidated unaudited financial statements and notes to our unaudited financial statements included elsewhere in this report. This discussion contains forward-looking statements that involve risks and uncertainties. Actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors discussed elsewhere in this report. Overview Based on our diversified expertise in manufacturing, marketing, distribution, and technology services in a wide variety of consumer products, including tobacco products, medical devices, and beverages, around the world, we have an innovative and consumer-focused approach to brand portfolio management, resting on a strong understanding of consumers domestically, and we have established a footprint in more than 50 key, international markets. During 2021 and into 2022, we continued under our 2019 five-year manufacturing and distribution agreement with an unrelated party to manufacture, distribute, and sell condoms, electronic tobacco products, cigars, energy drinks, water beverages, and related merchandise, all using the HUSTLER® brand name. Results of Operations for the Three Months Ended June 30, 2022, Compared to the Three Months Ended June 30, 2021 Sales and Cost of Sales During the three months ended June 30, 2022 and 2021, we had net sales of $526,921 and $700,656, respectively, a decrease of $173,735 or 24.8%. We had cost of sales of $178,474 and $262,411, respectively, for gross profit of $348,447 and $438,245, respectively. Revenues are derived from the design, manufacture, and delivery of certain licensed products in accordance with our GloBrands-HUSTLER® distribution agreement. Operating Expenses During the three months ended June 30, 2022 and 2021, employee costs were $134,494 and $135,077, respectively, a decrease of only $583 or 0.4%. Selling, general, and administrative expenses were $317,594 and $359,297, respectively, a decrease of $41,703 or 115.8%. The decrease in operating expenses period over period was the result of selling certain tobacco products in states with lower or no excise tax. Other Expense Other expenses during the three months ended June 30, 2022 and 2021, consisted of $175,081 and $168,726 of interest expense and a gain of $2,104 and $13,131 on derivative valuation, respectively. The increase in other expenses period over period is the result of a decrease to our loss on derivative valuation combined with increased interest expense. Results of Operations for the Six Months Ended June 30, 2022, Compared to the Six Months Ended June 30, 2021 Sales and Cost of Sales During the six months ended June 30, 2022 and 2021, we had net sales of $1,218,689 and $1,320,055, respectively, a decrease of $101,366 or 7.7%. We had cost of sales of $410,853 and $464,059, respectively, for gross profit of $807,836 and $855,996, respectively. Revenues are derived from the design, manufacture, and delivery of certain licensed products in accordance with our GloBrands-HUSTLER® distribution agreement. 16 Operating Expenses During the six months ended June 30, 2022 and 2021, employee costs were $267,000 and $268,965, respectively, a decrease of only $1,965 or 0.7%. Selling, general, and administrative expenses were $696,771 and $638,595, respectively, an increase of $55,176 or 8.6%. The decrease in operating expenses period over period is the result of substantially increased activities attributable to the development of products under the HUSTLER® brand name and selling certain tobacco products in states with lower or no excise tax in the first quarter. Other Expense Other expenses during the six months ended June 30, 2022 and 2021, consisted of $348,432 and $335,214 of interest expense and a loss of $33,949 and $114,660 on derivative valuation, respectively. The decrease in other expenses period over period is the result of a decrease to our loss on derivative valuation combined with increased interest expense. Liquidity and Capital Resources We have had a history of losses from operations, as our expenses have been greater than our revenue. Our accumulated deficit was approximately $78.4 million at June 30, 2022. As of June 30, 2022, we had current assets of $1,471,759 and current liabilities of approximately $40 million, resulting in a working capital deficit of approximately $38.9 million at June 30, 2022. Operating Activities During the six months ended June 30, 2022, operations generated $101,926 of net cash, comprised of a loss from continuing operations of $535,316, noncash items totaling $95,332 consisting primarily of losses recognized from the changes in fair values of derivative liabilities and debt discount amortization, and changes in working capital totaling $541,910. During the six months ended June 30, 2021, operations used $81,207 of net cash, comprised of a net loss from continuing operations of $501,438, noncash items totaling $153,367 consisting of losses recognized from the changes in fair values of derivative liabilities and expense paid by related parties on our behalf, and changes in working capital totaling $466,733. Financing Activities During the six months ended June 30, 2022, financing activities used $100,552 of cash, compared to using $8,663 of cash during the six months ended June 30, 2021. Cash used in financing consisted of repayments of related-party loans. Our Capital Resources and Anticipated Requirements Our monthly operating costs are approximately $35,000 per month, excluding approximately $50,000 of accruing interest expense and capital expenditures. We continue to focus on generating revenue and reducing our monthly business expenses through cost reductions and operational streamlining. We have only recently begun to generate enough cash to sustain our day-to-day operations, and we expect to access external capital resources in the future to fund any new projects we may undertake. We cannot assure that we will be successful in obtaining such capital. If we seek infusions of capital from investors, it is unlikely that we will be able to obtain additional debt financing. If we did incur additional debt, we would be required to devote additional cash flow to servicing the debt and securing the debt with assets. Our issuance of additional shares for equity or for conversion of debt could dilute the value of our common stock and existing stockholders' positions. 17 Convertible Debentures and Note Payable We currently have an outstanding amended, restated, and consolidated secured convertible debenture with Tekfine, LLC, an unrelated entity, with a maturity date of April 30, 2027, to the extent not previously converted. The amended debenture had a total outstanding principal balance of $2.4 million, with accrued interest of $1.7 million as of June 30, 2022. We also have four additional convertible debentures with Tekfine with maturity dates ranging from December 8, 2022, until December 30, 2022, totaling $275,000, unless earlier converted. The convertible debentures and accrued interest are convertible into shares of our common stock at the lower of $100 or $0.10 (depending on the instrument) or the lowest bid price for the 20 trading days prior to conversion. During the six months ended June 30, 2022, we made repayments to related parties of $35,000 and had other noncash reductions of $166,747. There were $21,882 and $21,882 of short-term advances due to related parties as of June 30, 2022, and December 31, 2021, respectively. The advances are due on demand and included in current liabilities. No demand for payment has been made. Going Concern These interim unaudited financial statements have been prepared on the going concern basis, which assumes that adequate sources of financing will be obtained as required and that our assets will be realized and liabilities settled in the ordinary course of business. Accordingly, the interim unaudited financial statements do not include any adjustments related to the recoverability of assets and classification of assets and liabilities that might be necessary should we not be unable to continue as a going concern. Critical Accounting Policies We have identified the policies outlined below as critical to our business operations and an understanding of our results of operations. Refer to Note 2 - Summary of Significant Accounting Policies for discussion. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK As a smaller reporting company, we are not required to provide the information required by this item. ITEM 4. CONTROLS AND PROCEDURES Evaluation of Disclosure Controls and Procedures As of June 30, 2022, we carried out an evaluation, under the supervision and with the participation of management, including our chief executive and financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based upon that evaluation, management concluded that our disclosure controls and procedures were not effective as of June 30, 2022, to provide reasonable assurance that the information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the periods prescribed by U.S. Securities and Exchange Commission and that such information is accumulated and communicated to management, including our chief executive and financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute assurance of achieving the desired objectives. Also, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. The design of any system of controls is based, in part, upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Changes in Internal Control over Financial Reporting There has been no change in our internal control over financial reporting during the quarter ended June 30, 2022, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. 18 * All exhibits are numbered with the number preceding the decimal indicating the applicable SEC reference number in Item 601 and the number following the decimal indicating the document's sequence. ** The XBRL related information in Exhibit 101 will not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability of that section and will not be incorporated by reference into any filing or other document pursuant to the Securities Act of 1933, as amended, except as is expressly set forth by specific reference in such filing or document. 19 SIGNATURE PAGE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. CIRTRAN CORPORATION
Cirtran Frequently Asked Questions (FAQ)
When was Cirtran founded?
Cirtran was founded in 1987.
Where is Cirtran's headquarters?
Cirtran's headquarters is located at 4125 South 6000 West, West Valley City.
What is Cirtran's latest funding round?
Cirtran's latest funding round is Unattributed VC - III.
How much did Cirtran raise?
Cirtran raised a total of $6.75M.
Who are the investors of Cirtran?
Investors of Cirtran include Yorkville Advisors.