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 March 31, 2001
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 33-13674-LA
CIRTRAN CORPORATION
(Exact name of small business issuer as specified in its
charter)
Nevada 68-0121636
(State or other jurisdiction of (IRS Employer Identification
incorporation or organization) No.)
4125 South 6000 West, West Valley City, Utah 84128
(Address of principal executive offices)
(801) 963-5112
(Issuer's telephone number)
Not Applicable
(Former name, address and fiscal year, if changed since last
report)
Check whether the issuer (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the
preceding 12 months (or for such shorter period that the issuer
was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [ ]
State the number of shares outstanding of each of the issuer's
classes of common equity, as of March 31, 2001: 10,420,067
shares of common stock.
Transitional Small Business Format: Yes [ ] No [ X ]
TABLE OF CONTENTS
Page
PART I - FINANCIAL INFORMATION
Item 1 Condensed Consolidated Financial Statements
Balance Sheets as of March 31, 2001
(unaudited) and December 31, 2000 2
Statements of Operations for the Three
Months Ended March 31, 2001
(unaudited) and 2000 (unaudited) 3
Statements of Cash Flows for the Three
Months ended
March 31, 2001 (unaudited) and 2000
(unaudited) 4
Notes to Condensed Consolidated
Financial Statements (unaudited) 6
Item 2 Managements Discussion and Analysis of
Financial Condition and Results of
Operation 8
PART II - OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K 11
Signatures 11
1
CirTran Corporation and Subsidiary
UNAUDITED CONSOLIDATED BALANCE SHEET
ASSETS
March 31, December 31,
2001 2000
CURRENT ASSETS
Cash and cash equivalents $ 200 $ 11,068
Trade accounts receivable, net of allowance for
doubtful accounts fo $56,450 in 2001 and
$360,493 in 2000 554,743 883,825
Inventories 2,084,067 2,056,686
Other 102,636 94,176
Total current assets 2,741,646 3,045,755
PROPERTY AND EQUIPMENT, NET 1,697,677 1,871,076
OTHER ASSETS, NET 46,073 46,072
$ 4,485,396 $ 4,962,903
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Current maturities of long-term obligations 3,417,090 3,414,090
Current maturities of capital lease obligations 39,274 39,274
Checks written in excess of cash in bank 78,230 5,491
Accounts payable 1,218,012 1,166,057
Accrued liabilities 1,717,592 1,711,991
Notes payable to stockholders 1,020,966 1,020,966
Total current liabilities 7,491,164 7,357,869
LONG-TERM OBLIGATIONS, less current maturities 499,535 529,964
CAPITAL LEASE OBLIGATIONS, less current
maturities 14,257 14,257
COMMITMENTS - -
STOCKHOLDERS' DEFICIT
Common stock, $0.001 par value; Authorized
500,000,000 shares; issued and outstanding;
10,420,067 in 2001 and 2000 10,420 10,420
Additional paid-in capital 5,810,035 5,810,035
Accumulated deficit (9,340,015) (8,759,642)
Total stockholders' deficit (3,519 ,560) (2,939,187)
$ 4,485,396 $ 4,962,903
The accompanying notes are an integral part of these statements.
2
CirTran Corporation and Subsidiary
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
Three months ended
March 31,
2001 2000
Net sales $ 650,485 $ 728,537
Cost of sales 460,401 1,749,105
Gross profit (loss) 190,084 (1,020,568)
Selling, general and administrative expenses 645,153 583,409
Plant closure expenses 15,250 -
Loss from operations (470,319) (1,603,977)
Other income (expense)
Interest expense (110,054) (2,247)
Other income - 32,433
(110,054) 30,186
Loss before income taxes (580,373) (1,573,791)
Income tax expense - -
NET LOSS $(580,373) $ (1,573,791)
Net loss per common share - basic $ (0.06) $ (0.18)
Net loss per common share - diluted $ (0.06) $ (0.18)
Weighted-average common and diluted
common equivalent shares outstanding
Basic 10,420,067 8,807,511
Diluted 10,420,067 8,807,511
The accompanying notes are an integral part of these statements.
3
CirTran Corporation and Subsidiary
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months ended March 31,
2001 2000
Increase (decrease) in cash and cash equivalents
Cash flows from operating activities
Net loss $ (580,373) $ (1,573,791)
Adjustments to reconcile net loss to net
cash used in operating activities
Depreciation and amortization 175,243 104,999
Provision for loss on trade receivables (16,324) -
Reserve for inventory obsolescence - -
Changes in assets and liabilities
Trade accounts receivable 345,406 645,383
Inventories (27,381) 98,627
Other assets (8,460) (26,491)
Accounts payable 51,955 430,306
Accrued liabilities 5,600 364,621
Total adjustments 526,039 1,617,445
Net cash used in
operating activities (54,334) 43,654
Net cash used in investing activities - (1,844) (7,553)
purchase of property and equipment
(Continued)
4
CirTran Corporation and Subsidiary
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
For the Three Months ended March 31,
2001 2000
Cash flows from financing activities
Decrease in receivable from stockholders - 30,000
Increase in checks written in excess
of cash in bank 72,739 44,407
Net change in line of credit - 13,006
Principal payments on long-term obligations (27,429) (109,711)
Issuance of common stock - 103,000
Net cash provided by
financing activities 45,130 80,702
Net (decrease) increase in cash and
cash equivalents (10,868) 116,803
Cash and cash equivalents at beginning of period 11,068 500
Cash and cash equivalents at end of period $ 200 $ 117,303
Supplemental disclosure of cash flow information
Cash paid during the period for
Interest $ 13,054 $ 2,247
The accompanying notes are an integral part of these statements.
5
CirTran Corporation and Subsidiary
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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,
2000. In the opinion of management, the accompanying
unaudited consolidated financial statements contain all
adjustments (consisting of only normal recurring adjustments)
necessary to fairly present the Company's consolidated
financial position as of March 31, 2001, its consolidated
results of operations and cash flows for the three months
ended March 31, 2001 and 2000. The results of operations for
the three months ended March 31, 2001 and 2000, may not be
indicative of the results that may be expected for the year
ending December 31, 2001.
NOTE B - INVENTORIES
Inventories consist of the following at March 31:
2001 2000
Raw materials $ 1,903,604 $ 1,609,731
Work-in process 116,210 1,015,925
Finished goods 466,561 822,003
2,486,375 3,447,659
Less reserve for obsolescence (402,308) (489,903)
$ 2,084,067 $ 2,957,756
6
NOTE C - MERGER AGREEMENT
Effective July 1, 2000, all of the assets and certain
liabilities of Circuit Technology Corporation (Circuit) were
acquired by CTI Systems, Inc. (CTISI), a wholly owned
subsidiary of Vermillion Ventures, Inc. (VVI). Circuit
received 10,000,000 shares of VVI common stock in the
transaction of which 800,000 shares were paid by Circuit to
Cogent Capital Corp. for services performed in facilitating
the transaction. CTISI subsequently changed its name to
CirTran Corporation.
The merger was accounted for as a reverse acquisition of
CirTran Corporation by Circuit. Although CirTran Corporation
will be the surviving legal entity, for accounting purposes
Circuit was treated as the continuing entity. The equity at
March 31, 2000 was adjusted to give affect to this reverse
acquisition.
NOTE D - LITIGATION
Circuit is a defendant in an alleged breach of a facilities
sublease agreement in Colorado. A lawsuit was filed in which
the plaintiff seeks to recover past due rent, future rent,
and other lease charges. The range of potential loss is
estimated at between $0 and $2,500,000. The wide range is
due to two rent calculation methods written in the master
lease. Under one calculation, the amount would be minimal.
Under the other calculation, the amount would represent all
future rent (reduced by rent received from future tenants).
Currently, a new tenant on a short-term lease occupies the
premises. This new tenant's lease includes rent at two times
the monthly rate of the original lease under suit. Circuit
has also filed a countersuit against the landlord for missing
equipment. The amount of the countersuit claim exceeds
$500,000.
Circuit is also the defendant in numerous legal actions
primarily resulting from nonpayment of vendors for goods and
services received. Circuit has accrued the payables and is
currently in the process of negotiating settlements with
these vendors.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION
AND RESULTS OF OPERATIONS
Overview
CirTran Corporation provides a mixture of high and medium
size volume turnkey manufacturing services using surface mount
technology (SMT), ball-grid array (BGA) assembly, pin-through-
hole (PTH) and custom injection molded cabling for leading
electronics OEMs in the communications, networking, peripherals,
gaming, consumer products, telecommunications, automotive,
medical, and semiconductor industries. CirTran provides a wide
variety of pre-manufacturing, manufacturing and post-
manufacturing services. Through its subsidiary, Racore
Technology Corporation, CirTran designs, manufactures, and
markets high performance Local Area Network products with
emphasis on Fiber Optics and 10/100 Ethernet technologies. Our
goal is to offer customers the significant competitive advantages
that can be obtained from manufacture outsourcing, such as access
to advanced manufacturing technologies, shortened product time-to-
market, reduced cost of production, more effective asset
utilization, improved inventory management, and increased
purchasing power.
Results of Operations
Net Sales decreased 10.7% to $650,485 for the three months
ended March 31, 2001 as compared to $728,537 for the same period
in 2000. The decrease is due to a shift in our marketing effort
to focus on small and mid-sized customers that place orders of
100 to 5,000 pieces, which produce a higher gross profit, rather
than large volume sales with low gross profit. Cost of sales for
the three-month period ended March 31, 2001, was $460,401, a
73.7% decrease as compared to $1,749,105 incurred during the
comparable three-month period for the prior year. Such costs as
a percentage of revenue were 70.8% during 2001 as compared to
240.1% during 2000. This redirection of Cirtran's marketing
effort resulted in a gross profit of $190,084 for the three
months ended March 31, 2001, as compared to a gross loss of
$1,020,568 for the three months ended March 31, 2000.
CirTran uses just-in-time manufacturing, which is a
production technique that minimizes work-in-process inventory and
manufacturing cycle time while enabling the Company to deliver
products to customers in the quantities and time frame required.
This manufacturing technique requires Cirtran to maintain an
inventory of component parts to meet customer orders. Inventory
at March 31, 2001, was $2,084,067 as compared to $2,056,686 at
March 31, 2000. Management believes the amount of its inventory
that may be considered obsolete or slow moving is properly
reserved and that Cirtran will be able to maintain a gross profit
of at least 15% through the remainder of 2001 based on current
prices for assembled circuit boards and the cost of inventory.
During the three-month period ended March 31, 2001, selling,
general and administrative expenses were $645,153, versus
$583,409 for the comparable period in 2000, a 10.6% increase.
The increase is attributable to increased interest expense and
professional fees. Interest expense for the three months ended
March 31, 2001, was $110,054 as compared to $2,247 for the
comparable period in 2000. The substantial increase in interest
expense is attributable to the restructuring during the last
calendar quarter of 2000 of Citran's accounts payable accrued in
2000 to installment obligations bearing interest.
8
As a result of the above factors, the overall net loss
decreased 63.1% to $580,373 for the three months ended March 31,
2001, as compared to $1,573,791 for the three months ended March
31, 2000.
Liquidity and Capital Resources
Cirtran's current ratio at March 31, 2001 was 0.37:1 and at
March 31, 2000, was 0.41:1. The primary reason for the change
was the reduction of trade accounts receivable from $883,825 at
March 31, 2000, to $554,743 at March 31, 2001. Cirtran had a
working capital deficit of $4,749,518 at March 31, 2001, and has
recognized a net loss from operations through 2000 and the first
three months of 2001. These factors raise substantial doubt
about the ability of Cirtran to continue as a going concern.
To address this issue, CirTran plans on working with vendors
to convert approximately 72 percent of trade payables into long-
term notes and common stock and cure defaults with lenders
through forbearance agreements that the Company will be able to
service. Also, Abacus Ventures, Inc., purchased the Company's
line of credit from the lending institution and, based on certain
criteria, has indicated its willingness to exchange the debt for
common stock. If successful, these plans will add significant
equity to the Company. During the last six months of 2000,
CirTran successfully extended payment terms on $940,000 of trade
payables to monthly installment obligations with interest
accruing at the rate of 8% per annum. It settled $646,283 of
trade payables with another creditor by paying $83,000 in cash,
issuing a non-interest bearing note in the principal amount of
$166,000 due in two installments in December 2000 and March 2001
(which has been paid), issuing a promissory note in the principal
amount of $73,000 bearing interest at 6% per annum payable in 18
monthly installments, and converting the remaining $324,283 to
352,070 shares of common stock. CirTran will continue to pursue
these restructuring efforts to improve its financial condition,
but there is no assurance that management will be successful in
these efforts.
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 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.
9
Because of the factors listed above, as well as other factors
beyond its control, actual results may differ from those in the
forward-looking statements.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
Reports on Form 8-K: None
Exhibits: None
SIGNATURES
In accordance with the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned
thereunto duly authorized.
CIRTRAN CORPORATION
Date: June 11, 2001 By:/s/Iehab J. Hawatmeh
President
10