UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB/A
Amendment No. 2
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
CIRTRAN CORPORATION
For the quarter ended June 30, 2001 Commission file number 0-26059
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Nevada 68-0121636
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(State or other jurisdiction of (I.R.S. Employer Identification No)
incorporation or organization)
4125 South 6000 West
West Valley City, Utah 84128
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(Address of Principal Executive Offices) (Zip Code)
(801) 963-5112
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(Registrant's telephone number)
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 proceeding 12 months and (2) has been subject to such filing requirements
for the past 90 days.
Yes _X_ 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 July 31, 2001, the number of shares outstanding of the registrant's only
class of common stock was 156,301,005.
Transitional Small Business Disclosure Format (check one): Yes ____ No __X__
Table of Contents
The registrant amends Quarterly Report on Form 10-QSB for the period ended June
30, 2001 to furnish revised financial statements and a revised Management's
Discussion and Analysis of Financial Condition and Results of Operations. Except
as otherwise specifically noted, all information in this Form 10-QSB/A is as of
June 30, 2001 and does not reflect any subsequent information or events.
PART I - FINANCIAL INFORMATION Page
Item 1 Consolidated Condensed Financial Statements
Balance Sheets as of June 30, 2001 (unaudited) and 3
December 31, 2000
Statements of Operations (unaudited) for the Three Months 4
ended June 30, 2001 and 2000 and for the Six Months
ended June 30, 2001 and 2000
Statements of Cash Flows (unaudited) for the Six Months ended 5
June 30, 2001 and 2000
Notes to Consolidated Condensed Financial Statements 6
(unaudited)
Item 2 Management's Discussion and Analysis of Financial Condition and 9
Results of Operations
PART II - OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K 13
Signatures 13
2
PART I. FINANCIAL INFORMATION
CirTran Corporation and Subsidiary
CONSOLIDATED CONDENSED BALANCE SHEETS
Assets
June 30, December 31,
2001 2000
------------- ----------------
(Unaudited)
(restated) (restated)
Current assets
Cash and cash equivalents $ 427 $ 11,068
Trade accounts receivable, net of allowance for doubtful
accounts of $111,603 in 2001 and $82,502 in 2000 494,181 874,097
Inventories 1,718,172 1,755,786
Other 102,636 94,176
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Total current assets 2,315,416 2,735,127
Property and Equipment, net 1,638,855 1,871,076
Other assets, net 9,572 10,587
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$ 3,963,843 $ 4,616,790
============= ================
Liabilities and Stockholders' Deficit
Current liabilities
Checks written in excess of cash in bank $ 73,456 $ 5,491
Accounts payable 1,906,609 1,561,752
Accrued liabilities 2,988,295 2,339,949
Notes payable to stockholders 1,020,966 1,020,966
Current maturities of capital lease obligations 39,274 39,274
Current maturities of long-term obligations 3,417,090 3,432,090
------------- ----------------
Total current liabilities 9,445,690 8,399,522
Long-term obligations, less current maturities 441,041 529,964
Capital lease obligations, less current maturities 12,257 14,257
Commitments - -
Stockholders' Deficit
Common stock, $0.001 par value; Authorized 750,000,000 shares;
issued and outstanding; 156,301,005 in 2001 and 2000 156,301 156,301
Additional paid-in capital 5,664,154 5,664,154
Accumulated deficit (11,755,600) (10,147,408)
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Total stockholders' deficit (5,935,145) (4,326,953)
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$ 3,963,843 $ 4,616,790
============= ================
The accompanying notes are an integral part of these statements.
3
CirTran Corporation and Subsidiary
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three months ended Six months ended
June 30, June 30,
--------------------------------- ---------------------------------
2001 2000 2001 2000
--------------- --------------- --------------- --------------
(restated) (restated) (restated) (restated)
Net sales $ 420,480 $ 1,951,501 $ 1,070,965 $ 2,680,038
Cost of sales 305,773 796,623 851,251 2,183,107
--------------- --------------- --------------- --------------
Gross profit 114,707 1,154,878 219,714 496,931
Selling, general and administrative expenses 628,095 788,388 1,288,499 1,371,797
--------------- --------------- --------------- --------------
Income (loss) from operations (513,388) 366,490 (1,068,785) (874,866)
--------------- --------------- --------------- --------------
Other income (expense)
Interest expense (298,286) (306,070) (543,507) (308,317)
Other, net 4,100 243 4,100 400
--------------- --------------- --------------- --------------
(294,186) (305,827) (539,407) (307,917)
--------------- --------------- --------------- --------------
Income (loss) before income taxes (807,574) 60,663 (1,608,192) (1,182,783)
Income tax expense - - - -
--------------- --------------- --------------- --------------
NET LOSS $ (807,574) $ 60,663 $ (1,608,192) $ (1,182,783)
=============== =============== =============== ==============
Net loss per common share
Basic $ (0.01) $ 0.00 $ (0.01) $ (0.01)
Diluted (0.01) 0.00 (0.01) (0.01)
Weighted-average common and
diluted common equivalent
shares outstanding
Basic 156,301,005 134,913,091 156,301,005 132,191,362
Diluted 156,301,005 134,913,091 156,301,005 132,191,362
The accompanying notes are an integral part of these statements.
4
CirTran Corporation and Subsidiary
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six months ended June 30,
------------------------------
2001 2000
-------------- --------------
(restated) (restated)
Increase (decrease) in cash and cash equivalents
Cash flows from operating activities
Net loss $ (1,608,192) $ (1,182,783)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities
Depreciation and amortization 234,065 336,999
Provision for loss on trade receivables 29,101 -
Reserve for inventory obsolescence - 78,000
Changes in assets and liabilities
Trade accounts receivable 350,815 664
Inventories 37,614 (267,528)
Other assets (7,445) (5,693)
Accounts payable 344,857 (254,082)
Accrued liabilities 648,346 583,057
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Total adjustments 1,637,353 471,417
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Net cash provided by (used in)
operating activities 29,161 (711,366)
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Net cash used in investing activities -
Purchase of property and equipment (1,844) (7,553)
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Cash flows from financing activities
Decrease in receivable from stockholders - 30,000
Increase (decrease) in checks written in excess
of cash in bank 67,965 (8,844)
Principal payments on long-term obligations (103,923) (167,082)
Principal payments on capital leases (2,000) (1,555)
Purchase of outstanding stock - (80,000)
Issuance of common stock - 946,100
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Net cash (used in) provided by financing activities (37,958) 718,619
-------------- --------------
Net decrease in cash and cash equivalents (10,641) (300)
Cash and cash equivalents at beginning of period 11,068 500
-------------- --------------
Cash and cash equivalents at end of period $ 427 $ 200
============== ==============
Supplemental disclosure of cash flow information
------------------------------------------------
Cash paid during the period for
Interest $ 35,572 $ 308,317
Noncash investing and financing activities
-=----------------------------------------
Conversion of line of credit to note payable $2,792,609
The accompanying notes are an integral part of these statements.
5
CirTran Corporation and Subsidiary
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
June 30, 2001 and 2000
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated condensed financial statements of
CirTran Corporation and Subsidiary (the Company) have been prepared in
accordance with accounting principles generally accepted in the United
States of America (US GAAP) for interim financial information and with
the instructions to Form 10-QSB. Accordingly, these financial statements
do not include all of the information and footnote disclosures required
by accounting principles generally accepted in the United States of
America for complete financial statements. These financial statements and
footnote disclosures should be read in conjunction with the audited
consolidated financial statements and notes thereto for the year ended
December 31, 2000. In the opinion of management, the accompanying
unaudited consolidated condensed financial statements contain all
adjustments (consisting of only normal recurring adjustments) necessary
to fairly present the Company's consolidated financial position as of
June 30, 2001, its consolidated results of operations for the three
months ended June 30, 2001 and 2000 and its consolidated results of
operations and cash flows for the six months ended June 30, 2001 and
2000. The results of operations for the three months and six months ended
June 30, 2001, may not be indicative of the results that may be expected
for the year ending December 31, 2001.
NOTE B - INVENTORIES
Inventories consist of the following:
June 30, December 31,
2001 2000
------------ ---------------
Raw materials $ 1,619,228 $ 1,634,178
Work in process 187,906 169,676
Finished goods 456,904 497,798
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2,264,038 2,301,652
Less reserve for obsolescence 545,866 545,866
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$ 1,718,172 $ 1,755,786
============ ===============
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), an inactive corporation. The stockholders of Circuit received
150,000,000 shares of VVI common stock in the transaction of which
12,000,000 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 is the surviving
legal entity, for accounting purposes Circuit was treated as the
surviving accounting entity.
6
NOTE D - LITIGATION
Circuit (the surviving accounting entity, Note C) 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. Management and the Company's attorneys
have estimated the range of potential loss to be 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). The Company filed a suit
against the landlord for an amount in excess of $500,000 for missing
equipment. Rent has been accrued through December 31, 2000 and is
included in accrued liabilities.
Circuit is also the defendant in numerous legal actions primarily
resulting from nonpayment of vendors for goods and services received. The
Company has accrued the payables and is currently in the process of
negotiating settlements with these vendors.
NOTE E - SEGMENT INFORMATION
Segment information has been prepared in accordance with SFAS No. 131,
"Disclosure about Segments of an Enterprise and Related Information." The
Company has two reportable segments; electronics assembly and Ethernet
technology. The electronics assembly segment manufactures and assembles
circuit boards and electronic component cables. The Ethernet technology
segment designs and manufactures Ethernet cards. The accounting policies
of the segments are consistent with those described in the summary of
significant accounting policies included in the Company's Form 10-KSB for
the year ended December 31, 2000. The Company evaluates performance of
each segment based on earnings or loss from operations. Selected segment
information is as follows:
Electronics Ethernet
Three Months ended June 30, 2001 Assembly Technology Total
-------------------------------- -------------- ------------- --------------
Sales to external customers $ 305,989 $ 114,491 $ 420,480
Intersegment sales 85,083 - 85,083
Segment income (loss) (807,574) (126,345) (933,919)
Segment assets 3,581,888 511,986 4,093,874
Three Months ended June 30, 2000
--------------------------------
Sales to external customers $ 1,271,055 $ 680,646 $ 1,951,701
Intersegment sales 375,306 - 375,306
Segment earnings (loss) 60,662 (336,940) 276,278
Segment assets 5,898,535 1,249,051 7,147,586
Net Sales June 30, 2001 June 30, 2000
--------- -------------- --------------
Total sales for reportable segments $ 505,563 $ 2,326,807
Elimination of intersegment sales (85,083) 375,306
-------------- --------------
Consolidated net sales $ 420,480 $ 1,951,501
============== ==============
Net Earnings (Loss)
-------------------
Net loss for reportable segments $ (665,195) $ (276,278)
Elimination of intersegment amounts (142,379) 336,941
-------------- --------------
Consolidated net earnings (loss) $ (807,574) $ 60,663
============== ==============
7
Electronics Ethernet
Six Months ended June 30, 2001 Assembly Technology Total
------------------------------ -------------- ------------- --------------
Sales to external customers $ 687,523 $ 383,442 $ 1,070,965
Intersegment sales 262,832 - 262,832
Segment income (loss) (1,608,192) 8,017 (1,600,175)
Segment assets 3,294,486 476,454 3,770,940
Six Months ended June 30, 2000
------------------------------
Sales to external customers $ 1,808,685 $ 871,353 $ 2,680,038
Intersegment sales 432,127 - 432,127
Segment loss (1,182,783) (407,943) (1,590,726)
Segment assets 6,667,740 1,250,655 7,918,395
Net Sales June 30, 2001 June 30, 2000
--------- -------------- --------------
Total sales for reportable segments $ 1,333,797 $ 3,112,165
Elimination of intersegment sales (262,832) (432,127)
-------------- --------------
Consolidated net sales $ 1,070,965 $ 2,680,038
============== ==============
Net Loss
--------
Net loss for reportable segments $ (1,600,175) $ (1,590,726)
Elimination of intersegment amounts (8,017) 407,943
-------------- --------------
Consolidated net loss $ (1,608,192) $ (1,182,783)
============== ==============
June 30,
-------------------------------
2001 2000
-------------- --------------
Total Assets
------------
Total assets for reportable segments $ 3,770,940 $ 7,918,395
Elimination of intersegment amounts 192,903 (747,300)
-------------- --------------
Consolidated total assets $ 3,963,843 $ 7,171,095
============== ==============
NOTE F - RESTATEMENT
The consolidated financial statements at and for the year ended December
31, 2000 have been restated to reflect corrections to recognize $300,900
reduction in inventory, $45,213 write off of accounts receivables and
other assets, and $1,041,653 of additional accounts payable and accrued
liabilities. It has been determined that adjustments are necessary to
write down inventory purchased for specific customers that does not have
alternative use and record accounts payable and accrued liabilities that
should have been recognized in 2000.
In addition, the financial statements at and for the six months ended
June 30, 2001 have been restated to reflect corrections to recognize
$466,010 of additional accounts payable and accrued liabilities.
Accordingly, the cost of sales has been increased by $27,075, interest
expense has been increased by $313,935, and other income has been
decreased $125,000 in the consolidated statement of operations for the
six months then ended.
The statement of operations for the six months ended June 30, 2000 has
also been restated to correct overstatements in accounts payable.
Accordingly, cost of sales has been decreased by $328,172 and other
income has been decreased $67,260 in the consolidated statement of
operations for the six months then ended. Earnings or loss per share did
not change as a result of the restatement.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Overview
We provide a mixture of high and medium size volume turnkey manufacturing
services using surface mount technology, ball-grid array assembly,
pin-through-hole and custom injection molded cabling for leading electronics
OEMs in the communications, networking, peripherals, gaming, consumer products,
telecommunications, automotive, medical, and semiconductor industries. Our
services include pre-manufacturing, manufacturing and post-manufacturing
services. Through our subsidiary, Racore Technology Corporation, we design and
manufacture Ethernet technology products. 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 and Cost of Sales
Net sales for the three months ended June 30, 2001 decreased by 78.4% to
$420,480 compared to $1,951,501 for the three months ended June 30, 2000. Net
sales decreased 60% to $1,070,965 for the six-month period ended June 30,2001 as
compared to $2,680,038 during the same period in 2000. The decreases primarily
reflect the loss of a major customer, Entrada Networks, Inc. In addition,
management has shifted its marketing effort away from high-volume, low-margin
orders to lower-volume, higher margin orders, and this change has contributed to
a lower sales volume. The results of this shift are partially reflected in lower
sales figures, but also in an improved gross profit margin. Cost of sales
decreased by 61%, from $2,183,107 during the six-month period ended June 30,
2000 to $851,251 during the same period in 2001. Our gross profit margin
improved marginally, increasing from 18.5% for the six-month period ended June
30, 2000 to 20.5% for the same period in 2001.
In June 2001, our wholly-owned subsidiary, Racore Technology Corporation,
received a $225,000 order for specially-designed Ethernet cards for a Federal
law enforcement agency. Racore believes that these particular cards will have
application in any industry where security from computer hackers is a major
concern and that this new product could potentially generate significant new
sales for Racore, though there can be no assurance in this regard.
Selling, General and Administrative Expenses
During the three-month period ended June 30, 2001, selling, general and
administrative expenses were $628,095, as compared to $788,388 during the same
period in 2000, a decrease of 20%. During the six-month period ended June 30,
2001 selling, general and administrative expenses were $1,288,499, as compared
to $1,371,797 during the same period in 2000, representing a 6.1% decrease. Due
to the decline in sales, however, selling, general and administrative expenses
as a percentage of sales increased during the six-month period ended June 30,
2001 to 120.3%, as compared to 51.2% during the same period in 2000.
9
Interest Expense
Interest expense for the three months ended June 30, 2001 was $ 298,286, as
compared to $306,070 for the same three-month period in 2000, a marginal
decrease. Interest expense for the six months ended June 30, 2001 was $543,507,
compared to $308,317 during the same period in 2000. This represents an increase
of $235,190, or 76.3%, and is reflective of our significant debt load.
As a result of the above factors, and primarily due to the significant decrease
in sales between the two periods, our overall net loss increased 36.0% to
$1,608,192 for the six-month period ended June 30, 2001, from $1,182,783 during
the same period in 2000. The overall net loss for the three-month period ended
June 30, 2001 was $807,574, as compared to a profit of $60,663 for the same
three-month period in 2000.
Liquidity and Capital Resources
-------------------------------
Our expenses are currently greater than our revenues. We have had a history of
losses and our accumulated deficit was $10,147,408 at December 31, 2000 and
$11,755,600 at June 30, 2001. Our net operating loss for the six-month period
ending June 30, 2001 was $1,608,192, compared to $1,182,783 for the same period
in 2000. Our current liabilities exceeded our current assets by $7,130,274 as of
June 30, 2001 and $5,664,395 as of December 31, 2000.
Cash
At December 31, 2000, we had $11,068 cash on hand. By June 30, 2001, our cash on
hand was $427, a decrease of $10,641. We also increased checks written in excess
of cash in bank by $67,965 from $5,491 at December 31, 2000 to $73,456 at June
30, 2001.
Net cash provided by operating activities was $29,161 for the six months ended
June 30, 2001, compared to $916,866 used by operations for the six months ended
June 30, 2000. During the six-month period ended June 30, 2001, net cash
provided by operations was primarily attributable to our net loss of $1,608,192,
offset by non-cash charges, increases in accrued liabilities of $648,346 and in
accounts payable of $344,857, and a decrease in accounts receivable of $350,815.
The non-cash charges include depreciation and amortization of $234,065.
Net cash used in investing activities during the six months ended June 30, 2001
and 2000, consisted of equipment purchases of $1,844 and $7,553, respectively.
Net cash used in financing activities during the six-month period ended June 30,
2001 was $37,958, representing $67,965 provided by checks written in excess of
cash in bank, less approximately $106,000 used for principal payments on
long-term obligations and capital leases.
Accounts Receivable
By June 30, 2001, net accounts receivable had decreased from $874,097 at
December 31, 2000 to $494,181. This significant decrease in accounts receivable
reflects our decrease in sales during the first six months of 2001, as well as
our efforts to improve the aging and quality of our current receivables
10
Accounts Payable
Accounts payable were approximately $1,907,000 at June 30, 2001 as compared to
$1,562,000 at December 31, 2000. This increase is primarily attributable to
additional credit purchases of inventory and services and a lack of available
cash to pay vendors as invoices became due.
Liquidity and Financing Arrangements
We sustained losses of approximately $1,608,000 and $1,183,000 for the six
months ended June 30, 2001 and 2000, respectively. We also sustained losses of
approximately $808,000 and $245,000 for the three months ended June 30, 2001 and
2000, respectively. We had accumulated deficits of $11,755,600 and $10,147,408
at June 30, 2001 and December 31, 2000, respectively, and total stockholders'
deficits of $5,935,145 and $4,326,953 as of such dates.
Since December 1999, we have operated without a line of credit. Abacus Ventures,
Inc. purchased our line of credit of $2,792,609, and this amount was converted
into a note payable to Abacus bearing an interest rate of 10%. We have had, and
are continuing to have, discussions with Abacus concerning their willingness to
exchange the principal amount of the note and accrued interest for shares of our
common stock, and while we believe that these negotiations may ultimately be
successful, we can offer no assurance that they will agree to any such exchange
of debt for equity or upon what terms such exchange would occur.
Despite our efforts to make our debt-load more serviceable, significant amounts
of additional cash will be needed to reduce our debt and fund our losses until
such time as we are able to become profitable. In conjunction with our efforts
to improve our results of operations, as discussed above, we are also actively
seeking infusions of capital from investors and are seeking to replace our line
of credit. It is unlikely that we will be able, in our current financial
condition, to obtain additional debt financing; and if we did acquire more debt,
we would have to devote additional cash flow to pay the debt and secure the debt
with assets. We may, therefore, have to rely on equity financing to meet our
anticipated capital needs. There can be no assurances that we will be successful
in obtaining any such capital. If we issue additional shares for debt and/or
equity, this will serve to dilute the value of our common stock and existing
shareholders' positions.
Subsequent to our acquisition of Circuit in July 2000, we took steps to increase
the marketability of our shares of common stock and to make an investment in our
Company by potential investors more attractive. There can be no assurance,
however, that we will ultimately be successful in obtaining more debt and/or
equity financing 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/or
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.
11
Forward-looking statements
--------------------------
All statements made herein, other than statements of historical fact, which
address activities, actions, goals, prospects, or new developments that we
expect or anticipate will or may occur in the future, including such things as
expansion and growth of operations and other such matters, are forward-looking
statements. Any one or a combination of factors could materially affect our
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 us are based on knowledge of our business and
the environment in which we currently operate. Because of the factors listed
above, as well as other factors beyond our control, actual results may differ
from those in the forward-looking statements.
12
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: May 22, 2002 By: /s/ Iehab J. Hawatmeh, President
13