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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT Pursuant
to Section 13 OR 15(d) of
The Securities Exchange Act of 1934
Date of report (Date of earliest event reported): June 7, 2006
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CirTran Corporation
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(Exact Name of Registrant as Specified in Its Charter)
Nevada
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(State of Other Jurisdiction of Incorporation)
0-26059 68-0121636
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(Commission File Number) (IRS Employer Identification No.)
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, Including Area Code)
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(Former Name or Former Address, if Changed Since Last Report)
Item 1.01 Entry into a Material Definitive Agreement
Item 2.01 Completion of Acquisition or Disposition of Assets
Item 2.03 Creation of a Direct Financial Obligation
On June 6, 2006, CirTran Corporation (the "Company") and Advanced Beauty
Solutions, LLC ("ABS") closed a transaction (the "Asset Purchase") whereby the
Company purchased certain assets of ABS, subject to the approval of the U.S.
Bankruptcy Court adjudicating the bankruptcy proceedings of ABS (the "Bankruptcy
Court"). On June 7, 2006, the Bankruptcy Court entered an order approving the
Asset Purchase.
Background
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On January 19, 2005, the Company signed an Exclusive Manufacturing Agreement
with ABS, a California limited liability company, relating to the manufacture of
a flat iron hair product in California. On July 7, 2005, the Company signed
another Exclusive Manufacturing Agreement with ABS, relating to the manufacture
of a hair dryer product in California.
In early October 2005, the Company was notified that ABS had defaulted on its
obligation to its financing company. Following the notice of ABS's default, the
Company terminated the agreements for both products based on the default. In
January 2006, following efforts to resolve the disputes with ABS, the Company
filed a lawsuit against ABS, claiming breach of contract, interference with
contractual relationships, unjust enrichment, and fraud, and seeking damages
from ABS.
With respect to the flat iron products, through October 2005, CirTran had
shipped directly to ABS approximately $4,746,000 worth of the product, and
CirTran had received from ABS or its finance company total payments of
approximately $788,000. In November 2005, the Company repossessed from ABS
approximately $2,341,000 worth of the products in the United States, as the
Company was permitted to do pursuant to the agreement.
Since November 2005, the Company has been pursuing its rights under the
agreements and has been offering the flat iron product for sale directly to
ABS's customers. In doing so, the Company sold to ABS's international customers
directly approximately $426,000 worth of the flat iron product. The shipments
have all been paid in full. These products shipped were not part of the
repossessed inventory.
On January 24, 2006, ABS filed a voluntary petition for relief under chapter 11
of the United States Bankruptcy Code in the United States Bankruptcy Court for
the Central District of California, San Fernando Valley Division (the
"Bankruptcy Court"), Case No. SV 06-10076 GM. On January 30, 2006, a hearing
("Hearing") was held to consider the Emergency Motion for Order Approving the
Settlement and Compromise of the Disputed Secured Claims of Inventory Capital
Group, Inc. ("ICG"), and Media Funding Corporation ("MFC") (the "Settlement
Motion") filed by ABS. The continued Hearing on the Settlement Motion was held
on February 16, 2006, at which time the settlement was modified. Prior to a
separate hearing held on March 24, 2006, on ABS's Motion for Order: (1)
Approving Sale and Assignment of Substantially All Assets of the Estate Free and
Clear of Liens; (2) Approving Assumption and Assignment of Leases and Executory
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Contracts Included in the Sale and Rejection of Leases and Executory Contracts
Not Included in the Sale; and (3) Granting Related Relief (the "Sale Motion"),
the settlement was further modified.
Pursuant to the Sale Motion, the Company and ABS entered into negotiations for
the purchase by the Company of certain of the assets and assumption of certain
of the obligations (described more fully below) of ABS. Because ABS was subject
to the jurisdiction of the Bankruptcy Court, any agreement between the Company
and ABS relating to the sale of ABS's assets had to be approved by the
Bankruptcy Court.
Settlement; Asset Purchase Agreement
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On June 6, 2006, the Company and ABS signed an agreement (the "Asset Purchase
Agreement"), subject to the Bankruptcy Court's approval. On June 7, 2006, the
Bankruptcy Court entered orders approving the Asset Purchase Agreement and
granting the Sale Motion, and approving the settlement and compromise of certain
disputed claims against ABS.
Pursuant to the settlement of ABS's bankruptcy proceedings and the Asset
Purchase Agreement, the Company has an allowed claim against the ABS's estate in
the amount of $2,350,000, of which $750,000 is to be credited to the purchase of
substantially all of ABS's assets. Under the settlement, the Company shall be
allowed to participate as a general unsecured creditor of ABS's estate in the
amount of $1,600,000 on a pari passu basis with the $2,100,000 general unsecured
claim of certain insiders of ABS and subject to the prior payment of certain
secured, priority, and non-insider claims in the amount of approximately
$1,507,011.
Under the Asset Purchase Agreement, the Company agreed to purchase substantially
all of ABS's assets in exchange for:
(i) a cash payment in the amount of $1,125,000;
(ii) a reduction of CirTran's allowed claim in the Bankruptcy Case
by $750,000;
(iii) the assumption of any assumed liabilities; and
(iv) the obligation to pay ABS a royalty equal to $3.00 per True
Ceramic Pro flat iron unit sold by ABS (the "Royalty
Obligation").
The Assets include personal property; intellectual property; certain executory
contracts and unexpired leases; inventory; ABS's rights under certain insurance
policies; deposits and prepaid expenses; books and records; goodwill; certain
causes of action; permits; customer and supplier lists; and telephone numbers
and listings (collectively, the "Assets").
Under the Asset Purchase Agreement, the Royalty Obligation is capped at
$4,135,000. To the extent the amounts paid to ABS on account of the Royalty
Obligation equal less than $435,000 on the 2 year anniversary of the Closing,
then, within 30 days of such anniversary, the Company agreed to pay ABS an
amount equal to $435,000 less the royalty payments made to date. As part of the
settlement, the Company agreed to exchange general releases with, among others,
ABS, Jason Dodo (the manager of ABS), Inventory Capital Group ("ICG"), and Media
Funding Corporation ("MFC"). The settlement also resolved a related dispute with
ICG in which ICG assigned $65,000 of its secured claim against ABS to the
Company.
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Pursuant to the court-approved settlement, payments under the Royalty Obligation
will be made in the following order:
(a) The Royalty Obligation payments will be made exclusively to
ICG and MFC (collectively, the "Secured Parties") until (i)
the Secured Parties have been paid in full on account of their
$1,243,208.44 secured claim, or (ii) the Secured Parties have
been paid $100,000 in payments under the Royalty Obligation,
whichever comes first.
(b) The next $70,000 Royalty Obligation payments will be made to a
service provider to ABS (in the amount of $50,000) and to an
individual with an allowed claim (in the amount of $20,000).
(c) Following the payments to the Secured Parties and others as
set forth immediately above, the remaining Royalty Obligation
payments will be used for distribution to allowed general
unsecured claims not including those of the Company and
certain insiders with unpaid notes (the "Insider
Noteholders").
(d) Following payments as set forth in (a), (b), and (c) above,
the Royalty Obligation payments will be shared pro rata among
the Insider Noteholders (with a total allowed aggregate claim
of $2,100,000), and the Company (with a general unsecured
claim in the amount of $1,600,000), until paid in full.
The total claims against ABS's estate that must be paid before the
Company begins to share in the Royalty Obligation payments is $435,000.
Item 9.01 Financial Statements and Exhibits
(d) Exhibits
10.1 Asset Purchase Agreement, dated as of June 6, 2006, by and
between Advanced Beauty Solutions, LLC, and CirTran
Corporation.
99.1 Press Release dated June 13, 2006.
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SIGNATURES
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
Date: June 12, 2006 By: /s/ Iehab Hawatmeh
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Iehab J. Hawatmeh, President
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