.
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
AMENDMENT No. 1
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CIRTRAN CORPORATION
(Name of issuer in its charter)
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Nevada 3672 68-0121636
(State of incorporation) (Primary Standard Industrial (I.R.S. Employer
Classification Code Number) Identification No.)
4125 SOUTH 6000 WEST
WEST VALLEY CITY, UTAH 84128
(801) 963-5112
(Address and telephone number of registrant's principal executive offices
and principal place of business)
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IEHAB HAWATMEH
4125 SOUTH 6000 WEST
WEST VALLEY CITY, UTAH 84128
(801) 963-5112
(Name, Address and telephone number of agent for service)
----------------
Copies to:
BRENT CHRISTENSEN
SCOTT CARPENTER
PARSONS BEHLE & Latimer
201 South Main Street, Suite 1800
Salt Lake City, Utah 84111
(801) 532-1234
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
From time to time after this Registration Statement becomes effective.
If the securities being registered on this Form are being offered on a delayed
or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check
the following box. [ x ]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following boxes and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following boxes and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
The Registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION, DATED o, 2001
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The information in this prospectus is not complete and may be changed. The
selling shareholders may not sell these securities until the registration
statement filed with the Securities and Exchange Commission is effective. This
prospectus is not an offer to sell these securities and it is not soliciting an
offer to buy these securities in any state where the offer or sale is not
permitted.
CirTran Corporation
A Nevada Corporation
[OBJECT OMITTED]
52,978,350 Shares of Common Stock
$0.001 per share
This prospectus relates to 52,978,350 shares of common stock of CirTran
Corporation, a Nevada corporation, being offered by certain selling shareholders
identified in this prospectus. All of the shares, when sold, will be sold by
these selling shareholders. We will not receive any of the proceeds from the
sale of the shares.
-------------------------
Investing in the shares involves certain risks.
See "Risk Factors" beginning on page 5.
-------------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities, or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is a
criminal offense.
-------------------------
o, 2001
You should rely only on the information contained in this prospectus.
We have not authorized anyone to provide you with information different from
that contained in this prospectus. The selling shareholders are offering and
selling the shares only in jurisdictions where offers and sales are permitted.
The information contained herein is accurate only as of the date of this
prospectus, regardless of the time of the delivery of the prospectus or any sale
of the shares. In this prospectus, references to "CirTran," "the Company," "we,"
"us," and "our," refer to CirTran Corporation and its subsidiaries.
TABLE OF CONTENTS
Prospectus Summary...........................................................3
Risk Factors.................................................................5
Use of Proceeds..............................................................9
Determination of Offering Price..............................................9
Dilution....................................................................10
Description of Business.....................................................10
Management's Discussion and Analysis of Financial Condition
and Results of Operations...................................................17
Directors and Executive Officers............................................23
Executive Compensation......................................................24
Security Ownership of Certain Beneficial Owners and Management..............26
Certain Relationships and Related Transactions..............................27
Description of Common Stock.................................................27
Market for Common Shares and Related Stockholder Matters....................28
Selling Shareholders........................................................29
Plan of Distribution........................................................31
Available Information.......................................................32
Legal Proceedings...........................................................32
Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure........................................................33
Experts and Counsel.........................................................34
Commission's Position on Indemnification for Securities Act Liabilities.....34
Index to Financial Statements...............................................35
SUMMARY OF OUR OFFERING
This summary highlights information contained in other parts of this prospectus.
Because it is a summary, it does not contain all of the information that you
should consider before investing in the shares. You should read the entire
prospectus carefully.
Our Business: We provide a mixture of high and medium
size volume turnkey manufacturing services
for electronics original equipment
manufacturers, or OEMs, in the
communications, networking, peripherals,
gaming, consumer products,
telecommunications, automotive, medical,
and semiconductor industries. These
services include providing design and new
product introduction services, just-in-time
delivery on low-volume to medium-volume
turnkey and consignment projects, and other
value-added manufacturing services. Our
manufacturing processes include the
following: surface mount technology,
ball-grid array assembly and
pin-through-hole technology, which are all
methods of attaching electronic components
to circuit boards; manufacturing and test
engineering support and design for
manufacturability; and in-circuit and
functional test and full-system mechanical
assembly. We also design and manufacture
Ethernet cards that are used to connect
computers through fiber optic networks and
market these cards through an international
network of distributors, value-added
resellers and system integrators.
Corporate Organization: We incorporated in Nevada in 1987 under the
name Vermillion Ventures, Inc., for the
purpose of acquiring other operating
corporate entities. We were largely
inactive until the year 2000, when we
effected a reverse split in our common
stock, reducing our issued and outstanding
shares to 116,004. In July 2000, we issued
10,000,000 shares of common stock to
acquire, through our wholly-owned
subsidiary, CirTran Corporation (Utah),
substantially all of the assets and certain
liabilities of Circuit Technology, Inc., a
Utah corporation. The shares we issued to
Circuit Technology in connection with the
acquisition represented approximately 98.6%
of our issued and outstanding common stock
immediately following the acquisition.
Effective August 6, 2001, we effected a
1:15 forward split and stock distribution
which increased the number of our issued
and outstanding shares of common stock from
10,420,067 to 156,301,005. We also
increased our authorized capital from
500,000,000 to 750,000,000 shares of common
stock.
Our address is 4125 South 6000 West, West
Valley City, Utah 84128, and our phone
number is (801) 963-5112.
The Offering: The selling shareholders will sell up to
52,978,350 shares of our common stock. We
currently have 158,926,005 shares of common
stock issued and outstanding and will have
the same number of shares of common stock
issued and outstanding following completion
of this offering. We will not receive any
proceeds from the sales of common stock by
the selling shareholders. Our common stock
is not listed on any exchange, but it is
traded on the Pink Sheets under the symbol
"CIRT."
Summary and Operating Data
Year Ended Six Months
December 31, (Audited) Ended June 30, (Unaudited)
--------------------------------------------------------------------------------------------------------------------
2000 1999 2001 2000
Statement of Operations Data: (Restated) (Restated) (Restated)
----------------- ----------------------------------------------
Net sales $ 6,373,096 $ 9,860,489 $ 1,070,965 $ 2,680,038
Cost of sales 6,792,393 10,427,294 851,251 2,183,107
----------------- ----------------------------------------------
Gross profit (loss) (419,297) (566,805) 219,714 496,931
Selling, general and administrative expenses 2,710,275 2,594,430 1,288,499 1,371,797
----------------- ----------------------------------------------
Loss from operations (3,129,572) (3,161,235) (1,068,785) (874,866)
Other income (expense)
Interest (1,051,027) (764,486) (543,507) (308,317)
Other, net 945 156,816 4,100 400
----------------- ----------------------------------------------
(1,050,082) (607,670) (539,407) (307,917)
----------------- ----------------------------------------------
Loss before income taxes (4,179,654) (3,768,905) (1,608,192) (1,182,783)
Income taxes - - - -
----------------- ----------------------------------------------
Net loss $ (4,179,654) $ (3,768,905) $ (1,608,192) $ (1,182,783)
================= ==============================================
Loss per common share
Basic $ (0.03) $ (0.03) $ (0.01) $ (0.01)
Diluted $ (0.03) $ (0.03) $ (0.01) $ (0.01)
Weighted-average common shares outstanding
Basic 142,765,555 119,296,580 156,301,005 132,191,362
Diluted 142,765,555 119,296,580 156,301,005 132,191,362
12/31/2000 6/30/2001
----------------- ---------------
Balance Sheet Data:
Cash and Cash Equivalents $ 11,068 $ 427
Trade Accounts Receivable, net 874,097 494,181
Inventories 1,755,786 1,718,172
Total Assets 4,616,790 3,963,843
Current Liabilities 8,399,522 9,445,690
Long-Term Obligations 529,964 441,041
Capital Lease Obligations 14,257 12,257
Stockholders' Deficit (4,326,953) (5,935,145)
----------------- ---------------
Total Liabilities & Stockholders'
Deficit $ 4,616,790 $ 3,963,843
RISK FACTORS
In addition to the other information in this prospectus, the following risk
factors should be considered carefully in evaluating our business before
purchasing any of our shares of common stock. A purchase of our common stock is
speculative and involves significant and substantial risks. Any person who is
not in a position to lose the entire amount of his investment should forego
purchasing our common stock.
Risks Related to Our Operations
WE HAVE A HISTORY OF OPERATING LOSSES AND WE EXPECT TO CONTINUE TO GENERATE
LOSSES.
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 year ending
December 31, 2000 was $4,179,654, compared to $3,768,905 for the year ending
December 31, 1999, and was $1,608,192 for the six month period ending June 30,
2001, compared to $1,182,783 for the same period in 2000. Our level of sales has
declined during the same period. Our ability to operate profitably depends on
our ability to increase our sales and achieve sufficient gross profit margins
for sustained growth. We can give no assurance that we will operate profitably.
OUR CURRENT LIABILITIES EXCEED OUR CURRENT ASSETS BY A SIGNIFICANT AMOUNT AND WE
MAY NOT CONTINUE AS A GOING CONCERN.
Our financial statements indicate a trend of an increasingly larger excess of
current liabilities over current assets. Our current liabilities exceeded our
current assets by the following amounts as of the dates indicated: $3,323,654 as
of December 31, 1999; $5,664,395 as of December 31, 2000; $6,304,043 as of March
31, 2001; and $7,130,274 as of June 30, 2001. This trend raises substantial
doubt about our ability to continue as a going concern. Unless we obtain
additional financing through operations, investment capital or otherwise, there
is significant doubt we will be able to meet our obligations as they come due
and will be unable to execute our long-term business plans.
OUR SALES VOLUME HAS DECREASED SIGNIFICANTLY OVER THE LAST TWO YEARS.
Our sales volume is on a downward trend, as indicated by the following levels of
net sales for the periods indicated: $9,860,489 for the year ending December 31,
1999; $6,373,096 for the year ending December 31, 2000; $2,680,038 for the
six-month period ending June 30, 2000, compared to $1,070,965 for the same
period in 2001. On an annualized basis, this trend indicates a 78% decrease in
sales from 1999 to 2001. Unless we are successful in increasing both sales and
net profit margins, there is significant doubt that we will be able to continue
as a going concern.
WE ARE DEPENDENT ON A SMALL NUMBER OF CUSTOMERS FOR A SIGNIFICANT PORTION OF OUR
REVENUE, AND OUR OPERATING RESULTS HAVE BEEN ADVERSELY AFFECTED BY THE LOSS OF
OUR PRINCIPAL CUSTOMER.
During 2000, approximately 30% of our total revenues were derived from one
customer, and 34% from our top two customers. In the last half of 2000, Entrada
Networks, Inc., successor in interest to our principal customer, Osicom
Technologies, Inc., cancelled completion of a large order due to a downturn in
Entrada's business. We are currently litigating the exact size of the order and
the circumstances surrounding its cancellation (see "Legal Proceedings" below),
but we believe the gross amount of the order was approximately $3.8 million, of
which $1.8 million was actually completed and shipped in 2000. We have
quantified our losses from this cancellation, not including lost revenue, at
approximately $875,000. Of this amount, approximately $360,000 was attributable
to unused materials that we were contractually obligated to pay for, and
approximately $275,000 is attributable to product actually shipped for which we
have not received payment.
WE NEED TO RAISE ADDITIONAL CAPITAL BUT, DUE TO OUR CURRENT FINANCIAL SITUATION,
WE MAY NOT BE ABLE TO DO SO.
Our operating costs and interest expense currently total approximately $130,000
per month. Because our income from operations is not sufficient to meet these
expenses, we must depend on other sources of capital to fund our operations. We
have operated without a line of credit since December 1999, and 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 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. If
we are unsuccessful in obtaining additional funding to finance our operations,
there is serious doubt that we will be able to continue as a going concern.
WE HAVE SIGNIFICANT SHORT-TERM DEBT WHICH WE ARE NOT CURRENTLY ABLE TO FULLY
SERVICE.
We have significant short-term debt, including, at June 30, 2001, approximately
$1.9 million in accounts payable, $1.0 million in demand notes due certain of
our shareholders, and $3.0 million in accrued liabilities, a significant portion
of which consist of delinquent federal and state payroll taxes (see "Legal
Proceedings"). We are currently not able to fully service this debt. We are
attempting to negotiate forbearance agreements with many of our creditors and to
restructure our short-term debt. There can be no assurance that we will be
successful in these efforts.
WE ARE INVOLVED IN SEVERAL LEGAL PROCEEDINGS THAT MAY GIVE RISE TO SIGNIFICANT
LIABILITIES.
We have accrued delinquent payroll tax liabilities of approximately $1.3 million
and have not yet resolved a payment schedule with respect to most of this
amount. We are involved in litigation with a number of our suppliers and vendors
and are currently a defendant in an action for alleged breach of a sublease
agreement that may result in liability to us of up to $2.5 million (see "Legal
Proceedings"). Though we are attempting to negotiate settlements to all of the
various claims against us, there can be no assurance that we will be successful
in those negotiations or that, if successful, we will be able to service any
payment obligations which may result from such settlements.
TWO OF OUR SENIOR OFFICERS ARE THE SUBJECT OF A CRIMINAL PROCEEDING UNRELATED TO
OUR BUSINESS.
Our president, Iehab Hawatmeh, and his brother, Shaher Hawatmeh, who is
Executive Vice-President of CirTran Corporation (Utah), are the subject of a
criminal proceeding in the Third Judicial District Court, Salt Lake City, Utah.
As is disclosed more fully below in the section entitled, "Directors and
Executive Officers," Messrs. Hawatmeh have been charged with the assault and the
aggravated kidnapping of their sister, Muna Hawatmeh. Iehab Hawatmeh is a
Jordanian citizen and has permanent resident status in the United States. If he
is convicted of the kidnapping charge, he could be sent to prison or possibly
deported. Shaher Hawatmeh is a United States citizen and, if convicted of the
kidnapping charge, could be sent to prison. In either event, we would lose the
services of our two senior officers and there would be substantial doubt that we
could continue our business.
WE ARE DEPENDENT ON THE CONTINUED SERVICES OF OUR PRESIDENT, AND HIS UNTIMELY
DEATH OR DISABILITY COULD HAVE A MATERIAL ADVERSE EFFECT UPON OUR COMPANY.
We view the continued services of our president, Iehab Hawatmeh, as critical to
the success of our company. Though we have an employment agreement with Mr.
Hawatmeh (see "Executive Compensation"), we have no key-man life insurance on
him, nor are we in a position financially to acquire such insurance, and his
untimely death or disability could have a material adverse affect on our
operations.
Risks Related to Our Industry
THE VARIABILITY OF CUSTOMER REQUIREMENTS IN THE ELECTRONICS INDUSTRY COULD
ADVERSELY AFFECT OUR RESULTS OF OPERATIONS.
Electronic manufacturing service providers must provide increasingly rapid
turnaround time for their original equipment manufacturer (OEM) customers. We do
not obtain firm, long-term purchase commitments from our customers and have
experienced a demand for reduced lead-times in customer orders. Our customers
may cancel their orders, change production quantities or delay design and
production for several factors. Cancellations, reductions or delays by a
significant customer or group of customers could adversely affect our results of
operations. Additional factors that affect the electronics industry and that
could have a material adverse effect on our business include the inability of
our customers to adapt to rapidly changing technology and evolving industry
standards and the inability of our customers to develop and market their
products. If our customers' products become obsolete or fail to gain commercial
acceptance, our results of operations may be materially and adversely affected.
OUR CUSTOMER MIX AND BASE FLUCTUATES SIGNIFICANTLY.
The majority of our revenue is generated from our contract manufacturing
services. Our customers include electronics, telecommunications, networking,
automotive, gaming and medical device OEMs that contract with us for the
manufacture of specified quantities of products at a particular price and during
a relatively short period of time. As a result, the mix and number of our
clients varies significantly from time to time.
OUR INDUSTRY IS SUBJECT TO RAPID TECHNOLOGICAL CHANGE. IF WE ARE NOT ABLE TO
ADEQUATELY RESPOND TO CHANGES, OUR SERVICES MAY BECOME OBSOLETE OR LESS
COMPETITIVE AND OUR OPERATING RESULTS MAY SUFFER.
We may not be able, especially given our lack of financial resources, to
effectively respond to the technological requirements of a changing market,
including the need for substantial additional capital expenditures that may be
required as a result of these changes. The electronics manufacturing services
industry is characterized by rapidly changing technology and continuing process
development. The future success of our business will depend in large part upon
our ability to maintain and enhance our technological capabilities and
successfully anticipate or respond to technological changes on a cost-effective
and timely basis. In addition, our industry could in the future encounter
competition from new or revised technologies that render existing technology
less competitive or obsolete.
THERE MAY BE SHORTAGES OF REQUIRED COMPONENTS WHICH COULD CAUSE US TO CURTAIL
OUR MANUFACTURING OR INCUR HIGHER THAN EXPECTED COSTS.
Component shortages or price fluctuations in such components could have an
adverse effect on our results of operations. We purchase the components we use
in producing circuit board assemblies and other electronic manufacturing
services and we may be required to bear the risk of component price
fluctuations. In addition, shortages of electronic components have occurred in
the past and may occur in the future. These shortages and price fluctuations
could potentially have an adverse effect on our results of operations.
Risks Related to the Offering
VERMILLION VENTURES, INC. FAILED TO FILE A NUMBER OF REPORTS IT WAS REQUIRED TO
FILE UNDER THE FEDERAL SECURITIES LAWS, AND WE MAY HAVE LIABILITY FOR THOSE
REPORTING FAILURES.
Our predecessor, Vermillion Ventures, Inc., was subject to the reporting
requirements of the Securities Exchange Act of 1934, as amended, but failed to
file any reports under that act between 1989 and 2000. We therefore may be
subject to liability for Vermillion's filing failures. When we effected our
transaction with Vermillion in mid-2000, we filed three years of audited
financial statements for Vermillion. We believe those filings made Vermillion
"current" for purposes of the filing requirements under the Securities Exchange
Act of 1934. The Securities Exchange Commission has not, however, made any
official determination that Vermillion is current on its filing requirements,
and we can give you no assurance that we are still not subject to liability
arising from Vermillion's failure to meet its filing obligations.
OUR OFFICERS AND DIRECTORS CONTROL APPROXIMATELY 40% OF OUR ISSUED AND
OUTSTANDING SHARES OF COMMON STOCK.
Our officers and directors currently control approximately 40% of our issued and
outstanding shares of common stock. This group therefore has, and will continue
to have for the foreseeable future, the ability to control our management
policies and decisions as well as issues that require a shareholder vote, such
as the election of directors and the approval of significant corporate
transactions. Their interests may differ from that of other shareholders with
respect to management issues.
THERE IS CURRENTLY NO TRADING MARKET FOR OUR COMMON STOCK AND NONE MAY DEVELOP.
There is currently no established public trading market for our common stock,
other than through the Pink Sheets over-the-counter quotation system. We have
sought, and it is still our intention to seek, inclusion of our shares of common
stock on the Nasdaq Over the Counter Bulletin Board, or OTCBB. The OTCBB is an
unorganized, inter-dealer, over-the-counter market that provides significantly
less liquidity than markets such as the New York Stock Exchange or the Nasdaq
quotation system, but which is generally considered more liquid that the Pink
Sheet over-the-counter quotation system. To date, we have not been successful in
having our stock quoted on the OTCBB, due in part to the small number of shares
of our common stock that are freely-tradeable. One of the primary purposes of
this offering is to register a significant number of shares of our common stock
to create a larger pool of freely-tradeable stock. However, an established
public trading market for our common stock may never develop or, if it develops,
it may not be able to be sustained. Purchasers of our common stock may therefore
have difficulty selling their shares should they desire to do so.
SALES OF COMMON STOCK BY THE SELLING SHAREHOLDERS MAY AFFECT THE MARKET PRICE OF
OUR STOCK.
The market price of our shares of common stock could drop if substantial numbers
of shares are sold in the public market if a market should develop, or if the
market perceives that such sales could occur. A drop in the market price could
adversely affect holders of our common stock and could also hamper our ability
to raise additional capital by selling equity securities. A total of 52,978,350
(post-split) common shares, or approximately 33% of the total number of issued
and outstanding common shares, are being registered and may be offered for sale
by the selling shareholders.
THE SELLING SHAREHOLDERS MAY SELL COMMON STOCK AT ANY PRICE OR TIME.
Upon effectiveness of this registration statement, the selling shareholders may
offer and sell their shares of common stock at a price and time determined by
them. The timing of sales and the price at which the shares are sold by the
selling shareholders could have an adverse effect upon the public market for our
common stock, should one develop. There is no underwriter involved in the
offering of the shares held by the selling shareholders, and there can be no
guarantee that the disposition of those shares will be orderly or in a manner
that is not disruptive to the market for our common stock.
PENNY STOCK REGULATIONS MAY IMPAIR OUR SHAREHOLDERS' ABILITY TO SELL
THEIR STOCK.
Penny stocks are subject to rules and regulations that impose additional sales
practice requirements on broker-dealers who sell the securities to persons other
than established customers and accredited investors, and these additional
requirements may restrict the ability of broker-dealers to sell a penny stock.
As is disclosed more fully in the section entitled "Market for Common Shares and
Related Stockholder Matters," penny stocks generally are equity securities with
a price of less than $5.00 per share, other than securities registered on
certain national securities exchanges. If trading in our stock begins, our
shares of common stock will be considered penny stock if its trading price is
under $5.00 per share.
USE OF PROCEEDS
We will not receive any proceeds from the sale of shares of our common stock
being offered by the selling shareholders.
DETERMINATION OF OFFERING PRICE
The selling shareholders may sell our common stock at prices then prevailing or
related to the then current market price, or at negotiated prices. The offering
price may have no relationship to any established criteria or value, such as
book value or earnings per share. Additionally, because we have not generated
any profits for several years, the price of our common stock is not based on
past earnings, nor is the price of the shares of our common stock indicative of
current market value for the assets we own. No valuation or appraisal has been
prepared for our business or possible business expansion.
DILUTION
The shares offered for sale by the selling shareholders are already outstanding
and, therefore, do not contribute to dilution.
DESCRIPTION OF BUSINESS
We are a full-service contract electronics manufacturer servicing OEMs in the
following industries: communications, networking, peripherals, gaming, law
enforcement, consumer products, telecommunications, automotive, medical and
semi-conductor. We conduct our operations through two main divisions: circuit
board manufacturing and assembly and Ethernet card design and manufacture.
Industry Background
The contract electronics manufacturing industry specializes in providing the
program management, technical and administrative support and manufacturing
expertise required to take an electronic product from the early design and
prototype stages through volume production and distribution. The goal is to
provide a quality product, delivered on time and at the lowest cost, to the OEM.
This full range of services gives the OEM an opportunity to avoid large capital
investments in plant, inventory, equipment and staffing and to concentrate
instead on innovation, design and marketing. By using our contract electronics
manufacturing services, our customers have the ability to improve the return on
their investment with greater flexibility in responding to market demands and
exploiting new market opportunities. Many OEMs now consider contract
manufacturers an integral part of their business and manufacturing strategy.
Accordingly, the contract electronics manufacturing industry has experienced
significant growth as OEMs have established long-term working arrangements with
contract manufacturers such as us.
We believe two important trends have developed in the contract electronics
manufacturing industry. First, we believe OEMs increasingly require contract
manufacturers to provide complete turnkey manufacturing and material handling
services, rather than working on a consignment basis where the OEM supplies all
materials and the contract manufacturer supplies only labor. Turnkey contracts
involve design, manufacturing and engineering support, the procurement of all
materials, and sophisticated in-circuit and functional testing and distribution.
The manufacturing partnership between OEMs and contract manufacturers involves
an increased use of "just-in-time" inventory management techniques that minimize
the OEM's investment in component inventories, personnel and related facilities,
thereby reducing costs.
We believe a second trend in the industry has been the increasing shift from
pin-through-hole, or PTH, to surface mount technology, or SMT, interconnection
technologies. Surface mount and pin-through-hole printed circuit board
assemblies are printed circuit boards on which various electronic components,
such as integrated circuits, capacitors, microprocessors and resistors are
mounted. These assemblies are key functional elements of many types of
electronic products. PTH technology involves the attachment of electronic
components to printed circuit boards with leads or pins that are inserted into
pre-drilled holes in the boards. The pins are then soldered to the electronic
circuits. The drive for increasingly greater functional density has resulted in
the emergence of SMT, which eliminates the need for holes and allows components
to be placed on both sides of a printed circuit, contributing to size reductions
of up to 50%. SMT requires expensive, highly automated assembly equipment and
significantly more operational expertise than PTH technology. We believe the
shift to SMT from PTH technology has increased the use of contract manufacturers
by OEMs seeking to avoid the significant capital investment required for
development and maintenance of SMT expertise.
Electronics Assembly and Manufacture
Approximately 80% of our revenues are generated by our electronics assembly
activities, which consist primarily of the placement and attachment of
electronic and mechanical components on printed circuit boards and flexible
(i.e., bendable) cables. We also assemble higher-level sub-systems and systems
incorporating printed circuit boards and complex electromechanical components
that convert electrical energy to mechanical energy, in some cases manufacturing
and packaging products for shipment directly to our customers' distributors. In
addition, we provide other manufacturing services, including refurbishment and
remanufacturing. We manufacture on a turnkey basis, directly procuring any of
the components necessary for production where the OEM customer does not supply
all of the components that are required for assembly. We also provide design and
new product introduction services, just-in-time delivery on low to medium volume
turnkey and consignment projects and projects that require more value-added
services, and price-sensitive, high-volume production. Our goal is to offer
customers significant competitive advantages that can be obtained from
manufacturing 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.
We intend to continue to offer our customers the most advanced manufacturing
process technologies, including SMT, ball-grid array, or BGA, assembly, PTH
technology, manufacturing and test engineering support and design for
manufacturability, and in-circuit and functional test and full-system mechanical
assembly. We believe we have developed substantial SMT expertise, including
advanced, vision-based component placement equipment, which are machines that
use integrated cameras controlled by computer software for precise placement of
components on circuit boards. We believe that the cost of SMT assembly
facilities and the technical capability required to operate a high-yield SMT
operation are significant competitive factors in the market for electronic
assembly. We also have the capability to manufacture cables, harnesses and
plastic injection molding systems.
Ethernet Technology
Through our subsidiary, Racore Technology Corporation, we design, manufacture,
and distribute Ethernet cards. These components are used to connect computers
through fiber optic networks. In addition, we produce private label, custom
designed networking products and technologies on an OEM basis. Our products
serve major industrial, financial, and telecommunications companies worldwide.
We market our products through an international network of distributors, value
added resellers, and systems integrators who sell, install, and support our
entire product catalogue.
Additionally, we have established key business alliances with major
multinational companies in the computing and data communications industries for
which we produce private label, custom designed networking products and
technologies on an OEM basis. These alliances generally require that Racore
either develop custom products or adapt existing Racore products to become part
of the OEM customer's product line. Under a typical contract, Racore provides a
product with the customer's logo, packaging, documentation, and custom software
and drivers to allow the product to appear unique and proprietary to the OEM
customer. Contract terms generally provide for a non-recurring engineering
charge for the development and customization charges, together with a
contractual commitment for a specific quantity of product over a given term. One
recent example of Racore's custom-designed technology resulted in development of
Ethernet cards according to the specifications of a Federal law enforcement
agency and a subsequent $225,000 order in late June 2001 for these cards. 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.
Market and Business Strategy
Our goal is to benefit from the increased market acceptance of, and reliance
upon, the use of manufacturing specialists by many electronics OEMs. It is
estimated by the IPC--Association Connecting Electronics Industries that the
United States electronics manufacturing services industry market increased from
$22.5 billion in 1998 to $34 billion in 2000. We believe the trend towards
outsourcing manufacturing will continue. OEMs utilize manufacturing specialists
for many reasons including the following:
o To Reduce Time to Market. Due to intense competitive pressures in the
electronics industry, OEMs are faced with increasingly shorter product
life-cycles and, therefore, have a growing need to reduce the time required
to bring a product to market. We believe OEMs can reduce their time to
market by using a manufacturing specialist's manufacturing expertise and
infrastructure.
o To Reduce Investment. The investment required for internal manufacturing
has increased significantly as electronic products have become more
technologically advanced and are shipped in greater unit volumes. We
believe use of manufacturing specialists allows OEMs to gain access to
advanced manufacturing capabilities while substantially reducing their
overall resource requirements.
o To Focus Resources. Because the electronics industry is experiencing
greater levels of competition and more rapid technological change, many
OEMs are focusing their resources on activities and technologies which add
the greatest value to their operations. By offering comprehensive
electronics assembly and related manufacturing services, we believe
manufacturing specialists allow OEMs to focus on their own core
competencies such as product development and marketing.
o To Access Leading Manufacturing Technology. Electronic products and
electronics manufacturing technology have become increasingly sophisticated
and complex, making it difficult for OEMs to maintain the necessary
technological expertise to manufacture products internally. We believe OEMs
are motivated to work with a manufacturing specialist to gain access to the
specialist's expertise in interconnect, test and process technologies.
o To Improve Inventory Management and Purchasing Power. Electronics industry
OEMs are faced with increasing difficulties in planning, procuring and
managing their inventories efficiently due to frequent design changes,
short product life-cycles, large required investments in electronic
components, component price fluctuations and the need to achieve economies
of scale in materials procurement. OEMs can reduce production costs by
using a manufacturing specialist's volume procurement capabilities. In
addition, a manufacturing specialist's expertise in inventory management
can provide better control over inventory levels and increase the OEM's
return on assets.
An important element of our strategy is to establish partnerships with major and
emerging OEM leaders in diverse segments across the electronics industry. Due to
the costs inherent in supporting customer relationships, we focus our efforts on
customers with which the opportunity exists to develop long-term business
partnerships. Our goal is to provide our customers with total manufacturing
solutions for both new and more mature products, as well as across product
generations.
Another element of our strategy is to provide a complete range of manufacturing
management and value-added services, including materials management, board
design, concurrent engineering, assembly of complex printed circuit boards and
other electronic assemblies, test engineering, software manufacturing, accessory
packaging and post-manufacturing services. We believe that as manufacturing
technologies become more complex and as product life cycles shorten, OEMs will
increasingly contract for manufacturing on a turnkey basis as they seek to
reduce their time to market and capital asset and inventory costs. We believe
that the ability to manage and support large turnkey projects is a critical
success factor and a significant barrier to entry for the market it serves. In
addition, we believe that due to the difficulty and long lead-time required to
change manufacturers, turnkey projects generally increase an OEM's dependence on
its manufacturing specialist, which can result in a more stable customer base.
Suppliers; Raw Materials
Our sources of components for our electronics assembly business are either
manufacturers or distributors of electronic components. These components include
passive components, such as resisters, capacitors and diodes, and active
components, such as integrated circuits and semi-conductors. Our suppliers
include Siemens, Muriata-Erie, Texas Instruments, Fairchild, Harris and
Motorola. Distributors from whom we obtain materials include Avnet, Future
Electronics, Arrow Electronics, Digi-key and Force Electronics. Although we have
experienced shortages of various components used in our assembly and
manufacturing processes, we typically hedge against such shortages by using a
variety of sources and, to the extent possible, by projecting our customer's
needs.
Research and Development
During 1999 and 2000, we and our predecessor corporation, Circuit Technology
Inc., spent approximately $366,245 and $217,395, respectively, on research and
development of new products and services. The costs of that research and
development were paid for by our customers. In addition, during the same
periods, our subsidiary, Racore, spent approximately $323,962 and $248,049,
respectively. None of Racore's expenses were paid for by its customers. We
remain committed, particularly in the case of Racore, to continuing to develop
and enhance our product line as part of our overall business strategy..
Sales and Marketing
Historically, we have had substantial recurring sales from existing customers,
but we are now actively seeking out new customers to generate increased sales.
We treat sales and marketing as an integrated process involving direct
salespersons and project managers, as well as senior executives. We also use
independent sales representatives in certain geographic areas.
During the sale process, a customer provides us with specifications for the
product it wants, and we develop a bid price for manufacturing a minimum
quantity that includes manufacture engineering, parts, labor, testing, and
shipping. If the bid is accepted, the customer is required to purchase the
minimum quantity and additional product is sold through purchase orders issued
under the original contract. Special engineering services are provided at either
an hourly rate or at a fixed contract price for a specified task.
Over 80% of our net sales during the year ended December 31, 2000, were derived
from customers that were also customers during 1999. Although we are
aggressively seeking to diversify our customer base, a small number of customers
have typically been responsible for a significant portion of our net sales.
During the year ended December 31, 2000, our largest customer, Osicom Technology
and its successor, Entrada Networks, Inc., accounted for 30% of consolidated net
sales. Andrew Corporation represented 30% and 48.8% of net sales in 1999 and
1998, respectively. No other individual customer accounted for more than 10% of
our net sales in any of these years. As is described more fully below in the
section entitled, "Legal Proceedings," we are currently involved in a breach of
contract proceeding with Osicom Technology and its successor, Entrada Networks,
which late in 2000 cancelled a significant portion of a large outstanding order
with us.
Backlog consists of contracts or purchase orders with delivery dates scheduled
within the next twelve months. At December 31, 2000, our backlog was
approximately $4 million. The backlog was approximately $4.5 million at December
31, 1999.
Material Contracts and Relationships
We generally use form agreements with standard industry terms as the basis for
our contracts with our customers. The form agreements typically specify the
general terms of our economic arrangement with the customer (number of units to
be manufactured, price per unit and delivery schedule) and contain additional
provisions that are generally accepted in the industry regarding payment terms,
risk of loss and other matters. We also use a form agreement with our
independent marketing representatives that features standard terms typically
found in such agreements.
We have previously filed copies of various documents with the SEC relating to
our former line of credit with Imperial Bank, which was purchased in May 2000,
by Abacus Ventures, Inc. Abacus subsequently converted the amount owing on the
line of credit into a promissory note in the principal amount of $2,435,007,
that is payable upon demand and incurs interest at a rate of 10% per annum.
Competition
The electronic manufacturing services industry is large and diverse and is
serviced by many companies, including several that have achieved significant
market share. Because of our market's size and diversity, we do not typically
compete for contracts with a discreet group of competitors. We compete with
different companies depending on the type of service or geographic area. Certain
of our competitors may have greater manufacturing, financial, research and
development and marketing resources. We also face competition from current and
prospective customers that evaluate our capabilities against the merits of
manufacturing products internally.
We believe that the primary basis of competition in our targeted markets is
manufacturing technology, quality, responsiveness, the provision of value-added
services and price. To remain competitive, we must continue to provide
technologically advanced manufacturing services, maintain quality levels, offer
flexible delivery schedules, deliver finished products on a reliable basis and
compete favorably on the basis of price.
Regulation
We are subject to typical federal, state and local regulations and laws
governing the operations of manufacturing concerns, including environmental
disposal, storage and discharge regulations and laws, employee safety laws and
regulations and labor practices laws and regulations. We are not required under
current laws and regulations to obtain or maintain any specialized or
agency-specific licenses, permits, or authorizations to conduct our
manufacturing services. We believe we are in substantial compliance with all
relevant regulations applicable to our business and operations.
Employees
We employ 101 persons, five in administrative positions, 14 in engineering and
design, 76 in clerical and manufacturing, and six in sales.
Property
We lease approximately 40,000 square feet of office and manufacturing space in
West Valley City, Utah, at a monthly lease rate of $16,000. The lease is
renewable in November of 2006 for two additional ten-year periods. This facility
serves as our principal offices and manufacturing facility and is leased from
I&R Properties, LLC, a company owned and controlled by individuals who are
officers, directors and principal stockholders. We believe our lease for the
facility is on commercially reasonable terms. We lease 4,000 square feet of
space in West Valley City, Utah, for our subsidiary, where it conducts design
and engineering work, for $2,700 per month. We believe this lease, which is
renewable in March 2003 for an additional three-year period, is on commercially
reasonable terms. We also lease a sales office in Newark, California, which is
near Santa Clara, at a monthly lease rate of $850. We believe these facilities
are adequate for our current needs.
Corporate Background
We were incorporated in Nevada in 1987, under the name Vermillion Ventures,
Inc., for the purpose of acquiring other operating corporate entities. On March
15, 1998, Vermillion issued 129,000,000 shares of common stock to acquire all of
the outstanding stock of BMC Incorporated. This entity was unsuccessful in its
bingo satellite business and was dissolved. In May 2000, Vermillion effected a
3,000-to-1 reverse split of its common stock, reducing the number of issued and
outstanding shares to 116,004.
On July 1, 2000, we issued a total of 10,000,000 shares of our common stock
(150,000,000 shares post-forward split), representing approximately 98.6% of our
total issued and outstanding common stock following such issuance, to acquire,
through our wholly-owned subsidiary, CirTran Corporation (Utah), substantially
all of the assets and certain liabilities of Circuit Technology, Inc., or
Circuit. Of these shares, 800,000 (12,000,000 shares post-forward split) were
issued to Cogent Capital Corporation, a Utah corporation that provided financial
and other consulting services to us in connection with the above-described
acquisition. See "Certain Relationships and Related Transactions."
Our core business was commenced by Circuit in 1993 by our president, Iehab
Hawatmeh. Circuit enjoyed increasing sales and growth in the subsequent five
years, going from $2.0 million in sales in 1994 to $15.4 million in 1998,
leading to the purchase of two additional SMT assembly lines in 1998 and the
acquisition of Racore Computer Products, Inc. in 1997. During that period,
Circuit hired additional management personnel to assist in managing its growth,
and Circuit executed plans to expand its operations by acquiring a second
manufacturing facility in Colorado. Circuit subsequently determined in early
1999, however, that certain large contracts that accounted for significant
portions of our total revenues provided insufficient profit margins to sustain
the growth and resulting increased overhead. Furthermore, internal accounting
controls then in place failed to apprise management on a timely basis of our
deteriorating financial position. During the last several years, we have
experienced significant losses, as follows: $3,768,905 in 1999; $4,179,654 in
2000; and $1,608,192 during the six-month period ended June 30, 2001. We have
also experienced increasing levels of debt. Our management has been addressing
this situation by, among other things, re-directing our sales and manufacturing
efforts to smaller contracts with higher profit margins and negotiating debt
forbearance arrangements with many of our creditors.
Summary and Operating Data
Year Ended Six Months
December 31, (Audited) Ended June 30, (Unaudited)
--------------------------------------------------------------------------------------------------------------------
2000 1999 2001 2000
Statement of Operations Data: (Restated) (Restated) (Restated)
----------------- ----------------------------------------------
Net sales $ 6,373,096 $ 9,860,489 $ 1,070,965 $ 2,680,038
Cost of sales 6,792,393 10,427,294 851,251 2,183,107
----------------- ----------------------------------------------
Gross profit (loss) (419,297) (566,805) 219,714 496,931
Selling, general and administrative expenses 2,710,275 2,594,430 1,288,499 1,371,797
----------------- ----------------------------------------------
Loss from operations (3,129,572) (3,161,235) (1,068,785) (874,866)
Other income (expense)
Interest (1,051,027) (764,486) (543,507) (308,317)
Other, net 945 156,816 4,100 400
----------------- ----------------------------------------------
(1,050,082) (607,670) (539,407) (307,917)
----------------- ----------------------------------------------
Loss before income taxes (4,179,654) (3,768,905) (1,608,192) (1,182,783)
Income taxes - - - -
----------------- ----------------------------------------------
Net loss $ (4,179,654) $ (3,768,905) $ (1,608,192) $ (1,182,783)
================= ==============================================
Loss per common share
Basic $ (0.03) $ (0.03) $ (0.01) $ (0.01)
Diluted $ (0.03) $ (0.03) $ (0.01) $ (0.01)
Weighted-average common shares outstanding
Basic 142,765,555 119,296,580 156,301,005 132,191,362
Diluted 142,765,555 119,296,580 156,301,005 132,191,362
12/31/2000 6/30/2001
----------------- ---------------
Balance Sheet Data:
Cash and Cash Equivalents $ 11,068 $ 427
Trade Accounts Receivable, net 874,097 494,181
Inventories 1,755,786 1,718,172
Total Assets 4,616,790 3,963,843
Current Liabilities 8,399,522 9,445,690
Long-Term Obligations 529,964 441,041
Capital Lease Obligations 14,257 12,257
Stockholders' Deficit (4,326,953) (5,935,145)
----------------- ---------------
Total Liabilities & Stockholders'
Deficit $ 4,616,790 $ 3,963,843
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following information should be read in conjunction with the financial
information included elsewhere in this prospectus. The following discussion and
other parts of this prospectus may contain forward-looking statements that
involve risks and uncertainties. Our actual results may differ significantly
from the results discussed in those forward-looking statements. Factors that
might cause such differences include, but are not limited to, our history of
unprofitability and the continuing uncertainty of our profitability, our ability
to develop new customers and restructure our outstanding debt, the highly
competitive industry in which we operate and the rapid pace of technological
change within that industry, our dependence on key employees and general
economic and business conditions, some or all of which may be beyond our
control.
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, law enforcement,
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
Year Ending December 31, 2000 Compared to Year Ending December 31, 1999
Sales and Cost of Sales
Net Sales decreased 35.4% to $6,373,096 for the year ended December 31, 2000 as
compared to $9,860,489 for 1999. The decrease is substantially due to the loss
of a major customer, Andrew Corporation, which accounted for approximately 30%
of our net sales in 1999. Sales to Andrew Corporation in 1999 amounted to
$3,314,104, whereas sales to the same customer in 2000 were only $29,250. In
addition, in the last half of 2000, Entrada Networks, Inc., successor in
interest to Osicom Technologies, a customer that generated approximately 30% of
our total revenues for 2000, cancelled completion of a large order due to a
downturn in Entrada's business. We are litigating the exact size of the order
and the circumstances surrounding its cancellation (see "Legal Proceedings"
below), but we believe the gross amount of the order was approximately $3.8
million, of which $1.8 million was actually completed and shipped in 2000. A
substantial portion of the remaining $2.0 million would have been recorded as
sales in 2000.
Cost of sales for the year ended December 31, 2000 was $6,792,393, a 34.9%
decrease as compared to $10,427,294 incurred during the prior year. Those costs
as a percentage of net sales were 106.6% during 2000 as compared to 105.7%
during 1999. We believe our high cost of sales was attributable to three main
factors: (i) high-volume orders which produced low or negative margins; (ii)
cancellation of the Entrada order, discussed above, in preparation for which we
acquired a large amount of inventory; and (iii) significant write-offs for
obsolete inventory resulting from inadequate inventory control.
Our sales to Andrew Corporation in 1999 accounted for a large volume of sales
through large orders averaging 35,000 pieces, but these orders resulted in very
low or negative margins, which led to our negative gross profit for the year
ended December 31, 1999. We have shifted our marketing effort to small and
mid-sized customers that place orders of 100 to 5,000 pieces. We believe these
small and mid-sized orders produce a higher gross profit, primarily because we
are competing with other domestic manufacturers whose cost of sales is
comparable to our own, whereas large orders force us to compete with off-shore
manufacturers who typically enjoy significantly lower labor costs.
Among other things, lack of adequate inventory management and control has
negatively affected our gross margins. We have traditionally tracked inventory
by customer rather than by like-inventory item, and, as a result, we often
purchased new inventory to produce products for a new customer, when we likely
may have had the necessary inventory on hand under a different customer name.
This practice has led to a reserve for obsolescence and excess inventory, which
for the year 2000 was $545,866, up from $489,903 in 1999, and has increased cost
of sales. We are changing our method of managing and controlling our inventory
so that we can identify and use existing inventory and thereby reduce our costs
of sales. We have experienced improvement in this regard and believe that, if we
are able to maintain and increase our levels of sales, we will be successful in
generating sufficient gross profit to cover our selling, general and
administrative expenses.
The following charts present (i) comparisons of sales, cost of sales and gross
profit generated by our two main areas of operations, i.e., electronics assembly
and Ethernet technology, during 1999 and 2000; and (ii) comparisons during these
two years for each division between sales generated by pre-existing customers
and sales generated by new customers.
------------------ -------------- ------------------- ------------------ ----------------------
Year Sales Cost of Sales Gross Loss
------------------ -------------- ------------------- ------------------ ----------------------
Electronics 1999 $ 7,954,824 $ 8,504,509 $(549,685)
Assembly 2000 4,645,622 4,972,689 (327,067)
------------------ -------------- ------------------- ------------------ ----------------------
Ethernet 1999 1,905,665 2,008,968 (103,303)
Technology 2000 1,727,474 1,819,704 (92,230)
------------------ -------------- ------------------- ------------------ ----------------------
------------------ -------------- ------------------- ------------------ ----------------------
Year Total Pre-existing New
Sales Customers Customers
------------------ -------------- ------------------- ------------------ ----------------------
Electronics 1999 $ 7,954,824 $ 6,392,977 $ 1,561,847
Assembly 2000 4,645,622 4,317,668 327,954
------------------ -------------- ------------------- ------------------ ----------------------
Ethernet 1999 1,905,665 1,488,264 417,401
Technology 2000 1,727,474 787,649 939,825
------------------ -------------- ------------------- ------------------ ----------------------
Inventory
We use just-in-time manufacturing, which is a production technique that
minimizes work-in-process inventory and manufacturing cycle time, while enabling
us to deliver products to customers in the quantities and time frame required.
This manufacturing technique requires us to maintain an inventory of component
parts to meet customer orders. Inventory at December 31, 2000, was $1,755,786 as
compared to $3,056,383 at December 31, 1999. The decrease of approximately 42.6%
in inventory is attributable to our decreased sales in 2000 which reduced our
need to replace inventory at the same level as in 1999, as well as an increase
in our reserve for obsolete inventory. Work in-process as a component of
inventory decreased from $1,015,925 at December 31, 1999 to $169,676 at December
31, 2000. Again, this decrease reflects our decreased sales in 2000,
particularly at year-end. As discussed above, our management is currently taking
steps to improve our inventory control and believes the amount of our inventory
that may be considered obsolete or slow moving is properly reserved.
General and Administrative Expenses
During the year ended December 31, 2000, selling, general and administrative
expenses were $2,710,275, versus $2,594,430 for 1999, a 4.5% increase. Though
our change in marketing strategy to small and medium sized clients allowed us to
reduce staff, especially in the areas of mid-level management and assembly
staff, and to implement other cost savings measures, we still experienced an
increase in overall expenses that is primarily attributable to write-offs at
fiscal year-end of approximately $508,000.
Our management believes that a significant portion of our losses in 1999 are
attributable to expenses related to opening and subsequently closing of
Circuit's Colorado Springs facility. The Colorado Springs facility was opened in
November of 1998, we decided in June 1999 to close the facility, and the closing
process was completed in December of 1999. We decided to close the facility
after we discovered, in early 1999, serious deficiencies in our cost accounting
procedures and controls that had failed to apprise our management on a timely
basis of our deteriorating financial position, significant losses and increasing
debt. As a result of our decision to close the Colorado Springs facility, we
recognized substantial plant closure expense in 2000, including accrual of rent,
that diminished any benefits resulting from cost saving measures in 2000. As the
majority of the closing expenses were incurred in prior periods, management
expects we will realize the full benefit of these cost saving measures in 2001
and subsequent periods. This assumes, however, a satisfactory resolution of the
lawsuit with the lessor of the Colorado facility, Sunborne XII, LLC (see "Legal
Proceedings").
Interest expense for 2000 was $1,015,027 as compared to $764,486 for 1999, an
increase of 33% and a reflection of our accrual of interest on nonremitted
payroll taxes and our significant debt load that we were not able to adequately
service in 2000.
As a result of the above factors, our overall net loss increased 10.9% to
$4,179,654 for the year ended December 31, 2000 as compared to $3,768,905 for
the year ended December 31, 1999.
Comparison of Six-Month Periods Ending June 30, 2001 and June 30, 2000
Sales and Cost of Sales
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 decrease
primarily reflects the loss of two major customers, Andrew Corporation and
Entrada Networks, Inc., as discussed above. 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.
The following chart presents comparisons of sales, cost of sales and gross
profit generated by our two main areas of operations, i.e., electronics assembly
and Ethernet technology, during the six-month periods ended June 30, 2000 and
2001.
-----------------------------------------------------------------------------------------------
Comparison of Sales and Cost of Sales
Six-Month Periods Ending June 30, 2000 and 2001
-----------------------------------------------------------------------------------------------
Period Sales Cost of Sales Gross Profit (Loss)
------------------ -------------- ------------------- ------------------ ----------------------
Electronics 2000 $ 1,808,685 $ 1,383,415 $ 425,270
Assembly 2001 687,523 858,183 (170,660)
------------------ -------------- ------------------- ------------------ ----------------------
Ethernet 2000 871,353 732,795 138,558
Technology 2001 383,442 (6,932) 390,374
------------------ -------------- ------------------- ------------------ ----------------------
Inventory
Inventory at June 30, 2001 was $1,718,172 as compared to $1,755,786 at December
31, 2000.
General and Administrative Expenses
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% decrease. Due to the decline in sales,
however, general and administrative expenses as a percentage of sales increased
during the six-month period ended June 30, 2001 to 120%, as compared to 51%
during the same period in 2000.
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% to
$1,608,192 for the six-month period ended June 30, 2001, from $1,182,783 during
the same 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 year ending
December 31, 2000 was $4,179,654, compared to $3,768,905 for the year ending
December 31, 1999, and was $1,608,192 for the six month period ending June 30,
2001, compared to $1,182,783 for the same period in 2000. Our current
liabilities exceeded our current assets by the following amounts as of the dates
indicated: $3,323,654 as of December 31, 1999; $5,664,395 as of December 31,
2000; $6,304,043 as of March 31, 2001; and $7,130,274 as of June 30, 2001. For
the year ended December 31, 2000 we recorded negative cash flows from operations
of $140,961, whereas for the six-month period ended June 30, 2001, we recorded
positive cash flows from operations of $29,161.
Cash
At December 31, 2000, we had $11,068 cash on hand, an increase of $10,568 from
December 31, 1999. By June 30, 2001, our cash on hand was $427, a decrease of
$10,641 from December 31, 2000.
Net cash used in operating activities was $140,961 for the fiscal year ended
December 31, 2000, and net cash provided by operating activities for the
six-month period ended June 30, 2001 was $29,161. During 2000, net cash used in
operations was primarily attributable to $4,179,654 in net losses from
operations, partially offset by non-cash charges, an increase in accrued
liabilities of $1,741,163 and a net decrease in accounts payable of $87,129. The
non-cash charges include depreciation and amortization of $961,506, provision
for doubtful trade accounts receivable of $78,978, and provision for inventory
obsolescence of $55,963. During the six-month period ended June 30, 2001, net
cash provided by operations was primarily attributable to non-cash charges,
including $234,065 for depreciation and amortization, $29,101 as a provision for
doubtful trade accounts receivable, and by increases in accrued liabilities and
accounts payable and a decrease in trade accounts receivable. These amounts
offset an operating loss of $1,608,192 for the six-month period.
Net cash used in investing activities during the fiscal year ended December 31,
2000 and the six-month period ended June 30, 2001, consisted of equipment
purchases of, respectively, $12,770 and $1,844.
Net cash provided by financing activities was $164,299 during the fiscal year
ended December 31, 2000. Principal sources of cash were shareholder loans of
$86,000, proceeds of $254,663 from long-term obligations, and proceeds of
$946,100 from the private sale of 830 restricted shares of common stock of
Circuit Technology, Inc. prior to its acquisition by us effective July 1, 2000.
These shares, pursuant to the terms of the acquisition, were subsequently
exchanged into 627,238 (pre-forward-split) shares of our common stock, or
9,408,585 post-forward-split shares of our common stock. Principal uses of cash
during 2000 consisted of $825,593 principal payments of long-term obligations
and $129,706 payments on capital lease obligations.
Net cash used in financing activities during the six-month period ended June 30,
2001 was $37,958, representing the balance of $67,965 provided by overdrafts,
less approximately $106,000 used for principal payments on long-term obligations
and capital leases.
Accounts Receivable
At December 31, 2000, we had receivables of $874,097, net of a reserve
for doubtful accounts of $82,502, as compared to $973,351 at December 31, 1999,
net of a reserve of $360,493. The reserve for doubtful accounts was
significantly larger in 1999 because approximately $426,000 of the total
receivables were over 90 days old. We subsequently wrote off approximately
$351,000 of accounts receivable in 2000 as uncollectable, while at the same time
increasing our efforts to improve the aging and quality of our current
receivables. These efforts resulted in a significantly smaller reserve for
doubtful accounts at the end of 2000.
By June 30, 2001, net accounts receivable had decreased from $874,097
at December 31, 2001 to $494,181, net of an allowance for doubtful accounts of
$111,603. This significant decrease is reflective of our corresponding 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.
Accounts Payable
Accounts payable were $1,561,752 at December 31, 2000 as compared to $2,366,187
at December 31, 1999. This decrease is primarily attributable to the issuance in
2000 of stock and notes in payment of, respectively, $324,284 and $393,022 of
accounts payable. By June 30, 2001, accounts payable had increased to
$1,906,609.
Liquidity and Financing Arrangements
We sustained substantial losses from operations in 2000 and 1999. We had
accumulated deficits of $10,147,408 and $11,755,600 at December 31, 2000 and
June 30, 2001, respectively, and total stockholders' deficits of $4,326,953 and
$5,935,145 as of such dates. In addition, during 2000 and 1999, we have used,
rather than provided, cash in our operations.
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 it will agree to any such exchange of
debt for equity or upon what terms such exchange would occur.
During 2000, we were not in compliance with certain covenants relating to our
long-term financing. We obtained waivers from the creditors in all cases except
one, relating to a note for $85,000, in which our payments are in arrears. Some
of our notes are collateralized by our assets. We successfully converted
approximately $800,000 in trade payables in 2000 into notes and common stock,
and we continue to work with vendors in an effort to convert other trade
payables into long-term notes and common stock and to cure defaults with lenders
with forbearance agreements that we are able to service. See "Legal
Proceedings."
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, 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 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
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.
Forward-looking statements
All statements made in this prospectus, 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.
DIRECTORS AND EXECUTIVE OFFICERS
The following sets forth the names, ages and positions of our directors and
officers and the officers of our operating subsidiary, CirTran Corporation
(Utah), along with their dates of service in such capacities.
Name Age Positions
Iehab J. Hawatmeh 34 President, Chief Financial Officer, Secretary
and Director of CirTran Corporation; President
of CirTran Corporation (Utah). Served since
July 2000.
Raed Hawatmeh 36 Director since June 2001.
Trevor Saliba 26 Director since June 2001.
Shaher Hawatmeh 35 Executive Vice-President of CirTran
Corporation (Utah). Served since July 2000.
Iehab J. Hawatmeh. Mr. Hawatmeh is our President and Secretary and a member of
our Board of Directors. Mr. Hawatmeh served as the President and Chief Executive
Officer of Circuit Technology, Inc. from 1993 until we acquired it in July 2000.
In this position, he was responsible for all operational, financial, marketing
and sales activities of Circuit Technology. He now performs similar functions
for us and our operating subsidiary, CirTran Corporation (Utah). Mr. Hawatmeh is
the brother of Shaher Hawatmeh.
Shaher Hawatmeh. Shaher Hawatmeh served as the Vice-President and Treasurer of
Circuit Technology, Inc. from 1993 until July 2000 and now serves as Executive
Vice-President of our operating subsidiary, CirTran Corporation (Utah). In such
capacities, he is responsible for budget development, strategic planning, asset
management and marketing. Mr. Hawatmeh is the brother of Iehab Hawatmeh.
Raed Hawatmeh. Raed Hawatmeh, who is not related to Iehab and Shaher Hawatmeh,
has served as a director since June 2001. Mr. Hawatmeh has been a self-employed
investor and venture capitalist for the past five years, specializing in
financing start-up companies in the electronics industry.
Trevor Saliba. Mr. Saliba has served as a director since June 2001. In 1997, Mr.
Saliba founded Saliba Corporation, a San Francisco construction company, and has
served as its president since that time. Prior to 1997, Mr. Saliba was employed
as a project engineer for Tutor-Saliba Corporation.
Criminal Proceeding Involving Iehab and Shaher Hawatmeh
Two of our directors and officers, Iehab Hawatmeh and Shaher Hawatmeh, are
currently subject to a criminal proceeding in Third District Court in Salt Lake
City, Utah that is unrelated to our business and operations. Messrs. Hawatmeh,
along with their parents, were charged with assault and the aggravated
kidnapping of their sister and daughter, Muna Hawatmeh, in October 1999. They
posted bond, and at preliminary hearing, the magistrate declined to bind over
the Hawatmehs on the charge of aggravated kidnapping. Following a successful
appeal by the prosecuting attorney to the Utah Supreme Court, and a ruling by
that court in June 2001, on the issue of aggravated kidnapping, the Hawatmehs
are currently awaiting trial on charges of aggravated kidnapping and assault.
Though Iehab and Shaher Hawatmeh have asserted their innocence and believe that
they will be acquitted, there can be no assurance that they will not be
convicted. Iehab Hawatmeh has permanent resident status in the United States,
and if he is convicted of the kidnapping charge, he could be sent to prison or
could be subject to deportation proceedings. Shaher Hawatmeh is a United States
citizen and, if convicted of the kidnapping charge, could be sent to prison. In
either event, we would lose the services of our two senior officers and there
would be substantial doubt that we could continue our business.
Indemnification Provisions
Our Bylaws provide, among other things, that our officers or directors are not
personally liable to us or to our stockholders for damages for breach of
fiduciary duty as an officer or director, except for damages for breach of such
duty resulting from (a) acts or omissions which involve intentional misconduct,
fraud, or a knowing violation of law, or (b) the unlawful payment of dividends.
Our Bylaws also authorize us to indemnify our officers and directors under
certain circumstances. We anticipate we will enter into indemnification
agreements with each of our executive officers and directors pursuant to which
we will agree to indemnify each such person for all expenses and liabilities
incurred by such person in connection with any civil or criminal action brought
against such person by reason of their being an officer or director of the
Company. In order to be entitled to such indemnification, such person must have
acted in good faith and in a manner reasonably believed to be in or not opposed
to the best interests of the Company and, with respect to criminal actions, such
person must have had no reasonable cause to believe that his conduct was
unlawful.
EXECUTIVE COMPENSATION
The following table sets forth certain information regarding the annual and
long-term compensation for services to us in all capacities (including Circuit
Technologies, Inc.) for the prior fiscal years ended December 31, 2000, 1999,
and 1998, of those persons who were either (i) the chief executive officer
during the last completed fiscal year or (ii) one of the other four most highly
compensated executive officers as of the end of the last completed fiscal year.
The individuals named below received no other compensation of any type, other
than as set out below, during the fiscal years indicated.
Annual Compensation
Name and Principal Position Year Salary ($)
Iehab J. Hawatmeh 2000 175,000
President, Secretary, 1999 187,230
Treasurer and Director 1998 128,923
Shaher Hawatmeh 2000 109,000
Executive Vice President 1999 86,154
1998 74,157
Employment Agreements
Iehab Hawatmeh entered into an employment agreement with Circuit in 1993 that
was assigned to us as part of the reverse acquisition of Circuit in July 2000.
This agreement, which is of indefinite term, provides for a base salary for Mr.
Hawatmeh, plus a bonus of 2% of our net profits before taxes, payable quarterly,
and any other bonus our board of directors may approve. The agreement also
provides that, if Mr. Hawatmeh is terminated without cause, we are obligated to
pay him, as a severance payment, an amount equal to five times his then-current
annual base compensation, in one lump-sum payment or otherwise, as Mr. Hawatmeh
may direct.
2001 Stock Plan
On July 25, 2001, our board approved and adopted our 2001 Stock Plan, or the
Plan, subject to shareholder approval. An aggregate of 15,000,000 (post
forward-split) shares of our common stock are subject to the Plan, which
provides for grants to employees, officers, directors and consultants of both
non-qualified (or non-statutory) stock options and "incentive stock options"
(within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended). The Plan also provides for the grant of certain stock purchase rights,
which are subject to a purchase agreement between us and the recipient. The
purpose of the Plan is to enable us to attract and retain the best available
personnel for positions of substantial responsibility, to provide additional
incentive to such persons, and to promote the success of our business.
All of our and our affiliates' and subsidiaries' employees, officers and
directors are eligible to participate in the Plan. Under the Plan, each or our
current non-employee directors is entitled to receive an initial option covering
375,000 (post forward-split) shares of common stock, and, commencing in 2002,
each non-employee director is entitled to receive an annual grant of an option
covering an additional 375,000 (post forward-split) shares of common stock. As
of the date hereof, no grants of options have been made to non-employee
directors or to any other directors or officers. Our non-employee agents,
consultants, advisors and independent contractors are also eligible to
participate in our stock plan. As of the date hereof, the Board has approved the
grant of one option covering 3,000,000 (200,000 pre-forward-split) shares of
common stock to one of our non-employee agents. No other options have been
granted under the Plan.
The Plan is administered by our board of directors, which designates from time
to time the individuals to whom awards are made under the Plan, the amount of
any such award and the price and other terms and conditions of any such award.
The Plan shall continue in effect until July 25, 2006, subject to earlier
termination by our board. The board may suspend or terminate the Plan at any
time.
The board determines the persons to whom options are granted, the option price,
the number of shares to be covered by each option, the period of each option,
the times at which options may be exercised and whether the option is an
incentive or non-statutory option. No employee may be granted options or stock
purchase rights under the Plan for more than an aggregate of 500,000 shares in
any consecutive three-year period. We do not receive any monetary consideration
upon the granting of options. Options are exercisable in accordance with the
terms of an option agreement entered into at the time of grant.
The board may also award our shares of common stock under the Plan as stock
purchase rights. The board determines the persons to receive awards, the number
of shares to be awarded and the time of the award. Shares received pursuant to a
stock purchase right are subject to the terms, conditions and restrictions
determined by the board at the time the award is made, as evidenced by a
restricted stock purchase agreement. No stock purchase rights have been granted
under the Plan.
The Plan further provides that if the number of outstanding shares of our common
stock is increased or decreased or changed into or exchanged for a different
number or kind of our shares or securities or of another corporation by reason
of any recapitalization, stock split or similar transaction, appropriate
adjustment will be made by the board in the number and kind of shares available
for awards under the Plan.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the number and percentage of the outstanding
shares of our common stock which, according to the information supplied to us,
were beneficially owned, as of July 10, 2001, by (i) each person who is
currently a director, (ii) each executive officer, (iii) all current directors
and executive officers as a group and (iv) each person who, to our knowledge, is
the beneficial owner of more than 5% of our outstanding common stock.
None of the individuals listed below own any options or warrants to purchase our
common stock.
Except as otherwise indicated, the persons named in the table have sole voting
and dispositive power with respect to all shares beneficially owned, subject to
community property laws where applicable. Beneficial ownership is determined
according to the rules of the Securities and Exchange Commission, and generally
means that person has beneficial ownership of a security if he or she possesses
sole or shared voting or investment power over that security. Each director,
officer, or 5% or more shareholder, as the case may be, has furnished us
information with respect to beneficial ownership. Except as otherwise indicated,
we believe that the beneficial owners of the common stock listed below, based on
the information each of them has given to us, have sole investment and voting
power with respect to their shares, except where community property laws may
apply.
Name and Address Relationship Common Shares Percent of Class
---------------- ------------ ------------- ----------------
Cogent Capital Corp. 5% 11,584,980(1) 7.41
P.O. Box 1362 Shareholder
Draper, Utah 84020
Saliba Private Annuity Trust (2) 5% 10,519,470 6.73
115 S. Valley Street Shareholder
Burbank, CA 91505
Roger Kokozyon 5% 27,715,620 17.73
4539 Haskell Avenue Shareholder
Encino, CA 91436
Iehab J. Hawatmeh Director, 31,082,310 19.89
4125 South 6000 West Officer
West Valley City, Utah 84128 & 5% Shareholder
Raed Hawatmeh Director 28,894,530 18.49
10989 Bluffside Drive & 5%
Studio City, CA 91604 Shareholder
Shaher Hawatmeh Officer 3,355,365 2.15
4125 South 6000 West
West Valley City, Utah 84128
Trevor Saliba (2) Director - 0 - *
5 Thomas Mellon Circle, Suite 108
San Francisco, California 94134
All Officers and Directors as a Group 63,332,205 40.5
(4 persons)
-------------------
* Less than 1%.
(1) Includes 37,320 shares of stock held by an affiliate of Cogent Capital
Corp. The sole shareholder of Cogent Capital Corp. is Gregory L. Kofford.
(2) Trevor Saliba, a director, is one of five passive beneficiaries of
Saliba Private Annuity Trust and has no control over its operations or
management. Mr. Saliba disclaims beneficial control over the shares indicated.
The trustee of the Saliba Private Annuity Trust is Mr. Thomas Saliba, a nephew
of Trevor Saliba's grandfather.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
We lease our principal offices and manufacturing facility from I&R Properties
LLC, a Utah limited liability company, at a monthly lease rate of $16,000 under
a lease that has a current term expiring in November 2006. We have the option of
renewing the lease for two additional 10-year terms. I & R Properties, LLC is
owned and controlled by Iehab J. Hawatmeh, an officer, director and principal
stockholder, Raed Hawatmeh, a principal stockholder and director, and Shaher
Hawatmeh, an officer of CirTran Corporation (Utah), our operating subsidiary.
As of December 31, 2000, Iehab Hawatmeh had loaned a total of $1,020,966 to us,
and since January 1, 2001, he has loaned us an additional $169,000. The loans
are demand loans, bear interest at 10% per annum and are unsecured.
In 1999, Circuit entered into an agreement with Cogent Capital Corp., or
"Cogent," a financial consulting firm, whereby Cogent agreed to assist and
provide consulting services to Circuit in connection with a possible merger or
acquisition. Pursuant to the terms of this agreement, we issued 800,000
(pre-forward split) restricted shares (12,000,000 post-forward split shares) of
our common stock to Cogent in July 2000 in connection with our acquisition of
the assets and certain liabilities of Circuit. The principal of Cogent was
appointed a director of Circuit after entering into the financial consulting
agreement and resigned as a director prior to the acquisition of Circuit by
Vermillion Ventures, Inc. on July 1, 2000.
DESCRIPTION OF COMMON STOCK
Effective August 6, 2001, our authorized capital was increased from 500,000,000
to 750,000,000 shares of common stock, $0.001 par value, and we also effected,
effective the same date, a 1:15 forward split of our issued and outstanding
shares of common stock through a forward split and share distribution. As of
October 15, 2001, 158,926,005 (post forward-split) shares of our common stock
were issued and outstanding. We are not authorized to issue preferred stock.
Each holder of our common stock is entitled to a pro rata share of cash
distributions made to shareholders, including dividend payments, and are
entitled to one vote for each share of record on all matters to be voted on by
shareholders. There is no cumulative voting with respect to the election of our
directors or any other matter. Therefore, the holders of more than 50% of the
shares voted for the election of directors can elect all of the directors. The
holders of our common stock are entitled to receive dividends when, as and if
declared by our board of directors, in its sole discretion, from funds legally
available for such use. In the event of our liquidation, dissolution or winding
up, the holders of common stock are entitled to share ratably in all assets
remaining available for distribution to them after payment of our liabilities
and after provision has been made for each class of stock, if any, having any
preference in relation to our common stock. Holders of our common stock have no
conversion, preemptive or other subscription rights, and there are no redemption
provisions applicable to our common stock.
We have never declared or paid a cash dividend on our capital stock, nor do we
expect to pay cash dividends on our common stock in the foreseeable future. We
currently intend to retain our earnings, if any, for use in our business. Any
dividends declared in the future will be at the discretion of our board of
directors and subject to any restrictions that may be imposed by our lenders.
We have elected not to be governed by the terms and provisions of the Nevada
Private Corporations Law that are designed to delay, defer or prevent a change
in control of the Company.
Registration Rights and Related Matters
Pursuant to an agreement dated November 3, 2000 and as part of our debt
settlement with Future Electronics Corporation, or Future, we granted certain
registration rights to Future with respect to 5,281,050 (352,070 pre-forward
split) shares of our common stock. These rights provide Future with the
opportunity, subject to certain terms and conditions, to include up to 50% of
our common stock that it holds in any registration statement filed by us. Among
other things, we have agreed to pay any costs incurred with the registration of
such stock and to keep any registration statement we file active for a period of
180 days or until the distribution contemplated in the registration statement
has been completed. Future's registration rights are assignable and transferable
to any individual or entity that does not directly compete with us. These
registration rights are not exercisable, however, with respect to registration
statements relating solely to the sale of securities to participants in a
company stock plan or relating solely to corporate reorganizations. In addition,
the rights would not be fully exercisable if an underwriter managing a public
offering determined in good faith that market factors required a limitation on
the number of shares that Future (or its assignee) would otherwise be entitled
to have registered.
A total of 1,716,375 (post forward split) shares of our common stock held by
Future, or approximately 33% of the total number of the shares held by it, are
being included in this registration statement.
In connection with our debt settlement with Future, our three largest
shareholders, Iehab Hawatmeh, Raed Hawatmeh and Roger Kokozyon (see "Security
Ownership of Certain Beneficial Owners and Management"), entered into lock-up
agreements with Future, whereby they agreed not to sell to the public any shares
of our common stock held by them until June 27, 2002, unless previously
consented to by Future.
MARKET FOR COMMON SHARES AND RELATED STOCKHOLDER MATTERS
Our common stock has traded sporadically on the Pink Sheets under the symbol
"CIRT" since July 2000. The following table sets forth, for the respective
periods indicated, the prices of our (pre-forward split) common stock as
reported and summarized on the Pink Sheets. These prices are based on
inter-dealer bid and asked prices, without markup, markdown, commissions, or
adjustments and may not represent actual transactions.
Calendar Quarter Ended High Bid Low Bid
September 30, 2000 $0.001 $0.001
December 31, 2000 $4.000 $4.000
March 31, 2001 $5.500 $3.000
June 30, 2001 $3.500 $1.500
Our 15 for 1 forward stock split was made effective August 6, 2001 and our stock
price decreased accordingly. During the period August 6 - October 15, 2001, the
high bid for our stock was $0.30 and the low bid was $0.04. As of August 20,
2001, we had 560 shareholders of record holding 158,926,005 (post-forward split)
shares of common stock. We have not paid, nor declared, any dividends on our
common stock since our inception and do not intend to declare any such dividends
in the foreseeable future. Our ability to pay dividends is subject to
limitations imposed by Nevada law. Under Nevada law, dividends may be paid to
the extent the corporation's assets exceed its liabilities and it is able to pay
its debts as they become due in the usual course of business.
Penny Stock Rules
It is likely that the shares of common stock offered hereby will be subject to
the "penny stock" rules. Section 15(g) and rule 15g-9 of the Securities and
Exchange Act of 1934, commonly referred to as the "penny stock" rule. The rule
defines penny stock to be any equity security that has a market price less than
$5.00 per share, subject to certain exceptions. The rule provides that any
equity security is considered to be a penny stock unless that security is
registered and traded on a national securities exchange meeting specified
criteria set by the SEC, authorized for quotation from the NASDAQ stock market,
issued by a registered investment company, and excluded from the definition on
the basis of price - at least $5.00 per share - or the issuer's net tangible
assets. Trading in shares of "penny stock" is subject to additional sales
practice requirements for broker-dealers who sell penny stocks to persons other
than established customers and accredited investors. Accredited investors, in
general, include individuals with assets in excess of $1,000,000 or annual
income exceeding $200,000 (or $300,000 together with their spouse), and certain
institutional investors.
For transactions covered by these rules, broker-dealers must make a special
suitability determination for the purchase of the security and must have
received the purchaser's written consent to the transaction prior to the
purchase. Additionally, for any transaction involving a penny stock, the rules
require the delivery, prior to the first transaction, of a risk disclosure
document relating to the penny stock. A broker-dealer also must disclose the
commissions payable to both the broker-dealer and the registered representative,
and current quotations for the security. Finally, monthly statements must be
sent disclosing recent price information for the penny stocks. These rules may
restrict the ability of broker-dealers to trade or maintain a market in our
common stock, to the extent it is penny stock, and may affect the ability of
shareholders to sell their shares.
OTCBB Application
We have applied to the National Association of Securities Dealers (NASD) for our
shares of common stock to be quoted on the Nasdaq OTCBB. The NASD is reviewing
our application and has made its approval contingent upon, among other matters,
this registration statement becoming effective following SEC review. We are
hopeful that we will be able to resolve all outstanding issues with NASD and
obtain approval for our shares of common stock to be quoted on the OTCBB. There
can be no assurance, however, that we will be successful in our application
process.
SELLING SHAREHOLDERS
The following table identifies the selling shareholders and sets forth certain
information regarding the shareholdings of these persons. The shares offered for
sale are currently issued and, except as noted in the footnotes below,
constitute all of the shares known to us to be beneficially owned by the
respective selling shareholders. For the past three years, none of the selling
shareholders has held any position or office with us or with Circuit Technology,
Inc., nor have any of the selling shareholders been associates or affiliates of
any of our officers or directors, except as indicated. Since the selling
shareholders may sell all, a portion, or none of their shares from time to time,
no firm estimate can be made of the aggregate number of shares that are being
offered or that will be owned by each selling shareholder upon completion of the
offering. Accordingly, the amounts indicated for number and percentage of shares
owned after the offering assume sale of all shares held prior to the offering.
-------------------------------------- --------------------- --------------------- ------------------- ---------------
Number of Shares Number of Shares Percentage of
Owned Prior Number of Shares Owned After Shares Owned
Name of Selling Shareholder To Offering Being Registered Offering After Offering
-------------------------------------- --------------------- --------------------- ------------------- ---------------
Viken Almadjian 521,430 521,430 0 0
Adel Atallah 1,785,375 1,785,375 0 0
Badi Atallah 430,755 430,755 0 0
Hosep Bajakajian 3,526,715 3,526,715 0 0
Zareh K. Boghossian 498,765 498,765 0 0
Oscar Chahine 1,065,555 1,065,555 0 0
Cogent Capital Corp. (1) 11,547,660 11,547,660 0 0
Vatche Elmadjian 1,076,880 1,076,880 0 0
Vatche Elmadjian 453,420 453,420 0 0
& Abraham Elmadjian
Wael Fakhouri 702,810 702,810 0 0
Widad Fakhouri 566,775 566,775 0 0
Future Electronics Corporation (2) 5,281,050 1,716,375 3,564,675 2.2
Hayel Hawatmeh 714,150 714,150 0 0
Khaldoun Hawatmeh 1,598,325 1,598,325 0 0
Ola Hawatmeh 544,110 544,110 0 0
Rajai Hawatmeh 3,026,625 3,026,625 0 0
Rajai Hawatmeh 566,775 566,775 0 0
& Rema Hawatmeh
Saad S. Hawatmeh 464,760 464,760 0 0
William Hawatmeh 498,765 498,765 0 0
& Layla Hawatmeh
George Homsi 929,520 929,520 0 0
Waleed Jweainat 1,405,620 1,405,620 0 0
Fares Khoury 238,050 238,050 0 0
Vijay Kumar 181,365 181,365 0 0
George Madanat 453,420 453,420 0 0
& Maha Madanat
Milagro Holdings, Inc. 1,462,230 1,462,230 0 0
Said Naber 736,815 736,815 0 0
Zaher Abdul Razak 2,267,130 2,267,130 0 0
Ammy Saliba 1,054,215 1,054,215 0 0
Julie Saliba 1,054,215 1,054,215 0 0
Saliba Private Annuity Trust (3) 10,519,470 10,519,470 0 0
Mohamad Tavakkoli 453,420 453,420 0 0
Mihran Tcholakian 906,855 906,855 0 0
------------ ---------- --------- -- -
Total Number of Shares 52,978,350 52,978,350 3,564,675 2.2
--------------------
(1) An affiliate of Cogent Capital Corp. owns 37,320 shares of our common
stock. The sole shareholder of Cogent Capital Corp. is Gregory L. Kofford. See
above under "Security Ownership of Certain Beneficial Owners and Management."
(2) Future Electronics Corporation currently owns a total of 5,281,050
shares of our common stock and has agreed to register only approximately 33% of
this amount, or 1,716,375 shares. See above under "Description of Common Stock -
Registration Rights and Related Matters."
(3) Trevor Saliba, one of our directors, is one of five passive
beneficiaries of this shareholder and has no control over its operations or
management. Mr. Saliba disclaims beneficial control over the shares indicated.
The trustee of the Saliba Private Annuity Trust is Mr. Thomas Saliba, a cousin
of Trevor Saliba's father.
PLAN OF DISTRIBUTION
We have filed the registration statement of which this prospectus forms a part
with respect to the sale of the shares by the selling shareholders. There can be
no assurance, however, that the selling shareholders will sell any or all of the
offered shares.
We will not use the services of underwriters or dealers in connection with the
sale of the shares registered hereunder. We will pay all expenses of
registration incurred in connection with this offering, but the selling
shareholders will pay all brokerage commission and other similar expenses
incurred by them.
In offering and selling the shares, the selling shareholders will act as
principals for their own accounts and may sell the shares through public or
private transactions, on or off established markets, at prevailing market prices
or at privately negotiated prices. The selling shareholders will receive all of
the net proceeds from the sale of the shares and will pay all commissions and
underwriting discounts in connection with their sale.
The distribution of the shares by the selling shareholders is not subject to any
underwriting agreement. We expect that the selling shareholders will sell the
shares through customary brokerage channels, including broker/dealers acting as
principals (who then may resell the shares), in private sales, in transactions
under Rule 144 under the Securities Act of 1933, or in block trades in which the
broker/dealer engaged will attempt to sell the shares as agent but position and
resell a portion of the block as principal to facilitate the transaction. The
selling shareholders and the brokers and dealers through whom sales of the
shares are made may be deemed to be "underwriters" within the meaning of the
Securities Act of 1933, and the commissions or discounts and other compensation
paid to those persons could be regarded as underwriters compensation.
From time to time, the selling shareholders may engage in short sales, short
sales against the box, puts and calls and other transactions in our common
shares, and will be able to sell and deliver the shares in connection with those
transactions or in settlement of securities loans. In effecting sales, brokers
and dealers engaged by the selling shareholders may arrange for other brokers or
dealers to participate in those sales. Brokers or dealers may receive
commissions or discounts from the selling shareholders (or, if any such broker
dealer acts as agent for the purchaser of those shares, from the purchaser) in
amounts to be negotiated (which are not expected to exceed those customary in
the types of transactions involved.) Brokers and dealers may agree with a
selling shareholder to sell a specified number of shares at a stipulated price
per share and, to the extent those brokers and dealers are unable do so acting
as agent for a selling shareholder, to purchase as principal any unsold shares
at the price required to fulfill the broker dealer commitment to a selling
shareholder. Broker dealers who acquire shares as principals may thereafter
resell those shares from time to time in transactions in the over-the-counter
market or otherwise and at prices and on terms then prevailing at the time of
sale, at prices then related to the then-current market price or negotiated
transactions and, in connection with those resells, may pay to or receive from
the purchasers of those shares commissions as described above.
At the time a particular offer of the shares is made, to the extent it is
required, we will distribute a supplement to this prospectus that will identify
and set forth the aggregate amount of shares being offered and the terms of the
offering. A selling shareholder may sell shares at any price. Sales of the
shares at less than market price may depress the market price of our common
stock. Subject to applicable securities laws, the selling shareholders will
generally not be restricted as to the number of shares that they may sell at any
one time, and it is possible that a significant number of shares could be resold
at the same time.
The selling shareholders and any other person participating in the distribution
of the shares will also be subject to applicable provisions of the Securities
Exchange Act of 1934 and the rules and regulations promulgated under it,
including, without limitation, Regulation M, which may limit the timing of
purchases and sales of the shares by the selling shareholders and any other
person. Furthermore, Regulation M of the Securities Exchange Act of 1934 may
restrict the ability of any person engaged in the distribution of the shares to
engage in market-making activities with respect to the particular shares being
distributed for a period of up to 5 business days prior to the commencement of
the distribution. All of the foregoing may affect the marketability of the
shares and the ability of any person or entity to engage in market-making
activities with respect to the shares.
To comply with certain states securities laws, if applicable, the shares may be
sold in those jurisdictions only through registered or licensed brokers or
dealers. In certain states the shares may not be sold unless a selling
shareholder meets the applicable state notice and filing requirements.
AVAILABLE INFORMATION
This prospectus does not contain all of the information set forth in the
registration statement relating to our common stock. For further information,
reference is made to the registration statement and the exhibits and schedules
filed therewith. Statements contained in the prospectus referring to documents
are not necessarily complete descriptions of such documents and, in each
instance, reference is made to the copies of the documents filed as exhibits to
the registration statement. Each such statement is qualified in its entirety by
that reference. Copies of these documents may be inspected, without charge, at
the Securities and Exchange Commission's Public Reference Room at 450 Fifth
Street N.W., Washington, D.C. 20549 and at the Denver Regional offices of the
Commission located at 1801 California Street, Suite 4800, Denver, Colorado
80202. The public may obtain information on the operation of the Public
Reference Room by calling the Commission at 1-800-SEC-0330. Copies of this
material also should be available through the Internet by using the Commission's
EDGAR Archive, the address of which is http://www.sec.gov.
LEGAL PROCEEDINGS
As of December 31, 2000, our operating subsidiary, CirTran Corporation (Utah),
had accrued liabilities in the amount of $1,316,645 for delinquent payroll
taxes, including estimated interest and penalties of $95,604 and $111,004,
respectively. Of this amount, approximately $120,000 is due the State of Utah.
We have negotiated a payment schedule with respect to this amount, pursuant to
which we are making 12 monthly payments of $10,863. Approximately $1,197,000 is
owed to the Internal Revenue Service. We are not actively negotiating with the
IRS with respect to this amount and, to date, neither we nor the IRS have made
any repayment, compromise or settlement proposals concerning this amount. If we
are not able to negotiate a repayment plan for the unpaid withholding taxes, the
federal government could impose liens on and seize our assets, impose interest
and penalties on the amounts due, impose penalties on the persons responsible
for seeing to the payment of the taxes, and impose other civil and criminal
penalties.
We also assumed certain liabilities of Circuit Technology, Inc. in connection
with our transactions with that entity in the year 2000, and as a result we are
a defendant in a number of legal actions involving an alleged breach of lease
agreement and nonpayment of vendors for goods and services received. CirTan has
negotiated settlements, as detailed below, and is currently negotiating
settlements with these vendors.
1. Arrow Electronics, Inc. obtained a judgment against Circuit Technology,
Inc. in the amount of $215,251, plus 8% interest as of March 17, 2000. In
September 2000, we settled this judgment in the amount of $199,678, plus 8%
interest as of September 23, 2000. The terms of the settlement require us
to make monthly payments of $6,256 to Arrow Electronics until the
settlement amount is paid in full, or approximately three years.
2. Sager Electronics, another trade creditor, brought a claim against
Circuit Technology, Inc., for unpaid goods and services in the amount of
$97,259. In November 2000, we settled this claim in the amount of $97,259
plus 8% interest. The terms of the settlement require CirTran to make
monthly payments of $1,972 to Sager Electronics until the settlement amount
is paid in full, or approximately five years.
CirTran Corporation (Utah) (as successor to Circuit Techology, Inc.) is
defendant in an action in El Paso County, Colorado District Court, brought by
Sunborne XII, LLC, a Colorado limited liability company, for alleged breach of a
sublease agreement involving facilities located in Colorado. CirTran's liability
in this action was originally estimated to range from $0 to $2.5 million, due to
two rent calculation methods written in the master lease. Under one calculation,
CirTran's liability would be minimal, whereas under the other calculation,
CirTran's liability would consist of all future rent payments due under the
lease (reduced by rent received from future tenants). CirTran Corporation (Utah)
filed a counter suit in the same court against Sunborne in an amount exceeding
$500,000 for missing equipment. All parties involved in these actions are
currently attempting to negotiate a settlement to the various claims. To date,
no settlement has been reached, and there can be no assurance that we will be
successful in negotiating a settlement of these claims. We have reserved
$420,000, which represents one year's rent, as an accrued liability in respect
of this lease.
In January of 2001, we filed a breach of contract action in Salt Lake City,
Utah, against Osicom, one of our customers, seeking damages of $875,000. The
dispute relates to Osicom's cancellation of a portion of a manufacturing
contract with us as a result of a downturn in its business operations.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
Following the acquisition of the assets of Circuit Technology, Inc. by CirTran
in July 2000, the independent accountants of Circuit Technology for the year
ended December 31, 1999, Grant Thornton LLP, continued as the independent
accountants of CirTran for the year ended December 31, 2000.
The former accountant for CirTran, Pritchett, Siler & Hardy, P.C., reported on
the financial statements of CirTran for the fiscal year ended December 31, 1999.
The report of the former accountant did not contain any adverse opinion or a
disclaimer of opinion, and was not qualified or modified as to uncertainty,
audit scope, or accounting principle.
During our two most recent fiscal years and subsequent interim periods through
the date of this report, there were no disagreements with the former accountant
on any matter of accounting principles or practice, financial statement
disclosure, or auditing scope or procedure, which disagreements if not resolved
to the satisfaction of the former accountant would have caused it to make
reference thereto in its report on the financial statements for such years.
EXPERTS AND COUNSEL
Our consolidated financial statements as of December 31, 2000 and 1999 have been
incorporated herein in reliance on the report of Grant Thorton LLP, independent
certified public accountants, and upon the authority of that firm as experts in
accounting and auditing.
Parsons Behle & Latimer, Salt Lake City, Utah, will pass on the validity of our
common stock being offered by this prospectus.
COMMISSION'S POSITION ON INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES
Our Bylaws provide, among other things, that our officers or directors are not
personally liable to us or to our stockholders for damages for breach of
fiduciary duty as an officer or director, except for damages for breach of such
duty resulting from (a) acts or omissions which involve intentional misconduct,
fraud, or a knowing violation of law, or (b) the unlawful payment of dividends.
Our Bylaws also authorize us to indemnify our officers and directors under
certain circumstances. We anticipate we will enter into indemnification
agreements with each of our executive officers and directors pursuant to which
we will agree to indemnify each such person for all expenses and liabilities
incurred by such person in connection with any civil or criminal action brought
against such person by reason of their being an officer or director of the
Company. In order to be entitled to such indemnification, such person must have
acted in good faith and in a manner reasonably believed to be in or not opposed
to the best interests of the Company and, with respect to criminal actions, such
person must have had no reasonable cause to believe that his conduct was
unlawful.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to our directors, officers or controlling persons pursuant
to the foregoing provisions, or otherwise, we have been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act of 1933 and is,
therefore, unenforceable.
FINANCIAL STATEMENTS
Index to Financial Statements
Audited Financial Statements: Page
Report of Independent Certified Public Accountants F-1
Consolidated Balance Sheets as of December 31, 2000 and 1999 F-2
Consolidated Statements of Operations for Years Ended
December 31, 2000 and 1999 F-3
Consolidated Statement of Stockholders' Deficit F-4
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2000 and 1999 F-5
Notes to Consolidated Financial Statements F-7
Interim Financial Statements (Unaudited):
Consolidated Condensed Balance Sheets as of June 30, 2001
and December 31, 2000 F-19
Consolidated Condensed Statements of Operations for the
Six Months Ended June 30, 2001 and 2000 F-20
Consolidated Condensed Statements of Cash Flows
for the Six Months Ended June 30, 2001 and 2000 F-21
Notes to Interim Consolidated Financial Statements F-22
F - 1
REPORT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
CirTran Corporation and Subsidiary
We have audited the accompanying consolidated balance sheets of CirTran
Corporation and Subsidiary as of December 31, 2000 and 1999, and the related
consolidated statements of operations, stockholders' deficit, and cash flows for
the years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of CirTran
Corporation and Subsidiary, as of December 31, 2000 and 1999, and the
consolidated results of their operations and their consolidated cash flows for
the years then ended, in conformity with accounting principles generally
accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note B to the
consolidated financial statements, the Company has an accumulated deficit, has
suffered losses from operations and has negative working capital that raise
substantial doubt about its ability to continue as a going concern. Management's
plans in regards to these matters are also described in Note B. The consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
As discussed in Note Q to the financial statements, the 2000 financial
statements have been restated to correct a previously reported overstatement of
inventory and understatement of accounts payable and accrued liabilities.
Salt Lake City, Utah
September 15, 2001
CirTran Corporation and Subsidiary
CONSOLIDATED BALANCE SHEETS
December 31,
Assets
2000 1999
--------------- --------------
(Restated)
Current assets
Cash and cash equivalents $ 11,068 $ 500
Trade accounts receivable, net of allowance for doubtful
accounts of $82,502 in 2000 and $360,493 in 1999 874,097 973,351
Inventories, net 1,755,786 3,056,383
Other 94,176 93,621
--------------- --------------
Total current assets 2,735,127 4,123,855
PROPERTY And Equipment, at cost, net 1,871,076 2,603,022
Other assets, net 10,587 251,234
--------------- --------------
$ 4,616,790 $ 6,978,111
=============== ==============
Liabilities and STOCKHOLDERS' DEFICIT
Current liabilities
Checks written in excess of cash in bank $ 5,491 $ 77,656
Accounts payable 1,561,752 2,366,187
Accrued liabilities 2,339,949 598,786
Line of credit - 2,792,609
Notes payable to stockholders 1,020,966 1,035,966
Current maturities of capital lease obligations 39,274 100,920
Current maturities of long-term obligations 3,432,090 475,385
--------------- --------------
Total current liabilities 8,399,522 7,447,509
long-term obligations, less current maturities 529,964 726,968
capital lease obligations, less current maturities 14,257 82,317
Commitments - -
Stockholders' DEFICIT
Common stock, par value $0.001; Authorized 750,000,000 shares;
issued and outstanding; 156,301,005 in 2000 and 129,271,560 in 1999 156,301 129,272
Additional paid-in capital 5,664,154 4,645,799
Receivable from stockholders - (86,000)
Accumulated deficit (10,147,408) (5,967,754)
--------------- --------------
Total stockholders' deficit (4,326,953) (1,278,683)
--------------- --------------
$ 4,616,790 $ 6,978,111
=============== ==============
The accompanying notes are an integral part of these statements.
F-2
CirTran Corporation and Subsidiary
CONSOLIDATED STATEMENTS OF OPERATIONS
Year ended December 31,
2000 1999
--------------- ---------------
(Restated) (Restated)
Net sales $ 6,373,096 $ 9,860,489
Cost of sales 6,792,393 10,427,294
--------------- ---------------
Gross loss (419,297) (566,805)
Selling, general and administrative expenses 2,710,275 2,594,430
--------------- ---------------
Loss from operations (3,129,572) (3,161,235)
Other income (expense)
Interest (1,051,027) (764,486)
Other, net 945 156,816
--------------- ---------------
(1,050,082) (607,670)
--------------- ---------------
Loss before income taxes (4,179,654) (3,768,905)
Income taxes - -
--------------- ---------------
Net loss $ (4,179,654) $ (3,768,905)
=============== ===============
Loss per common share
Basic $ (0.03$ (0.03)
Diluted (0.03) (0.03)
Weighted-average common shares outstanding
Basic 142,765,555 119,296,580
Diluted 142,765,555 119,296,580
The accompanying notes are an integral part of these statements.
F-3
CirTran Corporation and Subsidiary
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
Years ended December 31, 2000 and 1999
(Restated)
Common Stock Additional Receivable
----------------------------
Number paid-in From Accumulated
of shares Amount capital stockholders deficit Total
------------- ------------- ----------- --------------- -------------- --------------
Balances at January 1, 1999 109,887,630 $ 109,888 $ 2,728,948 $ (225,000) $ (2,198,849) $ 414,987
Issuance of common stock 21,322,320 21,322 2,149,913 - - 2,171,235
Repurchase and retirement of
common stock (1,938,390) (1,938) (233,062) 225,000 - (10,000)
Net loss - - - - (3,768,905) (3,768,905)
Receivable from stockholders - - - (86,000) - (86,000)
------------- ------------- ----------- --------------- -------------- --------------
Balances at December 31, 1999 129,271,560 129,272 4,645,799 (86,000) (5,967,754) (1,278,683)
Issuance of common stock
for cash 9,408,585 9,408 936,692 - - 946,100
Repurchase and retirement of
common stock (680,145) (680) (79,320) - - (80,000)
Recapitalization of Company 14,153,505 14,154 (14,154) - - -
Common stock issued for debt 5,281,050 5,281 319,003 - - 324,284
Purchase and retirement of common
stock for debt (1,133,550) (1,134) (143,866) - - (145,000)
Net loss - - - - (4,179,654) (4,179,654)
Payment from stockholders - - - 86,000 - 86,000
------------- ------------- ----------- --------------- -------------- --------------
Balances at December 31, 2000 156,301,005 $ 156,301 5,664,154 $ - $ (10,147,408) $ (4,326,953)
============= ============= =========== =============== ============== ==============
The accompanying notes are an integral part of this statement.
F-4
CirTran Corporation and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended December 31,
2000 1999
--------------- ----------------
(Restated)
Increase (decrease) in cash and cash equivalents
Cash flows from operating activities
Net loss $ (4,179,654) $ (3,768,905)
Adjustments to reconcile net loss to net
cash used in operating activities
Depreciation and amortization 961,506 1,080,193
Loss on disposal of property and equipment - 85,209
Provision for doubtful trade accounts receivables 78,978 285,743
Provision for inventory obsolescence 55,963 368,649
Changes in assets and liabilities
Trade accounts receivable 20,276 514,333
Inventories 1,244,634 (132,977)
Other assets 23,302 129,492
Accounts payable (87,129) (289,282)
Accrued liabilities 1,741,163 346,686
--------------- ----------------
Total adjustments 4,038,693 2,388,046
--------------- ----------------
Net cash used in
operating activities (140,961) (1,380,859)
--------------- ----------------
Cash flows from investing activities
Purchase of property and equipment (12,770) (453,351)
Acquisition costs - (47,857)
--------------- ----------------
Net cash used in
investing activities (12,770) (501,208)
--------------- ----------------
F-5
CirTran Corporation and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
Year ended December 31,
2000 1999
------------- --------------
(Restated)
Cash flows from financing activities
Decrease in checks written in excess of cash in bank (72,165) (124,759)
Payment from stockholders 86,000 -
Payments on notes payable to stockholders (15,000) 1,035,966
Proceeds from line of credit - 11,307,621
Principal payments on line of credit - (12,502,201)
Principal payments on long-term obligations (825,593) (291,266)
Proceeds from long-term obligations 254,663 606,719
Payments on capital lease obligations (129,706) (226,987)
Purchase and retirement of common stock (80,000) (10,000)
Proceeds from issuance of common stock 946,100 2,085,235
------------- --------------
Net cash provided by
financing activities 164,299 1,880,328
------------- --------------
Net increase (decrease) in cash and cash equivalents 10,568 (1,739)
Cash and cash equivalents at beginning of year 500 2,239
------------- --------------
Cash and cash equivalents at end of year $ 11,068 $ 500
============= ==============
Supplemental disclosure of cash flow information
Cash paid during the year for interest $ 622,266 $ 764,486
Noncash investing and financing activities
Capital lease obligation incurred for equipment - 26,954
Common stock retired as payment of receivables from
stockholders - 225,000
Receivable from stockholders for purchase of stock - 86,000
Stock issued for debt 324,284 -
Notes issued for accounts payable 393,022 -
Stock converted to debt 145,000 -
Conversion of line of credit to note payable 2,792,609 -
The accompanying notes are an integral part of these statements.
F-6
CirTran Corporation and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000 and 1999
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in
the preparation of the accompanying financial statements follows.
1. Business activity
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. (Cogent)
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 surviving accounting entity.
CirTran Corporation (the Company) provides 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. The Company provides a wide variety of
pre-manufacturing, manufacturing and post-manufacturing services. The
Company also designs, develops, manufactures and markets a full line of
local area network products, with emphasis on token ring and Ethernet
connectivity.
2. Principles of consolidation
The consolidated financial statements include the accounts of CirTran
Corporation and its wholly-owned subsidiary, Racore Technology
Corporation. All significant intercompany transactions have been
eliminated in consolidation.
3. Revenue recognition
Revenue is recognized when products are shipped. Title passes to the
customer or independent sales representative at the time of shipment.
Returns for defective items are repaired and sent back to the customer.
Historically, expenses experienced with such returns have not been
significant and have been recognized as incurred.
4. Cash and cash equivalents
-------------------------
The Company considers all highly liquid investments with an original
maturity of three months or less when purchased to be cash equivalents.
5. Inventories
Raw material inventories consist primarily of circuit boards, components
and cables and are valued at the lower of average cost or market. Work in
process and finished goods include materials, labor and overhead.
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
6. Property and equipment
Depreciation is provided in amounts sufficient to relate the cost of
depreciable assets to operations over the estimated service lives.
Leasehold improvements are amortized over the shorter of the life of the
lease or the service life of the improvements. The straight-line method
of depreciation and amortization is followed for financial reporting
purposes. Maintenance, repairs and renewals which neither materially add
to the value of the property nor appreciably prolong its life are charged
to expense as incurred. Gains or losses on dispositions of property and
equipment are included in earnings.
7. Other assets
Included in other assets are intellectual property and financing costs.
Intellectual property is recorded at cost and amortized over the period
that proceeds are received or on a straight-line basis over three years,
whichever is shorter. Financing costs are amortized over the period of
the related debt.
Intangible assets are evaluated periodically as events or circumstances
indicate a possible inability to recover the carrying amount. Such
evaluation is based on various analyses, including undiscounted cash
flows and profitability projections. Impairment would be recognized in
operating results if expected future operating undiscounted cash flows
are less than the carrying value of intangible assets.
Amortization expense totaled $216,790 and $269,930 for 2000 and 1999,
respectively.
8. Checks written in excess of cash in bank
----------------------------------------
Under the Company's cash management system, checks issued but not
presented to banks frequently result in overdraft balances for accounting
purposes. Additionally, at times banks may temporarily lend funds to the
Company by paying out more funds than are in the Company's account. These
overdrafts are included as a current liability in the balance sheets.
9. Income taxes
As of December 31, 2000, the Company utilizes the liability method of
accounting for income taxes. Under the liability method, deferred tax
assets and liabilities are determined based on differences between
financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when
the differences are expected to reverse. An allowance against deferred
tax assets is recorded when it is more likely than not that such tax
benefits will not be realized. Research tax credits are recognized as
utilized.
The Company operated, for tax purposes, as a corporation under provisions
of Subchapter S of the Internal Revenue Code through May 10, 2000 (Note
M).
10. Use of estimates
In preparing the Company's financial statements in accordance with
accounting principles generally accepted in the United States of America,
management is required to make estimates and assumptions that affect the
reported amounts of assets and liabilities, the disclosure of contingent
assets and liabilities at the date of the financial statements, and the
reported amounts of revenues and expenses during the reported periods.
Actual results could differ from those estimates (Note B).
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
11. Concentrations of risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of trade accounts
receivable. The Company sells substantially to recurring customers
wherein the customer's ability to pay has previously been evaluated. The
Company generally does not require collateral. Allowances are maintained
for potential credit losses, and such losses have been within
management's expectations. At December 31, 2000 and 1999, this allowance
was $82,502 and $360,493, respectively.
At December 31, 2000, accounts receivable from a customer located in
Baltimore, Maryland and a customer located in Nampa, Idaho, represented
approximately 29 percent and 16 percent, respectively, of total trade
accounts receivable. The Company has accounts payable to the Baltimore,
Maryland company of approximately 78 percent of the accounts receivable
balance at December 31, 2000. Sales to these same customers accounted for
30 percent and 4 percent of 2000 revenues, respectively. The Baltimore,
Maryland customer no longer does business with the Company.
12. Fair value of financial instruments
-----------------------------------
The carrying value of the Company's cash and cash equivalents and trade
accounts receivable, approximates their fair values due to their
short-term nature. The fair value of certain of the notes payable in
default is not determinable.
13. Net loss per share
------------------
Basic Earnings Per Share (EPS) are calculated by dividing earnings (loss)
available to common shareholders by the weighted-average number of common
shares outstanding during each period. Diluted EPS are similarly
calculated, except that the weighted-average number of common shares
outstanding includes common shares that may be issued subject to existing
rights with dilutive potential.
14. Reclassifications not material
Certain reclassifications have been made to the 1999 financial statements
to conform with the 2000 presentation.
NOTE B - REALIZATION OF ASSETS
The accompanying consolidated financial statements have been prepared in
conformity with accounting principles generally accepted in the United
States of America, which contemplate continuation of the Company as a
going concern. However, the Company has sustained substantial losses from
operations in 2000 and 1999. The Company also has an accumulated deficit
of $10,147,408 and a total stockholders' deficit of $4,326,953 at
December 31, 2000. In addition, the Company has used, rather than
provided, cash in its operations.
Since February of 2000, the Company has operated without a line of
credit. Many of the Company's vendors stopped credit sales of components
used by the Company to manufacture products and as a result, the Company
converted certain of its turnkey customers to customers that provide
consigned components to the Company for production.
In view of the matters described in the preceding paragraphs,
recoverability of a major portion of the recorded asset amounts shown in
the accompanying consolidated balance sheets is dependent upon continued
operations of the Company, which in turn is dependent upon the Company's
ability to meet its financing requirements on a continuing basis, to
maintain or replace present financing, to acquire additional capital from
investors, and to succeed in its future operations. The financial
statements do not include any adjustments relating to the recoverability
and classification of recorded asset amounts or amounts and
classification of liabilities that might be necessary should the Company
be unable to continue in existence.
Abacus Ventures, Inc. (Abacus) purchased the Company's line of credit
(Note F) from the lender. Although the Company has had discussions with
Abacus concerning their willingness to exchange the debt for common stock
at an undetermined future date, no agreement has been entered into
between the Company and Abacus. The Company's plans include working with
vendors to convert trade payables into long-term notes payable and common
stock and cure defaults with lenders through forbearance agreements that
the Company will be able to service. During 2000, the Company
successfully converted approximately $800,000 in trade payables into
notes and common stock. The Company intends to continue to pursue this
type of debt conversion going forward with other creditors. The Company
has initiated new credit arrangements for smaller dollar amounts with
certain vendors and will pursue a new line of credit after negotiations
with certain vendors are complete. If successful, these plans may add
significant equity to the Company.
In the future, significant amounts of additional cash will be needed to
reduce debt and to fund losses until the Company becomes profitable.
During 2000, the Company raised approximately $946,000 of additional
capital from investors. During 2000, the Company's president also loaned
the Company an additional $68,000 (Note G). The Company is continuing to
seek infusions of capital from investors and is also attempting to
replace its line of credit. Management has made changes in operations to
reduce labor and other costs and believes that if adequate cash and
capital as described above are obtained, the Company can become
profitable.
NOTE C - INVENTORIES
Inventories consist of the following:
2000 1999
------------ ------------
Raw materials $ 1,634,178 $ 1,677,554
Work-in process 169,676 1,015,925
Finished goods 497,798 852,807
------------ ------------
2,301,652 3,546,286
Less reserve for obsolescence 545,866 489,903
------------ ------------
$ 1,755,786 $ 3,056,383
============ ============
NOTE D - PROPERTY AND EQUIPMENT
Property and equipment and estimated service lives consist of the
following:
Estimated
2000 1999 service lives
------------ ------------- -------------
Production equipment $ 3,140,450 $ 3,138,908 5-10
Leasehold improvements 957,845 954,170 7-10
Office equipment 628,522 620,969 5-10
Other 118,029 118,029 3-7
------------ -------------
4,844,846 4,832,076
Less accumulated depreciation
and amortization 2,973,770 2,229,054
------------ -------------
$ 1,871,076 $ 2,603,022
============ =============
NOTE E - OTHER ASSETS
Other assets consist of the following:
2000 1999
------------ ------------
Intellectual property $ - $ 582,540
Financing costs - 150,939
Deposits 10,587 9,197
------------ ------------
10,587 742,676
Less accumulated amortization - 491,442
------------ ------------
$ 10,587 $ 251,234
============ ============
NOTE F - LINE OF CREDIT
During 2000, the Company's line of credit of $2,792,609 was assumed by
Abacas Ventures, Inc. Abacas Ventures, Inc. converted the amount owing into
a note payable. Interest has been accrued at an interest rate of 10
percent. The entire amount of the note is included in current maturities.
NOTE G - LONG-TERM OBLIGATIONS
Long-term obligations consist of the following:
2000 1999
------------ -------------
Note payable to a company, payable in full, due on demand, interest at
10%, collateralized by all assets of the Company. Interest associated
with this note of $142,042 was accrued and included in accrued
liabilities at December 31, 2000
$ 2,435,007 $ -
Note payable to a financial institution, due in monthly
installments of $9,462, including interest at 8.61%, with a
maturity date of April 2004, collateralized by equipment 377,235 446,352
Note payable to a company, due in monthly installments of $6,256,
including interest at 8%, until paid, collateralized by
equipment 181,431 143,437
Note payable to a financial institution, due in monthly installments of
$20,000, including interest at 4% over prime (12.5% at December 31,
2000), with a maturity date of July
2001, collateralized by equipment 197,285 301,504
Note payable to a company, due in two installments of $83,000 plus
accrued interest at 10% with a maturity of June 2001,
unsecured 166,000 -
Note payable to a shareholder, due in monthly installments of
$12,748 until paid, including interest at 10%, unsecured 130,000 -
NOTE G - LONG-TERM OBLIGATIONS - CONTINUED
2000 1999
------------ -------------
Note payable to a company, due in monthly installments of $1,972
until paid, including interest at 8%, unsecured 93,307 -
Note payable to an individual, due in monthly installments of $5,000,
including interest at a rate of 9.5%, with a maturity date of May
2000, collateralized by all assets of the Company,
past due 85,377 104,212
Note payable to a finance corporation, due in monthly installments of
$3,280, including interest at prime plus 3% (11.5% at December 31,
2000) with a maturity date of January
2002, collateralized by equipment 78,105 82,083
Note payable to a company, due in 18 monthly installments of $1,460
followed by six monthly installments of $2,920, including interest at
6%, with a maturity date of April 2003,
unsecured 73,000 -
Note payable to a stockholder/officer, payable in full on demand,
interest at 10%, unsecured 68,000 -
Note payable to a finance corporation, due in monthly installments of
$4,152, including interest at 9%, with a maturity date of July 2000,
collateralized by equipment and
trade accounts receivable, past due 50,619 63,176
Note payable to a finance corporation, due in monthly installments of
$3,114, including interest at 9%, with a maturity date of March 2000,
collateralized by equipment and
trade accounts receivable, past due 15,083 35,761
Note payable to a finance corporation, due in monthly installments of
$3,114, including interest at 9%, with a maturity date of May 2001,
collateralized by equipment and
trade accounts receivable 11,605 25,828
------------ -------------
3,962,054 1,202,353
Less current maturities 3,432,090 475,385
------------ -------------
$ 529,964 $ 726,968
============ =============
The Company's long-term obligations at December 31, 2000 mature as
follows:
Year ending December 31,
2001 $ 3,432,090
2002 296,558
2003 174,454
2004 39,935
2005 19,017
Thereafter -
-------------
$ 3,962,054
=============
Certain of the Company's long-term obligations contain various covenants
and restrictions. The agreements provide for the acceleration of
principal payments in the event of a covenant violation or a material
adverse change in the operations of the Company. At times during the year
and as of December 31, 2000, the Company was not in compliance with
certain of these covenants. In instances where the Company is out of
compliance, these amounts have been shown as current.
NOTE H - LEASES
The Company conducts a substantial portion of its operations utilizing
leased facilities and equipment consisting of sales office, warehouses,
manufacturing plant, and transportation and computer equipment.
Generally, the leases provide for renewal for various periods at
stipulated rates.
The following is a schedule by year of future minimum lease payments
under operating and capital leases, together with the present value of
the net lease payments as of December 31, 2000:
Capital Operating
Year ending December 31, leases leases
------------------------
----------- -------------
2001 $ 46,718 $ 320,526
2002 8,523 324,713
2003 4,389 329,037
2004 3,657 226,298
2005 - 191,688
Thereafter - 175,714
----------- -------------
Future minimum lease payments 63,287 $ 1,567,976
=============
Amounts representing interest (9,756)
-----------
Present value of net minimum lease 53,531
paymentsLess current maturities 39,274
-----------
$ 14,257
===========
The building leases provide for payment of property taxes, insurance and
maintenance costs by the Company. One of the buildings is leased from
related parties (Note I). Rental expense for operating leases totaled
$325,722 and $743,552 for 2000 and 1999, respectively.
The Company has an option to renew one building lease with related
parties, for two additional ten-year periods upon expiration of the term
in 2006 (Note I).
Property and equipment includes $271,423 of equipment under capital
leases at both December 31, 2000 and 1999. Accumulated amortization
amounted to $181,881 and $138,951 at December 31, 2000 and 1999,
respectively, for equipment under capital leases.
NOTE I - RELATED PARTY TRANSACTIONS
Lease
The Company entered into a lease for manufacturing and office space with
another company owned by certain stockholders of the Company (Note H).
The terms of the lease include monthly payments to the lessor of $15,974
for a period of ten years after which the lease is renewable for two
additional ten-year periods.
NOTE I - RELATED PARTY TRANSACTIONS - CONTINUED
Note payable
At various times during 2000 the Company had amounts due to stockholders.
The balance due to stockholders at December 31, 2000 and 1999 was
$1,020,966 and $1,035,966, respectively. Interest associated with amounts
due to stockholders is accrued at 10 percent, was $103,305 at December
31, 2000 and is included in accrued liabilities. The Company also has an
additional 10 percent note due to its president for $68,000 at December
31, 2000 (Note G).
Common Stock
In 1999, Circuit entered into an agreement with Cogent, a financial
consulting firm, whereby Cogent agreed to assist and provide consulting
services to Circuit in connection with a possible merger or acquisition.
Pursuant to the terms of this agreement, the Company issued 12,000,000
restricted shares of our common stock to Cogent in July 2000 in
connection with our acquisition of the assets and certain liabilities of
Circuit. The principal of Cogent was a director of Circuit from 1999
through July 1, 2000.
NOTE J - ACCRUED LIABILITIES
Accrued liabilities include $1,316,645 of delinquent payroll taxes
including estimated interest and penalties of $95,604 and $111,004,
respectively. As of December 31, 2000, the Company has negotiated a
payment schedule with the state of Utah requiring 12 monthly payments of
$10,863.
NOTE K - LITIGATION
Circuit (the surviving accounting entity, Note A1) 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 L - LOSS PER COMMON SHARE
The following data show the shares used in computing loss per common
share:
2000 1999
-------------- ---------------
Common shares outstanding during entire period 129,271,560 109,887,630
Net weighted-average common shares issued during period
13,493,995 9,408,950
-------------- ---------------
Weighted-average number of common shares used in basic
and diluted EPS 142,765,555 119,296,580
============== ===============
NOTE L - LOSS PER COMMON SHARE - CONTINUED
The Company has no common stock equivalents and therefore basic and
diluted EPS are the same.
NOTE M - INCOME TAXES
The Company operated, for tax purposes, as a corporation under provisions
of Subchapter S of the Internal Revenue Code through May 10, 2000. During
this period, taxes on income of the Company flowed through to the
stockholders. Accordingly, the Company was not subject to federal income
taxes on Company operating results for the period in which the S election
was in existence, and no provision or current liability or asset for
federal or state income taxes for those periods has been reflected.
On May 10, 2000, the Company revoked their S election and became a
taxable entity. Effective with the change, in accordance with Statement
of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income
Taxes," income taxes are provided for the tax effects of transactions
reported in the financial statements and consist of taxes currently due
plus deferred taxes related primarily to differences between the basis of
assets and liabilities for financial and income tax reporting.
Income tax expense at December 31, 2000, consists of the following:
Current $ -
Deferred -
-------------
$ -
=============
The tax effects of temporary differences which gave rise to deferred tax
assets and liabilities at December 31, 2000, are as follows:
Current deferred tax assets
Inventory reserve $ 262,297
Bad debt reserve 30,773
Vacation reserve 13,591
LIFO Inv. 263A calculation 148,617
-------------
455,278
-------------
Long-term deferred tax assets (liabilities)
Research and development credit 53,974
Research and development capitalized 1,605
Net operating loss carryforward 1,446,233
Intellectual property 200,053
Depreciation (74,714)
-------------
1,627,151
-------------
2,082,429
Valuation allowance (2,082,429)
-------------
$ -
=============
NOTE M - INCOME TAXES - CONTINUED
The Company has sustained net operating losses in both of the periods
presented. There were no deferred tax assets or income tax benefits
recorded in the financial statements for net deductible temporary
differences or net operating loss carryforwards because the likelihood of
realization of the related tax benefits cannot be established.
Accordingly, a valuation allowance has been recorded to reduce the net
deferred tax asset to zero and consequently, there is no income tax
provision or benefit presented for the year ended December 31, 2000.
As of December 31, 2000, the Company had net operating loss carryforwards
for tax reporting purposes of approximately $3,877,300 expiring in
various years through 2020. Utilization of approximately $1,194,000 of
the total net operating loss is dependent on the future profitable
operation of Racore Technology Corporation under the separate return
limitation rules and limitations on the carryforward of net operating
losses after a change in ownership.
NOTE N - 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. The Company evaluates performance of
each segment based on earnings or loss from operations. Selected segment
information is as follows:
Electronics Ethernet
2000 Assembly Technology Total
----
-------------- ------------- --------------
Sales to external customers $ 4,686,045 $ 1,687,051 $ 6,373,096
Intersegment sales 1,015,349 40,423 1,055,772
Segment loss (4,179,654) (1,229,248) (5,408,902)
Segment assets 3,916,774 854,806 4,771,580
Depreciation and amortization 687,802 273,704 961,506
1999
Sales to external customers $ 7,954,824 $ 1,905,665 $ 9,860,489
Intersegment sales 1,531,642 7,174 1,538,816
Segment loss (3,818,927) (1,280,627) (5,099,554)
Segment assets 6,655,078 1,216,921 7,871,999
Depreciation and amortization 807,113 273,080 1,080,193
Sales 2000 1999
-----
-------------- --------------
Total sales for reportable segments $ 7,428,868 $ 11,399,305
Elimination of intersegment sales (1,055,772) (1,538,816)
-------------- --------------
Consolidated net sales $ 6,373,096 $ 9,860,489
============== ==============
Net Loss
Net loss for reportable segments $ (5,408,902) $ (5,099,554)
Elimination of intersegment losses 1,229,248 1,330,649
-------------- --------------
Consolidated net loss $ (4,179,654) $ (3,768,905)
============== ==============
NOTE N - SEGMENT INFORMATION - CONTINUED
Total Assets
Total assets for reportable segments $ 4,771,580 $ 7,871,999
Elimination of intersegment amounts (154,790) (893,888)
-------------- --------------
Consolidated total assets $ 4,616,790 $ 6,978,111
============== ==============
NOTE O - REVENUES
All revenue-producing assets are located in North America. Revenues are
attributed to the geographic areas based on the location of the customers
purchasing the products.
The Company's net sales by geographic area are as follows:
2000 1999
-------------- --------------
North America $ 5,967,106 $ 8,674,051
Europe/Africa/Middle East 390,808 789,906
Asia/Australia 15,182 396,532
-------------- --------------
$ 6,373,096 $ 9,860,489
============== ==============
NOTE P - FOURTH QUARTER ADJUSTMENTS
In the fourth quarter of 2000, the Company recorded various adjustments
that approximated $1.9 million in additional expense that affect, in
part, previous quarters of 2000. The adjustments were recorded as
follows:
1) Adjustments to inventory of $462,280,
2) Additional depreciation expense of $136,706,
3) Additional payable accruals of $815,695,
4) Additional interest expense of $257,600, and
5) Payroll penalties and interest on nonremitted payroll withholdings of
$206,608.
NOTE Q - RESTATEMENT
The 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 receivable 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. Accordingly, the cost of sales has been increased by
$600,669, selling, general and administrative expenses has been increased
by $508,485, interest expense has been increased by $207,958, and other
income decreased by $70,654 in the consolidated statement of operations
for the year ended December 31, 2000.
CIRTRAN CORPORATION
And Subsidiary
INTERIM FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30, 2001
CirTran Corporation and Subsidiary
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
Assets
June 30, December 31,
2001 2000
------------- ----------------
(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
------------- ----------------
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
------------- ----------------
$ 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)
------------- ----------------
Total stockholders' deficit (5,935,145) (4,326,953)
------------- ----------------
$ 3,963,843 $ 4,616,790
============= ================
The accompanying notes are an integral part of these statements.
CirTran Corporation and Subsidiary
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Six months ended
June 30,
-----------------------------------------
2001 2000
------------------- -------------------
(restated) (restated)
Net sales $ 1,070,965 $ 2,680,038
Cost of sales 851,251 2,183,107
------------------- -------------------
Gross profit 219,714 496,931
Selling, general and administrative expenses 1,288,499 1,371,797
------------------- -------------------
Income (loss) from operations (1,068,785) (874,866)
Other income (expense)
Interest expense (543,507) (308,317)
Other, net 4,100 400
------------------- -------------------
(539,407) (307,917)
Income (loss) before income taxes (1,608,192) (1,182,783)
Income tax expense - -
------------------- -------------------
Net LOSS $ (1,608,192) $ (1,182,783)
=================== ===================
Net loss per common share
Basic $ (0.01) $ (0.01)
Diluted (0.01) (0.01)
Weighted-average common and
diluted common equivalent
shares outstanding
Basic 156,301,005 132,191,362
Diluted 156,301,005 132,191,362
The accompanying notes are an integral part of these statements.
CirTran Corporation and Subsidiary
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
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) -
Accounts payable 344,857 (254,082)
Accrued liabilities 648,346 377,557
-------------- ---------------
Total adjustments 1,637,253 271,610
-------------- ---------------
Net cash provided by (used in) operating activities 29,161 (911,173)
-------------- ---------------
Cash flows from investing activities
Purchase of property and equipment (1,844) (7,553)
Acquisition costs - (5,693)
-------------- ---------------
Net cash used in investing activities (1,844) (13,246)
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)
Net change in line of credit - 27,820
Principal payments on long-term obligations (103,923) (194,902)
Principal payments on capital leases (2,000) (1,555)
Purchase of outstanding stock - (80,000)
Issuance of common stock - 1,151,600
-------------- ---------------
Net cash (used in) provided by financing activities (37,958) 924,119
-------------- ---------------
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
The accompanying notes are an integral part of these statements.
CirTran Corporation and Subsidiary
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2001 and 2000
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated 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 condensed consolidated 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
------------ ---------------
2,264,038 2,301,652
Less reserve for obsolescence 545,866 545,866
------------ ---------------
$ 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 will be the
surviving legal entity, for accounting purposes Circuit was treated as
the surviving accounting entity.
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.
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 24. Indemnification of Directors and Officers
Our Bylaws provide, among other things, that our officers or directors are not
personally liable to us or to our stockholders for damages for breach of
fiduciary duty as an officer or director, except for damages for breach of such
duty resulting from (a) acts or omissions which involve intentional misconduct,
fraud, or a knowing violation of law, or (b) the unlawful payment of dividends.
Our Bylaws also authorize us to indemnify our officers and directors under
certain circumstances. We anticipate we will enter into indemnification
agreements with each of our executive officers and directors pursuant to which
we will agree to indemnify each such person for all expenses and liabilities
incurred by such person in connection with any civil or criminal action brought
against such person by reason of their being an officer or director of the
Company. In order to be entitled to such indemnification, such person must have
acted in good faith and in a manner reasonably believed to be in or not opposed
to the best interests of the Company and, with respect to criminal actions, such
person must have had no reasonable cause to believe that his conduct was
unlawful.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to our directors, officers or controlling persons pursuant
to the foregoing provisions, or otherwise, we have been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act of 1933 and is,
therefore, unenforceable.
Item 25. Other Expenses of Issuance And Distribution
We will pay all expenses in connection with the registration and sale of the
common stock by the selling shareholders. The estimated expenses of issuance and
distribution are set forth below.
Registration Fees $ 1,324.46
Transfer Agent Fees 1,000.00
Costs of Printing and Engraving 5,000.00
Legal Fees 15,000.00
Accounting Fees 5,000.00
--------------
Total Estimated Costs of Offering $ 27,324.46
Item 26. Recent Sales of Unregistered Securities
In April 1999, as Vermillion Ventures, Inc., we issued 200,000,000 restricted
shares of our common stock (equivalent to 1,000,000 shares of common stock as
presently constituted), valued at $0.0001 per share ($20,000 in the aggregate)
to Milagro Holdings, Inc. for services rendered in connection with the revival
of Vermillion to seek a new business opportunity. Milagro was an affiliate of
Vermillion's principal, and for the purposes of this issuance, Vermillion relied
on the exemption from the registration and prospectus delivery requirements
provided by Section 4(2) of the Securities Act of 1933.
In July 2000, we issued an aggregate of 10,000,000 restricted shares of common
stock (150,000,000 shares of common stock as presently constituted) to Circuit
Technology, Inc. ("CTI") in connection with our acquisition of the assets and
liabilities of CTI. Of these restricted shares, 9,200,000 were distributed on a
pro-rata basis by way of liquidation to, and registered in the name of, CTI's
shareholders, from each of whom we obtained investment representation letters.
The balance of 800,000 common shares issued pursuant to the CTI acquisition were
paid to Cogent Capital Corp. in respect of financial advisory services rendered
in connection with the acquisition. See above under the section entitled
"Certain Relationships and Related Transactions." For the purpose of these stock
issuances, the Company relied on the exemption from the registration and
prospectus delivery requirements provided by Section 4(2) of the Securities Act
of 1933.
In July 2000, concurrent with our acquisition of CTI's assets, we issued 25,333
restricted shares of our common stock to Milagro, Holdings, Inc. and 1,000
restricted shares of our common stock (379,995 shares and 15,000 shares,
respectively, as presently constituted) to each of Kurt Hughes and John Lambert,
in payment of services rendered to us in connection with the CTI acquisition.
For the purpose of these stock issuances, we relied on the exemption from the
registration and prospectus delivery requirements provided by Section 4(2) of
the Securities Act of 1933. No broker was involved and no commissions were paid
in connection with these transactions.
In November 2000, we issued 352,070 restricted shares of our common stock
(1,716,375 shares as presently constituted) to Future Electronics Corporation in
exchange for $324,284 in debt relief. For the purpose of this stock issuance, we
relied on the exemption from the registration and prospectus delivery
requirements provided by Section 4(2) of the Securities Act of 1933. No broker
was involved and no commissions were paid in connection with this transaction.
In 2000, prior to our acquisition of CTI, CTI sold 830 restricted shares of its
common stock (subsequently exchanged following our acquisition of CTI into
627,238 restricted shares of our common stock, or 9,408,570 shares as presently
constituted) for $945,473 to 29 accredited investors in reliance on the
exemption from registration requirements set forth in Section 4(2) of the
Securities Act of 1933. During 1999, CTI sold 1,881 restricted shares of its
common stock (subsequently exchanged following our acquisition of CTI into
1,421,488 restricted shares of our common stock, or 21,322,320 shares as
presently constituted) for $2,171,235 to 19 accredited investors in reliance on
the exemption from registration requirements set forth in Section 4(2) of the
Securities Act of 1933.
In July 2001, we issued 175,000 shares of common stock (2,625,000 shares as
presently constituted) pursuant to the exercise of stock options previously
granted pursuant to our 2001 Stock Plan.
Item 27. Exhibits
Copies of the following documents are filed with this registration statement as
exhibits:
Exhibit No. Document
3.1 Articles of Incorporation (previously filed as Exhibit No. 2
to the Company's 8-K dated July 1, 2000, Commission File No.
33-13674-LA, and incorporated herein by reference).
3.2 Bylaws (previously filed as Exhibit No. 3 to the Company's
8-K dated July 1, 2000, Commission File No. 33-13674-LA, and
incorporated herein by reference).
3.3 Amendment to Articles of Incorporation dated July 20, 2001
5.1** Opinion Re: Legality
10. Material Contracts:
10.1 Lease Agreement dated 2 November 1996 between I &
R Properties, LLC and Circuit Technology, Inc.
(previously filed as Exhibit No. 4 to the
Company's 8-K dated July 1, 2000, Commission File
No. 33-13674-LA, and incorporated herein by
reference).
10.2 Financial Advisory Agreement dated 12 May 1999
between Circuit Technology, Inc. and Cogent
Capital Corp. (previously filed as Exhibit No. 2
to the Company's Annual Report filed on Form
10-KSB for the year ending 12/31/00, Commission
File No. 33-13674-LA, and incorporated herein by
reference).
10.3 Form of Product Representative Agreement between
CirTran Corporation and a Representative
(previously filed as Exhibit No. 3 to the
Company's Annual Report filed on Form 10-KSB for
the year ending 12/31/00, Commission File No.
33-13674-LA, and incorporated herein by
reference).
10.4 Security and Loan Agreement dated April 6, 1998
between Imperial Bank and Circuit Technology, Inc.
(previously filed as Exhibit No. 4 to the
Company's Annual Report filed on Form 10-KSB for
the year ending 12/31/00, Commission File No.
33-13674-LA, and incorporated herein by
reference).
10.5 Line of Credit Purchase Agreement dated May 1,
2000 between Imperial Bank and Abacus Ventures,
Inc. (previously filed as Exhibit No. 5 to the
Company's Annual Report filed on Form 10-KSB for
the year ending 12/31/00, Commission File No.
33-13674-LA, and incorporated herein by
reference).
10.6 Assignment of Loan dated May 1, 2000 from Imperial
Bank to Abacus Ventures, Inc. (previously filed as
Exhibit No. 6 to the Company's Annual Report filed
on Form 10-KSB for the year ending 12/31/00,
Commission File No. 33-13674-LA, and incorporated
herein by reference).
10.7 Unsecured Promissory Note for $73,000.00 dated
November 3, 2000 from CirTran Corporation to
Future Electronics Corporation (previously filed
as Exhibit No. 7 to the Company's Annual Report
filed on Form 10-KSB for the year ending 12/31/00,
Commission File No. 33-13674-LA, and incorporated
herein by reference).
10.8 Unsecured Promissory Note for $166,000.00 dated
November 3, 2000 from CirTran Corporation to
Future Electronics Corporation (previously filed
as Exhibit No. 8 to the Company's Annual Report
filed on Form 10-KSB for the year ending 12/31/00,
Commission File No. 33-13674-LA, and incorporated
herein by reference).
10.9 Lock-Up Agreement dated November 3, 2000 between
Iehab Hawatmeh and Future Electronics Corporation
(previously filed as Exhibit No. 9 to the
Company's Annual Report filed on Form 10-KSB for
the year ending 12/31/00, Commission File No.
33-13674-LA, and incorporated herein by
reference).
10.10 Lock-Up Agreement dated November 3, 2000 between
Raed Hawatmeh and Future Electronics Corporation
(previously filed as Exhibit No. 10 to the
Company's Annual Report filed on Form 10-KSB for
the year ending 12/31/00, Commission File No.
33-13674-LA, and incorporated herein by
reference).
10.11 Lock-Up Agreement dated November 3, 2000 between
Roger Kokozyon and Future Electronics Corporation
(previously filed as Exhibit No. 11 to the
Company's Annual Report filed on Form 10-KSB for
the year ending 12/31/00, Commission File No.
33-13674-LA, and incorporated herein by
reference).
10.12 Registration Rights Agreement dated November 3,
2000 between CirTran Corporation and Future
Electronics Corporation (previously filed as
Exhibit No. 12 to the Company's Annual Report
filed on Form 10-KSB for the year ending 12/31/00,
Commission File No. 33-13674-LA, and incorporated
herein by reference).
10.13 Promissory Note and Confession of Judgment dated
September 26, 2000 by Circuit Technology Corp. in
favor of Arrow Electronics, Inc. (previously filed
as Exhibit No. 13 to the Company's Annual Report
filed on Form 10-KSB for the year ending 12/31/00,
Commission File No. 33-13674-LA, and incorporated
herein by reference).
10.14 Promissory Note and Confession of Judgment dated
November 16, 2000 by Circuit Technology Corp. in
favor of Sager Electronics (previously filed as
Exhibit No. 14 to the Company's Annual Report
filed on Form 10-KSB for the year ending 12/31/00,
Commission File No. 33-13674-LA, and incorporated
herein by reference).
10.15 Confession of Judgment dated November 3, 2000 by
CirTran Corporation and Iehab Hawatmeh in favor of
Future Electronics Corporation (previously filed
as Exhibit No. 15 to the Company's Annual Report
filed on Form 10-KSB for the year ending 12/31/00,
Commission File No. 33-13674-LA, and incorporated
herein by reference).
10.16 Settlement Agreement and Release of Claims
dated November 3, 2000 between CirTran
Corporation, Iehab Hawatmeh and Future Electronics
Corporation (previously filed as Exhibit No. 16 to
the Company's Annual Report filed on Form 10-KSB
for the year ending 12/31/00, Commission File No.
33-13674-LA, and incorporated herein by
reference).
10.17* Sublease dated 30 November 1998 between Colorado
Electronics Corporation, LLC and Circuit
Technology Corporation
10.18* Attornment Agreement dated 30 November 1998 among
Sun Borne XII, LLC et al, Colorado Electronics
Corporation LLC and Circuit Technology Corporation
11. Statement Re: Computation of Per Share Earnings
(Included in Financial Statements)
21.* Subsidiaries of the Registrant
23.1* Consent of Grant Thornton LLP
23.2* Consent of Counsel
24. Power of Attorney (Included on Signature Page of
Registration Statement)
---------------
* Filed herewith.
** To be filed by amendment.
Item 28. Undertakings
Insofar as indemnification for liabilities under the Securities Act of 1933 may
be permitted to our directors, officers and controlling persons pursuant to the
provisions described above, or otherwise, we have been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act of 1933 and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by us of expenses incurred or paid by
our director, officer or controlling person in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, we will, unless in
the opinion of our counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933 and will be governed by the final adjudication of such issue.
We hereby undertake:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To specify in the prospectus any facts or events arising after the
effective date of the registration statement (or most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Securities and Exchange Commission pursuant
to Rule 424(b) (Section 230.4242(b) of Regulation S-B) if, in the
aggregate, the changes in volume and price represent no more than a
20% change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration
statement; and
(iii)To include any additional or changed material information with
respect to the plan of distribution not previously disclosed in the
registration statement or any material change to such information in
the registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the
termination of the offering.
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, as amended,
we certify that we have reasonable grounds to believe that we meet all of the
requirements of filing on Form SB-2 and authorized this registration statement
to be signed on our behalf by the undersigned, in the city of Salt Lake City,
Utah, on October 29, 2001.
CIRTRAN CORPORATION
A Nevada Corporation
By: /s/ Iehab Hawatmeh
-----------------------------------
Iehab Hawatmeh
Its: President and Director
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities and
on the dates stated:
/s/ Iehab Hawatmeh October 29, 2001
---------------------------------------------
Iehab Hawatmeh
President, Chief Financial Officer and Director
/s/ Raed Hawatmeh October 29, 2001
----------------------------------------------
Raed Hawatmeh
Director
/s/ Trevor Saliba October 29, 2001
----------------------------------------------
Trevor Saliba
Director
POWER OF ATTORNEY
The person whose signature appears below constitutes and appoints and hereby
authorizes Iehab Hawatmeh with the full power of substitution, as
attorney-in-fact, to sign in such person's behalf, individually and in his
capacity as a director, and to file any amendments, including post-effective
amendments to this Registration Statement.
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement was signed by the following person in the capacity and on
the date stated.
/s/ Raed Hawatmeh July 10, 2001
--------------------------
Raed Hawatmeh
Director
/s/ Trevor Saliba July 10, 2001
--------------------------
Trevor Saliba
Director