UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB/A
Amendment No. 2
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
CIRTRAN CORPORATION
For the quarter ended March 31, 2001 Commission file number 0-26059
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Nevada 68-0121636
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(State or other jurisdiction of (I.R.S. Employer Identification No)
incorporation or organization)
4125 South 6000 West
West Valley City, Utah 84128
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(Address of Principal Executive Offices) (Zip Code)
(801) 963-5112
(Registrant's telephone number)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the proceeding 12 months and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date:
As of May 22, 2001, the number of shares outstanding of the registrant's only
class of common stock was 156,301,005.
Transitional Small Business Disclosure Format (check one): Yes ______ No ___X___
Table of Contents
The registrant amends Quarterly Report on Form 10-QSB for the period
ended March 31, 2001 to furnish revised financial statements and a revised
Management's Discussion and Analysis of Operating Results. Except as otherwise
specifically noted, all information in this Form 10-QSB/A is as of March 31,
2001 and does not reflect any subsequent information or events.
Page
PART I - FINANCIAL INFORMATION
Item 1 Consolidated Condensed Financial Statements
Balance Sheets as of March 31, 2001 (unaudited) and 3
December 31, 2000
Statements of Operations for the Three Months Ended 4
March 31, 2001 (unaudited) and 2000 (unaudited)
Statements of Cash Flows for the Three Months ended 5
March 31, 2001 (unaudited) and 2000 (unaudited)
Notes to Consolidated Condensed Financial Statements 6
(unaudited)
Item 2 Managements Discussion and Analysis of Financial Condition and 9
Results of Operation
PART II - OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K 12
Signatures 12
PART I. FINANCIAL INFORMATION
CirTran Corporation and Subsidiary
CONSOLIDATED CONDENSED BALANCE SHEETS
Assets
March 31, December 31,
2001 2000
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(unaudited) (restated)
(restated)
CURRENT ASSETS
Cash and cash equivalents $ 200 $ 11,068
Trade accounts receivable, net of allowance for doubtful
accounts of $66,178 in 2001 and $82,502 in 2000 545,015 874,097
Inventories 1,783,168 1,755,786
Other 102,636 94,176
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Total current assets 2,431,019 2,735,127
PROPERTY AND EQUIPMENT, NET 1,697,677 1,871,076
OTHER ASSETS, NET 10,587 10,587
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$ 4,139,283 $ 4,616,790
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LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Checks written in excess of cash in bank $ 78,230 $ 5,491
Accounts payable 1,698,784 1,561,752
Accrued liabilities 2,480,718 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
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Total current liabilities 8,735,062 8,399,522
LONG-TERM OBLIGATIONS, less current maturities 517,535 529,964
CAPITAL LEASE OBLIGATIONS, less current maturities 14,257 14,257
COMMITMENTS - -
STOCKHOLDERS' DEFICIT
Common stock, $0.001 par value; Authorized 750,000,000 shares; issued and
outstanding; 156,301,005 in 2001 and 2000 156,301 156,301
Additional paid-in capital 5,664,154 5,664,154
Accumulated deficit (10,948,026) (10,147,408)
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Total stockholders' deficit (5,127,571) (4,326,953)
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$ 4,139,283 $ 4,616,790
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The accompanying notes are an integral part of these statements.
CirTran Corporation and Subsidiary
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three months ended
March 31,
-------------------------------------
2001 2000
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(restated) (restated)
Net sales $ 650,485 $ 728,537
Cost of sales 545,478 1,386,484
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Gross profit (loss) 105,007 (657,947)
Selling, general and administrative expenses 660,404 583,409
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Loss from operations (555,397) (1,241,356)
Other income (expense)
Interest expense (245,221) (2,247)
Other, net - 157
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(245,221) (2,090)
Loss before income taxes (800,618) (1,243,446)
Income tax expense - -
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NET LOSS $ (800,618) $ (1,243,446)
================= =================
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 156,301,005 129,469,627
Diluted 156,301,005 129,469,627
The accompanying notes are an integral part of these statements.
CirTran Corporation and Subsidiary
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three months ended March 31,
--------------------------------
2001 2000
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(restated) (restated)
Increase (decrease) in cash and cash equivalents
Cash flows from operating activities
Net loss $ (800,618) $ (1,243,446)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities
Depreciation and amortization 175,243 104,999
Changes in assets and liabilities
Trade accounts receivable 329,082 645,383
Inventories (27,382) 98,627
Other assets (8,460) (26,491)
Accounts payable 137,032 99,961
Accrued liabilities 140,769 364,621
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Total adjustments 746,284 1,287,100
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Net cash provided by (used in)
operating activities (54,334) 43,654
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Net cash used in investing activities -
Purchase of property and equipment (1,844) (7,553)
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Cash flows from financing activities
Decrease in receivable from stockholders - 30,000
Increase in checks written in excess
of cash in bank 72,739 44,407
Principal payments on long-term obligations (27,429) (96,705)
Issuance of common stock - 103,000
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Net cash provided by
financing activities 45,310 80,702
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Net (decrease) increase in cash and
cash equivalents (10,868) 116,803
Cash and cash equivalents at beginning of period 11,068 500
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Cash and cash equivalents at end of period $ 200 $ 117,303
============== ===============
Supplemental disclosure of cash flow information
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Cash paid during the period for
Interest $ 13,054 $ 2,247
The accompanying notes are an integral part of these statements.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
March 31, 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 US GAAP 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
March 31, 2001, its consolidated results of operations and cash flows for
the three months ended March 31, 2001 and 2000. The results of operations
for the three months ended March 31, 2001, 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:
March 31, December 31,
2001 2000
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Raw materials $ 1,746,262 $ 1,634,178
Work-in process 116,210 169,676
Finished goods 466,562 497,798
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2,329,034 2,301,652
Less reserve for obsolescence 545,866 545,866
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$ 1,783,168 $ 1,755,786
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NOTE C - MERGER AGREEMENT
Effective July 1, 2000, all of the assets and certain liabilities of
Circuit Technology Corporation (Circuit) were acquired by CTI Systems,
Inc. (CTISI), a wholly owned subsidiary of Vermillion Ventures, Inc.
(VVI), an inactive corporation. The stockholders of Circuit received
150,000,000 shares of VVI common stock in the transaction of which
12,000,000 shares were paid by Circuit to Cogent Capital Corp. for
services performed in facilitating the transaction. CTISI subsequently
changed its name to CirTran Corporation.
The merger was accounted for as a reverse acquisition of CirTran
Corporation by Circuit. Although CirTran Corporation is the surviving
legal entity, for accounting purposes Circuit was treated as the
surviving accounting entity.
NOTE D - LITIGATION
Circuit (the surviving accounting entity, Note C) is a defendant in an
alleged breach of a facilities sublease agreement in Colorado. A lawsuit
was filed in which the plaintiff seeks to recover past due rent, future
rent, and other lease charges. Management and the Company's attorneys
have estimated the range of potential loss to be between $0 and
$2,500,000. The wide range is due to two rent calculation methods written
in the master lease. Under one calculation, the amount would be minimal.
Under the other calculation, the amount would represent all future rent
(reduced by rent received from future tenants). The Company filed a suit
against the landlord for an amount in excess of $500,000 for missing
equipment. Rent has been accrued through December 31, 2000 and is
included in accrued liabilities.
Circuit is also the defendant in numerous legal actions primarily
resulting from nonpayment of vendors for goods and services received. The
Company has accrued the payables and is currently in the process of
negotiating settlements with these vendors.
NOTE E - SEGMENT INFORMATION
Segment information has been prepared in accordance with SFAS No. 131,
"Disclosure about Segments of an Enterprise and Related Information." The
Company has two reportable segments; electronics assembly and Ethernet
technology. The electronics assembly segment manufactures and assembles
circuit boards and electronic component cables. The Ethernet technology
segment designs and manufactures Ethernet cards. The accounting policies
of the segments are consistent with those described in the summary of
significant accounting policies included in the Company's Form 10-KSB for
the year ended December 31, 2000. The Company evaluates performance of
each segment based on earnings or loss from operations. Selected segment
information is as follows:
Electronics Ethernet
March 31, 2001 Assembly Technology Total
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Sales to external customers $ 381,534 $ 268,951 $ 650,485
Intersegment sales 177,749 - 177,749
Segment loss 800,618 134,362 934,980
Segment assets 3,581,888 511,986 4,093,874
March 31, 2000
Sales to external customers $ 537,630 $ 190,707 $ 728,537
Intersegment sales 56,821 - 56,821
Segment loss 1,243,445 71,003 1,314,448
Segment assets 5,898,535 1,249,051 7,147,586
March 31, 2001 March 31,
Sales 2001 2000
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Total sales for reportable segments $ 828,234 $ 785,358
Elimination of intersegment sales (177,749) (56,821)
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Consolidated net sales $ 650,485 $ 728,537
============== ==============
NOTE E - SEGMENT INFORMATION - CONTINUED
Net Loss
Net loss for reportable segments $ (934,980) $ (1,314,448)
Elimination of intersegment losses 134,362 71,002
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Consolidated net loss $ (800,618) $ (1,243,446)
============== ==============
Total Assets
Total assets for reportable segments $ 4,093,874 $ 7,147,586
Elimination of intersegment amounts 45,409 (867,637)
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Consolidated total assets $ 4,139,283 $ 6,279,949
============== ==============
NOTE F - 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 reduction of accounts receivables and other assets,
$1,041,653 of additional accounts payable and accrued liabilities. It has
been determined that adjustments are necessary to write down inventory
purchased for specific customers that does not have alternative use and
record accounts payable and accrued liabilities that should have been
recognized in 2000.
In addition, the financial statements at and for the three months ended
March 31, 2001 have been restated to reflect corrections to recognize
$220,245 of additional accounts payable and accrued liabilities.
Accordingly, the cost of sales has been increased by $85,077 and interest
expense has been increased by $135,167 in the consolidated statement of
operations for the three months then ended.
The statement of operations for the three months ended March 31, 2000 has
also been restated to correct overstatements in accounts payable.
Accordingly, cost of sales has been decreased by $362,621 and other
income has been decreased $32,276 in the consolidated statement of
operations for the three months then ended. Loss per share did not change
as a result of the restatement.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Overview
We provide a mixture of high and medium size volume turnkey manufacturing
services using surface mount technology, ball-grid array assembly,
pin-through-hole and custom injection molded cabling for leading electronics
OEMs in the communications, networking, peripherals, gaming, consumer products,
telecommunications, automotive, medical, and semiconductor industries. Our
services include pre-manufacturing, manufacturing and post-manufacturing
services. Through our subsidiary, Racore Technology Corporation, we design and
manufacture Ethernet technology products. Our goal is to offer customers the
significant competitive advantages that can be obtained from manufacture
outsourcing, such as access to advanced manufacturing technologies, shortened
product time-to-market, reduced cost of production, more effective asset
utilization, improved inventory management, and increased purchasing power.
Results of Operations
Sales and Cost of Sales
Net Sales decreased 10.7% to $650,485 for the three-month period ended March
31,2001 as compared to $728,537 during the same period in 2000. The decrease
primarily reflects the loss of two major customers, Andrew Corporation and
Entrada Networks, Inc. In addition, management has shifted its marketing effort
away from high-volume, low-margin orders to lower-volume, higher margin orders,
and this change has contributed to a lower sales volume. The results of this
shift are partially reflected in lower sales figures, but also in an improved
gross profit margin. Cost of sales decreased by 61%, from $1,386,484 during the
three-month period ended March 31, 2000 to $545,478 during the same period in
2001. Our gross profit margin improved significantly, increasing from less than
0% for the three-month period ended March 31, 2000 to 16% for the same period in
2001.
Inventory
Inventory at March 31, 2001 was $1,783,168 as compared to $1,755,786 at December
31, 2000.
General and Administrative Expenses
During the three-month period ended March 31, 2001 selling, general and
administrative expenses were $660,404, as compared to $583,409 during the same
period in 2000, representing a 12.8% increase. This increase was primarily
attributable to increased legal fees incurred in connection with several debt
settlements arranged in the fall of 2000, preparation of our annual report on
Form 10-KSB, and the litigation with Entrada Networks.
Interest expense for the three months ended March 31, 2001 was $245,221,
compared to $2,247 during the same period in 2000. This represents an increase
of $242,974 and is primarily attributable the restructuring during the last
calendar quarter of 2000 of accounts payable to installment obligations bearing
interest.
As a result of the above factors, and primarily due to the significant decrease
in cost of sales between the two periods, our overall net loss decreased 36% to
$800,618 for the three-month period ended March 31, 2001, from $1,243,446 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
$10,948,026 at March 31, 2001. Our current liabilities exceeded our current
assets by $5,664,395 as of December 31, 2000 and $6,304,043 as of March 31,
2001.
Cash
At December 31, 2000, we had $11,068 cash on hand. By March 31, 2001, our cash
on hand was $200, a decrease of $10,868. We also increased checks written in
excess of cash in bank by $72,739 from $5,491 at December 31, 2000 to $78,230 at
March 31, 2001.
Net cash used in operating activities was $54,334 for the quarter ended March
31, 2001, compared to $43,654 provided by operations for the quarter ended March
31, 2000. During the three-month period ended March 31, 2001, net cash used in
operations was primarily attributable to $800,618 in net losses from operations,
partially offset by non-cash charges, increases in accrued liabilities of
$140,769 and in accounts payable of $137,032, and a decrease in accounts
receivable of 329,082. The non-cash charges include depreciation and
amortization of $175,243. The net cash of $43,654 provided from operations for
the quarter ended March 31, 2000 was attributable to the operating loss of
$1,243,446 being offset by an approximate decreases of $645,000 in accounts
receivable and $99,000 in inventories, and an increase of approximately $465,000
in accounts payable and accrued liabilities.
Net cash used in investing activities during the quarters ended March 31, 2001
and 2000, consisted of equipment purchases of $1,844 and $7,533, respectively.
Net cash provided by financing activities during the three-month period ended
March 31, 2001 was $45,310, representing the balance of $72,739 provided by
checks written in excess of cash in bank, less approximately $27,429 used for
principal payments on long-term obligations.
Accounts Receivable
By March 31, 2001, accounts receivable had decreased from $874,097, net of an
allowance for doubtful accounts of $82,500, at December 31, 2001, to $545,015,
net of an allowance for doubtful accounts of approximately $66,000. This
significant decrease in accounts receivable is reflective of our decrease in
sales during the first three months of 2001, as well as our efforts to improve
the aging and quality of our current receivables.
Accounts Payable
Accounts payable were approximately $1,699,000 at March 31, 2001 as compared to
$1,562,000 at December 31, 2000. This increase is primarily attributable to
additional credit purchases of inventory and a lack of available cash to pay
vendors as invoices became due.
Liquidity and Financing Arrangements
We sustained losses from operations of approximately $801,000 and $1,243,000 for
the quarters ended March 31, 2001 and 2000, respectively. We had accumulated
deficits of $10,948,026 and $10,147,408 at March 31, 2001 and December 31, 2000,
respectively, and total stockholders' deficits of $5,127,571 and $4,326,953 as
of such dates.
Since February 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.
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 herein, other than statements of historical fact, which
address activities, actions, goals, prospects, or new developments that we
expect or anticipate will or may occur in the future, including such things as
expansion and growth of operations and other such matters, are forward-looking
statements. Any one or a combination of factors could materially affect our
operations and financial condition. These factors include competitive pressures,
success or failure of marketing programs, changes in pricing and availability of
parts inventory, creditor actions, and conditions in the capital markets.
Forward-looking statements made by us are based on knowledge of our business and
the environment in which we currently operate. Because of the factors listed
above, as well as other factors beyond our control, actual results may differ
from those in the forward-looking statements.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
Reports on Form 8-K: None
Exhibits: None
SIGNATURES
In accordance with the Exchange Act, the registrant caused this report
to be signed on its behalf by the undersigned thereunto duly authorized.
CIRTRAN CORPORATION
Date: May 22, 2002 By: /s/ Iehab J. Hawatmeh, President