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
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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)
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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. [ ]
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Calculation of Registration Fee
---------------------------------- ---------------- --------------------- --------------------- ----------------------
Title of Each Class Amount Proposed Maximum Proposed Maximum Amount of
Of Securities To Be Offering Price Aggregate Registration
To Be Registered Registered Per Share Offering Price Fee
---------------------------------- ---------------- --------------------- --------------------- ----------------------
Common Stock, $0.0001 Par Value 3,531,890 $1.50 $5,297,835 $1,324.46
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The offering price per share for the selling security holders was estimated
solely for the purpose of calculating the registration fee pursuant to Rule 457
of Regulation C.
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 JULY 10, 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]
3,531,890 Shares of Common Stock
$0.001 per share
This prospectus relates to 3,531,890 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.
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Investing in the shares involves certain risks.
See "Risk Factors" beginning on page 5.
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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.
-------------------------
July 10, 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................................................................7
Determination of Offering Price................................................7
Dilution.......................................................................7
Description of Business........................................................7
Management's Discussion and Analysis of Financial Condition and Results
of Operations.................................................................13
Directors and Executive Officers..............................................16
Executive Compensation........................................................17
Security Ownership of Certain Beneficial Owners and Management................18
Certain Relationships and Related Transactions................................19
Description of Common Stock...................................................19
Market for Common Shares and Related Stockholder Matters......................20
Selling Shareholders..........................................................21
Plan of Distribution..........................................................22
Available Information.........................................................23
Legal Proceedings.............................................................24
Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure......................................................24
Experts and Counsel...........................................................25
Commission's Position on Indemnification for Securities Act Liabilities.......25
Index to Financial Statements.................................................26
PROSPECTUS SUMMARY
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 surface mount technology, ball-grid array
assembly, pin-through-hole technology, 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.
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 3,531,890 shares of
our common stock. We currently have 10,420,067 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.
Summary and Operating Data
Year Ended Three Months
December 31, (Audited) Ended March 31, (Unaudited)
2000 1999 2001 2000
Statement of Operations Data:
----------------- ----------------------------------------------
Net sales $ 6,373,096 $ 9,860,489 $ 650,485 $ 728,537
Cost of sales 6,191,724 10,427,294 460,401 1,749,105
----------------- ----------------------------------------------
Gross profit (loss) 181,372 (566,805) 190,084 (1,020,568)
Selling, general and administrative expenses 1,909,790 2,594,430 645,153 583,409
Plant closure expenses 292,000 - 15,250 -
----------------- ----------------------------------------------
Loss from operations (2,020,418) (3,161,235) (470,319) (1,603,977)
Other income (expense)
Interest (843,069) (764,486) (110,054) (2,247)
Other, net 71,599 156,816 - 32,433
----------------- ----------------------------------------------
(771,470) (607,670) (110,054) 30,186
----------------- ----------------------------------------------
Loss before income taxes (2,791,888) (3,768,905) (580,373) (1,573,791)
Income taxes - - - -
----------------- ----------------------------------------------
Net loss $ (2,791,888) $ (3,768,905) $ (580,373) $ (1,573,791)
================= ==============================================
Loss per common share
Basic $ (0.29) $ (0.47) $ (0.06) $ (0.18)
Diluted $ (0.29) $ (0.47) $ (0.06) $ (0.18)
Weighted-average common shares outstanding
Basic 9,584,735 7,953,080 10,420,067 8,807,511
Diluted 9,584,735 7,953,080 10,420,067 8,807,511
March 31, 2001
Balance Sheet Data:
Cash and Cash Equivalents $ 200
Inventories 2,084,067
Total Assets 4,485,396
Current Liabilities 7,491,164
Stockholders' Deficit (3,519,560)
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.
We have had 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, at December 31, 2000, had an accumulated deficit of
$8,759,642. 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.
We may not continue as a going concern. As described in our consolidated
financial statements, we have experienced recurring losses, and our current
liabilities exceeded our current assets by $4,312,114 as of December 31, 2000
and by $4,749,518 as of March 31, 2001. These conditions raise 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 customer mix and base fluctuates significantly and we are currently
dependent on a small number of customers for a significant portion of our
revenue. 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. During 2000, approximately 46%
of our total revenues were derived from one customer, and 59% from our top two
customers. In the last quarter of 2000, our principal customer cancelled
completion of a large order. We anticipate that our revenues for 2001 will
decrease substantially as a result of our loss of this customer and that,
consequently, our on-going operations and financial condition will be materially
and adversely affected for the foreseeable future.
We will likely need to raise additional capital but may not be able to do so. We
have operated without a line of credit since February 2000. It is unlikely that
we will be able, in our current financial condition, to obtain additional debt
financing. 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 do acquire more debt, we will have to devote
additional cash flow to pay the debt or else secure the debt with assets. 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.
We may not be able to re-negotiate our short-term debt. We have significant
short-term debt, including over $1.0 Million in demand notes due certain of our
sharesholders, and we are currently not able to fully service this debt. We are
attempting to negotiate forbearance agreements with many of our creditors and
restructure that 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 in excess of
$1.0 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.
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.
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. Although we intend to seek inclusion of our
shares of common stock on the Over the Counter Bulletin Board, or OTCBB, we may
not successfully accomplish this. An established public trading market for our
common stock may never develop or, if developed, it may not be able to be
sustained. The OTCBB is an unorganized, inter-dealer, over-the-counter market
that provides significantly less liquidity than other markets. 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 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.
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. If trading in our stock begins, our shares of common stock may be deemed
"penny stock." 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. 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.
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
its 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.
The loss of our key employees may adversely affect our business. Our success in
achieving our growth objectives depends upon the efforts of our management team,
especially Iehab Hawatmeh, our founder and president. The loss of Mr. Hawatmeh's
services, in particular, may have a material adverse effect on our business,
financial condition and results of operations. We can give no assurance that we
will be able to maintain and achieve our growth objectives should we lose the
services of Mr. Hawatmeh or other members of our management. As is discussed
below in the section entitled, "Directors and Executive Officers," two of our
senior officers, including Iehab Hawatmeh, are currently the subject of criminal
proceedings unrelated to our business and operations. If those persons are
convicted in those proceedings, their ability to participate in our management
or operations could be materially and adversely affected.
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. 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. 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
cables. We also assemble higher-level sub-systems and systems incorporating
printed circuit boards and complex electromechanical components, 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 have developed substantial SMT expertise, including advanced,
vision-based component placement equipment. 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.
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.
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 78% 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 two largest customers accounted for
59% of consolidated net sales: Osicom Technology accounted for 46% of net sales
during the year, and General Cable accounted for the other 13%. 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, 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 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
(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
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, leading to the purchase of two additional SMT assembly lines and the
acquisition of Racore Computer Products, Inc. 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, 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
and 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 Three Months
December 31, (Audited) Ended March 31, (Unaudited)
2000 1999 2001 2000
Statement of Operations Data:
----------------- ----------------------------------------------
Net sales $ 6,373,096 $ 9,860,489 $ 650,485 $ 728,537
Cost of sales 6,191,724 10,427,294 460,401 1,749,105
----------------- ----------------------------------------------
Gross profit (loss) 181,372 (566,805) 190,084 (1,020,568)
Selling, general and administrative expenses 1,909,790 2,594,430 645,153 583,409
Plant closure expenses 292,000 - 15,250 -
----------------- ----------------------------------------------
Loss from operations (2,020,418) (3,161,235) (470,319) (1,603,977)
Other income (expense)
Interest (843,069) (764,486) (110,054) (2,247)
Other, net 71,599 156,816 - 32,433
----------------- ----------------------------------------------
(771,470) (607,670) (110,054) 30,186
----------------- ----------------------------------------------
Loss before income taxes (2,791,888) (3,768,905) (580,373) (1,573,791)
Income taxes - - - -
----------------- ----------------------------------------------
Net loss $ (2,791,888) $ (3,768,905) $ (580,373) $ (1,573,791)
================= ==============================================
Loss per common share
Basic $ (0.29) $ (0.47) $ (0.06) $ (0.18)
Diluted (0.29) (0.47) (0.06) $ (0.18)
Weighted-average common shares outstanding
Basic 9,584,735 7,953,080 10,420,067 8,807,511
Diluted 9,584,735 7,953,080 10,420,067 8,807,511
March 31, 2001
Balance Sheet Data:
Cash and Cash Equivalents $ 200
Inventories 2,084,067
Total Assets 4,485,396
Current Liabilities 7,491,164
Stockholders' Deficit (3,519,560)
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, 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.
On July 1, 2000, we issued a total of 10,000,000 shares of our common stock
(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. This transaction was accounted for as a reverse
acquisition of CirTran Corporation (Utah) by Circuit. Although CirTran
Corporation was the surviving legal entity, for accounting purposes Circuit was
treated as the continuing entity. Our equity at March 31, 2000 was adjusted to
give affect to this reverse acquisition.
Results of Operations
Year Ending December 31, 2000 Compared to Year Ending December 31, 1999
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 loss of a
major customer, Andrew Corporation, which accounted for approximately 30% of our
net sales in 1999. Cost of sales for the year ended December 31, 2000 was
$6,191,724, a 40.6% decrease as compared to $10,427,294 incurred during the
prior year. Those costs as a percentage of net sales were 97.2% during 2000 as
compared to 105.7% during 1999. 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. Since the first
quarter of 2000, 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.
This redirection of our marketing effort began to show results in the last six
months of 2000. In the last two quarters of 2000, we had net sales of
$3,693,058, as compared to $2,702,286 in the last two quarters of 1999, a 37%
improvement over net sales during the 1999 period. Cost of sales was $3,680,445
for the last six months of 2000 as compared to $3,440,048 for the comparable
period in 1999. Gross profit (loss) increased from a negative $737,762 for the
six months ended December 31, 1999, to a positive gross profit of $12,613 for
the comparable period in 2000.
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 $2,056,686 as
compared to $3,056,393 at December 31, 1999. The decrease of approximately 32.7%
in inventory is attributable to the decreased sales in 2000 that reduced our
need to replace inventory at the same level as in 1999. Our management believes
the amount of our inventory that may be considered obsolete or slow moving is
properly reserved.
During the year ended December 31, 2000, selling, general and administrative
expenses were $1,909,790, versus $2,594,430 for 1999, a 26.4% decrease. 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. 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 and we
decided in June 1999 to close the facility. The closing process was completed in
February of 2000. As a result, we recognized a one-time plant closure expense of
$292,000 in 2000 that diminished the benefits of our cost saving measures in
2000. Management expects we will realize the full benefit of these cost saving
measures in 2001. Interest expense for 2000 was $843,069 as compared to $764,486
for 1999, which was not a significant change in view of the fact that our total
interest bearing liabilities remained approximately the same from the end of
1999 to the end of 2000.
As a result of the above factors, our overall net loss decreased 25.9% to
$2,791,888 for the year ended December 31, 2000 as compared to $3,768,905 for
the year ended December 31, 1999.
Three-Month Period Ending March 31, 2001
Compared to Three Month Period Ending March 31, 2000
Net Sales decreased 10.7% to $650,485 for the three months ended March 31, 2001
as compared to $728,537 for the same period in 2000. Cost of sales for the
three-month period ended March 31, 2001, was $460,401, a 73.7% decrease as
compared to $1,749,105 incurred during the comparable three-month period for the
prior year. Such costs as a percentage of net sales were 70.8% during 2001 as
compared to 240.1% during 2000. The redirection of our marketing effort resulted
in a gross profit of $190,084 for the three months ended March 31, 2001, as
compared to a gross loss of $1,020,568 for the three months ended March 31,
2000.
Inventory at March 31, 2001, was $2,084,067 as compared to $2,056,686 at
December 31, 2000.
During the three-month period ended March 31, 2001, selling, general and
administrative expenses were $645,153, versus $583,409 for the comparable period
in 2000, a 10.6% increase. The increase is attributable primarily to increased
professional fees. Interest expense for the three months ended March 31, 2001,
was $110,054 as compared to $2,247 for the comparable period in 2000. The
substantial increase in interest expense is attributable to the restructuring
during the last calendar quarter of 2000 of our accounts payable accrued in 2000
to installment obligations bearing interest.
As a result of the above factors, the overall net loss decreased 63.1% to
$580,373 for the three months ended March 31, 2001, as compared to $1,573,791
for the three months ended March 31, 2000.
Liquidity and Capital Resources
Our current ratio for the year ended December 31, 2000 deteriorated to 0.41:1
from 0.55:1 at December 31, 1999. The primary reason for the negative change was
the reduction of inventory from $3,056,383 at December 31, 1999, to $2,056,686
at December 31, 2000, which was not offset by any meaningful reduction in total
current liabilities. Furthermore, during the first quarter of 2001, trade
receivables decreased from $883,825 to $554,743. We had a working capital
deficit of $4,312,114 at December 31, 2000, and this deficit had increased to
$4,749,518 by March 31, 2001. We recognized a substantial net loss from
operations through 2000 and the first quarter of 2001. These factors raise
substantial doubt about our ability to continue as a going concern.
To address this issue, we are currently working with vendors to restructure our
debt through forbearance agreements and, in limited instances, possible
conversion of debt to equity. During the last six months of 2000, we
successfully extended payment terms on $940,000 of trade payables to monthly
installment obligations with interest accruing at the rate of 8% per annum. We
settled $646,283 of trade payables with another creditor by (i) paying $83,000
in cash, (ii) issuing a non-interest bearing note in the principal amount of
$166,000 due in two installments in December 2000 and March 2001 (which were
paid), (iii) issuing a promissory note in the principal amount of $73,000
bearing interest at 6% per annum payable in 18 monthly installments, and (iv)
converting the remaining $324,284 to 352,070 shares of common stock.
We plan to continue to pursue efforts to restructure our debt and improve our
financial condition, but there is no assurance that we will be successful in
these efforts. If we fail to restructure our debt, we will be unable to meet our
obligations as they become due, which could raise substantial doubt about our
ability to continue as a going concern.
Forward-looking statements
The Private Securities Litigation Reform Act of 1995 provides a safe harbor for
forward-looking statements made by us. All statements, 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 Corpoation; 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.
Two of our directors and officers, Iehab Hawatmeh and Shaher Hawatmeh, are
currently subject to a criminal proceeding that is unrelated to our business and
operations, and that arises out of a family dispute. If they are convicted on
these charges, their ability to manage our corporate affairs may be materially
and adversely affected.
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
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.
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 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.
We do not currently have a stock option plan, and 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% 772,332 (1) 7.41
P.O. Box 1362 Shareholder
Draper, Utah 84020
Saliba Private Annuity Trust (2) 5% 701,298 6.73
115 S. Valley Street Shareholder
Burbank, CA 91505
Roger Kokozyon 5% 1,847,708 17.73
4539 Haskell Avenue Shareholder
Encino, CA 91436
Iehab J. Hawatmeh Director, 2,072,154 19.89
4125 South 6000 West Officer
West Valley City, Utah 84128 & 5%
Shareholder
Raed Hawatmeh Director 1,926,302 18.49
10989 Bluffside Drive & 5%
Studio City, CA 91604 Shareholder
Shaher Hawatmeh Officer 223,691 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 4,222,147 40.5
(4 persons)
-------------------
* Less than 1%.
(1) Includes 2,488 shares of stock held by an affiliate of Cogent Capital
Corp.
(2) Trevor Saliba, a director, is a passive beneficiary of Saliba Private
Annuity Trust and has no control over its operations or management. Mr. Saliba
disclaims beneficial control over the shares indicated.
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
restricted shares of our common stock to Cogent in July 2000 in connection with
our acquisition of the assets and certain liabilities of Circuit.
DESCRIPTION OF COMMON STOCK
Our authorized capital consists of 500,000,000 share of common stock, $0.001 par
value. We are not authorized to issue preferred stock. As of June 29, 2001,
10,420,067 shares of our common stock were issued and outstanding.
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 those 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 352,070 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.
A total of 114,425 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 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 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
As of June 29, 2001, we had 528 shareholders of record holding 10,420,067 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.
SELLING SHAREHOLDERS
The following table sets forth the number of shares that may be offered for sale
from time to time by the selling shareholders. 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. None of the selling shareholders has held any position or office
with us, nor are any of the selling shareholders associates or affiliates of any
of our officers or directors, except as indicated.
Number of
Name of Selling Shareholder Shares Held
Viken Almadjian 34,762
Adel Atallah 119,025
Badi Atallah 28,717
Hosep Bajakajian 235,781
Zareh K. Boghossian 33,251
Oscar Chahine 71,037
Cogent Capital Corp. (1) 769,844
Vatche Elmadjian 71,792
Vatche Elmadjian & Abraham Elmadjian 30,228
Wael Fakhouri 46,854
Widad Fakhouri 37,785
Future Electronics Corporation (2) 114,425
Hayel Hawatmeh 47,610
Khaldoun Hawatmeh 106,555
Ola Hawatmeh 36,274
Rajai Hawatmeh 201,775
Rajai Hawatmeh & Rema Hawatmeh 37,785
Saad S. Hawatmeh 30,984
William Hawatmeh & Layla Hawatmeh 33,251
George Homsi 61,968
Waleed Jweainat 93,708
Fares Khoury 15,870
Vijay Kumar 12,091
George Madanat & Maha Madanat 30,228
Milagro Holdings, Inc. 97,482
Said Naber 49,121
Zaher Abdul Razak 151,142
Ammy Saliba 70,281
Julie Saliba 70,281
Saliba Private Annuity Trust (3) 701,298
Mohamad Tavakkoli 30,228
Mihran Tcholakian 60,457
------
Total Number of Shares 3,531,890
--------------------
(1) An affiliate of Cogent Capital Corp. owns 2,488 shares of our common
stock.
(2) Future Electronics Corporation currently owns a total of 352,070 shares
of our common stock and has agreed to register only approximately 33% of this
amount, or 114,425 shares. See above under "Description of Common Stock -
Registration Rights and Related Matters."
(3) Trevor Saliba, one of our directors, is a passive beneficiary of this
shareholder and has no control over its operations or management. Mr. Saliba
disclaims beneficial control over the shares indicated.
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 $1,044,936 for delinquent payroll
taxes. 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. We are currently attempting to
negotiate a similar payment plan with the federal government with respect to
approximately $920,000 in outstanding unpaid withholding taxes.
We also assumed certain liabilities of Circuit Technology, Inc. in connection
with our transactions with that entity in the year 2000, and 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. With the exception of the
Sunborne action, described below, none of these proceedings involves a claim
exceeding 10% of our assets.
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 has been estimated to range from $0 to $2.5 million. The wide
range is due to two rent calculation methods written in the master lease.
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.
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 Balance Sheets as of March 31, 2001 and December 31, 2000 F-18
Consolidated Statements of Operations for the Three Months Ended March 31, 2001 and 2000 F-19
Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2001 and 2000 F-20
Notes to Interim Consolidated Financial Statements F-22
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 raises
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.
/s/ Grant Thornton LLP
Salt Lake City, Utah
March 9, 2001
F-1
CirTran Corporation and Subsidiary
CONSOLIDATED BALANCE SHEETS
December 31,
Assets
2000 1999
--------------- ------------
Current assets (Note g)
Cash and cash equivalents $ 11,068 $ 500
Trade accounts receivable, net of allowance for doubtful
accounts of $72,774 in 2000 and $360,493 in 1999 883,825 973,351
Inventories, net (Note C) 2,056,686 3,056,383
Other 94,176 93,621
--------------- ------------
Total current assets 3,045,755 4,123,855
PROPERTY AND EQUIPMENT, AT COST, NET
(Notes D, G and H) 1,871,076 2,603,022
OTHER ASSETS, NET (Notes E and G) 46,072 251,234
--------------- ------------
$ 4,962,903 $ 6,978,111
=============== ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Checks written in excess of cash in bank $ 5,491 $ 77,656
Accounts payable 1,166,057 2,366,187
Accrued liabilities (Note J) 1,711,991 598,786
Line of credit (Note F) - 2,792,609
Current maturities of long-term obligations (Note G) 3,414,090 475,385
Current maturities of capital lease obligations (Note H) 39,274 100,920
Notes payable to stockholders (Note I) 1,020,966 1,035,966
--------------- ------------
Total current liabilities 7,357,869 7,447,509
LONG-TERM OBLIGATIONS, less current maturities (Note G) 529,964 726,968
CAPITAL LEASE OBLIGATIONS, less current maturities (Note H) 14,257 82,317
COMMITMENTS (Notes F, H and K) - -
STOCKHOLDERS' DEFICIT (Notes B, I and L)
Common stock, par value $0.001; Authorized 50,000,000 shares;
issued and outstanding; 10,420,067 in 2000 and 8,618,104 in 1999 10,420 8,618
Additional paid-in capital 5,810,035 4,766,453
Receivable from stockholders (Note I) - (86,000)
Accumulated deficit (8,759,642) (5,967,754)
--------------- ------------
Total stockholders' deficit (2,939,187) (1,278,683)
--------------- ------------
$ 4,962,903 $ 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
--------------- ---------------
Net sales $ 6,373,096 $ 9,860,489
Cost of sales 6,191,724 10,427,294
--------------- ---------------
Gross profit (loss) 181,372 (566,805)
Selling, general and administrative expenses 1,909,790 2,594,430
Plant closure expenses 292,000 -
--------------- ---------------
Loss from operations (2,020,418) (3,161,235)
Other income (expense)
Interest (843,069) (764,486)
Other, net 71,599 156,816
--------------- ---------------
(771,470) (607,670)
--------------- ---------------
Loss before income taxes (2,791,888) (3,768,905)
Income taxes (Note M) - -
--------------- ---------------
NET LOSS $ (2,791,888) $ (3,768,905)
=============== ===============
Loss per common share
Basic $ (0.29) (0.47)
Diluted (0.29) (0.47)
Weighted-average common shares outstanding
Basic 9,584,735 7,953,080
Diluted 9,584,735 7,953,080
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
Common Stock
-------------------------------- Additional Receivable
Number paid-in from Accumulated
of shares Amount capital stockholders deficit Total
---------------- ------------- ----------- --------------- -------------- --------------
Balances at January 1, 7,325,842 $ 7,326 $ 2,831,510 $ (225,000) $ (2,198,849) $ 414,987
1999
Issuance of common stock 1,421,488 1,421 2,169,814 - - 2,171,235
Repurchase and retirement
of common stock (129,226) (129) (234,871) 225,000 - (10,000)
Net loss - - - - (3,768,905) (3,768,905)
Receivable from - - - (86,000) - (86,000)
stockholders
---------------- ------------- ----------- --------------- -------------- --------------
Balances at December 31, 8,618,104 8,618 4,766,453 (86,000) (5,967,754) (1,278,683)
1999
Issuance of common stock 627,238 627 945,473 - - 946,100
Repurchase and retirement
of common stock (45,343) (45) (79,955) - - (80,000)
Recapitalization of
company (Note A1) 943,568 944 (944) - - -
Stock issued for debt 352,070 352 323,932 - - 324,284
Purchase and retirement
of common stock for (75,570) (76) (144,924) - - (145,000)
debt
Net loss - - - - (2,791,888) (2,791,888)
Payment from stockholders - - - 86,000 - 86,000
---------------- ------------- ----------- --------------- -------------- --------------
Balances at December 31, 10,420,067 $ 10,420 5,810,035 $ - $ (8,759,642) $ (2,939,187)
2000
================ ============= =========== =============== ============== ==============
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
-------------- --------------
Increase (decrease) in cash and cash equivalents
Cash flows from operating activities
Net loss $ (2,791,888) $ (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 receivables 69,250 285,743
Provision for inventory obsolescence (87,595) 329,561
Changes in assets and liabilities
Trade accounts receivable 20,276 514,333
Inventories 1,087,292 (93,889)
Other assets (12,183) 129,492
Accounts payable (636,846) (289,282)
Accrued liabilities 1,113,205 346,686
-------------- --------------
Total adjustments 2,514,905 2,388,046
-------------- --------------
Net cash used in
operating activities (276,983) (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)
-------------- --------------
(Continued)
F-5
CirTran Corporation and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
Year ended December 31,
2000 1999
------------- --------------
Cash flows from financing activities
Decrease in checks written in excess of cash in bank (72,165) (124,759)
Payments from stockholders 86,000 -
Borrowings from stockholders (15,000) 1,035,966
Net change in line of credit - (1,194,580)
Principal payments on long-term obligations (825,593) (291,266)
Proceeds from long-term obligations 390,685 606,719
Payments on capital lease obligations (129,706) (226,987)
Purchase and retirement of common stock (80,000) (10,000)
Issuance of common stock 946,100 2,085,235
------------- --------------
Net cash provided by
financing activities 300,321 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 (Note H) - 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 239,000 -
Stock converted to debt 145,000 -
Conversion of line of credit to convertible 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
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
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.
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
10,000,000 shares of VVI common stock in the transaction of which 800,000
shares were paid by Circuit to Cogent Capital Corp. for services
performed in facilitating the transaction. CTISI subsequently changed its
name to CirTran Corporation.
The merger was accounted for as a reverse acquisition of CirTran
Corporation by Circuit. Although CirTran Corporation will be the
surviving legal entity, for accounting purposes Circuit was treated as
the surviving accounting entity.
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 to customers.
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.
F-7
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
Other assets consist of intellectual property, financing costs and
acquisition costs. Intellectual property is recorded at cost and
amortized over the period proceeds are received or on a straight-line
basis over three years, whichever is shorter. Financing and acquisition
costs are amortized on a straight-line basis over one to five years.
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).
F-8
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
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).
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 $72,774 and $360,493, respectively.
At December 31, 2000, accounts receivable from customers located in
Baltimore, Maryland and Eagle Pass, Texas, represented approximately 49
percent and nine 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
(with a right of offset). Sales to these customers accounted for 46
percent and 13 percent of 2000 revenues, respectively. In addition, one
customer accounted for 30% of net sales in 1999.
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 trade and 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. Diluted EPS is not calculated for periods
of net loss because to do so would be anti-dilutive.
14. Reclassifications not material
Certain reclassifications have been made to the 1999 financial statements
to conform with the 2000 presentation.
F-9
NOTE B - REALIZATION OF ASSETS
The accompanying 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 $8,759,642 and total stockholders' deficit of $2,939,187 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. purchased the Company's line of credit (Note F)
from the lender. Management has indicated that the lender, based on
certain criteria, is willing to exchange the debt for common stock. The
Company's plans include working with vendors to convert approximately 72
percent of trade payables into long-term notes and common stock and cure
defaults with lenders through forbearance agreements that the Company
will be able to service. Approximately $940,000 of trade payables have
been converted. The Company has initiated new credit arrangements for
smaller dollar amounts with many vendors and will pursue a new line of
credit after negotiations with vendors are complete. If successful, these
plans will 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 has raised approximately $946,000 of additional
capital from investors. During 2000, the Company's president also loaned
the Company an additional $50,000 (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 $ 1,791,520 $ 1,677,554
Work-in process 169,676 1,015,925
Finished goods 497,798 852,807
------------ ------------
2,458,994 3,546,286
Less reserve for obsolescence 402,308 489,903
------------ ------------
$ 2,056,686 $ 3,056,383
============ ============
F-10
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 $ 586,843 $ 582,540
Financing and acquisition costs 156,874 150,939
Other 10,587 9,197
------------ ------------
754,304 742,676
Less accumulated amortization 708,232 491,442
------------ ------------
$ 46,072 $ 251,234
============ ============
NOTE F - LINE OF CREDIT
During 2000, the Company's line of credit was assumed by Abacas Ventures,
Inc. Abacas Ventures, Inc. converted the amount owing into a note
payable, which will be convertible into shares of common stock. The
entire amount of the note is included in current maturities. The
conversion date and price have not been determined.
F-11
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 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 (11.5% at December 31, 2000) plus
3%, 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 rate 10%, unsecured 50,000 -
F-12
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
------------ -------------
3,944,054 1,202,353
Less current maturities 3,414,090 475,385
------------ -------------
$ 529,964 $ 726,968
============ =============
The Company's long-term obligations mature as follows:
Year ending December 31,
2001 $ 3,414,090
2002 296,558
2003 174,454
2004 39,935
2005 19,017
Thereafter -
------------
$ 3,944,054
============
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. As of December 31, 2000,
the Company was not in compliance with certain of these covenants.
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:
F-13
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 payments 53,531
Less 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 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 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 was $103,305 at December 31, 2000 and is included in
accrued liabilities. The Company also has an additional balance due to
its president of $50,000 at December 31, 2000 (Note G).
F-14
NOTE J - ACCRUED LIABILITIES
Accrued liabilities include approximately $1,044,936 of delinquent
payroll taxes. The Company has negotiated a payment schedule with the
state of Utah requiring 12 monthly payments of $10,863. Negotiations are
underway with the federal government to set up a similar payment schedule
for the balance.
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. The management and their 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). Currently, a new tenant
on a short-term lease occupies the premises. The Company filed a suit
against the landlord for an amount in excess of $500,000 for missing
equipment.
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 8,618,104 7,325,842
Net weighted average common shares issued
during period 966,631 627,238
------------- --------------
Weighted average number of common shares used
in basic EPS 9,584,735 7,953,080
============= ==============
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.
F-15
NOTE M - INCOME TAXES - CONTINUED
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 $ 482,149
Bad debt reserve 85,498
Vacation reserve 13,591
LIFO Inv. 263A calculation 95,550
-------------
676,788
-------------
Long-term deferred tax assets (liabilities)
R & D credit 53,974
R & D capitalized 1,605
Net operating loss carryforward 475,435
Intangible 200,053
Depreciation (74,714)
-------------
656,353
-------------
1,333,141
Valuation allowance (1,333,141)
-------------
$ -
=============
The Company has sustained net operating losses in each 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. The
increase in the valuation allowance was $995,766 for the year ended
December 31, 1999.
As of December 31, 2000, the Company had net operating loss carryforwards
for tax reporting purposes of approximately $2,937,679 expiring in
various years through 2017. 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.
F-16
CIRTRAN CORPORATION
INTERIM FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 2001
F-17
CirTran Corporation and Subsidiary
UNAUDITED CONSOLIDATED BALANCE SHEETS
Assets
March 31, December 31,
2001 2000
-------------- ---------------
CURRENT ASSETS
Cash and cash equivalents $ 200 $ 11,068
Trade accounts receivable, net of allowance for doubtful
accounts of $56,450 in 2001 and $72,774 in 2000 554,743 883,825
Inventories 2,084,067 2,056,686
Other Current Assets 102,636 94,176
-------------- ---------------
Total current assets 2,741,646 3,045,755
PROPERTY AND EQUIPMENT, NET 1,697,677 1,871,076
OTHER ASSETS, NET 46,073 46,072
-------------- ---------------
$ 4,485,396 $ 4,962,903
============== ===============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Current maturities of long-term obligations $ 3,417,090 $ 3,414,090
Current maturities of capital lease obligations 39,274 39,274
Checks written in excess of cash in bank 78,230 5,491
Accounts payable 1,218,012 1,166,057
Accrued liabilities 1,717,592 1,711,991
Notes payable to stockholders 1,020,966 1,020,966
-------------- ---------------
Total current liabilities 7,491,164 7,357,869
LONG-TERM OBLIGATIONS, less current maturities 499,535 529,964
CAPITAL LEASE OBLIGATIONS, less current maturities 14,257 14,257
COMMITMENTS - -
STOCKHOLDERS' DEFICIT
Common stock, $0.001 par value; Authorized 500,000,000 shares;
issued and outstanding; 10,420,067 in 2001 and 2000 10,420 10,420
Additional paid-in capital 5,810,035 5,810,035
Accumulated deficit (9,340,015) (8,759,642)
-------------- ---------------
Total stockholders' deficit (3,519,560) (2,939,187)
-------------- ---------------
$ 4,485,396 $ 4,962,903
============== ===============
The accompanying notes are an integral part of these statements.
F-18
CirTran Corporation and Subsidiary
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
Three months ended
March 31,
-------------------------------
2001 2000
-------------- --------------
Net sales $ 650,485 $ 728,537
Cost of sales 460,401 1,749,105
-------------- --------------
Gross profit (loss) 190,084 (1,020,568)
Selling, general and administrative expenses 645,153 583,409
Plant closure expenses 15,250 -
-------------- --------------
Loss from operations (470,319) (1,603,977)
Other income (expense)
Interest expense (110,054) (2,247)
Other income - 32,433
-------------- --------------
(110,054) 30,186
Loss before income taxes (580,373) (1,573,791)
Income tax expense - -
-------------- --------------
NET LOSS $ (580,373) $ (1,573,791)
============== ==============
Net loss per common
share - basic $ (0.06) $ (0.18)
Net loss per common
share - diluted $ (0.06) $ (0.18)
Weighted-average common and
diluted common equivalent
shares outstanding
Basic 10,420,067 8,807,511
Diluted 10,420,067 8,807,511
The accompanying notes are an integral part of these statements.
F-19
CirTran Corporation and Subsidiary
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months ended March 31,
2001 2000
-------------- --------------
Increase (decrease) in cash and cash equivalents
Cash flows from operating activities
Net loss $ (580,373) $ (1,573,791)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities
Depreciation and amortization 175,243 104,999
Provision for loss on trade receivables (16,324) -
Changes in assets and liabilities
Trade accounts receivable 345,406 645,383
Inventories (27,381) 98,627
Other current assets (8,460) (26,491)
Accounts payable 51,955 430,306
Accrued liabilities 5,600 364,621
-------------- --------------
Total adjustments 526,039 1,617,445
-------------- --------------
Net cash provided by (used in)
operating activities (54,334) 43,654
-------------- --------------
Net cash used in investing activities - purchase of property and
equipment (1,844) (7,553)
-------------- --------------
(Continued)
F-20
CirTran Corporation and Subsidiary
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
For the Three Months ended March 31,
2001 2000
------------- --------------
Cash flows from financing activities
Decrease in receivable from stockholders - 30,000
Increase in checks written in excess
of cash in bank 72,739 44,407
Net change in line of credit - 13,006
Principal payments on long-term obligations (27,429) (109,711)
Issuance of common stock - 103,000
------------- --------------
Net cash provided by
financing activities 45,310 80,702
------------- --------------
Net (decrease) increase in cash and
cash equivalents (10,868) 116,803
Cash and cash equivalents at beginning of period 11,068 500
------------- --------------
Cash and cash equivalents at end of period $ 200 $ 117,303
============= ==============
Supplemental disclosure of cash flow information
Cash paid during the period for
Interest $ 13,054 $ 2,247
Income Taxes - -
The accompanying notes are an integral part of these statements.
F-21
NOTES TO INTERIM FINANCIAL STATEMENTS
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of CirTran
Corporation and Subsidiary (the Company) have been prepared in accordance
with accounting principles generally accepted in the United States of
America for interim financial information. Accordingly, these financial
statements do not include all of the information and footnote disclosures
required by accounting principles generally accepted in the United States
of America for complete financial statements. These financial statements
and footnote disclosures should be read in conjunction with the audited
consolidated financial statements and notes thereto for the year ended
December 31, 2000. In the opinion of management, the accompanying
unaudited consolidated financial statements contain all adjustments
(consisting of only normal recurring adjustments) necessary to fairly
present the Company's consolidated financial position as of March 31,
2001, its consolidated results of operations and cash flows for the three
months ended March 31, 2001 and 2000. The results of operations for the
three months ended March 31, 2001 and 2000, may not be indicative of the
results that may be expected for the year ending December 31, 2001.
NOTE B - INVENTORIES
Inventories consist of the following at March 31:
2001 2000
------------ --------------
Raw materials $ 1,903,604 $ 1,791,520
Work-in process 116,210 169,676
Finished goods 466,561 497,798
------------ --------------
2,486,375 32,458,994
Less reserve for obsolescence (402,308) (402,308)
------------ --------------
$ 2,084,067 $ 2,056,686
============ ==============
NOTE C - MERGER AGREEMENT
Effective July 1, 2000, all of the assets and certain liabilities of
Circuit Technology Corporation (Circuit) were acquired by CTI Systems,
Inc. (CTISI), a wholly owned subsidiary of Vermillion Ventures, Inc.
(VVI). Circuit received 10,000,000 shares of VVI common stock in the
transaction of which 800,000 shares were paid by Circuit to Cogent
Capital Corp. for services performed in facilitating the transaction.
CTISI subsequently changed its name to CirTran Corporation.
The merger was accounted for as a reverse acquisition of CirTran
Corporation by Circuit. Although CirTran Corporation will be the
surviving legal entity, for accounting purposes Circuit was treated as
the continuing entity.
F-22
NOTE D- LITIGATION
Circuit is a defendant in an alleged breach of a facilities sublease
agreement in Colorado. A lawsuit was filed in which the plaintiff seeks
to recover past due rent, future rent, and other lease charges. The range
of potential loss is estimated at between $0 and $2,500,000. The wide
range is due to two rent calculation methods written in the master lease.
Under one calculation, the amount would be minimal. Under the other
calculation, the amount would represent all future rent (reduced by rent
received from future tenants). Currently, a new tenant on a short-term
lease occupies the premises. This new tenant's lease includes rent at two
times the monthly rate of the original lease under suit. Circuit has also
filed a countersuit against the landlord for missing equipment. The
amount of the countersuit claim exceeds $500,000.
Circuit is also the defendant in numerous legal actions resulting
primarily from nonpayment of vendors for goods and services rendered.
Circuit has accrued the payables and is currently in the process of
negotiating settlements with these vendors.
F-23
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 (pre-3000:1 reverse split) common stock, 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 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 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 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 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 exhanged into 627,238 restricted shares of our common
stock following our acquisition of CTI) 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 into 1,421,488 restricted
shares of our common stock following our acquisition of CTI) 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.
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).
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).
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)
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* 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 July 10, 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 July 10, 2001
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Iehab Hawatmeh
President, Chief Financial Officer and Director
/s/ Raed Hawatmeh July 10, 2001
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Raed Hawatmeh
Director
/s/ Trevor Saliba July 10, 2001
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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