10-Q 1 form10-q.htm

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
  For the quarterly period ended September 30, 2020
   
[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
  For the transition period from ______________ to _______________

 

Commission File No. 000-49654

 

CirTran Corporation

(Exact name of registrant as specified in its charter)

 

Nevada   68-0121636
(State or other jurisdiction of   (IRS Employer
incorporation or organization)   Identification No.)

 

6360 S Pecos Road, Suite 8, Las Vegas, NV 89120

(Address of principal executive offices and zip code)

 

(801) 963-5112

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Exchange Act:

 

Title of each class   Trading Symbol(s)   Name of each exchange on which registered
None   None   None

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes [X] No [  ]

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes [X] No [  ]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

  Large accelerated filer [  ] Accelerated filer [  ]
  Non-accelerated filer [X] Smaller reporting company [X]
  Emerging growth company [  ]  

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [  ]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes [  ] No [X]

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. As of November 20, 2020, there were 4,500,417 shares of common stock, $0.001 par value, outstanding.

 

 

 

 
 

 

CirTran Corporation

Form 10-Q for the Three and Nine Months Ended September 30, 2020

 

TABLE OF CONTENTS

 

Item   Page
  Part I—Financial Information  
     
1 Financial Statements (Unaudited) 3
  Consolidated Balance Sheets 3
  Unaudited Consolidated Statements of Operations 4
  Consolidated Statements of Stockholders’ Deficit 5
  Unaudited Consolidated Statements of Cash Flows 6
  Notes to the Financial Statements 7
2 Management’s Discussion and Analysis of Financial Condition and Results of Operations 17
3 Quantitative and Qualitative Disclosures about Market Risk 19
4 Controls and Procedures 19
     
  Part II—Other Information  
     
6 Exhibits 20
  Signatures 21

 

2

 

 

PART I–FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

CIRTRAN CORPORATION

CONSOLIDATED BALANCE SHEETS

 

   September 30, 2020   December 31, 2019 
    (Unaudited)    (Audited) 
ASSETS          
           
Current assets          
Cash  $9,354   $- 
Inventory   215,629    18,814 
Deposits on inventory   44,559    - 
Deposits on inventory - related party   318,624    - 
Other current assets   56,254    1,210 
Total current assets   644,420    20,024 
           
Investment in securities at cost   300,000    300,000 
Property and equipment, net of accumulated depreciation   -    9,772 
           
Total assets  $944,420   $329,796 
           
LIABILITIES AND STOCKHOLDERS’ DEFICIT          
           
Current liabilities          
Bank overdraft  $-   $1,611 
Accounts payable   2,158,031    2,121,401 
Related-party payable   13,740    13,740 
Short-term advances payable   124,904    163,994 
Short-term advances payable - related parties   484,235    738,655 
Accrued liabilities   1,370,038    1,077,999 
Accrued payroll and compensation expense   4,043,089    3,757,636 
Accrued interest, current portion   2,695,365    2,405,946 
Convertible debenture, current portion, net of discounts   264,284    248,874 
Note payable, current portion   90,000    90,000 
Note payable to stockholders and members   151,833    151,833 
Derivative liability   1,218,396    894,079 
Liabilities from discontinued operations   26,464,057    26,348,853 
Total current liabilities   39,077,972    38,014,621 
           
Accrued interest, net of current portion   1,460,824    1,371,098 
Note payable, net of current portion   656,000    500,000 
Convertible debenture, net of current portion, net of discount   1,760,359    1,678,768 
Total liabilities   42,955,155    41,564,487 
           
Commitments and contingencies   -    - 
           
Stockholders’ deficit          
Common stock, par value $0.001; 100,000,000 shares authorized; 4,500,417 and 4,500,417 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively   4,500    4,500 
Additional paid-in capital   37,222,671    37,222,615 
Accumulated deficit   (79,237,906)   (78,461,806)
Total stockholders’ deficit   (42,010,735)   (41,234,691)
           
Total liabilities and stockholders’ deficit  $944,420   $329,796 

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

3

 

 

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

 

  

Three Months Ended

September 30,

  

Nine Months Ended

September 30,

 
   2020   2019   2020   2019 
Net sales  $405,005   $-   $935,319   $- 
Cost of sales   228,380    -    425,699    - 
Gross profit   176,625    -    509,620    - 
                     
Operating expenses                    
Employee costs   126,559    36,222    169,169    121,926 
Selling, general and administrative expenses   129,125    47,700    248,059    143,121 
Total operating expenses   255,684    83,922    417,228    265,047 
                     
Income (loss) from operations   (79,059)   (83,922)   92,392    (265,047)
                     
Other income (expense)                    
Interest expense   (154,318)   (187,546)   (466,953)   (437,909)
Loss on disposal of equipment   -    -    (9,771)   - 
Loss on derivative valuation   39,700    (7,431)   (318,564)   (7,431)
Other income   -    204    42,000    934 
Total other expense   (114,618)   (194,773)   (753,288)   (444,406)
                     
Net loss from continuing operations   (193,677)   (278,695)   (660,896)   (709,453)
                     
Loss from discontinued operations   (38,681)   (38,682)   (115,204)   (105,002)
                     
Net loss  $(232,358)  $(317,377)  $(776,100)  $(814,455)
                     
Net loss from continuing operations per common share, basic and diluted  $(0.04)  $(0.06)  $(0.15)  $(0.16)
Net loss from discontinued operations per common share, basic and diluted  $(0.01)  $(0.01)  $(0.03)  $(0.02)
Net loss per common share, basic and diluted  $(0.05)  $(0.07)  $(0.18)  $(0.18)
Basic and diluted weighted average common shares outstanding   4,500,417    4,500,417    4,500,417    4,500,417 

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

4

 

 

CIRTRAN CORPORATION

UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2019 (REVISED)

 

   Common Stock   Additional Paid-in   Accumulated     
   Shares   Amount   Capital   Deficit   Total 
Balance December 31, 2018   4,500,417   $4,500   $37,222,615   $(77,234,267)  $(40,007,152)
Net loss three months ended March 31, 2019   -    -    -    (211,120)   (211,120)
Balance March 31, 2019   4,500,417    4,500    37,222,615    (77,445,387)   (40,218,272)
Net loss three months ended June 30, 2019   -    -    -    (285,958)   (285,958)
Balance June 30, 2019   4,500,417    4,500    37,222,615    (77,731,345)   (40,504,230)
Net loss three months ended September 30, 2019   -    -    -    (317,377)   (317,377)
Balance September 30, 2019   4,500,417   $4,500   $37,222,615   $(78,048,722)  $(40,821,607)

 

CIRTRAN CORPORATION

UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020

 

   Common Stock   Additional Paid-in   Accumulated     
   Shares   Amount   Capital   Deficit   Total 
Balance December 31, 2019   4,500,417   $4,500   $37,222,615   $(78,461,806)   (41,234,691)
Stock option expense   -    -    56    -    56 
Net loss three months ended March 31, 2020   -    -    -    (315,372)   (315,372)
Balance March 31, 2020   4,500,417    4,500    37,222,671    (78,777,178)   (41,550,007)
Net loss three months ended June 30, 2020   -    -    -    (228,370)   (228,370)
Balance June 30, 2020   4,500,417    4,500    37,222,671    (79,005,548)   (41,778,377)
Net loss three months ended September 30, 2020   -    -    -    (232,358)   (232,358)
Balance September 30, 2020   4,500,417   $4,500   $37,222,671   $(79,237,906)  $(42,010,735)

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

5

 

 

CIRTRAN CORPORATION

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

   Nine Months Ended September 30, 
   2020   2019 
Cash flows from operating activities          
Net loss from continuing operations  $(660,896)  $(709,453)
Adjustments to reconcile net loss to net cash used in operating activities          
Depreciation expense   -    1,719 
Loss on derivative valuation   318,564    7,431 
Debt discount amortization   87,754    61,666 
Loss on disposal of equipment   9,771    - 
Stock option expense   56    - 
Expenses paid on behalf of Company by a related party   1,940    - 
Changes in operating assets and liabilities:          
Inventory   (196,815)   - 
Deposits on inventory   (44,559)   - 
Deposits on inventory - related party   (318,624)   - 
Other current assets   (55,044)   (1,210)
Accounts payable   36,631    9,914 
Accrued liabilities   292,039    79,199 
Accrued payroll and compensation   285,453    37,566 
Accrued interest   379,145    374,820 
Deferred revenue   -    27,500 
Net cash provided by (used in) continuing operating activities   135,415    (110,848)
Net cash used in discontinued operations   -    (4,292)
Net cash provided by (used in) operating activities   135,415    (115,140)
           
Cash flows from financing activities          
Proceeds from bank overdraft   (1,611)   - 
Proceeds from convertible loans payable   15,000    50,000 
Proceeds from related-party loans   10,700    74,477 
Repayments of related-party loans   (270,150)   (18,270)
Proceeds from loans payable   156,000    15,400 
Repayments of loans payable   (36,000)   (5,000)
Cash (used in) provided by financing activities   (126,061)   116,607 
Cash (used in) provided by discontinued financing activities   -    - 
Net cash (used in) provided by financing activities   (126,061)   116,607 
           
Net change in cash   9,354    1,467 
Cash, beginning of period   -    214 
Cash, end of period  $9,354   $1,681 
           
Supplemental disclosure of cash flow information          
Cash paid for interest  $-   $- 
Cash paid for income taxes  $-   $- 
           
Supplemental disclosure of noncash investing activities          
Initial measurement of derivative liability  $5,753   $811,020 

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

6

 

 

CIRTRAN CORPORATION

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2020

 

NOTE 1—BASIS OF PRESENTATION

 

The consolidated financial statements of CirTran Corporation for the three- and nine-month periods ended September 30, 2020 and 2019, are not audited. Our consolidated financial statements are prepared in accordance with the requirements for unaudited interim periods and, consequently, do not include all disclosures required to be made in conformity with accounting principles generally accepted in the United States of America. In the opinion of our management, the accompanying consolidated financial statements contain all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of our financial position as of September 30, 2020, and December 31, 2019, and our results of operations and cash flows for the periods ended September 30, 2020 and 2019. The results of operations for the three and nine months ended September 30, 2020 and 2019, are not necessarily indicative of the results for a full-year period. These interim consolidated financial statements should be read in conjunction with the financial statements included in our annual report on Form 10-K for the year ended December 31, 2019.

 

NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Principles of Consolidation

 

We consolidate all of our majority-owned subsidiaries, companies over which we exercise control through majority voting rights, and companies in which we have a variable interest and we are the primary beneficiary. We account for our investments in common stock of other companies that we do not control, but over which we can exert significant influence, using the cost method.

 

The consolidated financial statements as of and for the periods ended September 30, 2020, include the accounts of CirTran Corporation and our wholly owned subsidiaries: CirTran Products Corp., LBC Products, Inc., and CirTran - Asia, Inc. All intercompany balances and transactions have been eliminated.

 

The consolidated financial statements as of and for the periods ended September 30, 2019, include the accounts of CirTran Corporation and our wholly owned subsidiaries: CirTran Products Corp., CirTran Corporation (Utah), CirTran Beverage Corp., CirTran Online Corp., CirTran Media Corp., Racore Network, and CirTran - Asia, Inc. All intercompany balances and transactions have been eliminated.

 

Use of Estimates

 

In preparing the 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.

 

Revenue Recognition

 

We follow Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers, for revenue recognition. Adoption of ASC 606 did not have a significant impact on our financial statements. We generate revenue by providing product design services and through the sales of tangible product. We recognize revenue upon transfer of control of promised products or services to customers in an amount that reflects the consideration expected to be received in exchange for those products or services. We determine the transaction price associated with each deliverable based on the unique contract with the customer, typically a purchase order received that we have accepted the terms of. Revenue is recognized net of allowances for returns and any taxes collected from customers, which are subsequently remitted to governmental authorities.

 

During the three and nine months ended September 30, 2020, we recognized revenues of $15,000 and $515,000, respectively, related to the performance obligations under product development service agreements with customers. These contracts are long term in nature and revenue is recognized at certain milestone intervals upon our delivery and customer acceptances of work product related to those milestones, namely product design, packaging, branding display, and prototypes. There were no costs to obtain the contracts identified and, as such, no asset has been recorded for customer acquisition costs. Additionally, we have not recognized impairment losses related to the receivables from these contracts during the three and nine months ended September 30, 2020.

 

7

 

 

Additionally, we recognized revenues of $390,005 and $420,319 during the three and nine months ended September 30, 2020, respectively, related to the delivery of product to our customers. Each delivery is based on a unique customer purchase order which is considered to be a stand-alone contract that we retain the right to accept or reject. Upon acceptance, we oblige delivery of such product to the customer at an agreed-upon place, time, and price. We recognize revenue under the unique purchase order contract upon fulfillment of our performance obligations therein, typically limited to the delivery of product.

 

Cash and Cash Equivalents

 

We consider all highly liquid, short-term investments with an original maturity of three months or less to be cash equivalents. We did not hold any cash equivalents as of September 30, 2020, or December 31, 2019.

 

Leases

 

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which superseded guidance in ASC 840, Leases, which we adopted for the year ended December 31, 2019, under the modified retrospective transition approach by applying the new standard to all leases existing at the date of initial application. We account for short term leases, those lasting fewer than 12 months, using the practical expedient as outlined in the guidance, which does not include recording such leases on the balance sheet.

 

Investment in Securities

 

Our cost-method investment consists of an investment in a private digital multi-media technology company that totaled $300,000 at September 30, 2020, and December 31, 2019. As we owned less than 20% of that company’s stock as of each date, and no significant influence or control exists, the investment is accounted for using the cost method. We evaluated the investment for impairment and determined there was none during the periods presented.

 

Property and Equipment

 

We incur certain costs associated with the design and development of molds and dies for our contract-manufacturing segment. These costs are held as deposits on the balance sheet until the molds or dies are finished and ready for use. At that point, the costs are included as part of production equipment in property and equipment and are amortized over their useful lives. We hold title to all molds and dies used in the manufacture of products. The capitalized cost, net of accumulated depreciation, associated with molds and dies included in property and equipment at September 30, 2020, and December 31, 2019, was $0 and $9,772, respectively. All property and equipment that was in service during the year ended December 31, 2019, was disposed of during the current period.

 

Depreciation expense is recognized in amounts equal to the cost of depreciable assets over 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 that 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 operating results.

 

Impairment of Long-Lived Assets

 

We review our long-lived assets, including intangibles, for impairment when events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. At each balance sheet date, we evaluate whether events and circumstances have occurred that indicate possible impairment. We use an estimate of future undiscounted net cash flows from the related asset or group of assets over their remaining life in measuring whether the assets are recoverable. We did not record expenses for the impairment of long-lived assets during the periods ended September 30, 2020 or 2019.

 

8

 

 

Financial Instruments with Derivative Features

 

We do not hold or issue derivative instruments for trading purposes. However, we have financial instruments that are considered derivatives or contain embedded features subject to derivative accounting. Embedded derivatives are valued separately from the host instrument and are recognized as derivative liabilities in our balance sheet. We measure these instruments at their estimated fair value and recognize changes in their estimated fair value in results of operations during the period of change. We have estimated the fair value of these embedded derivatives using a Monte Carlo simulation. The fair values of the derivative instruments are measured each reporting period.

 

Inventories

 

Inventories are stated at the lower of average cost or net realizable value. Cost on manufactured inventories includes labor, material, and overhead. Overhead cost is based on indirect costs allocated to cost of sales, work-in-process inventory, and finished goods inventory. Indirect overhead costs have been charged to cost of sales or capitalized as inventory, based on management’s estimate of the benefit of indirect manufacturing costs to the manufacturing process. Inventories consist of finished goods as we do not carry raw materials for manufacturing products.

 

When there is evidence that the inventory’s value is less than original cost, the inventory is reduced to market value. We determine market value on current resale amounts and whether technological obsolescence exists. We will seek agreements with manufacturing customers that require them to purchase their inventory items in the event they cancel their business with us.

 

From time to time, we will place deposits on inventory to be delivered in the future. These deposits are carried as a separate balance sheet component and totaled $44,559 (non-related-party) and $318,624 (related-party) as of September 30, 2020. There were no deposits on inventory as of December 31, 2019.

 

Inventory balances consisted of the following:

 

   September 30, 2020   December 31, 2019 
Finished goods  $123,661    18,814 
Raw materials   91,968    - 
Total  $215,629   $18,814 

 

Stock-Based Compensation

 

We have outstanding stock options to directors and employees, which are described more fully in Note 12 – Stock Options and Warrants. We account for our stock options in accordance with ASC 718-10, Accounting for Stock Issued to Employees, and ASU 2018-07, Improvements to Nonemployee Share-Based Payment Accounting, as updated, which requires the recognition of the cost of employee services received in exchanged for an award of equity instruments in the financial statements and is measured based on the grant date fair value of the award. ASC 718-10 also requires the stock option compensation expense to be recognized over the period during which an employee is required to provide service in exchange for the award (typically the vesting period). There was no impact to our methodology for accounting for equity based compensation as a result of adopting ASC 718-10 and ASU 2018-07.

 

Stock-based employee compensation was $56 and $600 for the nine months ended September 30, 2020 and 2019, respectively.

 

Fair Value of Financial Instruments

 

The carrying amounts reported in the accompanying consolidated financial statements for cash, notes payable, and accounts payable approximate fair value because of the immediate or short-term maturities of these financial instruments.

 

ASC 820-10-15, Fair Value Measurement-Overall-Scope and Scope Exceptions, defines fair value, thereby eliminating inconsistencies in guidance found in various prior accounting pronouncements, and increases disclosures surrounding fair value calculations. ASC 820-10-15 establishes a three-tiered fair value hierarchy that prioritizes inputs to valuation techniques used in fair value calculations. The three levels of inputs are defined as follows:

 

9

 

 

  Level 1—Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.

 

  Level 2—Level 2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability, such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.

 

  Level 3—Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.

 

Accounts payable and related-party payables have fair values that approximate the carrying value due to the short-term nature of these instruments. Derivative liabilities are measured using level 3 inputs.

 

   Total Fair Value
at September 30, 2020		   Quoted
prices in
active markets
(Level 1)		   Significant
other
observable
inputs (Level 2)		   Significant
unobservable
inputs (Level 3)		 
Derivative liabilities  $1,218,396   $           -   $          -   $1,218,396 

 

   Total Fair Value at December 31, 2019   Quoted prices in active markets (Level 1)   Significant other observable inputs (Level 2)   Significant unobservable inputs (Level 3) 
Derivative liabilities  $894,079   $              -   $               -   $894,079 

 

Loss per Share

 

Basic loss per share (EPS) is calculated by dividing net loss available to common shareholders by the weighted-average number of common shares outstanding during each period. Diluted EPS is similarly calculated, except that the weighted-average number of common shares outstanding would include common shares that may be issued subject to existing rights with dilutive potential when applicable. There were 160,186,365 potentially issuable shares from the conversions of convertible debentures outstanding that were excluded in dilutive outstanding shares for the three and nine months ended September 30, 2020, due to the anti-dilutive effect these would have on net loss per share. There were 133,107,973 such shares issuable as of September 30, 2019. We do not currently have adequate authorized but unissued shares to satisfy our obligations should all instruments eligible to convert to common stock be exercised. We are not currently contemplating an increase in our authorized shares but may do so in the future.

 

Short-term Advances

 

We have short-term advances with various individuals. These advances are due upon demand, carry no interest, and are not collateralized. These advances are classified as short-term liabilities.

 

Recently Issued Accounting Pronouncements

 

In August 2020, the FASB issued ASU 2020-06 “Debt with Conversion and Other Options,” which will be effective for fiscal years beginning after December 15, 2021. We are evaluating the impacts this new pronouncement will have on our financial statements.

 

NOTE 3—GOING CONCERN AND REALIZATION OF ASSETS

 

In October 2016, we lost our ability to continue energy drink distribution, our principal source of revenue, after receiving an unfavorable ruling in our suit against Playboy Enterprises, Inc.

 

10

 

 

The accompanying unaudited consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate our continuation as a going concern. We had a working capital deficiency of $38,433,552 and $37,994,597 as of September 30, 2020, and December 31, 2019, respectively, and a net loss from continuing operations of $660,896 and $709,453 during the nine months ended September 30, 2020 and 2019, respectively. As of September 30, 2020, and December 31, 2019, we had an accumulated deficit of $79,237,906 and $78,461,806, respectively. These conditions raise substantial doubt about our ability to continue as a going concern.

 

Our ability to continue as a going concern is dependent upon our ability to successfully accomplish our business plan described in the following paragraphs and eventually attain profitable operations. The accompanying financial statements do not include any adjustments that may be necessary if we are unable to continue as a going concern.

 

In the coming year, our foreseeable cash requirements will relate to development of business operations and associated expenses. We may experience a cash shortfall and be required to raise additional capital.

 

Historically, we have mostly relied upon shareholder loans and advances to finance operations and growth. Management may raise additional capital by retaining net earnings, if any, or through future public or private offerings of our stock or loans from private investors, although we cannot assure that we will be able to obtain such financing. Our failure to do so could have a material and adverse effect upon us and our shareholders.

 

NOTE 4—PROPERTY AND EQUIPMENT

 

Property and equipment and estimated service lives consist of the following:

 

   September 30, 2020   December 31, 2019   Useful Life (years)
Furniture and office equipment  $-   $177,900   5-10
Leasehold improvements                  -    997,714   7-10
Production equipment   -    2,886,267   5-10
Vehicles   -    53,209   3-7
Total   -    4,115,090    
Less: accumulated depreciation   -    (4,105,318)   
Property and equipment, net  $-   $9,772    

 

During the nine months ended September 30, 2020, we disposed of all of our remaining assets as part of our adoption of our new agreement to develop and distribute certain products. There was no consideration received upon disposal resulting in a net loss equal to the net book value of $9,771 during the nine months ended September 30, 2020. We recorded $0 and $573 of depreciation expense during the three months ended September 30, 2020 and 2019, respectively. We recorded $0 and $1,719 of depreciation expense during the nine months ended September 30, 2020 and 2019, respectively.

 

NOTE 5—RELATED-PARTY TRANSACTIONS

 

Transactions Involving Officers, Directors, and Stockholders

 

In 2007, we issued a 10% promissory note to a family member of our president in exchange for $300,000. The note was due on demand after May 2008. There were no repayments made during the periods presented. At September 30, 2020, and December 31, 2019, the principal amount owing on the note was $151,833 and $151,833, respectively.

 

On March 31, 2008, we issued to this same family member, along with two other company shareholders, promissory notes totaling $315,000 ($105,000 each). Under the terms of these three $105,000 notes, we received total proceeds of $300,000 and agreed to repay the amount received plus a 5% borrowing fee. The notes were due April 30, 2008, after which they were due on demand, with interest accruing at 12% per annum. We made no payments towards the outstanding notes during the periods presented. The principal balance owing on the notes as of September 30, 2020, and December 31, 2019, totaled $72,466 and $72,466, respectively.

 

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During the nine months ended September 30, 2020, we made repayments to related parties of $270,150 and advances of $10,700 were received from related parties. Additionally, related parties paid expenses totaling $1,940 directly to vendors on our behalf. There were $484,235 and $738,655 of short-term advances due to related parties as of September 30, 2020, and December 31, 2019, respectively. The advances are due on demand and as such included in current liabilities.

 

We have agreed to issue stock options to Iehab Hawatmeh, our president, as compensation for services provided as our chief executive officer. The terms of this employment agreement require us to grant options to purchase 6,000 shares of our stock each year, with an exercise price equal to the fair market price of our common stock as of the grant date. During the nine months ended September 30, 2020, we granted options to purchase 6,000 shares of common stock relating to this employee agreement. There were also options to purchase 6,000 shares of common stock that expired during the nine months ended September 30, 2020. There was 30,000 and 30,000 outstanding stock options held by Iehab Hawatmeh as of September 30, 2020, and December 31, 2019, respectively. See Note 6 – Other Accrued Liabilities and Note 12 – Stock Options and Warrants.

 

As of September 30, 2020, and December 31, 2019, we owed our president a total of $900,339 and $903,740 in unsecured advances. The advances and short-term bridge loans were approved by our board of directors under a 5% borrowing fee. The borrowing fees were waived by our president on these loans. These amounts are included in our liabilities from discontinued operations.

 

As of September 30, 2020 and December 31, 2019, we owed a total of $13,740 to a related party through trade payables incurred in the normal course of business. These amounts are shown as a separate related-party payable on the balance sheet as of each reporting date.

 

During the nine months ended September 30, 2020, we made deposits with a related-party inventory supplier totaling $318,624. The related party is an entity controlled by our CEO. All transactions were at a 2% markup over the related-party’s cost paid for inventory in arm’s-length transactions. Total inventory purchases from the related party were $240,803 during the nine months ended September 30, 2020.

 

NOTE 6—OTHER ACCRUED LIABILITIES

 

Accrued tax liabilities consist of delinquent payroll taxes, interest, and penalties owed by us to the Internal Revenue Service (“IRS”) and other tax entities.

 

Accrued liabilities consist of the following:

 

   September 30, 2020   December 31, 2019 
         
Tax liabilities  $800,970   $806,331 
Other   569,068    271,668 
Total  $1,370,038   $1,077,999 

 

Other accrued liabilities as of September 30, 2020, and December 31, 2019, include a non-interest-bearing payable totaling $45,000 that is due on demand.

 

Accrued payroll and compensation liabilities consist of the following:

 

   September 30, 2020   December 31, 2019 
         
Stock option expenses  $-   $4,000 
Director fees   140,000    135,000 
Bonus expenses   129,358    121,858 
Commissions   2,148    2,148 
Administrative payroll   3,771,583    3,494,630 
Total  $4,043,089   $3,757,636 

 

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Stock option expenses consist of employee stock option expenses. During the nine months ended September 30, 2020, we resumed accruing wages for our CEO, which are included in administrative payroll. A total of $258,750 was accrued during the nine months ended September 30, 2020 of which $172,500 are included in cost of sales as a direct labor cost of fulfilling performance obligations related to our revenue recognized and $86,250 are included in operating expenses. The allocation of wages to cost of sales and operating expenses is based on the percentage of time spent by our CEO to directly deliver on certain performance obligations under our contracts with our customers. Our CEP spent 100% of his time as such during the six months ended June 30, 2020 with 0% of his time spent as such during the three months ended September 30, 2020.

 

NOTE 7—COMMITMENTS AND CONTINGENCIES

 

Litigation and Claims

 

Various vendors, service providers, and others have asserted legal claims in previous years. These creditors generally are not actively seeking collection of amounts due them, and we have determined that the probability of realizing any loss on these claims is remote and will seek to compromise and settle at a deep discount any of such claims that are asserted for collection. These amounts are included in our current liabilities. We have not accrued any liability for claims or judgments that we have determined to be barred by the applicable statute of limitations, which generally is eight years for judgments in Utah.

 

Playboy Enterprises, Inc.

 

Our affiliate, Play Beverages, LLC, filed suit against Playboy Enterprises, Inc., in Cook County, Illinois, Circuit Court in October 2012 asserting numerous claims, including breach of contract and tortious interference. Playboy responded with a counterclaim of breach of contract and trademark infringement. After proceedings in October 2016, the court awarded a judgment to Playboy of $6.6 million against Play Beverages and CirTran Beverage Corp., our subsidiary. The court denied our motion for a new trial and awarded Playboy treble patent infringement damages and attorney’s fees. We filed a notice of appeal in July 2017 and again in March 2018. Playboy has initiated collection efforts but has recovered no funds. In September 2018, the appellate court affirmed the judgment of the circuit court. We have accrued $17,205,599 as of September 30, 2020, and December 31, 2019, related to this judgment, which is included in liabilities in discontinued operations.

 

Delinquent Payroll Taxes, Interest, and Penalties

 

In November 2004, the IRS accepted our amended offer in compromise (the “Offer”) to settle delinquent payroll taxes, interest, and penalties, which requires us to pay $500,000, remain current in our payment of taxes for five years, and forego claiming any net operating losses for the years 2001 through 2015 or until we pay taxes on future profits in an amount equal to the taxes of $1,455,767 waived by the Offer. In June 2013, we entered into a partial installment agreement to pay $768,526 in unpaid 2009 payroll taxes, which requires us to pay the IRS 5% of cash deposits. The monthly payments are to continue until the account balances are paid in full or until the collection statute of limitation expires on October 6, 2020. There was $1,048,756 and $1,048,756 due as of September 30, 2020, and December 31, 2019, respectively.

 

Employment Agreements

 

We engage Iehab Hawatmeh, our president and chief executive officer, through an employment agreement entered in August 2009 and amended in September 2017. In July 2017, Mr. Hawatmeh had resigned all positions with us to pursue other business activities, thereby effectively terminating the agreement. However, the amendment to his employment agreement in September 2017 reinstated Mr. Hawatmeh to his previous positions, with a salary in an amount to be determined. Among other things, the reinstated employment agreement: (a) grants options to purchase a minimum of 6,000 shares of our stock each year, with an exercise price equal to the market price of our common stock as of the grant date, for the maximum term allowed under our stock option plan; (b) provides for health insurance coverage, cell phone, car allowance, life insurance, and director and officer liability insurance, as well as any other bonus approved by our board; and (c) includes additional incentive compensation as follows: (i) a quarterly bonus equal to 5% of our earnings before interest, taxes, depreciation and amortization for the applicable quarter; (ii) bonuses equal to 1% of the net purchase price of any acquisitions we complete that are directly generated and arranged by Mr. Hawatmeh; and (iii) an annual bonus (payable quarterly) equal to 1% of our gross sales of all products, net of returns and allowances. On January 1, 2020, we resumed accruing wages for our CEO. A total of $258,750 was accrued during the nine months ended September 30, 2020.

 

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We also have an oral agreement with our other director that requires us to issue options to purchase 2,000 shares of our common stock each year.

 

During the nine months ended September 30, 2020 and 2019, we granted options to purchase 8,000 and 6,000 shares of common stock to Mr. Hawatmeh and Ms. Hollinger, respectively. We recorded expenses totaling $56 and $600 during the nine months ended September 30, 2020 and 2019, respectively, for these options.

 

We have no other agreements requiring the grant of options.

 

NOTE 8—NOTES PAYABLE

 

Notes payable consisted of the following:

 

   September 30, 2020   December 31, 2019 
         
Note payable to former service provider for past due account payable (current)  $90,000   $90,000 
Note payable for settlement of debt (long term)   500,000    500,000 
Small Business Administration loan   156,000    - 
Total  $746,000   $590,000 

 

There was $193,192 and $157,535 of accrued interest due on these note as of September 30, 2020, and December 31, 2019, respectively.

 

NOTE 9—CONVERTIBLE DEBENTURES

 

Convertible debentures consisted of the following:

 

   September 30, 2020   December 31, 2019 
         
Convertible debenture, 5% stated interest rate, secured by all of our assets, due on May 30, 2021  $200,000   $200,000 
Convertible debenture, 5% stated interest rate, secured by all of our assets, due on November 30, 2020   25,000    25,000 
Convertible debenture, 5% stated interest rate, secured by all of our assets, due on February 8, 2021   25,000    25,000 
Convertible debenture, 5% stated interest rate, secured by all of our assets, due on December 23, 2020   25,000    10,000 
Convertible debenture, 5% stated interest rate, secured by all of our assets, due on April 30, 2027   2,390,528    2,390,528 
Subtotal  $2,665,528   $2,650,528 
Less: discounts   (640,885)   (722,886)
Total  $2,024,643   $1,927,642 
Less: current portion   (264,284)   (248,874)
Long term portion  $1,760,359   $1,678,768 

 

The convertible debentures and accrued interest are convertible into shares of our common stock at the lower of $100 or the lowest bid price for the 20 trading days prior to conversion.

 

As of September 30, 2020, and December 31, 2019, we had accrued interest on the convertible debentures totaling $1,499,317 and $1,399,295, respectively, of which $38,494 and $28,199 was current and $1,460,824 and $1,371,098 was long term, respectively. As of September 30, 2020, and December 31, 2019, the debentures, including accrued but unpaid interest, were convertible into 160,186,365 and 568,989,796 shares of our common stock.

 

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NOTE 10—DERIVATIVE LIABILITIES

 

As discussed in Note 9 - Convertible Debentures, we have entered into five separate agreements to borrow a total of $2,665,528 with the outstanding principal and interest being convertible at the holder’s option into common stock of the company at the lesser of $100 (notes one through four) or $0.10 (note five) or the lowest closing bid price in the prior 20 trading days. Embedded derivatives are valued separately from the host instrument and are recognized as derivative liabilities in our balance sheet. We measure these instruments at their estimated fair value and recognize changes in their estimated fair value in results of operations during the period of change. We have estimated the fair value of these embedded derivatives for convertible debentures and associated warrants using a Monte Carlo simulation as of September 30, 2020, using the following assumptions:

 

Volatility   95.2% - 135.2%
Risk-free rates   0.06% - 0.44%
Stock price  $0.0345 
Remaining life   0.25- 6.58 years 

 

The fair values of the derivative instruments are measured each quarter, which resulted in a gain of $39,700 and loss of $318,564 during the three and nine months ended September 30, 2020. As of September 30, 2020, and December 31, 2019, the fair market value of the derivatives aggregated $1,218,396 and $894,079, respectively.

 

NOTE 11—STOCKHOLDERS’ DEFICIT

 

We are authorized to issue up to 100,000,000 shares of $0.001 par value common stock. No shares were issued during the periods presented. We had a total of 4,500,417 common shares issued and outstanding as of September 30, 2020, and December 31, 2019. During the year ended December 31, 2019, we effected a 1:1000 reverse stock split of our outstanding stock. The impacts of the reverse stock split have been retroactively stated which resulted in a reclassification between common stock and additional paid in capital of $4,494,392 at September 30, 2019.

 

NOTE 12—STOCK OPTIONS AND WARRANTS

 

Stock Incentive Plans

 

During the nine months ended September 30, 2020 and 2019, we granted to employees 8,000 and 6,000 options, respectively, to purchase shares of common stock.

 

The 8,000 options granted during the nine months ended September 30, 2020, were valued using the following assumptions: estimated five-year term, estimated volatility of 91%, and a risk-free rate of 1.61%.

 

During the nine months ended September 30, 2019, we granted 6,000 stock options relating to the employment agreement with Mr. Hawatmeh. The fair market value of the options was $600, using the following assumptions: estimated seven-year term, estimated volatility of 567%, and a risk-free rate of 2.38%.

 

As of September 30, 2020, and December 31, 2019, we had no unrecognized compensation related to outstanding options that have not yet vested at year-end that would be recognized in subsequent periods. See Note 6 – Other Accrued Liabilities for a description of amounts of option expenses included in accrued payroll and compensation expense.

 

During the nine months ended September 30, 2020, we issued a total of 8,000 options to purchase common stock, and a total of 8,000 options expired unexercised. As of September 30, 2020, there were 40,000 options issued and vested with a weighted average exercise price of $0.01 and a weighted average remaining life of 2.66 years.

 

NOTE 13—DISCONTINUED OPERATIONS

 

At October 21, 2016, we exited the beverage licensing and distribution business. The assets and liabilities associated with this business are displayed as assets and liabilities from discontinued operations as of September 30, 2020, and December 31, 2019, as a result. Additionally, the revenues and costs associated with this business are displayed as losses from discontinued operations for the nine months ended September 30, 2020 and 2019.

 

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Total assets and liabilities included in discontinued operations were as follows:

 

   September 30, 2020   December 31, 2019 
         
Assets from Discontinued Operations:          
Cash  $-    - 
Total assets from discontinued operations  $-   $- 
           
Liabilities from Discontinued Operations:          
Accounts payable  $19,690,380   $19,690,378 
Accrued liabilities   704,917    704,917 
Accrued interest   1,137,544    1,022,342 
Accrued payroll and compensation expense   131,108    131,108 
Current maturities of long-term debt   239,085    444,085 
Related-party payable   1,776,250    1,776,250 
Short-term advances payable   2,784,773    2,579,773 
Total liabilities from discontinued operations  $26,464,057   $26,348,853 

 

Net loss from discontinued operations for the nine months ended September 30, 2020 and 2019, were comprised of the following components:

 

   Nine months ended September 30, 
   2020   2019 
         
Net sales  $-   $- 
Cost of sales   -    - 
Gross profit   -    - 
           
Operating expenses          
Selling, general and administrative expenses   -    - 
Total operating expenses   -    - 
           
Other income (expense)          
Other income   -    9,782 
Interest expense   (115,204)   (114,784)
Total other expense   (115,204)   (105,002)
           
Net income (loss) from discontinued operations  $(115,204)  $(105,002)

 

NOTE 14—SUBSEQUENT EVENTS

 

We have evaluated all events occurring subsequent to the financial statements and determined there are no additional items to disclose.

 

On March 11, 2020, the World Health Organization characterized COVID-19 as a global pandemic. This situation is ongoing, and we are monitoring it closely. Although our response to the COVID-19 pandemic continues to evolve, we have taken measures to mitigate the impact on our business operations and overall financial performance. We are also constantly evaluating and responding to the impact of the pandemic on our supply chain as compared to product demand. In addition, we actively monitor COVID-19-related developments and may take further actions that alter our business operations as may be required by federal, state, or local authorities or that we determine are in the best interests of our employees, customers, vendors, and stockholders. The effects of these operational modifications will be reflected in current and future reporting periods.

 

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion should be read in conjunction with our condensed consolidated financial statements and notes to our financial statements included elsewhere in this report. This discussion contains forward-looking statements that involve risks and uncertainties. Actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors discussed elsewhere in this report.

 

Overview

 

Based on our diversified expertise in manufacturing, marketing, distribution, and technology services in a wide variety of consumer products, including tobacco products, medical devices, and beverages, around the world, we have an innovative and consumer-focused approach to brand portfolio management, resting on a strong understanding of consumers domestically, and we have established a footprint in more than 50 key, international markets.

 

We devoted most of 2019 to exploring new product opportunities in a number of products. In late 2019, through our new, wholly owned subsidiary, LBC Products, Inc., we entered into a new, five-year Exclusive Manufacturing and Distribution Agreement with GloBrands, LLC, to manufacture, distribute, and sell condoms, electronic tobacco products, cigars, energy drinks, water beverages, and related merchandise, all using the HUSTLER® brand name. These efforts continue. In early 2020, we completed phase one of our development of all HUSTLER®-branded products, which enabled us to generate revenue of $405,005 and $935,319 during the three and nine months ended September 30, 2020, respectively. We expect to receive additional payments in 2020.

 

All share and per-share amounts have been adjusted to give retroactive effect to a 1000-to-one reverse split of our common stock effective September 2019.

 

Results of Operations for the Three and Nine Months Ended September 30, 2020, Compared to the Three and Nine Months Ended September 30, 2019

 

Revenue and Cost of Revenue

 

During the three and nine months ended September 30, 2020, we generated revenue of $405,005 and $935,319 and cost of revenue of $228,380 and $425,699, respectively. All revenue generated during the periods ended September 30, 2020, was the result of activities related to our agreement to develop and distribute certain HUSTLER® branded product. We did not generate revenue or cost of revenue during the three or nine months ended September 30, 2019.

 

Operating Expenses

 

During the three months ended September 30, 2020 and 2019, selling, general, and administrative expenses were $255,684 and $83,922, respectively, representing an increase of $171,762, or 205%, in the current period. During the nine months ended September 30, 2020 and 2019, selling, general, and administrative expenses were $417,228 and $265,047, respectively, representing an increase of $152,181, or 57%, in the current period. The increase in selling, general, and administrative expenses during the periods ended September 30, 2020, is the result of our increased business activities associated with supporting our revenue growth during 2020.

 

Other Income and Expense

 

Other income and expenses during the three months ended September 30, 2020, consisted of $154,318 in interest expense and gains on the fair value measurement of derivative liabilities of $39,700. Other expenses during the three months ended September 30, 2019, included $187,546 for interest expense, a loss of the fair value of derivative liabilities of $7,431, and other income of $204.

 

Other income and expenses during the nine months ended September 30, 2020, consisted of $466,953 in interest expense, losses on the fair value measurement of derivative liabilities of $318,564, losses on the disposal of equipment of $9,771, and other income of $42,000. Other expenses during the nine months ended September 30, 2019, included $437,909 for interest expense, a loss of the fair value of derivative liabilities of $7,431 and other income of $934.

 

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Liquidity and Capital Resources

 

We have had a history of losses from operations, as our expenses have been greater than our revenue. Our accumulated deficit was $79.2 million and $78.5 million at September 30, 2020 and December 31, 2019, respectively. As of September 30, 2020, and December 31, 2019, we had current assets of $644,420 and $20,024, respectively, and current liabilities of $39.1 million and $38.0 million, respectively, creating working capital deficits as of September 30, 2020, and December 31, 2019, of approximately $38.4 million and $38.0 million, respectively.

 

Operating Activities

 

We have only nominal cash or short-term assets, while our current liabilities aggregate $39.1 million as of September 30, 2020. During the nine months ended September 30, 2020, operations generated $135,415 of net cash, comprised of a net loss from continuing operations of $660,896, noncash items totaling $418,085 consisting of losses recognized from the changes in fair values of derivative liabilities and expense paid by related parties on our behalf, and changes in working capital totaling $378,226. During the nine months ended September 30, 2019, operations used $115,140 of net cash, comprised of a net loss from continuing operations of $709,453, noncash items totaling $70,816 consisting of expenses paid by related parties on our behalf, and changes in working capital totaling $523,497.

 

Financing Activities

 

During the nine months ended September 30, 2020, financing activities used $126,061 of cash, compared to generating $116,607 of cash during the nine months ended September 30, 2019. Cash used in financing activities during the nine months ended September 30, 2020, consisted of advances from convertible debentures totaling $15,000, repayments of bank overdrafts of $1,611, repayments on related-party payables of $270,150, advances from related parties of $10,700, advances from loans payable of $156,000, and repayments on loans payable $36,000. Cash provided by financing activities during the nine months ended September 30, 2019, consisted of advances from convertible notes payable of $50,000, advances from related-party loans totaling $74,477, repayments of related-party loans of $18,270, proceeds from loans payable of $15,400 and repayments of loans payable of $5,000.

 

Our Capital Resources and Anticipated Requirements

 

Our monthly operating costs total approximately $25,000 per month, excluding approximately $50,000 of accruing interest expense and capital expenditures. We continue to focus on generating revenue and reducing our monthly business expenses through cost reductions and operational streamlining. We are generating sales revenue under our GloBrands agreement and expect to receive additional payments during the balance of the year. Currently, we do not have enough cash on hand to sustain our business operations, and we expect to access external capital resources in the near future.

 

In conjunction with our efforts to commercialize new products, we are actively seeking infusions of capital from investors. In our current financial condition, it is unlikely that we will be able to obtain additional debt financing. Even if we did acquire additional debt, we would be required to devote additional cash flow to servicing the debt and securing the debt with assets.

 

Accordingly, we are looking to obtain equity financing to meet our anticipated capital needs. We cannot assure that we will be successful in obtaining such capital. If we were to issue additional shares for debt and/or equity, this would dilute the value of our common stock and existing stockholders’ positions. We also have no authorized but unissued capital available, and we are dependent on the Amendment becoming effective in order to obtain any new equity financing.

 

Convertible Debentures

 

We currently have an amended, restated, and consolidated secured convertible debenture with Tekfine, LLC, an unrelated entity, with a maturity date of April 30, 2027, to the extent not previously converted. The amended debenture had a total outstanding principal balance of $2.4 million, with accrued interest of $1.5 million as of September 30, 2020. We also have four additional convertible debentures with Tekfine with a maturity dates February 8, 2021 and May 30, 2021, totaling $275,000, unless earlier converted. The convertible debentures and accrued interest are convertible into shares of our common stock at the lower of $100 or $0.10 (depending on the instrument) or the lowest bid price for the 20 trading days prior to conversion.

 

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Going Concern

 

These interim unaudited financial statements have been prepared on the going concern basis, which assumes that adequate sources of financing will be obtained as required and that our assets will be realized and liabilities settled in the ordinary course of business. Accordingly, the interim unaudited financial statements do not include any adjustments related to the recoverability of assets and classification of assets and liabilities that might be necessary should we not be unable to continue as a going concern.

 

Off-Balance Sheet Arrangements

 

We have no off-balance sheet arrangements.

 

Critical Accounting Policies

 

We have identified the policies outlined below as critical to our business operations and an understanding of our results of operations. Refer to Note 2 – Summary of Significant Accounting Policies for discussion.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

As a smaller reporting company, we are not required to provide the information required by this item.

 

ITEM 4. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

As of September 30, 2020, we carried out an evaluation, under the supervision and with the participation of management, including our chief executive and financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based upon that evaluation, management concluded that our disclosure controls and procedures were not effective as of September 30, 2020, to provide reasonable assurance that the information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the periods prescribed by U.S. Securities and Exchange Commission and that such information is accumulated and communicated to management, including our chief executive and financial officer, as appropriate, to allow timely decisions regarding required disclosure.

 

In designing and evaluating disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute assurance of achieving the desired objectives. Also, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. The design of any system of controls is based, in part, upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

 

Changes in Internal Control over Financial Reporting

 

There has been no change in our internal control over financial reporting during the quarter ended September 30, 2020, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

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PART II—OTHER INFORMATION

 

ITEM 6. EXHIBITS

 

The following exhibits are filed as a part of this report:

 

Exhibit

Number*

   Title of Document   Location
         
Item 31   Rule 13a-14(a)/15d-14(a) Certifications    
31.01   Certification of Principal Executive and Principal Financial Officer Pursuant to Rule 13a-14   This filing.
         
Item 32   Section 1350 Certifications    
32.01   Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002   This filing.

 

* All exhibits are numbered with the number preceding the decimal indicating the applicable SEC reference number in Item 601 and the number following the decimal indicating the sequence of the particular document.

 

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SIGNATURE PAGE

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

  CIRTRAN CORPORATION
   
Dated: November 23, 2020 By: /s/ Iehab Hawatmeh
    Iehab Hawatmeh, President
    Principal Executive and Financial Officer

 

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