CIRTRAN CORP 10-K

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information In September 2019, our common stock resumed quotation on the Pink tier of the OTC Markets Group under the trading symbol “CIRX.” Our common stock did not trade during the previous portion of the preceding two years. These over-the-counter market quotations reflect inter-dealer prices, without retail mark-up, mark-down, or commission, and may not necessarily represent actual transactions. Since our inception, the sporadic trading activity in our common stock and the price fluctuations have been volatile, and we cannot assure that any market for our common stock will be maintained. The following table sets forth the range of low and high closing sale prices for our common stock, as adjusted to give retroactive effect to a 1,000-to-one reverse split effective September 2019, for each of the periods indicated as reported and summarized by the Pink tier of the OTC Markets Group: Low High 2021: First Quarter $ 0.03 $ 0.09 2020: Fourth Quarter 0.02 0.10 Third Quarter 0.03 0.04 Second Quarter 0.02 0.11 First Quarter 0.01 0.13 2019: Fourth Quarter 0.01 0.20 On May 10, 2021, the closing price per share for the most recent sale of our common stock on the Pink tier of the OTC Markets Group was $0.06. We have 498 stockholders of record of our common stock. As of May 12, 2021, we had 4,945,417 shares of our common stock issued and outstanding. Our shares of common stock are subject to the “penny stock” and other rules of the Exchange Act. In general terms, “penny stock” is defined as any equity security that has a market price less than $5.00 per share that is not traded on a national securities exchange or that has an exercise price of less than $5.00 per share, subject to certain exceptions. As a result, our common stock is subject to rules that impose additional sales practice requirements on broker-dealers that sell these securities to persons other than established customers and accredited investors (generally those with assets in excess of $1,000,000 or annual income exceeding $200,000, or $300,000 together with their spouse). Transactions covered by these rules are subject to additional sales practice requirements, including the broker-dealer must make a special suitability determination for the purchase of these securities and have received the purchaser’s written consent to the transaction before the purchase. These rules may restrict the ability of broker-dealers to trade or maintain a market in our common stock, to the extent it is penny stock, and may affect the ability of stockholders to sell their shares. Dividends Holders of shares of common stock are entitled to receive dividends for our common stock when, as, and if declared by the board of directors out of funds legally available therefor. We have not paid any dividends on our common stock and intend to retain earnings, if any, to finance the development and expansion of our business. Future dividend policy is subject to the discretion of the board of directors and will depend upon a number of factors, including future revenues, capital requirements, overall financial condition, and such other factors as our board of directors deems relevant. 17 Equity Compensation Plan The following table provides information respecting our compensation plans (including individual compensation arrangements) under which our equity securities are authorized for issuance. Plan Category Number of Securities To Be Issued upon Exercise of Outstanding Options, Warrants and Rights (a) Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights (b) Number of Securities Remaining Available for Future Issuance under Equity Compensation Plans (excluding securities reflected in column (a))(c) Equity compensation plans approved by security holders 40,000 * $ 0.08 160,000 Equity compensation plans not approved by security holders - - - Total 40,000 * $ 0.08 160,000 Recent Sales of Unregistered Securities During 2020, the holder of our outstanding convertible debenture converted $4,400 in accrued interest into 220,000 shares of our common stock. This conversion resulted in the reduction of the balance due on these debentures but did not generate cash proceeds. The common stock was issued in reliance on the exemption from registration set forth in Section 4(a)(1) of the Securities Act of 1933, as amended. No underwriter participated. ITEM 6. SELECTED FINANCIAL DATA We are not required to provide the information called for by this item. ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION Except for the historical information, the following discussion contains forward-looking statements that are subject to risks and uncertainties. We caution you not to put undue reliance on any forward-looking statements, which speak only as of the date of this report. Our actual results or actions may differ materially from these forward-looking statements for many reasons, including the risks described in “Risk Factors” and elsewhere in this annual report. Our discussion and analysis of our financial condition and results of operations should be read in conjunction with the financial statements and related notes and with the understanding that our actual future results may be materially different from what we currently expect. Introduction 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. In early 2020, we completed phase one of our development of all HUSTLER®-branded products, which enabled us to generate revenue of $1,732,625 during the year ended December 31, 2020. Our 2020 revenue-generating activities capitalized on our efforts during most of 2019 to exploring new product opportunities. In late 2019, we entered into a new, five-year manufacturing and distribution agreement with an unrelated party to manufacture, distribute, and sell condoms, electronic tobacco products, cigars, energy drinks, water beverages, and related merchandise, all using the HUSTLER® brand name. We had no revenue during the year ended December 31, 2019, while we devoted our efforts and financial resources to development of products. 18 Going Concern We have suffered substantial losses. The future of our company is dependent upon our ability to generate revenues sufficient to offset operating costs or recover start-up costs under our GloBrands-HUSTLER® Exclusive Manufacturing and Distribution Agreement signed in December 2019. Management intends to seek additional capital through a private placement or public offering of its common stock, if necessary. Our auditors have expressed a going concern in their opinion, which raises substantial doubts about our ability to continue as a going concern. Results of Operations Comparison of Years Ended December 31, 2020 and 2019 Sales and Cost of Sales We had revenues of $1,732,625 and $0 during the years ended December 31, 2020 and 2019, respectively. Revenues during the year ended December 31, 2020, were derived from the design, manufacture, and delivery of certain licensed products in accordance with our GloBrands-HUSTLER® distribution agreement entered into in late 2019. Operating Expenses During the year ended December 31, 2020, selling, general, and administrative expenses and employee costs were approximately $758,000, as compared to approximately $407,000 for the same period in 2019, an increase of 86%, as a result of increased operations from executing our business plan. Other Income and Expense Other income and expenses during the year ended December 31, 2020, consisted of interest expense of approximately $658,000, a loss of disposal of equipment of approximately $10,000, losses of the fair value of derivative liabilities of approximately $23,000, gains on the write-off of accounts payable of approximately $1.0 million, and other income of $42,000. Other expenses during the year ended December 31, 2019, consisted of approximately $593,000 of interest expense and a loss on derivation valuation of approximately $81,000, offset by other income and a gain on settlement of debt totaling approximately $1,000. As a result of the foregoing, we had income from continuing operations of $0.5 million during the year ended December 31, 2020, as compared to a loss of $1.1 million during the year ended December 31, 2019. Liquidity and Capital Resources We had a history of losses from operations prior to 2020, as our expenses had been greater than our revenues, which had ceased entirely several years earlier. Our accumulated deficit was $77.9 million at December 31, 2020. For the year ended December 31, 2020, we generated approximately $108,000 of cash from operating, investing, and financing activities, compared to using negligible net cash of $200 for the prior year from operating and financing activities. During the year ended December 31, 2020, we generated approximately $464,000 of net cash in operations, comprised of net income from continuing operations of $452,000, noncash expenses of approximately $866,000, changes in working capital of approximately $1,000,000, and net cash used in discontinued operations of approximately $115,000. The net change in working capital was primarily driven by accrued interest of approximately $543,000 and accrued liabilities of approximately $640,000. During the year ended December 31, 2019, we used approximately $123,000 of net cash in operations, comprised of a net loss from continuing operations of $1.1 million, noncash losses of approximately $96,000, changes in working capital of approximately $815,000, and net cash provided by discontinued operations of approximately $44,000. The net change in working capital was primarily driven by accrued interest of approximately $501,000 and accrued liabilities of approximately $274,000. 19 During the year ended December 31, 2020, we used $337,520 of net cash from financing activities mainly comprised of repayments on related-party loans that totaled $467,409 and proceeds from non-related-party loans of $156,000. During the year ended December 31, 2019, financing activities provided approximately $123,000 of net cash, which were mainly proceeds from convertible and related-party loans. Our Capital Resources and Anticipated Requirements Our monthly operating costs are approximately $35,000 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 have only recently begun to generate enough cash to sustain our day-to-day operations, and we expect to access external capital resources in the future to fund any new projects we may undertake. We cannot assure that we will be successful in obtaining such capital. If we seek infusions of capital from investors, it is unlikely that we will be able to obtain additional debt financing. If we did incur additional debt, we would be required to devote additional cash flow to servicing the debt and securing the debt with assets. Our issuance of additional shares for equity or for conversion of debt could dilute the value of our common stock and existing stockholders’ positions. Convertible Debentures and Notes Payable We currently have an outstanding 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 December 31, 2020. We also have four additional convertible debentures with Tekfine with maturity dates ranging from May 30, 2021, until December 8, 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. We have received advances from related parties totaling $11,500 and $84,987 during the years ended December 31, 2020 and 2019, respectively, as well as making repayments on related-party loans of $467,409 and $17,785 during the years ended December 31, 2020 and 2019, respectively. Additionally, related parties paid expenses on our behalf totaling $1,940 and $(77,180) during the years ended December 31, 2020 and 2019, respectively. The advances are non-interest-bearing, due on demand, and are included in current liabilities. Off-Balance Sheet Arrangements We have no off-balance sheet arrangements and do not anticipate entering into any such arrangements in the foreseeable future. 20 Critical Accounting Policies The methods, estimates, and judgments we use in applying our accounting policies have a significant impact on the results we report in our financial statements, which we discuss under the heading “Results of Operations” in this Item 7. Some of our accounting policies require us to make difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. We set forth below those material accounting policies that we believe are the most critical to an investor’s understanding of our financial results and condition and that require complex management judgment. Use of Estimates The preparation of our financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates. Our periodic filings with the Securities and Exchange Commission include, when applicable, disclosures of estimates, assumptions, and uncertainties that could affect the financial statements and our future operations. Fair Value of Financial Instruments The carrying amounts reflected in the balance sheets for cash, accounts payable, and related-party payables approximate the respective fair values due to the short maturities of these items. We do not hold any investments that are available-for-sale. Financial Accounting Standards Board (“FASB”) Accounting Standard Codification (“ASC”) Topic 820, Fair Value Measurements and Disclosures , defines fair value, establishes a framework for measuring fair value under GAAP, and enhances disclosures about fair value measurements. ASC 820 describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value, which are the following: Level 1: Pricing inputs are quoted prices available in active markets for identical assets or liabilities as of the reporting date Level 2: Pricing inputs are quoted for similar assets or inputs that are observable, either directly or indirectly, for substantially the full term through corroboration with observable market data. Level 2 includes assets or liabilities valued at quoted prices adjusted for legal or contractual restrictions specific to these investments. Level 3: Pricing inputs are unobservable for the assets or liabilities; that is, the inputs reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability. We do not currently have any financial instruments that we measure at fair value. Recently Issued Accounting Pronouncements Recently issued accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that require adoption and that do not require adoption until a future date are not expected to have a material impact on our financial statements upon adoption. 21 ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK This item is not applicable as we are currently considered a smaller reporting company.