CIRTRAN CORP 10-K

ITEM 9A. CONTROLS AND PROCEDURES Evaluation of Disclosure Controls and Procedures As of December 31, 2021, we carried out an evaluation, under the supervision and with the participation of management, including our principal executive and principal financial officer (whom we refer to in this periodic report as our Certifying 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 December 31, 2021, 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 Certifying Officer, as appropriate, to allow timely decisions regarding required disclosure. Limitations on Effectiveness of Controls 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. Management’s Report on Internal Control over Financial Reporting Our management is responsible for establishing and maintaining adequate internal controls, as defined in the Exchange Act. These internal controls are designed to provide reasonable assurance that the reported financial information is presented fairly, that disclosures are adequate and that the judgments inherent in the preparation of financial statements are reasonable. There are inherent limitations in the effectiveness of any system of internal controls, including the possibility of human error and overriding of controls. Consequently, an effective internal control system can only provide reasonable, not absolute, assurance with respect to reporting financial information. Our internal control over financial reporting includes policies and procedures that: (i) pertain to maintaining records that in reasonable detail accurately and fairly reflect our transactions; (ii) provide reasonable assurance that transactions are recorded as necessary for preparation of our financial statements in accordance with GAAP and the receipts and expenditures of company assets are made and in accordance with our management and directors authorization; and (iii) provide reasonable assurance regarding the prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have a material effect on our financial statements. Management has undertaken an assessment of the effectiveness of our internal control over financial reporting based on the framework and criteria established in the Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based upon this evaluation, management concluded that our internal control over financial reporting was not effective as of December 31, 2021. Based on that evaluation, management concluded that, during the period covered by this report, such internal controls and procedures were not effective due to the following material weakness identified: ● Lack of appropriate segregation of duties, ● Lack of control procedures that include multiple levels of supervision and review, ● Lack of financial resources to engage adequate external expertise; and ● Overreliance upon independent financial reporting consultants for review of critical accounting areas and disclosures and material, nonstandard transactions. 19 This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to rules of the SEC that permit us to provide only the management’s report in this annual report. Implemented or Planned Remedial Actions in Response to the Material Weaknesses We will continue to strive to correct the above noted weakness in internal control once we have adequate funds to do so. We believe appointing a director who qualifies as a financial expert will improve the overall performance of our control over our financial reporting. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Changes in Internal Control over Financial Reporting There were no changes in our internal control over financial reporting that occurred during the year ended December 31, 2021, that materially affect, or are reasonably likely to materially affect, our internal control over financial reporting. ITEM 9B. OTHER INFORMATION None. ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS None. PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE Directors and Executive Officers The names of our director and executive officers as of December 31, 2021, and their ages, positions, and biographies are set forth below. Our executive officers are appointed by, and serve at the discretion of, our board of directors. Name Age Title Tenure Iehab Hawatmeh 55 President, Chief Executive Officer, July 2000 to date Chief Financial Officer, Chairman Kathryn Hollinger 71 Director, Controller August 2011 to date 20 Iehab J. Hawatmeh Iehab J. Hawatmeh founded our predecessor company in 1993 and has been our chairman, president, and chief executive officer since July 2000, except for a brief absence during 2017. Mr. Hawatmeh oversees all daily operations, including our technical and sales functions. Mr. Hawatmeh is currently functioning in a dual role as chief financial officer. Before his involvement with our company, Mr. Hawatmeh was the Processing Engineering Manager for Tandy Corporation, Salt Lake City, Utah, overseeing that company’s contract manufacturing printed circuit board assembly division. In addition, he was responsible for developing and implementing Tandy’s facility Quality Control and Processing Plan model. Mr. Hawatmeh earned an MBA from University of Phoenix and a BS in Electrical and Computer Engineering from Brigham Young University. Kathryn Hollinger Kathryn Hollinger has been with CirTran since 2000 as our controller, except for a brief period during 2017 in which she also acted as chief executive officer. She has been involved with the day-to-day accounting and finance functions throughout her term with us. Ms. Hollinger studied mathematics and accounting at Northridge University (now Cal. State University Northridge) in California. Election of Directors and Officers Directors are elected to serve until the next annual meeting of stockholders and until their successors have been elected and qualified. Officers are appointed to serve until the meeting of the board of directors following the next annual meeting of stockholders and until their successors have been elected and qualified. Committees of the Board We currently do not have nominating, compensation, or audit committees or committees performing similar functions and we do not have a written nominating, compensation, or audit committee charter. Our board of directors believes that it is not necessary to have these committees, at this time, because the directors can adequately perform the functions of such committees. Family Relationships There are no family relationships among any of our officers or directors. Section 16(a) Beneficial Ownership Reporting Compliance Section 16(a) of the Exchange Act requires our directors, executive officers, and persons that own more than 10% of a registered class of our equity securities to file with the U.S. Securities and Exchange Commission initial reports of ownership and reports of changes in ownership of our equity securities. Officers, directors, and greater than 10% stockholders are required to furnish us with copies of all Section 16(a) forms they file. Based solely upon a review of Forms 3, 4, and 5 and amendments thereto filed with the U.S. Securities and Exchange Commission for the year ended December 31, 2021, no person that, at any time during the most recent fiscal year, was a director, officer, beneficial owner of more than 10% of any class of our equity securities, or any other person known to be subject to Section 16 of the Exchange Act failed to file, on a timely basis, reports required by Section 16(a) of the Exchange Act, except that two officers failed to report options earned and options that expired during the fiscal year. Code of Ethics We expect that all directors, officers, and employees will maintain a high level of integrity in their dealings with us and on our behalf and will act in our best interests. We have adopted a Code of Business Conduct and Ethics that provides principles of conduct and ethics for our directors, officers, and employees. This Code of Ethics is available on our website at www.cirtran.com under “Investor Relations—Corporate Governance.” 21 ITEM 11. EXECUTIVE COMPENSATION Summary Compensation Table The following table sets forth, for each of our last two completed fiscal years, the dollar value of all cash and noncash compensation earned by any person who was our principal executive officer and each of our three most highly compensated other executive officers or persons who were serving in such capacities during the preceding fiscal year (“Named Executive Officers”): Name and Principal Position Year Ended Dec. 31 Salary ($) Bonus ($) Stock Award(s) ($) Option Awards ($) (1) Non Equity Incentive Plan Compen- sation Change in Pension Value and Non- Qualified Deferred Compen- sation Earnings ($) All Other Compen- sation ($) Total ($) (a) (b) (c) (d) (e) (f) (g) (h) (i) (j) Iehab J. Hawatmeh (1) 2021 345,000 - - 139 (2) - - 15,600 (3) 360,739 President, Chief Executive Officer 2020 345,000 - - 42 (2) - - 17,417 (3) 362,459 Kathryn Hollinger (4) 2021 55,000 10,000 - 46 (2) - - 5,000 (5) 70,046 2020 55,000 10,000 - 14 (2) - - 5,000 (5) 70,014 (1) Mr. Hawatmeh accrued his full salary in 2020 and $296,500 of his salary in 2021, he has not yet received any of his 2020 salary. (2) The amount is the fair value of the option awards on the date of grant in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718. See note 2 to our consolidated financial statements. (3) Includes $12,000 for car allowance for each of 2021 and 2020 and $3,600 and $5,417 for medical insurance premiums for 2021 and 2020. (4) Ms. Hollinger’s compensation listed in this table is for her services as our controller. (5) Fees accrued as director compensation. Employment Agreements—Change in Control We engage Iehab Hawatmeh, our president and chief executive officer, through an employment agreement entered in August 2009 and amended in September 2017, with a salary in an amount and commencement date to be determined. In July 2017, Mr. Hawatmeh resigned all positions with us to pursue other business activities, thereby effectively terminating the agreement. However, in September 2017, we reinstated Mr. Hawatmeh to his previous positions and reinstated his employment agreement. 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; (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. All cash amounts payable to Mr. Hawatmeh more than an aggregate of $120,000 per year are accrued and will not be paid until the secured convertible debenture is paid or converted to common stock. Pursuant to the employment agreement, Mr. Hawatmeh’s employment may be terminated for cause, or upon death or disability, in which event we are required to pay him any unpaid base salary and unpaid earned bonuses. In the event that Mr. Hawatmeh is terminated without cause, we are required to pay to him: (i) within 30 days following such termination, any benefit, incentive, or equity plan, program, or practice paid when such would have been paid to him if employed (the “Accrued Obligations”); (ii) within 30 days following such termination (or on the earliest later date as may be required by Internal Revenue Code Section 409A to the extent applicable), a lump sum equal to 30 months’ annual base salary; (iii) bonuses owing for the two-year period after the date of termination (net of any bonus amounts paid as Accrued Obligations) based on actual results for the applicable quarters and fiscal years; and (iv) within 12 months following such termination (or on the earliest later date as may be required by Internal Revenue Code Section 409A to the extent applicable), a lump sum equal to 30 months’ annual base salary; provided that if Mr. Hawatmeh is terminated without cause in contemplation of, or within one year, after a change in control, then two times his annual base salary and bonus payment amounts. 22 During the year ended December 31, 2021, we were obligated to issue options to purchase 6,000 shares to Mr. Hawatmeh but did not issue the options until after the end of the period. During the years ended December 31, 2021 and 2020, we accrued for 6,000 and 6,000 stock options, respectively, relating to this employment agreement. The fair market value of the options issued during the year ended December 31, 2021 and 2020, was $139 and $42, respectively. Outstanding Equity Awards at Fiscal Year End The following table summarizes information regarding unexercised options, stock that has not vested, and equity incentive plan awards owned by the Named Executive Officers as of December 31, 2021: Option Awards Stock Awards Name Number of Securities Underlying Unexer- cised Options (#) Exer- cisable Number of Securities Underlying Unexercised Options (#) Unexer- cisable (1) Equity Incentive Plan Awards: Number of Securities Underlying Unexer- cised Unearned Options(#) Option Exercise Price($) Option Expiration Date Number of Shares or Units of Stock Held That Have Not Vested(#) Market Value of Shares or Units of Stock That Have Not Vested($) Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested(#) Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested($) Iehab Hawatmeh — 6,000 — 0.10 01/20/22 — — — — Kathryn Hollinger — 2,000 — 0.10 01/20/22 — — — — Iehab Hawatmeh — 6,000 — 0.10 01/20/23 — — — — Kathryn Hollinger — 2,000 — 0.10 01/20/23 — — — — Iehab Hawatmeh — 6,000 — 0.10 04/01/24 — — — — Kathryn Hollinger — 2,000 — 0.10 04/01/24 — — — — Iehab Hawatmeh — 6,000 — 0.01 01/06/25 — — — — Kathryn Hollinger — 2,000 — 0.01 01/06/25 — — — — Iehab Hawatmeh — 6,000 — 0.01 01/06/26 — — — — Kathryn Hollinger — 2,000 — 0.01 01/06/26 — — — — Director Compensation Except for Iehab Hawatmeh, who is also our chief executive officer, we pay our directors $5,000 per year to serve on our board. 23 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS The following table sets forth certain information, as of March 15, 2022, respecting the beneficial ownership of our outstanding common stock by: (i) any holder of more than 5%; (ii) each of the Named Executive Officers (defined as any person who was principal executive officer during the preceding fiscal year and each other highest compensated executive officers earning more than $100,000 during the last fiscal year) and directors; and (iii) our directors and Named Executive Officers as a group, based on 4,945,417 shares of common stock outstanding. Name of Person or Group (1) Nature of Ownership Amount Percent Principal Stockholders: Iehab J. Hawatmeh Common stock 211,554 4.3 Options (2) 30,000 * 241,554 4.7 Directors: Iehab J. Hawatmeh Common stock 211,554 4.3 Options (2) 30,000 * 241,554 4.7 Kathryn Hollinger Common stock 26,003 * Options (3) 10,000 * 36,003 * All Executive Officers and Directors as a Group (2 persons): Common stock 237,557 4.8 Options (2)(3) 40,000 * Total 277,557 5.4 * Less than one percent. (1) Address for all stockholders is 6360 S Pecos Road, Suite 8, Las Vegas, NV 89120. (2) Includes options to purchase shares that have been accrued for services provided during the preceding fiscal years and that have not expired. These options can be exercised any time at exercise prices ranging from $0.10 to $0.01 per share. (3) Includes options to purchase shares that have been accrued for services provided the preceding fiscal years and that have not expired. These options can be exercised any time at exercise prices ranging from $0.10 to $0.01 per share. The persons named in the above table have sole voting and dispositive power respecting all shares beneficially owned, subject to community property laws where applicable. Beneficial ownership is determined according to the rules of the U.S. Securities and Exchange Commission, and generally means that a 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 stockholder has furnished the information respecting beneficial ownership. Beneficial ownership is determined in accordance with the rules of the SEC, which generally attribute beneficial ownership of securities to persons who possess sole or shared voting power and/or investment power with respect to those securities. Unless otherwise indicated, voting and investment power are exercised solely by the person named above or shared with members of such person’s household. This includes any shares such person has the right to acquire within 60 days. Changes in Control There are no arrangements, known to us, including any pledge by any person of our securities, the operation of which may at a subsequent date result in a change in our control. 24 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE Information is set forth below for any transaction during the preceding fiscal year to which we were a party and in which any of our officers and directors or any holder of more than 10% of any class of our stock had or is deemed to have a material interest. Related-Party Transactions 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 December 31, 2021, the principal amount owing on the note was $151,833. No demand for payment has been made. 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). These notes accrue interest at 12% per annum and are due on demand. We made no payments towards the outstanding notes during 2021. The principal balance owing on the notes as of December 31, 2021, of $72,466 is included in liabilities from discontinued operations. During the year ended December 31, 2021, we made repayments to related parties of $188,877 and had other noncash reductions of $82,018. There were $21,882 of short-term advances due to related parties as of December 31, 2021. The advances are due on demand and included in current liabilities. No demand for payment has been made. As of December 31, 2021, we owed our president a total of $433,379 in unsecured advances due on demand. As of December 31, 2021, we owed $13,740 to a related party through trade payables incurred in the normal course of business. During the year ended December 31, 2021, we had a net decrease in deposits with a related-party inventory supplier totaling $232,291. The related party is an entity controlled by our chief executive officer. 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 $1,186,645 during the year ended December 31, 2021. Director Independence Under the definition of independent directors found in Nasdaq Rule 5605(a)(2), which is the definition we have chosen to apply, none of our directors is independent. ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES The firm of Fruci & Associates II, PLLC has served as our independent registered public accounting firm since July 2020. Audit Fees For our fiscal year ended December 31, 2021, we were billed approximately $18,000 for professional services rendered for the audit and reviews of our consolidated financial statements. For our fiscal year ended December 31, 2020, we were billed approximately $28,500 for professional services rendered for the audit and reviews of our consolidated financial statements. Audit Related Fees For our fiscal years ended December 31, 2021 and 2020, we did not incur any audit-related fees. Tax Fees For our fiscal years ended December 31, 2021 and 2020, we were not billed for professional services rendered for tax compliance, tax advice, and tax planning. 25 All Other Fees We did not incur any other fees related to services rendered by our principal accountant for the fiscal years ended December 31, 2021 and 2020. Audit and Non-Audit Service Preapproval Policy In accordance with the requirements of the Sarbanes-Oxley Act of 2002 and the rules and regulations promulgated thereunder, our board of directors has adopted an informal approval policy that it believes will result in an effective and efficient procedure to preapprove services performed by the independent registered public accounting firm. All professional services rendered by principal accountants for the audit of our annual financial statements that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for last two fiscal years were approved by our board of directors. Audit Services Audit services include the annual financial statement audit (including quarterly reviews) and other procedures required to be performed by the independent registered public accounting firm to be able to form an opinion on our consolidated financial statements. The board of directors preapproves specified annual audit services engagement terms and fees and other specified audit fees. All other audit services must be specifically preapproved by the board of directors. The board of directors monitors the audit services engagement and may approve, if necessary, any changes in terms, conditions, and fees resulting from changes in audit scope or other items. Audit-Related Services Audit-related services are assurance and related services that are reasonably related to the performance of the audit or review of our consolidated financial statements, which historically have been provided to us by the independent registered public accounting firm and are consistent with the Securities and Exchange Commission’s rules on auditor independence. The board of directors preapproves specified audit-related services within preapproved fee levels. All other audit-related services must be preapproved by the board of directors. Tax Services The board of directors preapproves specified tax services that it believes would not impair the independence of the independent registered public accounting firm and that are consistent with Securities and Exchange Commission’s rules and guidance. The board of directors must specifically approve all other tax services. All Other Services Other services are services provided by the independent registered public accounting firm that do not fall within the established audit, audit-related, and tax services categories. The board of directors preapproves specified other services that do not fall within any of the specified prohibited categories of services. Procedures All proposals for services to be provided by the independent registered public accounting firm, which must include a detailed description of the services to be rendered and the amount of corresponding fees, are submitted to the board of directors and the chief financial officer. The chief financial officer authorizes services that have been preapproved by the board of directors. The chief financial officer submits requests or applications to provide services that have not been preapproved by board of directors, which must include an affirmation by the chief financial officer and the independent registered public accounting firm that the request or application is consistent with the Securities and Exchange Commission’s rules on auditor independence, to board of directors for approval. 26 PART IV ITEM 15. EXHIBITS and FINANCIAL STATEMENT SCHEDULES (a) The following financial statements are filed as part of this report: Page Audited Consolidated Financial Statements for the Years Ended December 31, 2021 and 2020: Report of Independent Registered Public Accounting Firm (PCAOB ID No. 0 5525 ) F-1 Consolidated Balance Sheets as of December 31, 2021 and 2020 F-2 Consolidated Statements of Operations for the Years Ended December 31, 2021 and 2020 F-3 Consolidated Statements of Stockholders’ Deficit for the Years Ended December 31, 2021 and 2020 F-4 Consolidated Statements of Cash Flows for the Years Ended December 31, 2021 and 2020 F-5 Notes to the Consolidated Financial Statements F-6 (b) The following exhibits are filed as part of this report: Exhibit Number* Title of Document Location Item 3. Articles of Incorporation and Bylaws 3.01 Articles of Incorporation Incorporated by reference from our Current Report on Form 8-K filed July 17, 2000 3.02 Amended and Restated Bylaws Incorporated by reference from our Current Report on Form 8-K filed August 18, 2011 3.03 Articles of Amendment to Articles of Incorporation of CirTran Corporation Incorporated by reference from our Current Report on Form 8-K filed August 18, 2011 3.04 Second Amendment to Articles of Incorporation of CirTran Corporation Incorporated by reference from our Current Report on Form 8-K filed May 8, 2015 Item 4. Instruments Defining the Rights of Security Holders, Including Debentures 4.01 Specimen stock certificate Incorporated by reference from our Annual Report on Form 10-K for the year ended December 31, 2019, filed May 29, 2020 4.02 Amended, Restated, and Consolidated Secured Convertible Debenture No. TK-1 in the amount of $3,437,798 payable to Tekfine, LLC Incorporated by reference from the registration statement on Form 10 filed May 11, 2018 4.03 Secured Convertible Debenture No. TK-2 in the amount of $200,000 payable to Tekfine, LLC Incorporated by reference from the registration statement on Form 10 filed May 11, 2018 4.04 Amendment No. 1 to Secured Convertible Debenture between CirTran Corporation and Tekfine, LLC, effective April 20, 2018 Incorporated by reference from the registration statement on Form 10 filed May 11, 2018 27 4.05 Amendment No. 2 to Secured Convertible Debenture between CirTran Corporation and Tekfine, LLC, effective May 12, 2020 Incorporated by reference from our Annual Report on Form 10-K for the year ended December 31, 2019, filed May 29, 2020 Item 10. Material Contracts 10.42** Employment Agreement with Iehab Hawatmeh dated August 1, 2009 Incorporated by reference from our Annual Report on Form 10-K/A for the year ended December 31, 2011, filed April 30, 2012 10.49 CirTran Corporation 2013 Incentive Plan Incorporated by reference from our Registration Statement on Form S-8 filed August 26, 2013 10.53** Amendment No. 1 to Employment Agreement with Iehab J. Hawatmeh Incorporated by reference from the registration statement on Form 10/A filed June 18, 2018 10.55 Exclusive Manufacturing and Distribution Agreement dated December 30, 2019 Incorporated by reference from our Current Report on Form 8-K filed January 27, 2020 10.56 Commercial Lease dated November 29, 2019 Incorporated by reference from our Current Report on Form 8-K filed January 27, 2020 Item 21. Schedule of Subsidiaries 21.01 Schedule of Subsidiaries Incorporated by reference from our Annual Report on Form 10-K for the year ended December 31, 2019, filed May 29, 2020 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 Item 101*** Interactive Data File 101.INS Inline XBRL Instance Document This filing 101.SCH Inline XBRL Taxonomy Extension Schema This filing 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase This filing 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase This filing 101.LAB Inline XBRL Taxonomy Extension Label Linkbase 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 document. Omitted numbers in the sequence refer to documents previously filed with the SEC as exhibits to previous filings, but no longer required. ** Identifies each management contract or compensatory plan or arrangement required to be filed. *** Users of this data are advised that, pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or Annual Report for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Exchange Act of 1934 and otherwise are not subject to liability. 28 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CIRTRAN CORPORATION Date: April 15, 2022 By: /s/ Iehab Hawatmeh Iehab Hawatmeh, President Chief Financial Officer (Principal Executive Officer, Principal Financial Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Date: April 15, 2022 /s/ Iehab Hawatmeh Iehab Hawatmeh, Director, President Chief Financial Officer (Principal Executive Officer, Principal Financial Officer) Date: April 15, 2022 /s/ Kathryn Hollinger Kathryn Hollinger, Director 29 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareholders of CirTran Corporation Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of CirTran Corporation and Subsidiaries (“the Company”) as of December 31, 2021 and 2020, and the related consolidated statements of operations, stockholders’ deficit, and cash flows for each of the years in the two-year period ended December 31, 2021, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020 and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America. Going Concern The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the financial statements, the Company has a significant accumulated deficit and working capital deficiency. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 3. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Revenue Recognition – Refer to Note 2 to the financial statements Description of the Critical Audit Matter As discussed in Note 2, the Company recognizes 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. Significant judgment is exercised by the Company in determining revenue recognition for products and services, and includes the following: ● Identification and treatment of contract terms that may impact the timing and amount of revenue recognized. ● Determination of stand-alone selling prices for each distinct performance obligation. Auditing management’s revenue recognition was highly judgmental due to the significant estimation required for the recognition of revenue. How the Critical Audit Matter Was Addressed in the Audit Our principal audit procedures related to the Company's revenue recognition for these customer agreements included the following, among others: ● We evaluated management's significant accounting policies related to revenue recognition and reviewed underlying customer invoices for reasonableness of the application of ASC 606. ● We obtained and read contract source documents for selected revenue transactions and tested management’s treatment of those terms. ● We tested the accuracy and completeness of selected revenue transactions during the year ended December 31, 2021. Fruci & Associates II, PLLC We have served as the Company’s auditor since 2020. Spokane, Washington April 15, 2022 F- 1 CIRTRAN CORPORATION CONSOLIDATED BALANCE SHEETS December 31, 2021 December 31, 2020 ASSETS Current assets: Cash $ 5,472 $ 108,147 Inventory 537,961 325,252 Deposits on inventory 11,639 53,900 Deposits on inventory - related party 87,042 319,333 Accounts receivable 212,244 16,966 Other current assets 267,820 118,844 Total current assets 1,122,178 942,442 Investment in securities at cost 300,000 300,000 Right-of-use asset 22,291 50,409 Property and equipment, net of accumulated depreciation 18,899 18,299 Total assets $ 1,463,368 $ 1,311,150 LIABILITIES AND STOCKHOLDERS’ DEFICIT Current liabilities: Accounts payable $ 1,923,968 $ 1,347,870 Lease liability, current 22,291 28,118 Related-party payable 13,740 13,740 Short-term advances payable 58,366 109,904 Short-term advances payable - related parties 21,882 287,776 Accrued liabilities 1,338,349 1,354,539 Accrued payroll and compensation expense 4,441,398 4,133,346 Accrued interest, current portion 4,880,219 2,824,948 Convertible debenture, current portion, net of discounts 264,284 264,284 Note payable, current portion 90,000 90,000 Note payable to stockholders 313,274 521,194 Derivative liability 938,794 922,654 Liabilities from discontinued operations 25,189,136 26,153,820 Total current liabilities: 39,495,701 38,052,193 Lease liability, long-term — 22,291 Accrued interest, net of current portion — 1,490,951 Note payable, net of current portion 656,000 656,000 Convertible debenture, net of current portion, net of discount 1,876,621 1,787,816 Total liabilities 42,028,322 42,009,251 Commitments and contingencies — — Stockholders’ deficit: Common stock, par value $ 0.001 ; 100,000,000 shares authorized; 4,945,417 and 4,720,417 shares issued and outstanding at December 31, 2021 and 2020, respectively 4,945 4,720 Additional paid-in capital 37,233,561 37,226,851 Accumulated deficit ( 77,803,460 ) ( 77,929,672 ) Total stockholders’ deficit ( 40,564,954 ) ( 40,698,101 ) Total liabilities and stockholders’ deficit $ 1,463,368 $ 1,311,150 The accompanying notes are an integral part of these consolidated financial statements. F- 2 CIRTRAN CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS 2021 2020 For the Years Ended December 31, 2021 2020 Net sales $ 2,923,269 $ 1,732,625 Cost of sales 1,024,444 896,273 Gross profit 1,898,825 836,352 Operating expenses: Employee costs 496,219 292,420 Selling, general and administrative expenses 1,630,592 465,518 Total operating expenses 2,126,811 757,938 (Loss) income from operations ( 227,986 ) 78,414 Other income (expense) Interest expense ( 680,428 ) ( 658,654 ) Loss on disposal of equipment — ( 9,771 ) Gain on forgiveness of debt 12,918 — Gain on write off of accounts payable 72,158 1,023,471 Gain (loss) on derivative valuation ( 16,143 ) ( 22,822 ) Other income 1,008 42,000 Total other (expense) income ( 610,487 ) 374,224 Net (loss) income from continuing operations ( 838,473 ) 452,638 Income from discontinued operations 964,685 79,496 Net income $ 126,212 $ 532,134 Net (loss) income from continuing operations per common share, basic $ ( 0.17 ) $ 0.10 Net income from continuing operations per common share, diluted 0.00 0.00 Net income from discontinued operations per common share, basic $ 0.20 $ 0.02 Net income from discontinued operations per common share, diluted 0.01 0.00 Net income per share, basic $ 0.03 $ 0.12 Net income per share, diluted 0.00 0.00 Basic and diluted weighted average common shares outstanding 4,891,170 4,555,718 Diluted weighted average common shares outstanding 144,264,247 172,317,270 The accompanying notes are an integral part of these consolidated financial statements. F- 3 CIRTRAN CORPORATION CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020 Shares Amount Capital Deficit Total 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 Common stock issued for conversion of accrued interest 220,000 220 4,180 — 4,400 Net income 532,134 532,134 Balance, December 31, 2020 4,720,417 4,720 37,226,851 ( 77,929,672 ) ( 40,698,101 ) Stock option expense — — 185 — 185 Common stock issued for conversion of accrued interest 225,000 225 6,525 — 6,750 Net income — — — 126,212 126,212 Balance, December 31, 2021 4,945,417 $ 4,945 $ 37,233,561 $ ( 77,803,460 ) $ ( 40,564,954 ) The accompanying notes are an integral part of these consolidated financial statements. F- 4 CIRTRAN CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS 2021 2020 For the Years Ended December 31, 2021 2020 Cash flows from operating activities Net income $ 126,212 $ 532,134 Adjustments to reconcile net income to net cash (used) provided by operating activities: Income from discontinued operations ( 964,685 ) ( 79,496 ) Depreciation expense 3,198 373 Loss on derivative valuation 16,143 22,822 Debt discount amortization 88,805 115,211 Loss on disposal of equipment — 9,771 Stock option expense 185 56 Gain on forgiveness of debt ( 12,918 ) — Gain on write off of accounts payable ( 72,158 ) ( 1,023,471 ) Amortization of right-of-use asset to rent expense 28,118 6,813 Expenses paid on our behalf by a related party — 1,940 Changes in operating assets and liabilities: Inventory ( 212,709 ) ( 306,438 ) Deposits on inventory 42,261 ( 53,900 ) Deposits on inventory - related party 232,291 ( 319,333 ) Accounts receivable ( 195,278 ) ( 16,966 ) Other current assets ( 148,976 ) ( 117,634 ) Accounts payable 576,098 255,282 Accrued liabilities ( 16,190 ) 640,560 Payments for lease liability ( 28,118 ) ( 6,813 ) Accrued payroll and compensation 308,052 375,710 Accrued interest 574,127 543,255 Net cash provided by continuing operating activities 344,458 579,876 Net cash provided by (used in) discontinued operations — ( 115,537 ) Net cash provided by operating activities 344,458 464,339 Cash flows from investing activities: Purchase of equipment ( 3,798 ) ( 18,672 ) Net cash used in investing activities ( 3,798 ) ( 18,672 ) Cash flows from financing activities: Proceeds from bank overdraft — ( 1,611 ) Proceeds from convertible loans payable — 15,000 Proceeds from related-party loans 5,000 11,500 Repayments of related-party loans ( 396,797 ) ( 467,409 ) Proceeds from loan payable — 156,000 Repayments of loans payable ( 51,538 ) ( 51,000 ) Net Cash used in financing activities ( 443,335 ) ( 337,520 ) Net change in cash ( 102,675 ) 108,147 Cash, beginning of year 108,147 — Cash, end of year $ 5,472 $ 108,147 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 Common stock issued for conversion of accrued interest $ 6,750 $ 4,400 The accompanying notes are an integral part of these financial statements. F- 5 CIRTRAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2021 NOTE 1 — ORGANIZATION AND NATURE OF OPERATIONS In 1987, CirTran Corporation was incorporated in Nevada under the name Vermillion Ventures, Inc., for the purpose of acquiring other operating corporate entities. We were largely inactive until July 1, 2000, when our wholly owned subsidiary, CirTran Corporation (Utah), acquired substantially all the assets and certain liabilities of Circuit Technology, Inc., founded by our president, Iehab Hawatmeh. We, together with our majority-owned subsidiaries, manufacture, distribute, and sell condoms, electronic tobacco products, cigars, energy drinks, water beverages, and related merchandise, all using the HUSTLER® brand name. Since entering our 2019 five-year manufacturing and distribution agreement with an unrelated party, our efforts have been devoted to phase one of our development of all HUSTLER®-branded products, which led us to generating revenue during 2020 for the first time in several years. NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Principles of Consolidation The consolidated financial statements include the accounts of the company and our wholly owned subsidiaries: CirTran Products Corp., LBC Products, Inc., and CirTran Asia, Inc. Intercompany accounts and transactions have been eliminated in consolidation Use of Estimates In preparing the financial statements in accordance with US GAAP, 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. Concentrations of Credit Risk We maintain our cash in bank deposit accounts, the balances of which at times may exceed federally insured limits. We continually monitor our banking relationships and consequently have not experienced any losses in our accounts. At times, such deposits may exceed the Federal Deposit Insurance Corporation insurable limit. Cash Equivalents We consider all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. There were no cash equivalents for the years ended December 31, 2021 or 2020. Property and Equipment Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation of property and equipment is calculated using the straight-line method over the estimated useful lives of the assets, which ranges from three to ten years. Leasehold improvements are amortized over the lesser of the remaining term of the lease or the estimated useful life of the asset. Expenditures for repairs and maintenance are expensed as incurred. Gains or losses on dispositions of property and equipment are included in operating results. 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, which is a stand-alone contract that we retain the right to accept or reject. Revenue is recognized net of allowances for returns and any taxes collected from customers, which are subsequently remitted to governmental authorities. F- 6 During the years ended December 31, 2021 and 2020, we recognized revenue of $ 60,500 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 acceptance 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 therefore, no asset has been recorded for customer acquisition costs. We have not recognized impairment losses related to the receivables from these contracts during the years ended December 31, 2021 and 2020. Additionally, we recognized revenues of $ 2,862,769 and $ 1,217,625 during the years ended December 31, 2021 and 2020, respectively, related to the delivery of product to our customers. Each delivery is based on the unique contract with the customer, which is 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 contract upon fulfillment of our performance obligations therein, typically limited to the delivery of product. Leases In February 2016, the FASB issued Accounting Standard Update (“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. The adoption of the standard resulted in recording right-of-use (“ROU”) assets and operating lease liabilities of $22,291 as of December 31, 2021. Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As the lease does not provide an implicit rate, we use our incremental borrowing rate based on information available at the commencement date in determining the present value of future payments. The operating lease ROU asset also includes any lease payments made and excludes lease incentives and initial direct costs incurred. Lease terms may include options to extend or terminate the lease when it is reasonably certain we will exercise that option. Although considered, we determined it was appropriate to exclude future renewal terms from the capitalization of our operating lease. We have one lease in effect requiring minimum monthly payments of $ 2,500 through October 2022. We have determined the appropriate discount rate to be 5 % based on our other borrowings secured by assets. A summary of future payments due under the terms of the lease as of December 31, 2021, is as follows: SUMMARY OF FUTURE MINIMUM LEASE PAYMENTS DUE Total future payments $ 22,500 Implied interest ( 209 ) Operating lease liability as of December 31, 2021 $ 22,291 Investment in Securities Our cost-method investment consists of an investment in a private digital multi-media technology company that totaled $ 300,000 at December 31, 2021 and 2020. Because 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. 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 no t record expenses for the impairment of long-lived assets during the years ended December 31, 2021 or 2020. F- 7 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. 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 $ 11,639 (non-related-party) and $ 87,042 (related-party) as of December 31, 2021, and $ 53,900 (non-related-party) and $ 319,333 (related-party) as of December 31, 2020. On most of tobacco related products, the Company pays in advance for Federal Excise Taxes and State Excise Taxes prior to receiving product. The Company accrues those taxes on its balance sheet and expenses them per-unit basis as sold. Inventory balances consisted of the following: SCHEDULE OF INVENTORY December 31, 2021 December 31, 2020 Finished goods $ 501,929 $ 526,372 Raw materials 36,032 40,803 Reserve for obsolescence — ( 241,923 ) Total $ 537,961 $ 325,252 Stock-Based Compensation We have outstanding stock options to directors and employees, which are described more fully in Note 13–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. Fair Value of 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: 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. SCHEDULE OF FINANCIAL ASSETS AND LIABILITIES CARRIED AT FAIR VALUED MEASURED ON RECURRING BASIS F- 8 Total Fair Value at December 31, 2021 Quoted prices in active markets (Level 1) Significant other observable inputs (Level 2) Significant unobservable inputs (Level 3) Derivative liabilities $ 938,794 $ - $ - $ 938,794 Total Fair Value at December 31, 2020 Quoted prices in active markets (Level 1) Significant other observable inputs (Level 2) Significant unobservable inputs (Level 3) Derivative liabilities $ 922,654 $ - $ - $ 922,654 Loss per Share Basic loss per share is calculated by dividing net loss available to common shareholders by the weighted-average number of common s hares outstanding during each period. Diluted loss per share 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 144,264,247 potentially issuable shares from the conversions of convertible debentures outstanding that were excluded in dilutive outstanding shares for the year ended December 31, 2021, due to the anti-dilutive effect these would have on net loss per share. There were 167,761,552 such shares issuable as of December 31, 2020. We do not currently have adequate authorized but unissued shares to satisfy our obligations should all instruments eli gible 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. Income Taxes Income taxes are provided for the tax effects of the transactions reported in the financial statements and consist of taxes currently due plus deferred taxes related primarily to tax net operating loss carryforwards. The deferred tax assets and liabilities represent the future tax return consequences of these differences, which will either be taxable or deductible when assets and liabilities are recovered or settled, as well as operating loss carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is established against deferred tax assets when in the judgment of management, it is more likely than not that such deferred tax assets will not become available. Because the judgment about the level of future taxable income is dependent to a great extent on matters that may, at least in part, be beyond our control, it is at least reasonably possible that management’s judgment about the need for a valuation allowance for deferred taxes could change in the near term. Tax benefits are recognized only for tax positions that are more likely than not to be sustained upon examination by tax authorities. The amount recognized is measured as the largest amount of benefit that is greater than 50% likely to be realized upon settlement. A liability for “unrecognized tax benefits” is recorded for any tax benefits claimed in our tax returns that do not meet these recognition and measurement standards. As of December 31, 2021 and 2020, no liability for unrecognized tax benefits was required to be reported. Recently Issued Accounting Pronouncements We have implemented all new accounting pronouncements that are in effect. These pronouncements did not have any material impact on our financial statements unless otherwise disclosed, and we do not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on our financial position or results of operations. F- 9 NOTE 3 — GOING CONCERN The accompanying consolidated financial statements have been prepared in conformity with US GAAP, which contemplate our continuation as a going concern. We had a working capital deficiency of $ 38,373,523 as of December 31, 2021, and net income from continuing operations of $ 838,473 for the year ended December 31, 2021. As of December 31, 2021, we had an accumulated deficit of $ 77,803,460 . 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 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 mainly 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 our shareholders and us. NOTE 4 — 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. Property and equipment and estimated service lives consist of the following: SCHEDULE OF PROPERTY AND EQUIPMENT AND ESTIMATED SERVICE LIVES December 31, 2021 December 31, 2020 Useful Life (years) Furniture and office equipment $ 3,798 $ - 5 - 10 Vehicles 18,672 18,672 3 - 7 Total 22,470 18,672 Less: accumulated depreciation ( 3,571 ) ( 373 ) Property and equipment, net $ 18,899 $ 18,299 We recorded $ 3,198 and $ 373 of depreciation expense during the years ended December 31, 2021 and 2020. NOTE 5 — RELATED-PARTY TRANSACTIONS 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 December 31, 2021 and 2020, the principal amount owing on the note was $ 151,833 and $ 151,833 , respectively. No demand for payment has been made. 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 December 31, 2021 and 2020, was $ 72,466 and $ 72,466 , respectively. No demand for payment has been made. During the year ended December 31, 2021, we made repayments to related parties of $ 396,797 and had other noncash reductions of $ 82,018 . During the year ended December 31, 2020, we made repayments to related parties of $ 467,409 and received $ 11,500 . There were $ 21,882 and $ 287,776 of short-term advances due to related parties as of December 31, 2021 and 2020, respectively. The advances are due on demand and included in current liabilities. No demand for payment has been made. F- 10 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 his employment agreement require us to grant options to purchase 6,000 shares of our stock each year, with an exercise $ 0.10 . We issued options to purchase 6,000 and 6,000 shares of common stock during the years ended December 31, 2021 and 2020, respectively. There were options to purchase 6,000 shares of common stock that expired during each year ended December 31, 2021 and 2020. Mr. Hawatmeh held outstanding options to purchase 30,000 and 30,000 shares of common stock as of December 31, 2021 and 2020, respectively. See Note 13–Stock Options and Warrants. As of December 31, 2021 and 2020, we owed our president a total of $ 433,379 and $ 868,528 , respectively, 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 December 31, 2021 and 2020, we owed a total of $ 13,740 and $ 13,740 , respectively, 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 year ended December 31, 2021, we had a net decrease in deposits with a related-party inventory supplier totaling $ 232,291 . The related party is an entity controlled by our chief executive officer. 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 $ 1,186,645 and $ 643,772 during the years ended December 31, 2021 and 2020, respectively. 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: SCHEDULE OF ACCRUED LIABILITIES December 31, 2021 December 31, 2020 Tax liabilities $ 545,221 $ 557,894 Other 793,128 796,645 Total $ 1,338,349 $ 1,354,539 Other accrued liabilities as of December 31, 2021 and 2020, include a non-interest-bearing payable totaling $ 45,000 and $ 45,000 , respectively, that is due on demand and customer deposits totaling $ 718,535 and $ 751,645 , respectively. Accrued payroll and compensation liabilities consist of the following: SCHEDULE OF ACCRUED PAYROLL AND COMPENSATION LIABILITIES December 31, 2021 December 31, 2020 Director fees $ 135,000 $ 135,000 Bonus expenses 121,858 121,858 Commissions 2,148 2,148 Consulting 575,322 - Administrative payroll 3,607,070 3,874,340 Total $ 4,441,398 $ 4,133,346 F- 11 NOTE 7 — COMMITMENTS AND CONTINGENCIES Commitments to GloBrands, LLC Our December 2019 Exclusive Manufacturing and Distribution Agreement with GloBrands grants to us the exclusive right to manufacture, distribute, and sell specified products, including the authority to deal directly with distribution chain participants and to collect all product payments. We are authorized to retain from the collected sales proceeds an amount equal to 120% of our cost of goods sold, plus 10% of gross sales of the covered products. GloBrands reimburses us 105% of certain of our media placement expenses. Our GloBrands’ agreement term extends through November 30, 2024, subject to earlier termination by either party following 60 days’ notice of uncured material default. From time to time, GloBrands, LLC agrees to advance funds to the Company to assist in precuring inventory due to long lead times and to avoid last minute high cost of shipping. These advances are booked under Accrued Liabilities. In addition, the Company bills GloBrands under its agreement monthly, those amounts get netted out of the advances made. Our agreement with GloBrands is subject in all respects to its rights as licensee under its licensing agreements with the Flynt/HUSTLER® organization to use the HUSTLER® brand name. The Flynt/HUSTLER® organization has approved our manufacturing and distribution arrangement. GloBrands is obligated to fully and timely perform and observe all terms, covenants, and conditions of the three underlying licenses between it and the Flynt/Hustler organization, including the payment of required minimum and actual royalties to the Flynt/HUSTLER® organization. Further, GloBrands cannot amend the license agreements or waive or release any material right under the underlying Flynt/HUSTLER® licenses. Under the Exclusive Manufacturing and Distribution Agreement, we transmit royalty payments on GloBrands’ behalf directly to the Flynt/HUSTLER® organization. We have a limited license to use the HUSTLER® brand name for the exclusive purposes of fulfilling our obligations under the Exclusive Manufacturing and Distribution Agreement 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 to 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, except where we believe collection or enforcement of the judgments is barred by the applicable statute of limitations, in which case the liabilities have been eliminated. 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 of $ 6.6 million to Playboy 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 December 31, 2021 and 2020, 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 required 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 paid 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 required us to pay the IRS 5 % of cash deposits. The monthly payments were to continue until the account balances were paid in full or until the collection statute of limitation expired on October 6, 2020. We are currently in communication with the IRS regarding the statute of limitations on this settlement and appropriate next steps. Amounts of $ 525,238 and $ 673,645 were due as December 31, 2021 and 2020, 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 chief executive officer. A total of $ 296,500 was accrued during the year ended December 31, 2021. 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 years ended December 31, 2021 and 2020, we granted options to purchase 8,000 and 8,000 shares of common stock, respectively, to Mr. Hawatmeh and Ms. Hollinger. We recorded expenses totaling $ 185 and $ 56 during the years ended December 31, 2021 and 2020, respectively, for these options. We have no other agreements requiring the grant of options. F- 12 License Agreements We have entered into agreements requiring us to pay certain royalties for the manufacture and distribution of licensed products. Fees are based on a percentage of sales and remitted quarterly and are included in cost of sales for financial reporting purposes. NOTE 8 — NOTES PAYABLE Notes payable consisted of the following: SCHEDULE OF NOTES PAYABLE December 31, 2021 December 31, 2020 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 156,000 156,000 Total $ 746,000 $ 746,000 There was $ 252,665 and $ 205,165 of accrued interest due on these notes as of December 31, 2021 and 2020, respectively. NOTE 9 — CONVERTIBLE DEBENTURES Convertible debentures consisted of the following: SCHEDULE OF CONVERTIBLE DEBENTURES December 31, 2021 December 31, 2020 Convertible debenture, 5 % stated interest rate, secured by all our assets, due on May 30, 2022 $ 200,000 $ 200,000 Convertible debenture, 5 % stated interest rate, secured by all our assets, due on February 8, 2022 25,000 25,000 Convertible debenture, 5 % stated interest rate, secured by all our assets, due on May 30, 2022 25,000 25,000 Convertible debenture, 5 % stated interest rate, secured by all our assets, due on December 8, 2022 25,000 25,000 Convertible debenture, 5 % stated interest rate, secured by all our assets, due on April 30, 2027 2,390,528 2,390,528 Subtotal $ 2,665,528 $ 2,665,528 Less: discounts ( 524,623 ) ( 613,428 ) Total $ 2,140,905 $ 2,052,100 Less: current portion ( 264,284 ) ( 264,284 ) Long-term portion $ 1,876,621 $ 1,787,816 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. During the year ended December 31, 2021, the convertible debenture holder converted $ 6,750 of accrued but unpaid interest into 225,000 shares of our common stock. During the year ended December 31, 2020, the convertible debenture holder converted $ 4,400 of accrued but unpaid interest into 220,000 shares of our common stock. As of December 31, 2021 and 2020, we had accrued interest on the convertible debentures totaling $ 1,655,037 and $ 1,528,511 , respectively, of which $ 55,710 and $ 41,960 was current and $ 1,599,328 and $ 1,486,551 was long term, respectively. As of December 31 , 2021 and 2020, the debentures, including accrued but unpaid interest, were convertible into 144,264,247 and 167,761,552 shares of our common stock, respectively. F- 13 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 December 31, 2021, using the following assumptions: SCHEDULE OF DERIVATIVE LIABILITIES AT FAIR VALUE Volatility 36.5 % - 103 % Risk-free rates 0.41 % - 0.90 % Stock price $ 0.035 Remaining life 0.25 - 5.33 years The fair values of the derivative instruments are measured each quarter, which resulted in a loss of $ 16,143 and $ 22,822 during the years ended December 31, 2021 and 2020, respectively. As of December 31, 2021 and 2020, the fair market value of the derivatives aggregated $ 938,794 and $ 922,654 , respectively. NOTE 11 – COMMON STOCK TRANSACTIONS We are authorized to issue up to 100,000,000 shares of $ 0.001 par value common stock. During the year ended December 31, 2021, we issued a total of 225,000 shares of common stock for the conversion of $ 6,750 of accrued interest. During the year ended December 31, 2020, we issued a total of 220,000 shares of common stock for the conversion of $ 4,400 of accrued interest. NOTE 12 — INCOME TAXES We did not provide any current or deferred U.S. federal income tax provision or benefit for any of the periods presented because we have experienced operating losses since inception. When it is more likely than not that a tax asset cannot be realized through future income, the company must allow for this future tax benefit. We provided a full valuation allowance on the net deferred tax asset, consisting of net operating loss carryforwards, because management has determined that it is more likely than not that we will not earn income sufficient to realize the deferred tax assets during the carryforward period. The U.S. federal income tax rate of 21 % is being used. We have not taken a tax position that, if challenged, would have a material effect on the financial statements for the years ended December 31, 2021 and 2020, applicable under FASB ASC 740, Income Taxes . We did not recognize any adjustment to the liability for an uncertain tax position and, therefore, did not record any adjustment to the beginning balance of accumulated deficit on the balance sheet. All our tax returns remain open. As of December 31, 2021 and 2020, we had net operating loss carryforwards for tax reporting purposes of approximately $ 20.2 million and $ 19.0 million, respectively. During the year ended December 31, 2019, we dissolved four subsidiaries that had total net operating loss carryforwards of approximately $ 8.9 million, which were forfeited upon dissolution, reducing our deferred tax asset by approximately $ 1.9 million . In addition, the realization of tax benefits relating to net operating loss carryforwards is limited due to the settlement related to amounts previously due to the IRS, as discussed in Note 6 – Other Accrued Liabilities. SCHEDULE OF NET DEFERRED TAX ASSETS 2021 2020 Deferred Tax Assets: NOL Carryover $ 1,244,300 $ 3,791,763 Less valuation allowance ( 1,244,300 ) ( 3,791,763 ) Net deferred tax assets $ — $ — F- 14 The income tax provision differs from the amount of income tax determined by applying the U.S. federal income tax rate to pretax income from continuing operations for the years ended December 31, 2021 and 2020 due to the following: SCHEDULE OF RECONCILIATION OF INCOME TAXES COMPUTED AT STATUTORY RATE 2021 2020 Book income (loss) $ 23,900 $ 111,023 Change in payroll accruals 74,900 75,142 Stock option expense 39 11 Amortization of debt discount 18,650 23,042 Change in derivative liability 3,390 4,564 Valuation allowance ( 102,190 ) 142,749 Income tax expense $ — $ — NOTE 13 — STOCK OPTIONS AND WARRANTS Stock Incentive Plans During the years ended December 31, 2021 and 2020, we granted to employees 8,000 and 8,000 options to purchase shares of common stock. The 8,000 options granted during the year ended December 31, 2021, were valued using the following assumptions: estimated five -year term, estimated volatility of 91 %, and a risk-free rate of 1.61 %. The 8,000 options granted during the year ended December 31, 2020, were valued using the following assumptions: estimated five -year term, estimated volatility of 103 %, and a risk-free rate of 0.10 %. As of December 31, 2021 and 2020, we had no unrecognized compensation related to outstanding options that have not yet vested at year-end that would be recognized in subsequent periods. As of December 31, 2021, there were 40,000 options issued and vested with a weighted average exercise price of $ 0.08 and a weighted average remaining life of 2.92 years. Outstanding options as of December 31, 2021, consisted of: SCHEDULE OF STOCK OPTIONS OUTSTANDING Exercise Price Count Average Exercise Remaining Life Exercisable $ 0.01 16,000 0.01 3.88 16,000 $ 0.10 24,000 0.10 1.62 24,000 Total 40,000 0.08 2.92 40,000 NOTE 14— 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 December 31, 2021 and 2020, as a result. Additionally, the revenues and costs associated with this business are displayed as losses from discontinued operations for the years ended December 31, 2021 and 2020. Total assets and liabilities included in discontinued operations were as follows: SCHEDULE OF DISCONTINUED OPERATIONS December 31, 2021 December 31, 2020 Assets from Discontinued Operations: Cash $ — $ — Total assets from discontinued operations $ — $ — Liabilities from Discontinued Operations: Accounts payable $ 18,338,848 $ 19,456,998 Accrued liabilities 589,380 589,380 Accrued interest 1,329,692 1,176,226 Accrued payroll and compensation expense 131,108 131,108 Current maturities of long-term debt 239,085 239,085 Related-party payable 1,776,250 1,776,250 Short-term advances payable 2,784,773 2,784,773 Total liabilities from discontinued operations $ 25,189,136 $ 26,153,820 Net (loss) income from discontinued operations for the years ended December 31, 2021 and 2020, were comprised of the following components: 2021 2020 Years ended December 31, 2021 2020 Other income (expense): Interest expense ( 153,465 ) ( 153,886 ) Gain on write off of accounts payable 1,118,150 233,382 Total other income 964,685 79,496 Net income from discontinued operations $ 964,685 $ 79,496 NOTE 15 — SUBSEQUENT EVENTS In accordance with SFAS 165 (ASC 855-10), management has performed an evaluation of subsequent events through the date that the financial statements were issued and has determined that it does not have any material subsequent events to disclose in these consolidated financial statements. 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