CIRTRAN CORP 10-Q

ITEM 1. FINANCIAL STATEMENTS CIRTRAN CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS June 30, 2024 December 31, 2023 (Unaudited) (Audited) ASSETS Current assets: Cash $ — $ — Inventory 802,312 815,612 Deposits on inventory 22,508 26,983 Deposits on inventory - related party 619,189 224,411 Deposits on inventory 619,189 224,411 Accounts receivable 112,225 21,536 Other current assets 411,715 441,095 Total current assets 1,967,949 1,529,637 Investment in securities at cost 300,000 300,000 Property and equipment, net of accumulated depreciation 16,478 18,925 Total assets $ 2,284,427 $ 1,848,562 LIABILITIES AND STOCKHOLDERS’ DEFICIT Current liabilities: Accounts payable $ 657,620 $ 625,848 Liabilities for product returns and credits 8,701 8,701 Short-term advances payable 165,466 172,966 Short-term advances payable - related parties 21,882 21,882 Short-term advances payable 21,882 21,882 Accrued liabilities 3,234,199 2,889,389 Accrued payroll and compensation expense 5,181,116 5,067,213 Accrued interest, current portion 6,177,849 5,758,603 Convertible debenture, current portion, net of discounts 264,284 264,284 Note payable, current portion 90,000 90,000 Note payable to stockholders 151,833 151,833 Note payable 151,833 151,833 Derivative liability 1,623,196 1,296,937 Liabilities from discontinued operations 4,587,598 4,511,075 Total current liabilities: 22,163,744 20,858,731 Deferred tax liability 55,946 55,946 Note payable, net of current portion 630,454 634,636 Convertible debenture, net of current portion, net of discount 2,127,165 2,077,934 Total liabilities 24,977,309 23,627,247 Commitments and contingencies — — Stockholders’ deficit: Common stock, par value $ 0.001 ; 100,000,000 shares authorized; 4,945,417 shares issued and outstanding 4,945 4,945 Additional paid-in capital 37,233,561 37,233,561 Accumulated deficit ( 59,931,388 ) ( 59,017,191 ) Total stockholders’ deficit ( 22,692,882 ) ( 21,778,685 ) Total liabilities and stockholders’ deficit $ 2,284,427 $ 1,848,562 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 3 CIRTRAN CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) 2024 2023 2024 2023 Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 Net sales $ 390,491 $ 458,511 $ 819,882 $ 671,920 Cost of sales 168,564 270,010 326,461 355,717 Gross profit 221,927 188,501 493,421 316,203 Operating expenses Employee costs 125,673 137,107 250,902 273,802 Selling, general and administrative expenses 190,548 150,515 383,234 289,193 Total operating expenses 316,221 287,622 634,136 562,995 Loss from operations ( 94,294 ) ( 99,121 ) ( 140,715 ) ( 246,792 ) Other income (expense) Interest expense ( 185,748 ) ( 186,771 ) ( 370,700 ) ( 370,059 ) Gain on forgiveness of debt — — — 13,000 Gain (loss) on derivative valuation ( 77,805 ) 80,042 ( 326,259 ) ( 44,503 ) Other income 1,124 1,124 Total other expense ( 263,553 ) ( 105,605 ) ( 696,959 ) ( 400,438 ) Net loss from continuing operations ( 357,847 ) ( 204,726 ) ( 837,674 ) ( 647,230 ) Loss from discontinued operations ( 38,262 ) ( 38,261 ) ( 76,523 ) ( 76,102 ) Net loss before income tax ( 396,109 ) ( 242,987 ) ( 914,197 ) ( 723,332 ) Income tax — — — — Net loss $ ( 396,109 ) $ ( 242,987 ) $ ( 914,197 ) $ ( 723,332 ) Net loss from continuing operations per common share, basic and diluted $ ( 0.07 ) $ ( 0.04 ) $ ( 0.17 ) $ ( 0.13 ) Net loss from discontinued operations per common share, basic and diluted $ ( 0.01 ) $ ( 0.01 ) $ ( 0.01 ) $ ( 0.02 ) Net loss per common share, basic and diluted $ ( 0.08 ) $ ( 0.05 ) $ ( 0.18 ) $ ( 0.15 ) Basic and diluted weighted average common shares outstanding 4,945,417 4,945,417 4,945,417 4,945,417 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 4 CIRTRAN CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2024 AND 2023 (Unaudited) Shares Amount Capital Deficit deficit Common Stock Additional Paid-in Accumulated Total stockholders’ Shares Amount Capital Deficit deficit Balance, December 31, 2023 4,945,417 $ 4,945 $ 37,233,561 $ ( 59,017,191 ) $ ( 21,778,685 ) Net loss — — — ( 518,088 ) ( 518,088 ) Balance, March 31, 2024 4,945,417 4,945 37,233,561 ( 59,535,279 ) ( 22,296,773 ) Net income — — — ( 396,109 ) ( 396,109 ) Balance, June 30, 2024 4,945,417 $ 4,945 $ 37,233,561 $ ( 59,931,388 ) $ ( 22,692,882 ) Common Stock Additional Paid-in Accumulated Total stockholders’ Shares Amount Capital Deficit deficit Balance, December 31, 2022 4,945,417 $ 4,945 $ 37,233,561 $ ( 79,305,551 ) $ ( 42,067,045 ) Net loss — — — ( 480,345 ) ( 480,345 ) Balance, March 31, 2023 4,945,417 4,945 37,233,561 ( 79,785,896 ) ( 42,547,390 ) Balance 4,945,417 4,945 37,233,561 ( 79,785,896 ) ( 42,547,390 ) Net loss — — — ( 242,987 ) ( 242,987 ) Net income (loss) — — — ( 242,987 ) ( 242,987 ) Balance, June 30, 2023 4,945,417 $ 4,945 $ 37,233,561 $ ( 80,028,883 ) $ ( 42,790,377 ) Balance 4,945,417 $ 4,945 $ 37,233,561 $ ( 80,028,883 ) $ ( 42,790,377 ) The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 5 CIRTRAN CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) 2024 2023 For the Six Months Ended June 30, 2024 2023 Cash flows from operating activities Net loss $ ( 914,197 ) $ ( 723,332 ) Adjustments to reconcile net loss to net cash provided (used) by operating activities: Loss from discontinued operations 76,523 76,102 Depreciation expense 2,447 1,893 Loss on derivative valuation 326,259 44,503 Debt discount amortization 49,231 47,148 Gain on settlement of debt — ( 13,000 ) Changes in operating assets and liabilities: Inventory 13,300 ( 86,530 ) Deposits on inventory 4,475 ( 10,000 ) Deposits on inventory - related party ( 394,778 ) 417,633 Accounts receivable ( 90,689 ) ( 80,936 ) Other current assets 29,380 ( 75,429 ) Accounts payable 31,772 ( 201,395 ) Liabilities for product returns and credits — 82,091 Accrued liabilities 344,810 139,786 Accrued payroll and compensation 113,903 151,708 Accrued interest 419,246 208,943 Net cash provided (used) by operating activities 11,682 ( 20,815 ) Cash flows from investing activities: Purchase of property and equipment — ( 8,414 ) Net Cash used in investing activities — ( 8,414 ) Cash flows from financing activities: Repayments of loans payable ( 11,682 ) — Proceeds from loans payable — 65,925 Proceeds from related-party loans — 13,858 Repayments of related-party loans — ( 32,970 ) Net Cash (used) provided by financing activities ( 11,682 ) 46,813 Net change in cash — 17,584 Cash, beginning of period — 18,081 Cash, end of period $ — $ 35,665 Supplemental disclosure of cash flow information: Cash paid for interest $ — $ — Cash paid for income taxes $ — $ — The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 6 CIRTRAN CORPORATION NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2024 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 unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”), and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). These financial statements and the notes attached hereto should be read in conjunction with the financial statements and notes included in our Form 10-K for the fiscal year ended December 31, 2023. In the opinion of our management, all adjustments, including normal recurring adjustments necessary to present fairly our financial position, as of June 30, 2024, and the results of our operations and cash flows for the six months then ended have been included. The results of operations for the interim period are not necessarily indicative of the results for the full year ending December 31, 2024. Use of Estimates The preparation of financial statements in conformity with U.S. 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 amounts of revenues and expenses during the reporting period. Significant estimates include the estimated useful lives of property and equipment. Actual results could differ from those estimates. 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. 7 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 as of June 30, 2024 and December 31, 2023. 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. During the six months ended June 30, 2024 and 2023, we recognized revenue of $ 48,004 and $ 23,228 , 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 six months ended June 30, 2024 and 2023. Additionally, we recognized revenues of $ 771,878 and $ 648,692 during the six months ended June 30, 2024 and 2023, respectively, related to the delivery of products 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. The Company also recognizes revenue from advanced royalty payments per the terms in its Manufacturing and Distribution Agreement with one of its distributors. The royalty to be received is calculated based on 8 % of gross sales, with an annual minimum royalty paid upfront per calendar year for the term of the contract. There is a non-refundable $ 350,000 Minimum Royalty for FY 2023. The Company recognizes the minimum royalty and corresponding expense at the time of receipt. Accounts Receivable Revenues that have been recognized but not yet received are recorded as accounts receivable. Losses on receivables will be recognized when it is more likely than not that a receivable will not be collected. An allowance for estimated uncollectible amounts will be recognized to reduce the amount receivable to its net realizable value when needed. As of June 30, 2024 and December 31, 2023, the Company has no t recorded an allowance for doubtful accounts. Investment in Securities Our cost-method investment consists of an investment in a private digital multi-media technology company that totaled $ 300,000 at June 30, 2024 and December 31, 2023. 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. Pursuant to ASC 321, the Company also searched for observable transactions in the investee’s stock and found none. We evaluated the investment for impairment and determined there was none during the periods presented. 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. 8 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 total $ 22,508 (non-related-party) and $ 619,189 (related-party) as of June 30, 2024 and $ 26,983 (non-related-party) and $ 224,411 (related-party) as of December 31, 2023. 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 June 30, 2024 December 31, 2023 Finished goods $ 757,818 $ 772,589 Raw materials 44,494 43,023 Total $ 802,312 $ 815,612 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 Total Fair Value at June 30, 2024 Quoted prices in active markets (Level 1) Significant other observable inputs (Level 2) Significant unobservable inputs (Level 3) Derivative liabilities $ 1,623,196 $ — $ — $ 1,623,196 Total Fair Value at December 31, 2023 Quoted prices in active markets (Level 1) Significant other observable inputs (Level 2) Significant unobservable inputs (Level 3) Derivative liabilities $ 1,296,937 $ — $ — $ 1,296,937 9 Loss per Share Basic loss per share is calculated by dividing net loss available to common shareholders by the weighted-average number of common shares 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 approximately 300,617,000 and 151,982,800 potentially issuable shares from the conversions of convertible debentures outstanding that were excluded in dilutive outstanding shares for the six months ended June 30, 2024 and 2023, respectively, due to the anti-dilutive effect these would have on net loss per share. We do not currently have adequate authorized but unissued shares to satisfy our obligations should all instruments eligible to convert to common stock be exercised. We are not currently contemplating an increase in our authorized shares but may do so in the future. Recently Issued Accounting Pronouncements The Company continually assesses any new accounting pronouncements to determine their applicability. When it is determined that a new accounting pronouncement affects the Company’s financial reporting, the Company undertakes a study to determine the consequences of the change to its Consolidated Financial Statements and assures that there are proper controls in place to ascertain that the Company’s Consolidated Financial Statements properly reflect the change. NOTE 3 — GOING CONCERN The accompanying unaudited consolidated financial statements have been prepared in conformity with US GAAP, which contemplates our continuation as a going concern. We had a working capital deficiency of $ 20,195,795 as of June 30, 2024, and a net loss from continuing operations of $ 837,674 for the six months ended June 30, 2024. As of June 30, 2024, we had an accumulated deficit of $ 59,931,388 . 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 unaudited consolidated 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 June 30, 2024 December 31, 2023 Useful Life (years) Furniture and office equipment $ 12,212 $ 12,212 5 - 10 Vehicles 18,672 18,672 3 - 7 Total 30,884 30,884 Less: accumulated depreciation ( 14,406 ) ( 11,959 ) Property and equipment, net $ 16,478 $ 18,925 We recorded $ 2,447 and $ 1,893 of depreciation expense during the six months ended June 30, 2024 and 2023. 10 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 June 30, 2024 and December 31, 2023, 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 June 30, 2024 and December 31, 2023, was $ 72,466 and $ 72,466 , respectively. No demand for payment has been made. There were $ 21,882 and $ 21,882 of short-term advances due to related parties as of June 30, 2024 and December 31, 2023, respectively. 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. Mr. Hawatmeh held outstanding options to purchase 24,000 shares of common stock as of June 30, 2024. See Note 11–Stock Options and Warrants. As of June 30, 2024 and December 31, 2023, we owed our president a total of $ 433,379 and $ 433,379 , 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. During the six months ended June 30, 2024, we had a net increase in deposits with a related-party inventory supplier totaling $ 394,778 . 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 $ 562,290 and $ 837,618 during the periods ended June 30, 2024 and December 31, 2023, 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 June 30, 2024 December 31, 2023 Tax liabilities $ 39,616 $ 37,228 Accrued Royalty - Globrands LLC 963,081 1,092,915 Other 2,231,502 1,759,246 Total $ 3,234,199 $ 2,889,389 Other accrued liabilities as of June 30, 2024 and December 31, 2023, include a non-interest-bearing payable totaling $ 45,000 and $ 45,000 , respectively, that is due on demand and customer deposits totaling $ 2,196,164 and $ 1,735,109 , respectively. 11 Accrued payroll and compensation liabilities consist of the following: SCHEDULE OF ACCRUED PAYROLL AND COMPENSATION LIABILITIES June 30, 2024 December 31, 2023 Director fees $ 135,000 $ 135,000 Bonus expenses 126,858 121,858 Commissions 2,148 2,148 Consulting 409,822 438,822 Administrative payroll 4,507,288 4,369,385 Total $ 5,181,116 $ 5,067,213 NOTE 7 — COMMITMENTS AND CONTINGENCIES Litigation and Claims Various vendors, service providers, and others have asserted legal claims in previous years. These creditors generally are not actively seeking collection of amounts due 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. The balance due related to this judgment, has been included in liabilities in discontinued operations. As of December 31, 2023, the Company received legal representation that the judgement can no longer be enforced after seven years, as a result, the Company has recognized a gain from discontinued operations of $ 18,878,359 of time barred debt previously included in liabilities from 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. During the year ended December 31, 2023, the Company wrote off $ 512,520 as time barred debt. The amounts of $ 5,164 and $ 5,164 were due as June 30, 2024 and December 31, 2023, respectively. 12 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 $ 74,124 and $ 345,000 was accrued during the periods ended June 30, 2024 and December 31, 2023, respectively. 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. 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 June 30, 2024 December 31, 2023 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 130,454 134,636 Total $ 720,454 $ 724,636 There is $ 391,648 and $ 366,626 of accrued interest due on these notes as of June 30, 2024 and December 31, 2023, respectively. 13 NOTE 9 — CONVERTIBLE DEBENTURES Convertible debentures consisted of the following: SCHEDULE OF CONVERTIBLE DEBENTURES June 30, 2024 December 31, 2023 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 Debt carrying amount $ 2,665,528 $ 2,665,528 Less: discounts ( 274,079 ) ( 323,310 ) Total $ 2,391,449 $ 2,342,218 Less: current portion ( 264,284 ) ( 264,284 ) Long-term portion $ 2,127,165 $ 2,077,934 The convertible debentures and accrued interest are convertible into shares of our common stock at the lower of $ 100 or the lowest bid price for the 20 trading days prior to conversion. As of June 30, 2024 and December 31, 2023, we had accrued interest on the convertible debentures totaling $ 1,988,046 and $ 1,921,590 , respectively. 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 June 30, 2024, using the following assumptions: SCHEDULE OF DERIVATIVE LIABILITIES AT FAIR VALUE Volatility 130 % - 138.2 % Risk-free rates 4.91 % - 5.02 % Stock price $ 0.016 Remaining life 0.25 - 2.83 years The fair values of the derivative instruments are measured each quarter, which resulted in a loss of $ 326,259 and $ 44,503 during the six months ended June 30, 2024 and 2023, respectively. As of June 30, 2024 and December 31, 2023, the fair market value of the derivatives aggregated $ 1,623,196 and $ 1,296,937 , respectively. NOTE 11 — STOCK OPTIONS AND WARRANTS Stock Incentive Plans As of June 30, 2024 and December 31, 2023, 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 June 30, 2024 and December 31, 2023, there were 32,000 options issued and vested with a weighted average exercise price of $ 0.01 and a weighted average remaining life of 2.48 years. Outstanding options as of June 30, 2024, consisted of: SCHEDULE OF STOCK OPTIONS OUTSTANDING Exercise Price Count Average Exercise Remaining Life Exercisable $ 0.01 32,000 0.01 2.48 32,000 NOTE 12— 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 June 30, 2024 and December 31, 2023. Additionally, the revenues and costs associated with this business are displayed as losses from discontinued operations. 14 During the year ended December 31, 2023, the Company received legal representation that the judgement related to Play Beverages, LLC, (Note 7) can no longer be enforced after seven years, as a result, the Company has recognized a gain from discontinued operations of $ 18,873,932 of time barred debt previously included in liabilities from discontinued operations. SCHEDULE OF DISCONTINUED OPERATIONS Total assets and liabilities included in discontinued operations were as follows: June 30, 2024 December 31, 2023 Assets from Discontinued Operations: Cash $ — $ — Total assets from discontinued operations $ — $ — Liabilities from Discontinued Operations: Accounts payable $ 283,818 $ 283,818 Accrued liabilities 58,184 58,184 Accrued interest 1,713,147 1,636,624 Accrued payroll and compensation expense 122,864 122,864 Current maturities of long-term debt 239,085 239,085 Related-party payable — — Short-term advances payable 2,170,500 2,170,500 Total liabilities from discontinued operations $ 4,587,598 $ 4,511,075 Net loss from discontinued operations for the six months ended June 30, 2024 and 2023, were comprised of the following components: 2024 2023 Six Months ended June 30, 2024 2023 Other expense: Interest expense ( 76,523 ) ( 76,102 ) Net loss from discontinued operations $ ( 76,523 ) $ ( 76,102 ) NOTE 13 — SUBSEQUENT EVENTS In accordance with SFAS 165 (ASC 855-10), management has performed an evaluation of subsequent events through the date that the unaudited consolidated financial statements were issued and has determined that it does not have any material subsequent events to disclose in these unaudited consolidated financial statements. 15