ITEM
1. BUSINESS
Overview
From
2007 until October 2016, we manufactured, marketed, and distributed internationally an energy drink under a license with Playboy
through our subsidiary, CirTran Beverage Corporation (“CirTran Beverage”). CirTran Beverage conducted its activities
under an agreement with Play Beverages, LLC (“PlayBev”), which held the Playboy license. During this time, PlayBev
was considered a variable interest entity. On October 21, 2016, we deconsolidated PlayBev from our consolidated financial statements.
In
October 2016, Playboy obtained a judgment against CirTran Beverage and PlayBev holding that the license is no longer valid, that
PlayBev is no longer authorized to market the Playboy-branded energy drink, and awarding money damages to Playboy. CirTran Corporation
was not a party to the lawsuit. CirTran Beverage and PlayBev filed a motion for a retrial, which was denied by the court in October
2018.
After
the Playboy litigation was initiated, our activities declined rapidly, as management sought to obtain the forbearance of our principal
secured and judgment creditors, seeking to resolve disputes respecting the PlayBev license to market Playboy-licensed energy drinks,
defending the numerous lawsuits to which we were a party, and obtaining additional capital. Disputes respecting the status of
the PlayBev license to market Playboy-licensed energy drinks impaired our ability to establish new distributors, damaged some
of our relationships with existing distributors, and considerably depressed revenues.
We
are now without significant operations. Reflecting our severely limited operations, we had minimal revenue of $12,500 during the
year ended December 31, 2017, and $0 during the year ended December 31, 2018.
References
to “us,” “we,” “our,” and correlative terms refer to CirTran Corporation and the subsidiaries
and divisions through which we conduct our activities.
Consumer
Product Commercialization—Contract Marketing
We
are now seeking to commercialize one or more consumer products. Through these efforts, we will identify what we believe to be
a product or other demand and then seek a product that may be distributed to address that demand. We pursue contract marketing
relationships principally in the domestic consumer products markets, including products in areas such as home and garden, kitchen,
health and beauty, toys, licensed merchandise, and apparel for film, television, sports, and other entertainment properties. If
we deem it suitable, we may obtain rights from the product owner to manufacture and market a particular product, generally in
consideration of the payment of a royalty, sometimes accompanied with an initial fee. Frequently, owners of undeveloped products
or product concepts are seeking branding, marketing, manufacturing, order fulfillment, and distribution assistance. Where we identify
a need but find no suitable available product, we may design our own product for commercialization.
Our
commercialization effort includes developing product packaging, branding the product, arranging third-party manufacturing, establishing
distribution channels, and arranging order fulfillment. We anticipate that these activities will generally be undertaken by third
parties under contract. In some cases, we may brand a product under a license to use a third-party’s recognized name, as
we did in the case of the Playboy-branded energy drink, seek an endorsement from a publicly recognized celebrity, sports figure,
or other person, or obtain the rights to use the image, likeness, or logo of a product or a person, such as a well-known celebrity.
Licensed merchandise and apparel are then sold and marketed in the entertainment and sports franchise industries. We anticipate
that these products will be introduced into the market under either one uniform brand name or separate trademarked names that
we originate and own or acquire by license.
Although
we are now investigating some commercialization opportunities, we are in the early stages of our efforts and cannot assure that
we will be successful in completing commercialization of any product, generating revenues, or realizing a profit.
The
contract-manufacturing industry specializes in providing the program management, technical and administrative support, and manufacturing
expertise required to take products from the early design and prototype stages through volume production and distribution, providing
the customer with a quality product, delivered on time and at a competitive cost. This full range of services gives the customer
an opportunity to avoid large capital investments in plant, inventory, equipment, and staffing, so that instead, it can concentrate
on innovation, design, and marketing. By using our contract-manufacturing services, customers will have the ability to improve
the return on their investment with greater flexibility in responding to market demands and exploiting new market opportunities.
Our efforts will be led by our current chief executive officer and others that we may hire as employees or engage as independent
contractors.
In
previous years, we found that customers increasingly required contract manufacturers to provide complete turn-key manufacturing
and material handling services, rather than working on a consignment basis in which the customer supplies all materials and the
contract manufacturer supplies only labor. Turn-key contracts involve design, manufacturing and engineering support, procurement
of all materials, and sophisticated in-circuit and functional testing and distribution. The manufacturing partnership between
customers and contract manufacturers involves an increased use of “just-in-time” inventory management techniques that
minimize the customer’s investment in component inventories, personnel, and related facilities, thereby reducing its costs.
Based
on the trends we have observed in the contract-manufacturing industry, we believe we will benefit from the increased market acceptance
of, and reliance upon, the use of manufacturing specialists by many original equipment manufacturers, or OEMs, marketing firms,
distributors, and national retailers. We believe the trend towards outsourcing manufacturing will continue. OEMs use manufacturing
specialists for many reasons, including reducing the time it takes to bring new products to market, reducing the initial investment
required, accessing leading manufacturing technology, gaining the ability to better focus resources in other value-added areas,
and improving inventory management and purchasing power. An important element of our strategy is to establish partnerships with
major and emerging OEM leaders in diverse segments across our target industries. Due to the costs inherent in supporting customer
relationships, we focus on customers with which the opportunity exists to develop long-term business partnerships. Our goal is
to provide our customers with total manufacturing solutions through third-party providers for both new and more mature products,
as well as across product generations—an idea we call “Concept to Consumer.”
We
have also designed, engineered, manufactured, and supplied products in the international electronics, consumer products, and general
merchandise industries for various marketers, distributors, and retailers selling overseas. We have provided manufacturing services
to the direct-response and retail consumer markets. Our experience and expertise enables us to enter a project at various phases:
engineering and design; product development and prototyping; tooling; and high-volume manufacturing. Our contacts with Asian suppliers
have helped us to maintain our status as an international contract manufacturer for multiple products in a wide variety of industries,
which will allow us to target larger-scale contracts.
We
intend to pursue manufacturing relationships beyond printed circuit board assemblies, cables, harnesses, and injection-molding
systems by establishing complete “box-build” or “turn-key” relationships in the electronics, retail, and
direct consumer markets.
We
have developed markets for several fitness and exercise products, household and kitchen products and appliances, and health and
beauty aids that are manufactured in China. We anticipate that offshore contract manufacturing will play an increased role moving
forward as resources become available to us.
Beverage
Distribution
We
are no longer authorized to manufacture or market the Playboy-branded energy drink but we may seek to rebrand and remarket an
energy drink based on our own brand and product formula, relying at least in part on the beverage distribution network that we
previously developed.
Sales
and Marketing
We
review opportunities to identify products that we may market through current sales channels. We also seek new paths to deliver
products and services directly to end users and are pursuing strategic and reciprocal relationships with retail distribution firms
whereby they would act as our retail distribution arm and we would act as their manufacturing arm, with each party giving the
other priority and first opportunity to work on the other’s products.
Our
contacts in China may allow us to increase our manufacturing capacity and output with minimal capital investment required. By
using various subcontractors, we may leverage our upfront payments for inventories and tooling to control costs and receive benefits
from economies of scale in Asian manufacturing facilities.
Typically,
and depending on the contract, we may be required to prepay a portion of the purchase orders for materials. In exchange for financial
commitments, we may receive dedicated manufacturing responsiveness and eliminate the costly expense associated with capitalizing
completely proprietary facilities. For example, we previously expanded our manufacturing capabilities for our beverage division
outside the United States to accommodate international customers by contracting with manufacturers in Hungary and India.
During
a typical contract manufacturing sales process, a customer provides us with specifications for the product it wants, and we develop
a bid price for manufacturing a minimum quantity that includes manufacture engineering, parts, labor, testing, and shipping. If
the bid is accepted, the customer is required to purchase the minimum quantity, and additional product is sold through purchase
orders issued under the original contract. Special engineering services are provided at either an hourly rate or a fixed contract
price for a specified task.
Competition
Competition
in our targeted markets is comprised of manufacturing technology, merchandise quality, responsiveness, the provision of value-added
services, and price. To be competitive, we must provide technologically advanced manufacturing services, maintain quality levels,
offer flexible delivery schedules, and deliver finished products on a reliable basis and for a favorable price.
The
manufacturing services industry is large and diverse and serviced by many companies, including several that have achieved significant
market share. We will compete with different companies depending on the type of service or geographic area. Certain of our competitors
may have greater manufacturing, financial, research and development, and marketing resources than we have.
We
will also face competition from current and prospective customers that evaluate our capabilities against the merits of manufacturing
products internally.
Regulation
We
are subject to typical federal, state, and local regulations and laws governing the operations of manufacturing concerns, including
environmental disposal, storage, and discharge regulations and laws; employee safety laws and regulations; and labor practices
laws and regulations. We are not required under current laws and regulations to obtain or maintain any specialized or agency-specific
licenses, permits, or authorizations to conduct our manufacturing services. We believe we are in substantial compliance with all
relevant regulations applicable to our business and operations. All international sales permits are the responsibility of the
local distributors, and they are required to obtain all local licenses and permits.
Employees
At
December 31, 2018, we had three full-time employees, including our officers and directors, and two part-time employees.
Corporate
Background and History
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 we acquired substantially all of the assets and
certain liabilities of Circuit Technology, Inc., through a wholly owned subsidiary, CirTran Corporation (Utah), that we created
for the purpose of completing the acquisition.
Our
predecessor business in Circuit Technology, Inc. was commenced in 1993 by our president, Iehab Hawatmeh. In 2001, we effected
a 15-for-1 forward-split of our shares and a stock distribution, which increased the number of our issued and outstanding shares
of common stock. We also increased our authorized capital from 500,000,000 to 750,000,000 shares. In 2007, our stockholders approved
a 1.2-for-1 forward-split of our shares and an amendment to our articles of incorporation that increased our authorized capital
to 1,500,000,000 shares of common stock. In August 2011, we increased our authorized capitalization to 4,500,000,000 shares of
common stock, par value $0.001.
In
May 2015, our stockholders and board of directors approved an amendment to our articles of incorporation to complete a 1,000-to-1
reverse split, or consolidation, of our common stock, decrease our authorized common stock to 100,000,000 shares, par value $0.001,
and authorize a class of 5,000,000 shares of preferred stock having such terms as the board of directors may determine prior to
issuance (the “Amendment”). However, FINRA refused to approve the Amendment until such time as we became current in
our periodic reports and received approval for our common stock to resume trading. While we have become current in our periodic
reports, we are continuing to work with FINRA to allow trading of our common stock.