UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period ended
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _______________ to _______________
Commission
File No.
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(IRS Employer Identification No.) |
(Address of principal executive offices and zip code)
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Exchange Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| None | None | None |
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ | |
| Smaller
reporting company | ||
| Emerging
growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. As of May 11, 2023, there were shares of common stock, $0.001 par value, outstanding.
TABLE OF CONTENTS
| 2 |
PART I—FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CIRTRAN CORPORATION
CONSOLIDATED BALANCE SHEETS
| March 31, 2023 | December 31, 2022 | |||||||
| ASSETS | (Unaudited) | |||||||
| Current assets: | ||||||||
| Cash | $ | $ | ||||||
| Inventory | ||||||||
| Deposits on inventory | ||||||||
| Deposits on inventory - related party | ||||||||
| Accounts receivable, net of allowance for doubtful accounts of $ | ||||||||
| Other current assets | ||||||||
| Total current assets | ||||||||
| Investment in securities at cost | ||||||||
| Right-of-use asset | ||||||||
| Property and equipment, net of accumulated depreciation | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Liabilities for product returns and credits | ||||||||
| Related-party payable | ||||||||
| Short-term advances payable | ||||||||
| Short-term advances payable - related parties | ||||||||
| Accrued liabilities | ||||||||
| Accrued payroll and compensation expense | ||||||||
| Accrued interest, current portion | ||||||||
| Convertible debenture, current portion, net of discounts | ||||||||
| Note payable, current portion | ||||||||
| Note payable to stockholders | ||||||||
| Derivative liability | ||||||||
| Liabilities from discontinued operations | ||||||||
| Total current liabilities: | ||||||||
| Deferred tax liability | ||||||||
| Note payable, net of current portion | ||||||||
| Convertible debenture, net of current portion, net of discount | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies | ||||||||
| Stockholders’ deficit: | ||||||||
| Common stock, par value $; shares authorized; shares issued and outstanding | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ deficit | ( | ) | ( | ) | ||||
| Total liabilities and stockholders’ deficit | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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CIRTRAN CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| For the Three Months Ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| Net sales | $ | $ | ||||||
| Cost of sales | ||||||||
| Gross profit | ||||||||
| Operating expenses: | ||||||||
| Employee costs | ||||||||
| Selling, general and administrative expenses | ||||||||
| Total operating expenses | ||||||||
| Loss from operations | ( | ) | ( | ) | ||||
| Other income (expense) | ||||||||
| Interest expense | ( | ) | ( | ) | ||||
| Gain on forgiveness of debt | ||||||||
| Loss on derivative valuation | ( | ) | ( | ) | ||||
| Total other expense | ( | ) | ( | ) | ||||
| Net loss from continuing operations | ( | ) | ( | ) | ||||
| Loss from discontinued operations | ( | ) | ( | ) | ||||
| Net loss before income tax | ( | ) | ( | ) | ||||
| Income tax | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Net loss from continuing operations per common share, basic and diluted | $ | ( | ) | $ | ( | ) | ||
| Net loss from discontinued operations per common share, basic and diluted | $ | ( | ) | $ | ( | ) | ||
| Net loss per share, basic and diluted | $ | ( | ) | $ | ( | ) | ||
| Basic weighted average common shares outstanding | ||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 4 |
CIRTRAN CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT
FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022
(Unaudited)
| Common Stock | Additional Paid-in | Accumulated | Total stockholders’ | |||||||||||||||||
| Shares | Amount | Capital | Deficit | deficit | ||||||||||||||||
| Balance, December 31, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||
| Balance, March 31, 2023 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
| Common Stock | Additional Paid-in | Accumulated | Total stockholders’ | |||||||||||||||||
| Shares | Amount | Capital | Deficit | deficit | ||||||||||||||||
| Balance, December 31, 2021 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
| Net income | — | ( | ) | ( | ) | |||||||||||||||
| Balance, March 31, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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CIRTRAN CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| For the Three Months Ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| Cash flows from operating activities | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net income to net cash (used) provided by operating activities: | ||||||||
| Loss from discontinued operations | ||||||||
| Depreciation expense | ||||||||
| Loss on derivative valuation | ||||||||
| Debt discount amortization | ||||||||
| Gain on forgiveness of debt | ( | ) | ||||||
| Amortization of right-of-use asset to rent expense | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Inventory | ( | ) | ||||||
| Deposits on inventory | ( | ) | ||||||
| Deposits on inventory - related party | ( | ) | ||||||
| Accounts receivable | ||||||||
| Other current assets | ( | ) | ||||||
| Accounts payable | ( | ) | ||||||
| Liabilities for product returns and credits | ||||||||
| Accrued liabilities | ||||||||
| Payments for lease liability | ( | ) | ||||||
| Accrued payroll and compensation | ||||||||
| Accrued interest | ||||||||
| Net cash provided by operating activities | ||||||||
| Cash flows from investing activities: | ||||||||
| Cash flows from financing activities: | ||||||||
| Repayments of related-party loans | ( | ) | ( | ) | ||||
| Net Cash used in financing activities | ( | ) | ( | ) | ||||
| Net change in cash | ||||||||
| Cash, beginning of period | ||||||||
| Cash, end of period | $ | $ | ||||||
| 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 financial statements.
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CIRTRAN CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2023
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, 2022. In the opinion of our management, all adjustments, including normal recurring adjustments necessary to present fairly our financial position, as of March 31, 2023, and the results of our operations and cash flows for the three 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, 2023.
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.
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Cash Equivalents
We
consider all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. There were
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 three months ended March 31, 2023 and 2022, we recognized revenue of $
Additionally,
we recognized revenues of $
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 March 31, 2023, the Company has recorded an allowance
for doubtful accounts of $
Investment in Securities
Our
cost-method investment consists of an investment in a private digital multi-media technology company that totaled $
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.
| 8 |
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 $
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:
| March 31, 2023 | December 31, 2022 | |||||||
| Finished goods | $ | $ | ||||||
| Raw materials | ||||||||
| Total | $ | $ | ||||||
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.
| Total Fair Value at March 31, 2023 | Quoted prices in active markets (Level 1) | Significant other observable inputs (Level 2) | Significant unobservable inputs (Level 3) | |||||||||||||
| Derivative liabilities | $ | $ | $ | $ | ||||||||||||
| Total Fair Value at December 31, 2022 | Quoted prices in active markets (Level 1) | Significant other observable inputs (Level 2) | Significant unobservable inputs (Level 3) | |||||||||||||
| Derivative liabilities | $ | $ | $ | $ | ||||||||||||
| 9 |
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 and potentially issuable shares from the conversions of convertible debentures outstanding that were excluded in dilutive outstanding shares for the three months ended March 31, 2023 and 2022, 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
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.
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 $
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:
| March 31, 2023 | December 31, 2022 | Useful Life (years) | ||||||||
| Furniture and office equipment | $ | $ | ||||||||
| Vehicles | ||||||||||
| Total | ||||||||||
| Less: accumulated depreciation | ( | ) | ( | ) | ||||||
| Property and equipment, net | $ | $ | ||||||||
We
recorded $
| 10 |
NOTE 5 — RELATED-PARTY TRANSACTIONS
In
2007, we issued a
On
March 31, 2008, we issued to this same family member, along with two other company shareholders, promissory notes totaling $
There were $ and $ of short-term advances due to related parties as of March 31, 2023 and December 31, 2022, 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 shares of our stock each year, with an exercise price of $. Mr. Hawatmeh held outstanding options to purchase shares of common stock as of March 31, 2023 and December 31, 2022. See Note 13–Stock Options and Warrants.
As
of March 31, 2023 and December 31, 2022, we owed our president a total of $ and $, respectively, in unsecured advances.
The advances and short-term bridge loans were approved by our board of directors under a
As of March 31, 2023 and December 31, 2022, we owed a total of $ and $, 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 three months ended March 31, 2023, we had a net decrease in deposits with a related-party inventory supplier totaling $
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:
| March 31, 2023 | December 31, 2022 | |||||||
| Tax liabilities | $ | $ | ||||||
| Other | ||||||||
| Total | $ | $ | ||||||
Other
accrued liabilities as of March 31, 2023 and December 31, 2022, include a non-interest-bearing payable totaling $
| 11 |
Accrued payroll and compensation liabilities consist of the following:
| March 31, 2023 | December 31, 2022 | |||||||
| Director fees | $ | $ | ||||||
| Bonus expenses | ||||||||
| Commissions | ||||||||
| Consulting | ||||||||
| Administrative payroll | ||||||||
| Total | $ | $ | ||||||
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 $
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 $
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 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
| 12 |
We also have an oral agreement with our other director that requires us to issue options to purchase 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:
| March 31, 2023 | December 31, 2022 | |||||||
| Note payable to former service provider for past due account payable (current) | $ | $ | ||||||
| Note payable for settlement of debt (long-term) | ||||||||
| Small Business Administration loan | ||||||||
| Total | $ | $ | ||||||
There
is $
NOTE 9 — CONVERTIBLE DEBENTURES
Convertible debentures consisted of the following:
| March 31, 2023 | December 31, 2022 | |||||||
| Convertible debenture, | $ | $ | ||||||
| Convertible debenture, | ||||||||
| Convertible debenture, | ||||||||
| Convertible debenture, | ||||||||
| Convertible debenture, | ||||||||
| Subtotal | $ | $ | ||||||
| Less: discounts | ( | ) | ( | ) | ||||
| Total | $ | $ | ||||||
| Less: current portion | ( | ) | ( | ) | ||||
| Long-term portion | $ | $ | ||||||
The
convertible debentures and accrued interest are convertible into shares of our common stock at the lower of $
| 13 |
As
of March 31, 2023 and December 31, 2022, we had accrued interest on the convertible debentures totaling $
NOTE 10 — DERIVATIVE LIABILITIES
As
discussed in Note 9—Convertible Debentures, we have entered into five separate agreements to borrow a total of $
| Volatility | % | |||
| Risk-free rates | % | |||
| Stock price | $ | |||
| Remaining life |
The
fair values of the derivative instruments are measured each quarter, which resulted in a loss of $
Stock Incentive Plans
During the three months ended March 31, 2023, options previously granted to employees expired. During the same period we granted those same employees new options to purchase shares of common stock. The value of the options is nominal; therefore there is no current impact to the financial statements.
As of March 31, 2023 and December 31, 2022, we had unrecognized compensation related to outstanding options that have not yet vested at year-end that would be recognized in subsequent periods.
As of March 31, 2023 and December 31, 2022, there were options issued and vested with a weighted average exercise price of $and a weighted average remaining life of years. Outstanding options as of March 31, 2023, consisted of:
| Exercise Price | Count | Average Exercise | Remaining Life | Exercisable | ||||||||||||||
| $ | ||||||||||||||||||
| $ | ||||||||||||||||||
| Total | ||||||||||||||||||
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 March 31, 2023 and December 31, 2022. Additionally, the revenues and costs associated with this business are displayed as losses from discontinued operations.
| 14 |
Total assets and liabilities included in discontinued operations were as follows:
| March 31, 2023 | December 31, 2022 | |||||||
| Assets from Discontinued Operations: | ||||||||
| Cash | $ | $ | ||||||
| Total assets from discontinued operations | $ | $ | ||||||
| Liabilities from Discontinued Operations: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued liabilities | ||||||||
| Accrued interest | ||||||||
| Accrued payroll and compensation expense | ||||||||
| Current maturities of long-term debt | ||||||||
| Related-party payable | ||||||||
| Short-term advances payable | ||||||||
| Total liabilities from discontinued operations | $ | $ | ||||||
Net loss from discontinued operations for the three months ended March, 2023 and 2022, were comprised of the following components:
| Three Months ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| Other expense: | ||||||||
| Interest expense | ( | ) | ( | ) | ||||
| Net loss from discontinued operations | $ | ( | ) | $ | ( | ) | ||
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.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our condensed consolidated unaudited financial statements and notes to our unaudited financial statements included elsewhere in this report. This discussion contains forward-looking statements that involve risks and uncertainties. Actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors discussed elsewhere in this report.
Overview
Based on our diversified expertise in manufacturing, marketing, distribution, and technology services in a wide variety of consumer products, including tobacco products, medical devices, and beverages, around the world, we have an innovative and consumer-focused approach to brand portfolio management, resting on a strong understanding of consumers domestically, and we have established a footprint in more than 50 key, international markets.
Since 2021, we continue under our 2019 five-year manufacturing and distribution agreement with an unrelated party to manufacture, distribute, and sell condoms, electronic tobacco products, cigars, energy drinks, water beverages, and related merchandise, all using the HUSTLER® brand name.
| 15 |
Results of Operations for the Three Months Ended March 31, 2023, Compared to the Three Months Ended March 31, 2022
Sales and Cost of Sales
During the three months ended March 31, 2023 and 2022, we had net sales of $213,409 and $691,768, respectively, a decrease of $478,359 or 69.2%. We had cost of sales of $85,707 and $232,379, respectively, for gross profit of $127,702 and $459,389, respectively. Revenues are derived from the design, manufacture, and delivery of certain licensed products in accordance with our GloBrands-HUSTLER® distribution agreement. The decrease in revenue in the current period is due to a decrease in the sale of Vape products in California due to their ban on flavored tobacco.
Operating Expenses
During the three months ended March 31, 2023 and 2022, employee costs were $136,695 and $132,506, respectively, an increase of $4,189 or 3.2%. Selling, general, and administrative expenses were $138,678 and $376,177, respectively, a decrease of $237,499 or 63.2%. The decrease in operating expenses period over period was the result of selling certain tobacco products in states with lower or no excise tax.
Other Expense
Other expenses during the three months ended March 31, 2023 and 2022, consisted of $183,288 and $173,351 of interest expense and a loss of $124,545 and $36,053 on derivative valuation, respectively. We also recognized a gain on the forgiveness of debt of $13,000 in the current period. The increase in other expenses period over period is the result of an increase to our loss on derivative valuation.
Net Loss
Our net loss from continuing operations for the three months ended March 31, 2023, was $442,504 compared to $258,698 for the three months ended March 31, 2022, an increase of $183,806. Our net loss increased in the current period mainly due the $331,687 decrease in our gross profit.
Liquidity and Capital Resources
We have had a history of losses from operations, as our expenses have been greater than our revenue. Our accumulated deficit was approximately $79.8 million at March 31, 2023. As of March 31, 2023, we had current assets of $1.5 million and current liabilities of approximately $42 million, resulting in a working capital deficit of approximately $40.2 million at March 31, 2023.
Operating Activities
During the three months ended March 31, 2023, operations generated $196,598 of net cash, comprised of a loss of $480,345, noncash items totaling $135,769 consisting primarily of losses recognized from the changes in fair values of derivative liabilities and debt discount amortization, and changes in working capital totaling $503,333. During the three months ended March 31, 2022, operations generated $66,057 of net cash, comprised of a net loss of $296,503, noncash items totaling $66,442 consisting primarily of losses recognized from the changes in fair values of derivative liabilities and debt discount amortization, and changes in working capital totaling $258,313.
Financing Activities
During the three months ended March 31, 2023, financing activities used $15,788 of cash, compared to using $35,000 of cash during the three months ended March 31, 2022.
Our Capital Resources and Anticipated Requirements
Our monthly operating costs are approximately $35,000 per month, excluding approximately $50,000 of accruing interest expense and capital expenditures. We continue to focus on generating revenue and reducing our monthly business expenses through cost reductions and operational streamlining. We have only recently begun to generate enough cash to sustain our day-to-day operations, and we expect to access external capital resources in the future to fund any new projects we may undertake. We cannot assure that we will be successful in obtaining such capital.
If we seek infusions of capital from investors, it is unlikely that we will be able to obtain additional debt financing. If we did incur additional debt, we would be required to devote additional cash flow to servicing the debt and securing the debt with assets.
| 16 |
Our issuance of additional shares for equity or for conversion of debt could dilute the value of our common stock and existing stockholders’ positions.
Convertible Debentures and Note Payable
We currently have an outstanding amended, restated, and consolidated secured convertible debenture with Tekfine, LLC, an unrelated entity, with a maturity date of April 30, 2027, to the extent not previously converted. The amended debenture had a total outstanding principal balance of $2.4 million, with accrued interest of $1.8 million as of March 31, 2023. We also have four additional convertible debentures with Tekfine with maturity dates ranging from December 8, 2022, until December 30, 2022, totaling $275,000, unless earlier converted. The convertible debentures and accrued interest are convertible into shares of our common stock at the lower of $100 or $0.10 (depending on the instrument) or the lowest bid price for the 20 trading days prior to conversion.
As of March 31, 2023, there is $21,882 of short-term advances due to related parties. The advances are due on demand and included in current liabilities. No demand for payment has been made.
Going Concern
These interim unaudited financial statements have been prepared on the going concern basis, which assumes that adequate sources of financing will be obtained as required and that our assets will be realized and liabilities settled in the ordinary course of business. Accordingly, the interim unaudited financial statements do not include any adjustments related to the recoverability of assets and classification of assets and liabilities that might be necessary should we not be unable to continue as a going concern.
Critical Accounting Policies
We have identified the policies outlined below as critical to our business operations and an understanding of our results of operations. Refer to Note 2 – Summary of Significant Accounting Policies for discussion.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a smaller reporting company, we are not required to provide the information required by this item.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
As of March 31, 2023, we carried out an evaluation, under the supervision and with the participation of management, including our chief executive and financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based upon that evaluation, management concluded that our disclosure controls and procedures were not effective as of March 31, 2023, to provide reasonable assurance that the information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the periods prescribed by U.S. Securities and Exchange Commission and that such information is accumulated and communicated to management, including our chief executive and financial officer, as appropriate, to allow timely decisions regarding required disclosure.
In designing and evaluating disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute assurance of achieving the desired objectives. Also, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. The design of any system of controls is based, in part, upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
| 17 |
Changes in Internal Control over Financial Reporting
There has been no change in our internal control over financial reporting during the quarter ended March 31, 2023, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II—OTHER INFORMATION
ITEM 6. EXHIBITS
The following exhibits are filed as a part of this report:
Exhibit Number* |
Title of Document | Location | ||
| Item 31 | Rule 13a-14(a)/15d-14(a) Certifications | |||
| 31.01 | Certification of Principal Executive and Principal Financial Officer Pursuant to Rule 13a-14 | This filing. | ||
| Item 32 | Section 1350 Certifications | |||
| 32.01 | Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | This filing. | ||
| 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. | ||
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase | This filing. | ||
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
| * | 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 document’s sequence. |
| ** | The XBRL related information in Exhibit 101 will not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability of that section and will not be incorporated by reference into any filing or other document pursuant to the Securities Act of 1933, as amended, except as is expressly set forth by specific reference in such filing or document. |
| 18 |
SIGNATURE PAGE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| CIRTRAN CORPORATION | ||
| Dated: May 22, 2023 | By: | /s/ Iehab Hawatmeh |
| Iehab Hawatmeh, President | ||
| Principal Executive and Financial Officer | ||
| 19 |
Exhibit 31.01
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER AND
PRINCIPAL FINANCIAL OFFICER PURSUANT TO RULE 13a-14
I, Iehab Hawatmeh, certify that:
1. I have reviewed this quarterly report on Form 10-Q of CirTran Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Dated: May 22, 2023
| /s/ Iehab Hawatmeh | |
| Iehab Hawatmeh | |
| Principal Executive Officer and Principal Financial Officer |
Exhibit 32.01
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of CirTran Corporation (the “Company”) on Form 10-Q for the quarter ended March 31, 2023, as filed with the Securities and Exchange Commission (the “Report”), I, Iehab Hawatmeh, Chief Executive Officer and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge and belief:
| (1) | the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and | |
| (2) | the information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. |
| /s/ Iehab Hawatmeh | |
| Iehab Hawatmeh | |
| Chief Executive Officer | |
| Chief Financial Officer | |
| May 22, 2023 |
Consolidated Balance Sheets (Parenthetical) - USD ($) |
Mar. 31, 2023 |
Dec. 31, 2022 |
|---|---|---|
| Statement of Financial Position [Abstract] | ||
| Allowance for doubtful accounts | $ 39,438 | $ 39,438 |
| Common stock, par value | $ 0.001 | $ 0.001 |
| Common stock, shares authorized | 100,000,000 | 100,000,000 |
| Common stock, shares issued | 4,945,417 | 4,945,417 |
| Common stock, shares outstanding | 4,945,417 | 4,945,417 |
Consolidated Statements of Stockholders' Deficit (Unaudited) - USD ($) |
Common Stock [Member] |
Additional Paid-in Capital [Member] |
Retained Earnings [Member] |
Total |
|---|---|---|---|---|
| Beginning balance, value at Dec. 31, 2021 | $ 4,945 | $ 37,233,561 | $ (77,803,460) | $ (40,564,954) |
| Beginning balance, shares at Dec. 31, 2021 | 4,945,417 | |||
| Net income (loss) | (296,503) | (296,503) | ||
| Ending balance, value at Mar. 31, 2022 | $ 4,945 | 37,233,561 | (78,099,963) | (40,861,457) |
| Ending balance, shares at Mar. 31, 2022 | 4,945,417 | |||
| Beginning balance, value at Dec. 31, 2022 | $ 4,945 | 37,233,561 | (79,305,551) | (42,067,045) |
| Beginning balance, shares at Dec. 31, 2022 | 4,945,417 | |||
| Net income (loss) | (480,345) | (480,345) | ||
| Ending balance, value at Mar. 31, 2023 | $ 4,945 | $ 37,233,561 | $ (79,785,896) | $ (42,547,390) |
| Ending balance, shares at Mar. 31, 2023 | 4,945,417 |
ORGANIZATION AND NATURE OF OPERATIONS |
3 Months Ended |
|---|---|
Mar. 31, 2023 | |
| Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
| ORGANIZATION AND NATURE OF OPERATIONS | 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.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
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| Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 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, 2022. In the opinion of our management, all adjustments, including normal recurring adjustments necessary to present fairly our financial position, as of March 31, 2023, and the results of our operations and cash flows for the three 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, 2023.
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.
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 three months ended March 31, 2023 and the year ended December 31, 2022.
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 three months ended March 31, 2023 and 2022, we recognized revenue of $52,570 and $130,299, 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 three months ended March 31, 2023 and 2022.
Additionally, we recognized revenues of $160,839 and $561,469 during the three months ended March 31, 2023 and 2022, 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.
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 March 31, 2023, the Company has recorded an allowance for doubtful accounts of $39,438.
Investment in Securities
Our cost-method investment consists of an investment in a private digital multi-media technology company that totaled $300,000 at March 31, 2023 and December 31, 2022. 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.
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 total $40,440 (non-related-party) and $143,154 (related-party) as of March 31, 2023 and $40,440 (non-related-party) and $417,633 (related-party) as of December 31, 2022.
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:
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.
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 and potentially issuable shares from the conversions of convertible debentures outstanding that were excluded in dilutive outstanding shares for the three months ended March 31, 2023 and 2022, 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
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.
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GOING CONCERN |
3 Months Ended |
|---|---|
Mar. 31, 2023 | |
| Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
| GOING CONCERN | 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 $40,178,774 as of March 31, 2023, and a net loss from continuing operations of $442,504 for the three months ended March 31, 2023. As of March 31, 2023, we had an accumulated deficit of $79,785,896. 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.
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PROPERTY AND EQUIPMENT |
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| PROPERTY AND EQUIPMENT | 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:
We recorded $922 and $941 of depreciation expense during the three months ended March 31, 2023 and 2022.
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RELATED-PARTY TRANSACTIONS |
3 Months Ended |
|---|---|
Mar. 31, 2023 | |
| Related Party Transactions [Abstract] | |
| RELATED-PARTY TRANSACTIONS | 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 March 31, 2023 and December 31, 2022, 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 $315,000 ($ each). Under the terms of these three $ 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 March 31, 2023 and December 31, 2022, was $72,466 and $72,466, respectively. No demand for payment has been made.
There were $ and $ of short-term advances due to related parties as of March 31, 2023 and December 31, 2022, 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 shares of our stock each year, with an exercise price of $. Mr. Hawatmeh held outstanding options to purchase shares of common stock as of March 31, 2023 and December 31, 2022. See Note 13–Stock Options and Warrants.
As of March 31, 2023 and December 31, 2022, we owed our president a total of $ and $, 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 March 31, 2023 and December 31, 2022, we owed a total of $ and $, 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 three months ended March 31, 2023, we had a net decrease in deposits with a related-party inventory supplier totaling $274,479. 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 $143,154 and $341,734 during the periods ended March 31, 2023 and December 31, 2022, respectively.
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OTHER ACCRUED LIABILITIES |
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| Payables and Accruals [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| OTHER ACCRUED LIABILITIES | 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:
Other accrued liabilities as of March 31, 2023 and December 31, 2022, include a non-interest-bearing payable totaling $45,000 and $45,000, respectively, that is due on demand and customer deposits totaling $1,543,170 and $1,437,361, respectively.
Accrued payroll and compensation liabilities consist of the following:
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COMMITMENTS AND CONTINGENCIES |
3 Months Ended |
|---|---|
Mar. 31, 2023 | |
| Commitments and Contingencies Disclosure [Abstract] | |
| COMMITMENTS AND CONTINGENCIES | 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. We have accrued $17,205,599 as of March 31, 2023 and December 31, 2022, 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 $ and $ were due as March 31, 2023 and December 31, 2022, 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 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 $86,250 and $345,000 was accrued during the period ended March 31, 2023 and December 31, 2022, respectively.
We also have an oral agreement with our other director that requires us to issue options to purchase 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.
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NOTES PAYABLE |
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Mar. 31, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Notes Payable | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| NOTES PAYABLE | NOTE 8 — NOTES PAYABLE
Notes payable consisted of the following:
There is $311,877 and $300,165 of accrued interest due on these notes as of March 31, 2023 and December 31, 2022, respectively.
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CONVERTIBLE DEBENTURES |
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| Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| CONVERTIBLE DEBENTURES | NOTE 9 — CONVERTIBLE DEBENTURES
Convertible debentures consisted of the following:
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 March 31, 2023 and December 31, 2022, we had accrued interest on the convertible debentures totaling $1,821,176 and $1,788,318, respectively.
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DERIVATIVE LIABILITIES |
3 Months Ended | ||||||||||||||||||||
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Mar. 31, 2023 | |||||||||||||||||||||
| Derivative Instruments and Hedging Activities Disclosure [Abstract] | |||||||||||||||||||||
| DERIVATIVE LIABILITIES | 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 March 31, 2023, using the following assumptions:
The fair values of the derivative instruments are measured each quarter, which resulted in a loss of $124,545 and $36,053 during the three months ended March 31, 2023 and 2022, respectively. As of March 31, 2023 and December 31, 2022, the fair market value of the derivatives aggregated $1,129,382 and $1,004,837, respectively.
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STOCK OPTIONS AND WARRANTS |
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Mar. 31, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Equity [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| STOCK OPTIONS AND WARRANTS |
Stock Incentive Plans
During the three months ended March 31, 2023, options previously granted to employees expired. During the same period we granted those same employees new options to purchase shares of common stock. The value of the options is nominal; therefore there is no current impact to the financial statements.
As of March 31, 2023 and December 31, 2022, we had unrecognized compensation related to outstanding options that have not yet vested at year-end that would be recognized in subsequent periods.
As of March 31, 2023 and December 31, 2022, there were options issued and vested with a weighted average exercise price of $and a weighted average remaining life of years. Outstanding options as of March 31, 2023, consisted of:
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DISCONTINUED OPERATIONS |
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| Discontinued Operations and Disposal Groups [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| DISCONTINUED OPERATIONS | 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 March 31, 2023 and December 31, 2022. Additionally, the revenues and costs associated with this business are displayed as losses from discontinued operations.
Total assets and liabilities included in discontinued operations were as follows:
Net loss from discontinued operations for the three months ended March, 2023 and 2022, were comprised of the following components:
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SUBSEQUENT EVENTS |
3 Months Ended |
|---|---|
Mar. 31, 2023 | |
| Subsequent Events [Abstract] | |
| SUBSEQUENT EVENTS | 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. |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) |
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Mar. 31, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Basis of Presentation | 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, 2022. In the opinion of our management, all adjustments, including normal recurring adjustments necessary to present fairly our financial position, as of March 31, 2023, and the results of our operations and cash flows for the three 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, 2023.
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| Use of Estimates | 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.
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| Principles of Consolidation | 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.
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| Concentrations of Credit Risk | 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.
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| Cash Equivalents | 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 three months ended March 31, 2023 and the year ended December 31, 2022.
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| Revenue Recognition | 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 three months ended March 31, 2023 and 2022, we recognized revenue of $52,570 and $130,299, 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 three months ended March 31, 2023 and 2022.
Additionally, we recognized revenues of $160,839 and $561,469 during the three months ended March 31, 2023 and 2022, 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.
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| Accounts Receivable | 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 March 31, 2023, the Company has recorded an allowance for doubtful accounts of $39,438.
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| Investment in Securities | Investment in Securities
Our cost-method investment consists of an investment in a private digital multi-media technology company that totaled $300,000 at March 31, 2023 and December 31, 2022. 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.
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| Inventories | 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 total $40,440 (non-related-party) and $143,154 (related-party) as of March 31, 2023 and $40,440 (non-related-party) and $417,633 (related-party) as of December 31, 2022.
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:
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| Fair Value of Financial Instruments | 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.
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| 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 and potentially issuable shares from the conversions of convertible debentures outstanding that were excluded in dilutive outstanding shares for the three months ended March 31, 2023 and 2022, 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.
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| Recently Issued Accounting Pronouncements | 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. |
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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables) |
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| Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF INVENTORY | Inventory balances consisted of the following:
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| SCHEDULE OF FINANCIAL ASSETS AND LIABILITIES CARRIED AT FAIR VALUED MEASURED ON RECURRING BASIS |
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PROPERTY AND EQUIPMENT (Tables) |
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| SCHEDULE OF PROPERTY AND EQUIPMENT AND ESTIMATED SERVICE LIVES | Property and equipment and estimated service lives consist of the following:
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OTHER ACCRUED LIABILITIES (Tables) |
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| SCHEDULE OF ACCRUED LIABILITIES | Accrued liabilities consist of the following:
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| SCHEDULE OF ACCRUED PAYROLL AND COMPENSATION LIABILITIES | Accrued payroll and compensation liabilities consist of the following:
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NOTES PAYABLE (Tables) |
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| SCHEDULE OF NOTES PAYABLE | Notes payable consisted of the following:
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CONVERTIBLE DEBENTURES (Tables) |
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Mar. 31, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF CONVERTIBLE DEBENTURES | Convertible debentures consisted of the following:
|
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DERIVATIVE LIABILITIES (Tables) |
3 Months Ended | ||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2023 | |||||||||||||||||||||
| Derivative Instruments and Hedging Activities Disclosure [Abstract] | |||||||||||||||||||||
| SCHEDULE OF DERIVATIVE LIABILITIES AT FAIR VALUE |
|
STOCK OPTIONS AND WARRANTS (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Equity [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF STOCK OPTIONS OUTSTANDING |
|
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DISCONTINUED OPERATIONS (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Discontinued Operations and Disposal Groups [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF DISCONTINUED OPERATIONS | Total assets and liabilities included in discontinued operations were as follows:
Net loss from discontinued operations for the three months ended March, 2023 and 2022, were comprised of the following components:
|
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SCHEDULE OF INVENTORY (Details) - USD ($) |
Mar. 31, 2023 |
Dec. 31, 2022 |
|---|---|---|
| Accounting Policies [Abstract] | ||
| Finished goods | $ 743,454 | $ 787,671 |
| Raw materials | 28,182 | 28,343 |
| Total | $ 771,636 | $ 816,014 |
SCHEDULE OF FINANCIAL ASSETS AND LIABILITIES CARRIED AT FAIR VALUED MEASURED ON RECURRING BASIS (Details) - USD ($) |
Mar. 31, 2023 |
Dec. 31, 2022 |
|---|---|---|
| Platform Operator, Crypto-Asset [Line Items] | ||
| Derivative liabilities | $ 1,129,382 | $ 1,004,837 |
| Fair Value, Inputs, Level 1 [Member] | ||
| Platform Operator, Crypto-Asset [Line Items] | ||
| Derivative liabilities | ||
| Fair Value, Inputs, Level 2 [Member] | ||
| Platform Operator, Crypto-Asset [Line Items] | ||
| Derivative liabilities | ||
| Fair Value, Inputs, Level 3 [Member] | ||
| Platform Operator, Crypto-Asset [Line Items] | ||
| Derivative liabilities | $ 1,129,382 | $ 1,004,837 |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details Narrative) - USD ($) |
3 Months Ended | ||
|---|---|---|---|
Mar. 31, 2023 |
Mar. 31, 2022 |
Dec. 31, 2022 |
|
| Product Information [Line Items] | |||
| Cash equivalents | $ 0 | $ 0 | |
| Allowance for doubtful accounts receivable | $ 39,438 | 39,438 | |
| Investment owned at cost | 300,000 | 300,000 | |
| Deposits on inventory | 40,440 | 40,440 | |
| Deposits on inventory related party | $ 143,154 | $ 417,633 | |
| Potentially issuable common shares | 179,468,200 | 79,146,472 | |
| Maximum [Member] | Digital Multi Media Technology [Member] | |||
| Product Information [Line Items] | |||
| Equity ownership percentage | 20.00% | ||
| Product Development Service [Member] | |||
| Product Information [Line Items] | |||
| Revenue recognized | $ 52,570 | $ 130,299 | |
| Product Delivery to Customers [Member] | |||
| Product Information [Line Items] | |||
| Revenue recognized | $ 160,839 | $ 561,469 | |
GOING CONCERN (Details Narrative) - USD ($) |
3 Months Ended | |
|---|---|---|
Mar. 31, 2023 |
Dec. 31, 2022 |
|
| Organization, Consolidation and Presentation of Financial Statements [Abstract] | ||
| Working capital deficiency | $ 40,178,774 | |
| Net loss from continuing operations | 442,504 | |
| Accumulated deficit | $ 79,785,896 | $ 79,305,551 |
SCHEDULE OF PROPERTY AND EQUIPMENT AND ESTIMATED SERVICE LIVES (Details) - USD ($) |
Mar. 31, 2023 |
Dec. 31, 2022 |
|---|---|---|
| Property, Plant and Equipment [Line Items] | ||
| Total | $ 22,470 | $ 22,470 |
| Less: accumulated depreciation | (8,374) | (7,452) |
| Property and equipment, net | 14,096 | 15,018 |
| Furniture and Office Equipment [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Total | $ 3,798 | 3,798 |
| Furniture and Office Equipment [Member] | Minimum [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Useful Life (years) | 5 years | |
| Furniture and Office Equipment [Member] | Maximum [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Useful Life (years) | 10 years | |
| Vehicles [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Total | $ 18,672 | $ 18,672 |
| Vehicles [Member] | Minimum [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Useful Life (years) | 3 years | |
| Vehicles [Member] | Maximum [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Useful Life (years) | 7 years |
PROPERTY AND EQUIPMENT (Details Narrative) - USD ($) |
3 Months Ended | |
|---|---|---|
Mar. 31, 2023 |
Mar. 31, 2022 |
|
| Property, Plant and Equipment [Abstract] | ||
| Depreciation expense | $ 922 | $ 941 |
SCHEDULE OF ACCRUED LIABILITIES (Details) - USD ($) |
Mar. 31, 2023 |
Dec. 31, 2022 |
|---|---|---|
| Payables and Accruals [Abstract] | ||
| Tax liabilities | $ 550,785 | $ 548,811 |
| Other | 1,600,761 | 1,530,441 |
| Total | $ 2,151,546 | $ 2,079,252 |
SCHEDULE OF ACCRUED PAYROLL AND COMPENSATION LIABILITIES (Details) - USD ($) |
Mar. 31, 2023 |
Dec. 31, 2022 |
|---|---|---|
| Payables and Accruals [Abstract] | ||
| Director fees | $ 135,000 | $ 135,000 |
| Bonus expenses | 121,858 | 121,858 |
| Commissions | 2,148 | 2,148 |
| Consulting | 476,862 | 500,322 |
| Administrative payroll | 4,125,526 | 4,035,508 |
| Total | $ 4,861,394 | $ 4,794,836 |
OTHER ACCRUED LIABILITIES (Details Narrative) - USD ($) |
Mar. 31, 2023 |
Dec. 31, 2022 |
|---|---|---|
| Payables and Accruals [Abstract] | ||
| Other accrued liabilities | $ 45,000 | $ 45,000 |
| Advance customer deposits | $ 1,543,170 | $ 1,437,361 |
SCHEDULE OF NOTES PAYABLE (Details) - USD ($) |
Mar. 31, 2023 |
Dec. 31, 2022 |
|---|---|---|
| Notes Payable | ||
| 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 | 130,000 | 143,000 |
| Total | $ 720,000 | $ 733,000 |
NOTES PAYABLE (Details Narrative) - USD ($) |
Mar. 31, 2023 |
Dec. 31, 2022 |
|---|---|---|
| Notes Payable [Member] | ||
| Short-Term Debt [Line Items] | ||
| Accrued interest | $ 311,877 | $ 300,165 |
SCHEDULE OF CONVERTIBLE DEBENTURES (Details) - USD ($) |
Mar. 31, 2023 |
Dec. 31, 2022 |
|---|---|---|
| Short-Term Debt [Line Items] | ||
| Subtotal | $ 2,665,528 | $ 2,665,528 |
| Less: discounts | (409,632) | (432,934) |
| Total | 2,255,896 | 2,232,594 |
| Less: current portion | (264,284) | (264,284) |
| Long-term portion | 1,991,612 | 1,968,310 |
| Convertible Debt One [Member] | ||
| Short-Term Debt [Line Items] | ||
| Subtotal | 200,000 | 200,000 |
| Convertible Debenture Two [Member] | ||
| Short-Term Debt [Line Items] | ||
| Subtotal | 25,000 | 25,000 |
| Convertible Debenture Three [Member] | ||
| Short-Term Debt [Line Items] | ||
| Subtotal | 25,000 | 25,000 |
| Convertible Debenture Four [Member] | ||
| Short-Term Debt [Line Items] | ||
| Subtotal | 25,000 | 25,000 |
| Convertible Debenture Five [Member] | ||
| Short-Term Debt [Line Items] | ||
| Subtotal | $ 2,390,528 | $ 2,390,528 |
CONVERTIBLE DEBENTURES (Details Narrative) |
3 Months Ended | |
|---|---|---|
|
Mar. 31, 2023
USD ($)
Integer
$ / shares
|
Dec. 31, 2022
USD ($)
|
|
| Short-Term Debt [Line Items] | ||
| Convertible stock price trigger | $ / shares | $ 100 | |
| Debt convertible, threshold trading days | Integer | 20 | |
| Convertible Debentures [Member] | ||
| Short-Term Debt [Line Items] | ||
| Accrued interest | $ | $ 1,821,176 | $ 1,788,318 |
DERIVATIVE LIABILITIES (Details Narrative) - USD ($) |
3 Months Ended | 12 Months Ended |
|---|---|---|
Mar. 31, 2023 |
Dec. 31, 2022 |
|
| Derivative Instruments and Hedging Activities Disclosure [Abstract] | ||
| Convertible debentures | $ 2,665,528 | $ 2,665,528 |
| Terms of conversion feature description | 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 | |
| Lowest bid price | $ 100 | |
| Fair value of derivative loss | $ 124,545 | 36,053 |
| Derivative liabilities current | $ 1,129,382 | $ 1,004,837 |
SCHEDULE OF STOCK OPTIONS OUTSTANDING (Details) |
3 Months Ended |
|---|---|
|
Mar. 31, 2023
$ / shares
shares
| |
| Share-Based Payment Arrangement, Option, Exercise Price Range [Line Items] | |
| Count | 40,000 |
| Average Exercise | $ / shares | $ 0.03 |
| Remaining Life | 2 years 2 months 4 days |
| Exercisable | 40,000 |
| Exercise Price Range One [Member] | |
| Share-Based Payment Arrangement, Option, Exercise Price Range [Line Items] | |
| Exercise Price | $ / shares | $ 0.01 |
| Count | 32,000 |
| Average Exercise | $ / shares | $ 0.01 |
| Remaining Life | 1 year 8 months 23 days |
| Exercisable | 30,000 |
| Exercise Price Range Two [Member] | |
| Share-Based Payment Arrangement, Option, Exercise Price Range [Line Items] | |
| Exercise Price | $ / shares | $ 0.10 |
| Count | 8,000 |
| Average Exercise | $ / shares | $ 0.10 |
| Remaining Life | 4 years |
| Exercisable | 8,000 |
STOCK OPTIONS AND WARRANTS (Details Narrative) - USD ($) |
3 Months Ended | 12 Months Ended |
|---|---|---|
Mar. 31, 2023 |
Dec. 31, 2022 |
|
| Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items] | ||
| Share-Based Payment Arrangement, Nonvested Award, Cost Not yet Recognized, Amount | $ 0 | |
| Options issued and vested | 40,000 | |
| Weighted average exercise price | $ 0.03 | |
| Weighted average remaining life | 2 years 2 months 4 days | |
| Stock Incentive Plans [Member] | Employees [Member] | ||
| Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items] | ||
| Forfeitures | 8,000 | |
| Option to purchase shares | 8,000 |
SCHEDULE OF DISCONTINUED OPERATIONS (Details) - USD ($) |
3 Months Ended | ||
|---|---|---|---|
Mar. 31, 2023 |
Mar. 31, 2022 |
Dec. 31, 2022 |
|
| Assets from Discontinued Operations: | |||
| Cash | |||
| Total assets from discontinued operations | |||
| Liabilities from Discontinued Operations: | |||
| Accounts payable | 18,338,848 | 18,338,848 | |
| Accrued liabilities | 589,380 | 589,380 | |
| Accrued interest | 1,520,998 | 1,483,157 | |
| 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 | 25,380,442 | $ 25,342,601 | |
| Other expense: | |||
| Interest expense | (37,841) | $ (37,805) | |
| Net loss from discontinued operations | $ (37,841) | $ (37,805) | |
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