The accompanying notes are an integral part of these condensed consolidated financial statements.

CIRTRAN CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

CIRTRAN CORPORATION AND SUBSIDIARIES

CONDENSEDUNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)OPERATIONS

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

CIRTRAN CORPORATION

UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

FOR THE THREE AND SUBSIDIARIESNINE MONTHS ENDED SEPTEMBER 30, 2019 (REVISED)

CIRTRAN CORPORATION

UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020

The accompanying notes are an integral part of these unaudited consolidated financial statements.

CIRTRAN CORPORATION

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

The accompanying notes are an integral part of these unaudited consolidated financial statements.

CIRTRAN CORPORATION

NOTES TO CONDENSEDUNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

SEPTEMBER 30, 2020

NOTE 1—BASIS OF PRESENTATION

The consolidated financial statements of CirTran Corporation for the three- and nine-month periods ended September 30, 2020 and 2019, are not audited. Our consolidated financial statements are prepared in accordance with the requirements for unaudited interim periods and, consequently, do not include all disclosures required to be made in conformity with accounting principles generally accepted in the United States of America. In the opinion of our management, the accompanying consolidated financial statements contain all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of our financial position as of September 30, 20142020, and December 31, 2019, and our results of operations and cash flows for the periods ended September 30, 2020 and 2019. The results of operations for the three and nine months ended September 30, 2020 and 2019, are not necessarily indicative of the results for a full-year period. These interim consolidated financial statements should be read in conjunction with the financial statements included in our annual report on Form 10-K for the year ended December 31, 2019.

NOTE 1 – BASIS2—SUMMARY OF PRESENTATIONSIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

We consolidate all of our majority-owned subsidiaries, companies over which we exercise control through majority voting rights, and companies in which we have a variable interest and we are the primary beneficiary. We account for our investments in common stock of other companies that we do not control, but over which we can exert significant influence, using the cost method.

The accompanying unaudited condensed consolidated financial statements as of and for the periods ended September 30, 2020, include the accounts of CirTran Corporation and its subsidiaries (the “Company”). Theseour wholly owned subsidiaries: CirTran Products Corp., LBC Products, Inc., and CirTran - Asia, Inc. All intercompany balances and transactions have been eliminated.

The consolidated financial statements as of and for the periods ended September 30, 2019, include the accounts of CirTran Corporation and our wholly owned subsidiaries: CirTran Products Corp., CirTran Corporation (Utah), CirTran Beverage Corp., CirTran Online Corp., CirTran Media Corp., Racore Network, and CirTran - Asia, Inc. All intercompany balances and transactions have been prepared in accordance with Article 10eliminated.

Use of Regulation S-X promulgated byEstimates

In preparing the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America, (“GAAP”) have been condensed or omitted pursuantmanagement is required to such rulesmake estimates and regulations. These statements should be read in conjunction withassumptions that affect the Company’s annual financial statements included inreported amounts of assets and liabilities, the Company’s Annual Report on Form 10-K fordisclosure of contingent assets and liabilities at the year ended December 31, 2013. In particular,date of the Company’s significant accounting policies were presented as Note 2 to the consolidated financial statements in that Annual Report. In the opinion of management, all adjustments necessary for a fair presentation have been included in the accompanying condensed consolidated financial statements, and consistthe reported amounts of only normal recurring adjustments. Therevenues and expenses during the reported periods. Actual results could differ from those estimates.

Revenue Recognition

We follow Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers, for revenue recognition. Adoption of operations presentedASC 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 accompanying condensed consolidated financial statementsconsideration 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, typically a purchase order received that we have accepted the terms of. Revenue is recognized net of allowances for returns and any taxes collected from customers, which are subsequently remitted to governmental authorities.

During the three and nine months ended September 30, 2014,2020, we recognized revenues of $15,000 and $515,000, respectively, related to the performance obligations under product development service agreements with customers. These contracts are long term in nature and revenue is recognized at certain milestone intervals upon our delivery and customer acceptances 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, as such, no asset has been recorded for customer acquisition costs. Additionally, we have not necessarily indicative ofrecognized impairment losses related to the results that may be expected forreceivables from these contracts during the 12 months ending December 31, 2014.

NOTE 2 – REALIZATION OF ASSETS

The accompanying condensed consolidated financial statements have been prepared on the assumption that the Company will continue as a going concern. The Company had a net loss of $1,083,786three and net income of $1,070,340 for the nine months ended September 30, 20142020.

Additionally, we recognized revenues of $390,005 and 2013, respectively. As of September 30, 2014,$420,319 during the Company had an accumulated deficit of $48,371,759. In addition, the Company had cash provided by operations in the amount of $36,917 during thethree and nine months ended September 30, 2014,2020, respectively, related to the delivery of product to our customers. Each delivery is based on a unique customer purchase order which is considered to be 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 purchase order contract upon fulfillment of our performance obligations therein, typically limited to the delivery of product.

Cash and Cash Equivalents

We consider all highly liquid, short-term investments with an original maturity of three months or less to be cash provided by operations in the amount of $224,166 during the nine months ended September 30, 2013. The Company also had a negative working capital deficit balance of $23,988,375equivalents. We did not hold any cash equivalents as of September 30, 2014, and $22,934,058 as of2020, or December 31, 2013. These conditions raise substantial doubt about the Company’s ability to continue as a going concern.

The Company’s ability to continue energy drink distribution, its principal source of revenue, is subject to interruption or termination because of ongoing disputes respecting the status of the Play Beverages, LLC, or PlayBev, license to market Playboy-licensed energy drinks. The Company is continuing its suit against Playboy Enterprises, Inc., or Playboy, in Illinois in an effort to enjoin Playboy’s termination of the license so the Company will be able to continue its beverage distribution segment. If the Playboy licensing dispute is not resolved satisfactorily through a negotiated settlement or litigation in such proceeding, PlayBev would be required to terminate its beverage distribution activities, which are currently the principal source of the Company’s revenues. Such termination may require the Company to cease its activities and seek protection from creditors.

In view of the matters described in the preceding paragraphs, recoverability of a major portion of the recorded asset amounts shown in the accompanying consolidated balance sheets is dependent upon continued operations of the Company, which in turn is dependent upon the Company’s ability to meet its financial requirements on a continuing basis, to maintain or replace present financing, to acquire additional capital from investors, and to succeed in its future operations. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might be necessary should the Company be unable to continue in existence.

The Company believes that its beverage business segment has the potential to have a substantial impact on its overall business. The Company plans to focus on the beverage business and the contract manufacturing business. For the beverage business, the Company plans to sell existing products and develop new products under the license agreement with Playboy to a globally expanding market. With regard to contract manufacturing, the Company’s goal is to provide customers with manufacturing solutions for both new and more mature products, as well as across product generations.

The Company provides product marketing services to the direct response and retail markets for both proprietary and nonproprietary products. This segment provides campaign management and marketing services for the beverage distribution, direct response, and retail markets. The Company intends to continue to provide marketing and media services to support its own product efforts and offer to customers marketing service in channels involving television, radio, print media, and the Internet. The Company intends to serve the electronics assembly and manufacturing industries, although it anticipates that its focus will shift more to providing services on a subcontract basis.2019.

NOTE 3 – INVENTORIESLeases

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which superseded guidance in ASC 840, Leases, which we adopted for the year ended December 31, 2019, under the modified retrospective transition approach by applying the new standard to all leases existing at the date of initial application. We account for short term leases, those lasting fewer than 12 months, using the practical expedient as outlined in the guidance, which does not include recording such leases on the balance sheet.

Investment in Securities

Our cost-method investment consists of an investment in a private digital multi-media technology company that totaled $300,000 at September 30, 2020, and December 31, 2019. As 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.

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. The capitalized cost, net of accumulated depreciation, associated with molds and dies included in property and equipment at September 30, 2020, and December 31, 2019, was $0 and $9,772, respectively. All property and equipment that was in service during the year ended December 31, 2019, was disposed of during the current period.

Depreciation expense is recognized in amounts equal to the cost of depreciable assets over estimated service lives. Leasehold improvements are amortized over the shorter of the life of the lease or the service life of the improvements. The straight-line method of depreciation and amortization is followed for financial reporting purposes. Maintenance, repairs, and renewals that neither materially add to the value of the property nor appreciably prolong its life are charged to expense as incurred. Gains or losses on dispositions of property and equipment are included in operating results.

Impairment of Long-Lived Assets

We review our long-lived assets, including intangibles, for impairment when events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. At each balance sheet date, we evaluate whether events and circumstances have occurred that indicate possible impairment. We use an estimate of future undiscounted net cash flows from the related asset or group of assets over their remaining life in measuring whether the assets are recoverable. We did not record expenses for the impairment of long-lived assets during the periods ended September 30, 2020 or 2019.

Financial Instruments with Derivative Features

We do not hold or issue derivative instruments for trading purposes. However, we have financial instruments that are considered derivatives or contain embedded features subject to derivative accounting. 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 using a Monte Carlo simulation. The fair values of the derivative instruments are measured each reporting period.

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. Inventories consist of finished goods as we do not carry raw materials for manufacturing products.

When there is evidence that the inventory’s value is less than original cost, the inventory is reduced to market value. We determine market value on current resale amounts and whether technological obsolescence exists. We will seek agreements with manufacturing customers that require them to purchase their inventory items in the event they cancel their business with us.

From time to time, we will place deposits on inventory to be delivered in the future. These deposits are carried as a separate balance sheet component and totaled $44,559 (non-related-party) and $318,624 (related-party) as of September 30, 2020. There were no deposits on inventory as of December 31, 2019.

Inventory balances consisted of the following:

NOTE 4Stock-Based Compensation

We have outstanding stock options to directors and employees, which are described more fully in Note 12 – RELATED-PARTY TRANSACTIONSStock Options and Warrants. We account for our stock options in accordance with ASC 718-10, Accounting for Stock Issued to Employees, and ASU 2018-07, Improvements to Nonemployee Share-Based Payment Accounting, as updated, which requires the recognition of the cost of employee services received in exchanged for an award of equity instruments in the financial statements and is measured based on the grant date fair value of the award. ASC 718-10 also requires the stock option compensation expense to be recognized over the period during which an employee is required to provide service in exchange for the award (typically the vesting period). There was no impact to our methodology for accounting for equity based compensation as a result of adopting ASC 718-10 and ASU 2018-07.

Stock-based employee compensation was $56 and $600 for the nine months ended September 30, 2020 and 2019, respectively.

Fair Value of Financial Instruments

The carrying amounts reported in the accompanying consolidated financial statements for cash, notes payable, and accounts payable approximate fair value because of the immediate or short-term maturities of these 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:

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.

Loss per Share

Basic loss per share (EPS) is calculated by dividing net loss available to common shareholders by the weighted-average number of common shares outstanding during each period. Diluted EPS 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 160,186,365 potentially issuable shares from the conversions of convertible debentures outstanding that were excluded in dilutive outstanding shares for the three and nine months ended September 30, 2020, due to the anti-dilutive effect these would have on net loss per share. There were 133,107,973 such shares issuable as of September 30, 2019. 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.

Short-term Advances

We have short-term advances with various individuals. These advances are due upon demand, carry no interest, and are not collateralized. These advances are classified as short-term liabilities.

Recently Issued Accounting Pronouncements

In August 2020, the FASB issued ASU 2020-06 “Debt with Conversion and Other Options,” which will be effective for fiscal years beginning after December 15, 2021. We are evaluating the impacts this new pronouncement will have on our financial statements.

Transactions Involving Officers, Directors,NOTE 3—GOING CONCERN AND REALIZATION OF ASSETS

In October 2016, we lost our ability to continue energy drink distribution, our principal source of revenue, after receiving an unfavorable ruling in our suit against Playboy Enterprises, Inc.

The accompanying unaudited consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate our continuation as a going concern. We had a working capital deficiency of $38,433,552 and Stockholders - In 2007,$37,994,597 as of September 30, 2020, and December 31, 2019, respectively, and a net loss from continuing operations of $660,896 and $709,453 during the Company appointed Fadi Nora to its Board of Directors. In addition to compensation the Company normally pays to nonemployee members of the Board, Mr. Nora is entitled to a quarterly bonus equal to 0.5% of any gross sales earned by the Company directly through Mr. Nora’s efforts.nine months ended September 30, 2020 and 2019, respectively. As of September 30, 2014, the Company owed $134,330 under this arrangement. As2020, and December 31, 2019, we had an accumulated deficit of September 30, 2014, the Company owed Mr. Nora $621,773$79,237,906 and $78,461,806, respectively. 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 described in the formfollowing paragraphs and eventually attain profitable operations. The accompanying financial statements do not include any adjustments that may be necessary if we are unable to continue as a going concern.

In the coming year, our foreseeable cash requirements will relate to development of unsecured advances. Thesebusiness operations and associated expenses. We may experience a cash shortfall and be required to raise additional capital.

Historically, we have mostly relied upon shareholder loans and advances to finance operations and short-term bridgegrowth. Management may raise additional capital by retaining net earnings, if any, or through future public or private offerings of our stock or loans were approved by the Board of Directors underfrom private investors, although we cannot assure that we will be able to obtain such financing. Our failure to do so could have a 5% borrowing fee. The borrowing fees on these loans were waived by Mr. Nora. In addition, the Company owed Mr. Nora $233,731 in accrued liabilities as of September 30, 2014, for selling, general,material and administrative expenses that were paid for by Mr. Nora on a personal credit card. As of September 30, 2014, Mr. Nora had $718,000 in accrued management fees for PlayBev, which is included in related-party payables. (see Note 5 under Employment Agreements).adverse effect upon us and our shareholders.

NOTE 4—PROPERTY AND EQUIPMENT

The Company has agreed to issue 2,400,000 options to Mr. Nora as compensation for services provided as a DirectorProperty and equipment and estimated service lives consist of the Company. The terms of the director agreement require the Company to grant to Mr. Nora options to purchase 2,400,000 shares of the Company’s stock each year, with the exercise price of the options being the market price of the Company’s common stock as of the grant date. following:

During the nine months ended September 30, 2014, the Company accrued for 2,400,000 stock options relating2020, we disposed of all of our remaining assets as part of our adoption of our new agreement to develop and distribute certain products. There was no consideration received upon disposal resulting in a net loss equal to the director agreement with Mr. Nora. The fair marketnet book value of $9,771 during the options was $719, usingnine months ended September 30, 2020. We recorded $0 and $573 of depreciation expense during the following assumptions: seven-year term, estimated volatilitythree months ended September 30, 2020 and 2019, respectively. We recorded $0 and $1,719 of 246.35%,depreciation expense during the nine months ended September 30, 2020 and a discount rate of 0.0% (see also Note 12).2019, respectively.

NOTE 5—RELATED-PARTY TRANSACTIONS

Transactions Involving Officers, Directors, and Stockholders

In 2007, the Companywe issued a 10% promissory note to a family member of the Company Presidentour president in exchange for $300,000. The note was due on demand after May 2008. DuringThere were no repayments made during the three months ended September 30, 2014, the Company made no payments on the outstanding note.periods presented. At September 30, 2014,2020, and December 31, 2019, the principal amount owing on the note was $151,833. $151,833 and $151,833, respectively.

On March 31, 2008, the Companywe issued to this same family member, along with fourtwo other Companycompany shareholders, promissory notes totaling $315,000. The family member’s note was for $105,000.$315,000 ($105,000 each). Under the terms of all thethese three $105,000 notes, the Companywe 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 September 30, 2020, and December 31, 2019, totaled $72,466 and $72,466, respectively.

During the nine months ended September 30, 2014, the Company2020, we made no paymentsrepayments to related parties of $270,150 and advances of $10,700 were received from related parties. Additionally, related parties paid expenses totaling $1,940 directly to vendors on the outstanding notes. The principal balance owing on the promissory notesour behalf. There were $484,235 and $738,655 of short-term advances due to related parties as of September 30, 2014, totaled $72,466.2020, and December 31, 2019, respectively. The advances are due on demand and as such included in current liabilities.

The Company hasWe have agreed to issue 6,000,000stock options each year to the Company PresidentIehab Hawatmeh, our president, as compensation for services provided as an officer of the Company.our chief executive officer. The terms of thethis employment agreement require the Companyus to grant to the Company President options to purchase 6,000,0006,000 shares of the Company’sour stock each year, with thean exercise price ofequal to the options being thefair market price of the Company’sour common stock as of the grant date. During the nine months ended September 30, 2014,2020, we granted options to purchase 6,000 shares of common stock relating to this employee agreement. There were also options to purchase 6,000 shares of common stock that expired during the Company accrued for 6,000,000nine months ended September 30, 2020. There was 30,000 and 30,000 outstanding stock options relating to the employee agreement with Mr. Hawatmeh. The fair market value of the options was $1,798, using the following assumptions: estimated seven-year term, estimated volatility of 246.35%, and a discount rate of 0.0% (see also Note 12).

During the period ending September 30, 2014, the company President advanced $61,800, was repaid $47,357, assumed $58,556 owed to a Company Director and exchanged $10,000 of this amount for current liabilities to non-controlling interest holders. As a result of these transactions,held by Iehab Hawatmeh as of September 30, 2014, the Company2020, and December 31, 2019, respectively. See Note 6 – Other Accrued Liabilities and Note 12 – Stock Options and Warrants.

As of September 30, 2020, and December 31, 2019, we owed the Company Presidentour president a total of $126,609$900,339 and $903,740 in short-term advances payable and 42,000,000 stock options with an aggregated fair value at time of grant of $166,496. Theseunsecured advances. The advances and short-term bridge loans were approved by the Boardour board of Directorsdirectors under a 5% borrowing fee. The borrowing fees on these loans were waived by the Company’s President.our president on these loans. These amounts are included in our liabilities from discontinued operations.

Sublease- In an effortAs of September 30, 2020 and December 31, 2019, we owed a total of $13,740 to operate more efficiently and focus resourcesa related party through trade payables incurred in the normal course of business. These amounts are shown as a separate related-party payable on higher margin areas of the Company’s business, on March 5, 2010, the Company and Katana Electronics, LLC, a Utah limited liability company (“Katana”), entered into certain agreements (collectively, the “Agreements”) to reduce the Company’s costs. The Agreements include an Assignment and Assumption Agreement, an Equipment Lease, and a Sublease Agreement relating to the Company’s property. Pursuant to the terms of the Sublease, the Company agreed to sublease a certain portion of the Company’s premises to Katana, consisting of the warehouse and office space usedbalance sheet as of the close of business on March 4, 2010. The term of the Sublease was for two months with automatic renewal periods of one month each. The base rent under the Sublease is $8,500 per month. The Sublease contains normal and customary use restrictions, indemnification rights and obligations, default provisions, and termination rights. Under the Agreements signed, the Company continues to have rights to operate as a contract manufacturer in the future in the U.S. and offshore. On July 1, 2011, Katana had assumed the full lease payment, and the Company agreed to pay Katana $5,000 per month for the use of office space and utilities. The Company recorded a rent expense of $50,000 and $30,000 foreach reporting date.

During the nine months ended September 30, 20142020, we made deposits with a related-party inventory supplier totaling $318,624. The related party is an entity controlled by our CEO. 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 $240,803 during the nine months ended September 30, 2020.

NOTE 6—OTHER ACCRUED LIABILITIES

Accrued tax liabilities consist of delinquent payroll taxes, interest, and 2013, respectively.penalties owed by us to the Internal Revenue Service (“IRS”) and other tax entities.

Accrued liabilities consist of the following:

The Company has financial instruments that are considered derivativesAs 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 contain embedded features subject to derivative accounting.$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 the Company’sour balance sheet. The Company measuresWe measure these instruments at their estimated fair value and recognizesrecognize changes in their estimated fair value in results of operations during the period of change. The Company hasWe have estimated the fair value of these embedded derivatives for convertible debentures and associated warrants using a multinomial lattice modelMonte Carlo simulation as of September 30, 2014, and December 31, 2013. 2020, using the following assumptions:

The fair values of the derivative instruments are measured each quarter, which resulted in a gain (loss) of ($306,566)$39,700 and $475,560loss of $318,564 during the three and nine months ended September 30, 2014 and 2013, respectively.2020. As of September 30, 2014,2020, and December 31, 2013,2019, the fair market value of the derivatives aggregated $464,962$1,218,396 and $158,396,$894,079, respectively.

NOTE 11—STOCKHOLDERS’ DEFICIT

We are authorized to issue up to 100,000,000 shares of $0.001 par value common stock. No shares were issued during the periods presented. We had a total of 4,500,417 common shares issued and outstanding as of September 30, 2020, and December 31, 2019. During the year ended December 31, 2019, we effected a 1:1000 reverse stock split of our outstanding stock. The impacts of the reverse stock split have been retroactively stated which resulted in a reclassification between common stock and additional paid in capital of $4,494,392 at September 30, 2019.

NOTE 12—STOCK OPTIONS AND WARRANTS

Stock Incentive Plans

During the nine months ended September 30, 2020 and 2019, we granted to employees 8,000 and 6,000 options, respectively, to purchase shares of common stock.

The 8,000 options granted during the nine months ended September 30, 2020, were valued using the following assumptions: estimated 1.5-0.25-yearfive-year term, estimated volatility of 419.37-32.87%91%, and a discountrisk-free rate of 0.02-0.36%1.61%.

During the nine months ended September 30, 2019, we granted 6,000 stock options relating to the employment agreement with Mr. Hawatmeh. The fair market value of the options was $600, using the following assumptions: estimated seven-year term, estimated volatility of 567%, and a risk-free rate of 2.38%.

NOTE 9As of September 30, 2020, and December 31, 2019, we had no unrecognized compensation related to outstanding options that have not yet vested at year-end that would be recognized in subsequent periods. See Note 6 – FAIR VALUE MEASUREMENTSOther Accrued Liabilities for a description of amounts of option expenses included in accrued payroll and compensation expense.

For assetDuring the nine months ended September 30, 2020, we issued a total of 8,000 options to purchase common stock, and liabilities measured at fair value, the Company uses the following hierarchya total of inputs:8,000 options expired unexercised. As of September 30, 2020, there were 40,000 options issued and vested with a weighted average exercise price of $0.01 and a weighted average remaining life of 2.66 years.

Liabilities measured at fair value on a recurring basis at September 30, 2014, are summarized as follows:

Liabilities measured at fair value on a recurring basis at December 31, 2013, are summarized as follows:

NOTE 10 – STOCKHOLDERS’ DEFICIT13—DISCONTINUED OPERATIONS

At October 21, 2016, we exited the beverage licensing and distribution business. The Company’s stockholders’ deficit increased by $681,391assets and liabilities associated with this business are displayed as assets and liabilities from discontinued operations as of September 30, 2020, and December 31, 2019, as a result ofresult. Additionally, the net loss attributable to CirTran Corporationrevenues and costs associated with this business are displayed as losses from discontinued operations for the nine months ended September 30, 2014. The Company’s noncontrolling interest2020 and 2019.

Total assets and liabilities included in consolidated subsidiaries increased stockholders’ deficit by $386,035discontinued operations were as follows:

Net loss from discontinued operations for the nine months ended September 30, 2014, due to the operating losses2020 and 2019, were comprised of the noncontrolled subsidiary.following components:

Loss Per ShareNOTE 14—SUBSEQUENT EVENTS - 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. The Company had 3,210,783,000 and 3,186,357,000 in potentially issuable common shares at September 30, 2014, and December 31, 2013, respectively. These potentially issuable common shares were excluded from the calculation of diluted loss per share because the effects were antidilutive.

NOTE 11 – CAPITAL STOCK

During the nine months ending September 30, 2014, the Company issued 40,900,000 shares of common stock for conversion of liabilitiesWe have evaluated all events occurring subsequent to multiple nonrelated parties for convertible notes and liabilities of $16,360. This resulted in a gain of $24,540.

NOTE 12 – STOCK OPTIONS AND WARRANTS

Stock Incentive Plans - As of September 30, 2014, a total of 201,000,000 shares of common stock had been issued from the 2012 Stock Incentive Plan, out of which a maximum of 403,000,000 can be issued. The Company’s Board of Directors administers the plan and has discretion in determining the employees, directors, independent contractors, and advisors who receive awards, the type of awards (stock, incentive stock options, nonqualified stock options, or share purchase rights) granted, and the term, vesting, and exercise prices.

Employee Options - During the nine months ended September 30, 2014 and 2013, the Company did not grant any options to purchase shares of common stock to employees.

During 2013, the Company accrued for 18,800,000 employee options relating to the employment contract of the Company’s president, directors, and officers. The fair market value of the options accrued aggregated $28,423, using the following assumptions: seven-year term, volatility of 212.05%, and a discount rate of 1.31%.

During 2014, the Company accrued for 18,800,000 employee options relating to the employment contract of the Company’s president, directors, and officers. The fair market value of the options accrued aggregated $5,634, using the following assumptions: seven-year term, volatility of 246.35%, and a discount rate of 2.42%.

As of September 30, 2014, and December 31, 2013, the Company had a total of 125,600,000 and 106,800,000, respectively, in options not issued but accrued.

Warrants -In connection with the YA Global convertible debenture issued in August 2006, the Company issued three-year warrants to purchase 15,000,000 shares of the Company’s common stock. The initial expiration date of the warrants was August 23, 2009. As part of the Forbearance Agreement (see Note 5), the life of the warrants was extended one year to August 23, 2010. The warrants had an exercise price of $0.06 per share and vested immediately. On January, 24, 2011, as part of the Forbearance Agreement, a warrant to purchase 25,000,000 shares of common stock was issued to YA Global. The warrant had an exercise price of $0.02 per share and vested immediately and expires December 2015.

NOTE 13 – SEGMENT INFORMATION

Segment information has been prepared in accordance with Financial Accounting Standards Board Accounting Standards Codification 280-10, Disclosure about Segments of an Enterprise and Related Information. The Company has four reportable segments: electronics assembly, contract manufacturing, marketing and media, and beverage distribution. The electronics assembly segment manufactures and assembles circuit boards and electronic component cables. The contract manufacturing segment manufactures, either directly or through foreign subcontractors, various products under manufacturing and distribution agreements. The marketing and media segment provides marketing services to online retailers, along with beverage development and promotional services to PlayBev. The beverage distribution segment manufactures, markets, and distributes Playboy-licensed energy drinks domestically and internationally.

The accounting policies of the segments are consistent with those described in the summary of significant accounting policies. The Company evaluates performance of each segment based on earnings or loss from operations. Selected segment information is as follows:

NOTE 14 – GEOGRAPHIC INFORMATION

The Company currently maintains $7,842 of capitalized tooling costs in China. All other revenue-producing assets are located in the United States of America. Revenues are attributed to the geographic areas based on the location of the customers purchasing the products.

NOTE 15 – RECLASSIFICATIONS

Certain amounts have been reclassified in the 2013 financial statements to conform to the 2014 presentation, short-term advances payable – non-related parties of $45,000 was reclassified to accrued liabilities.

NOTE 16 – SUBSEQUENT EVENTS

These financial statements considered subsequent events through November 19, 2014, the date the financial statements were availableand determined there are no additional items to disclose.

On March 11, 2020, the World Health Organization characterized COVID-19 as a global pandemic. This situation is ongoing, and we are monitoring it closely. Although our response to the COVID-19 pandemic continues to evolve, we have taken measures to mitigate the impact on our business operations and overall financial performance. We are also constantly evaluating and responding to the impact of the pandemic on our supply chain as compared to product demand. In addition, we actively monitor COVID-19-related developments and may take further actions that alter our business operations as may be issued.required by federal, state, or local authorities or that we determine are in the best interests of our employees, customers, vendors, and stockholders. The effects of these operational modifications will be reflected in current and future reporting periods.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

ThisThe following discussion should be read in conjunction with Management’s Discussionour condensed consolidated financial statements and Analysisnotes to our 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 Financial Condition and Results of Operations includedvarious factors discussed elsewhere in our Annual Report on Form 10-K for the year ended December 31, 2013.this report.

Overview

We manufacture, market,Based on our diversified expertise in manufacturing, marketing, distribution, and distribute internationally an energy drink undertechnology services in a license, now in dispute, with Playboy Enterprises, Inc., or Playboy, and in the U.S. we provide a mixwide variety of high- and medium-volume turnkey manufacturing services and products using various high-tech applications for leading electronics OEMs (original equipment manufacturers) in the communications, networking, peripherals, gaming, law enforcement, consumer products, telecommunications, automotive,including tobacco products, medical devices, and semiconductor industries. Our services include pre-manufacturing, manufacturing,beverages, around the world, we have an innovative and post-manufacturing services. Our goal isconsumer-focused approach to offer customers the significant competitive advantages that can be obtained from manufacture outsourcing.brand portfolio management, resting on a strong understanding of consumers domestically, and we have established a footprint in more than 50 key, international markets.

We are engageddevoted most of 2019 to exploring new product opportunities in a number of products. In late 2019, through our new, wholly owned subsidiary, LBC Products, Inc., we entered into a new, five-year Exclusive Manufacturing and Distribution Agreement with GloBrands, LLC, to manufacture, distribute, and sell condoms, electronic tobacco products, cigars, energy drinks, water beverages, and related merchandise, all using the following business segments.

Beverage Distribution(100%HUSTLER® brand name. These efforts continue. In early 2020, we completed phase one of our development of all HUSTLER®-branded products, which enabled us to generate revenue of $405,005 and 98% of total revenue$935,319 during the three and nine months ended September 30, 20142020, respectively. We expect to receive additional payments in 2020.

All share and 2013, respectively):per-share amounts have been adjusted to give retroactive effect to a 1000-to-one reverse split of our common stock effective September 2019.

CirTran Beverage manufactures, markets,Results of Operations for the Three and distributes Playboy-branded energy drinks in accordance with an agreement we entered into with Play Beverages, LLC, or PlayBev, a consolidated variable interest entity, which holdsNine Months Ended September 30, 2020, Compared to the Playboy license.Three and Nine Months Ended September 30, 2019

Contract ManufacturingRevenue and Cost of Revenue(0%

During the three and 2%nine months ended September 30, 2020, we generated revenue of total$405,005 and $935,319 and cost of revenue of $228,380 and $425,699, respectively. All revenue generated during the periods ended September 30, 2020, was the result of activities related to our agreement to develop and distribute certain HUSTLER® branded product. We did not generate revenue or cost of revenue during the three or nine months ended September 30, 2019.

Operating Expenses

During the three months ended September 30, 2020 and 2019, selling, general, and administrative expenses were $255,684 and $83,922, respectively, representing an increase of $171,762, or 205%, in the current period. During the nine months ended September 30, 2020 and 2019, selling, general, and administrative expenses were $417,228 and $265,047, respectively, representing an increase of $152,181, or 57%, in the current period. The increase in selling, general, and administrative expenses during the periods ended September 30, 2020, is the result of our increased business activities associated with supporting our revenue growth during 2020.

Other Income and Expense

Other income and expenses during the three months ended September 30, 2020, consisted of $154,318 in interest expense and gains on the fair value measurement of derivative liabilities of $39,700. Other expenses during the three months ended September 30, 2019, included $187,546 for interest expense, a loss of the fair value of derivative liabilities of $7,431, and other income of $204.