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                               CIRTRAN CORPORATION
                              A Nevada Corporation

                       100,000,000 Shares of Common Stock
                                $0.001 per share

This prospectus relates to the resale of up to 100,000,000 shares (the "Shares")
of  common  stock  of  CirTran  Corporation,  a Nevada  corporation.  One of our
shareholders,  Highgate  House  Funds,  Ltd.,  (the  "Selling  Shareholder")  is
offering all of the Shares covered by this prospectus.  The Selling  Shareholder
may receive shares in connection with conversions of our 5% Secured  Convertible
Debenture  (the  "Debenture")  sold to the  Selling  Shareholder  pursuant  to a
Securities  Purchase  Agreement  (the "Purchase  Agreement"),  discussed in more
detail herein. The Selling  Shareholder may elect to convert, at its option, all
or  part  of  the  principal  amount,  together  with  accrued  interest  on the
Debenture,  into shares of our common stock at a conversion  price  discussed in
more detail herein. This Prospectus,  and the registration statement of which it
is a part does not register the resale of any shares issued as interest  accrued
or accruable in connection  with the  Debenture.  The Selling  Shareholder  will
receive all of the proceeds from the sale of the Shares and we will receive none
of those proceeds. Highgate House Funds, Ltd. may be deemed to be an underwriter
of the Shares.

                            -------------------------

Investment  in the Shares  involves a high degree of risk.  You should  consider
carefully  the  risk  factors  beginning  on page 18 of this  prospectus  before
purchasing any of the Shares offered by this prospectus.

                            -------------------------

CirTran  Corporation common stock is quoted on the OTC Bulletin Board and trades
under the symbol "CIRT". The last reported sale price of our common stock on the
OTC  Bulletin  Board  on July 20,  2006,  was  approximately  $0.03  per  share.
Nevertheless,  the  Selling  Shareholders  do not  have to sell  the  Shares  in
transactions  reported on the OTC  Bulletin  Board,  and may offer their  Shares
through any type of public or private transactions.

                            -------------------------

Neither  the  Securities  and  Exchange  Commission  nor  any  state  securities
commission has approved or disapproved of these  securities,  or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is a
criminal offense.

                            -------------------------

                                 August ___, 2006








                                       1



CIRTRAN HAS NOT REGISTERED THE SHARES FOR SALE BY THE SELLING SHAREHOLDERS UNDER
THE SECURITIES LAWS OF ANY STATE.  BROKERS OR DEALERS EFFECTING  TRANSACTIONS IN
THE  SHARES  SHOULD  CONFIRM  THAT THE  SHARES  HAVE BEEN  REGISTERED  UNDER THE
SECURITIES  LAWS OF THE STATE OR STATES IN WHICH SALES OF THE SHARES OCCUR AS OF
THE  TIME OF SUCH  SALES,  OR THAT  THERE  IS AN  AVAILABLE  EXEMPTION  FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES LAWS OF SUCH STATES.

THIS  PROSPECTUS IS NOT AN OFFER TO SELL ANY  SECURITIES  OTHER THAN THE SHARES.
THIS PROSPECTUS IS NOT AN OFFER TO SELL SECURITIES IN ANY CIRCUMSTANCES IN WHICH
SUCH AN OFFER IS UNLAWFUL.

CIRTRAN HAS NOT AUTHORIZED ANYONE,  INCLUDING ANY SALESPERSON OR BROKER, TO GIVE
ORAL OR WRITTEN INFORMATION ABOUT THIS OFFERING,  CIRTRAN, OR THE SHARES THAT IS
DIFFERENT FROM THE  INFORMATION  INCLUDED OR  INCORPORATED  BY REFERENCE IN THIS
PROSPECTUS.  YOU SHOULD NOT ASSUME THAT THE INFORMATION IN THIS  PROSPECTUS,  OR
ANY SUPPLEMENT TO THIS  PROSPECTUS,  IS ACCURATE AT ANY DATE OTHER THAN THE DATE
INDICATED ON THE COVER PAGE OF THIS  PROSPECTUS OR ANY SUPPLEMENT TO IT. IN THIS
PROSPECTUS, REFERENCES TO "CIRTRAN," "THE COMPANY," "WE," "US," AND "OUR," REFER
TO CIRTRAN CORPORATION AND ITS SUBSIDIARIES.


                                TABLE OF CONTENTS

Summary about CirTran Corporation and this offering........................... 3
Risk factors..................................................................16
Use of proceeds...............................................................25
Determination of offering price...............................................25
Description of business.......................................................25
Management's discussion and analysis or plan of operation.....................42
Forward-looking statements....................................................57
5% Convertible Debenture......................................................57
Selling Shareholders..........................................................60
Plan of distribution..........................................................62
Regulation M..................................................................65
Legal Proceedings.............................................................65
Directors, executive officers, promoters and control persons..................68
Commission's position on indemnification for Securities Act liabilities.......70
Security ownership of certain beneficial owners and management................71
Description of common stock...................................................73
Certain relationships and related transactions................................74
Market for common equity and related stockholder matters......................76
Executive compensation........................................................81
Changes in and disagreements with accountants on accounting and financial
 disclosure...................................................................87
Index to financial statements ................................................87
Experts.......................................................................87
Legal matters.................................................................87





                                       2



Summary about CirTran Corporation and this offering

CirTran Corporation

CirTran  Corporation is a Nevada  corporation  engaged in providing a mixture of
high and medium size  volume  turnkey  manufacturing  services  for  electronics
original equipment  manufacturers  ("OEMs") in the  communications,  networking,
peripherals, gaming, consumer products, telecommunications, automotive, medical,
and  semiconductor  industries.  These services include providing design and new
product   introduction   services,   just-in-time   delivery  on  low-volume  to
medium-volume   turnkey  and  consignment   projects,   and  other   value-added
manufacturing  services.  Our  manufacturing  processes  include the  following:
surface  mount  technology,   ball-grid  array  assembly  and   pin-through-hole
technology,  which are all methods of attaching electronic components to circuit
boards;   manufacturing   and  test   engineering   support   and   design   for
manufacturability; and in-circuit and functional test and full-system mechanical
assembly. We also design and manufacture Ethernet cards that are used to connect
computers  through  fiber  optic  networks  and market  these  cards  through an
international   network  of  distributors,   value-added  resellers  and  system
integrators.

We incorporated in Nevada in 1987 under the name Vermillion Ventures,  Inc., for
the purpose of acquiring other  operating  corporate  entities.  We were largely
inactive  until the year 2000,  when we  effected a reverse  split in our common
stock,  reducing our issued and outstanding shares to 116,004.  In July 2000, we
issued  10,000,000  shares of common stock to acquire,  through our wholly owned
subsidiary,  CirTran  Corporation  (Utah),  substantially  all of the assets and
certain liabilities of Circuit Technology,  Inc., a Utah corporation. The shares
we issued to Circuit  Technology in connection with the acquisition  represented
approximately  98.6% of our  issued and  outstanding  common  stock  immediately
following the acquisition.

Effective   August  6,  2001,  we  effected  a  1:15  forward  split  and  stock
distribution  which increased the number of our issued and outstanding shares of
common stock from  10,420,067 to  156,301,005.  We also increased our authorized
capital from 500,000,000 to 750,000,000 shares of common stock.

Our address is 4125 South 6000 West, West Valley City, Utah 84128, and our phone
number is (801) 963-5112.

This offering

On May 26, 2005, we entered into a securities  purchase agreement (the "Purchase
Agreement")  with Highgate House Funds,  Ltd., a Cayman Island exempted  company
("Highgate" or the "Selling  Shareholder"),  relating to the issuance by us of a
5% Secured  Convertible  Debenture,  due  December 31,  2007,  in the  aggregate
principal amount of $3,750,000 (the "Convertible Debenture").

In connection with the purchase of the Convertible Debenture, we used $2,265,000
to repay two promissory notes to Cornell Capital Partners,  LP ("Cornell"),  one
in the amount of $1,700,000,  and the other in the amount of $565,000.  Highgate
and  Cornell  have  the  same  general  partner,  Yorkville  Advisors,  but have
different portfolio managers.

We also paid a  commitment  fee of  $240,765,  a  structuring  fee of $10,000 to
Highgate,  and legal fees of $5,668.  As such, of the total  purchase  amount of
$3,750,000, the net proceeds to us were $1,228,567,  which we received following
the closing of the issuance of the Convertible Debenture. We used these proceeds
for general corporate and working capital purposes.

The  Convertible  Debenture bears interest at a rate of 5%. Highgate is entitled
to convert,  at its option,  all or part of the principal amount owing under the
Convertible  Debenture  into shares of our common  stock at a  conversion  price
equal to the lesser of (a) $0.10 per share, or (b) an amount equal to the lowest
closing bid price of the Common  Stock as listed on the OTC Bulletin  Board,  as
quoted by Bloomberg L.P. for the twenty (20) trading days immediately  preceding
the conversion date. Except as otherwise set forth in the Convertible Debenture,


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Highgate's  right to  convert  principal  amounts  owing  under the  Convertible
Debenture into shares of our common stock is limited as follows:

         1.       Highgate  may  convert up to $250,000  worth of the  principal
                  amount plus accrued  interest of the Convertible  Debenture in
                  any  consecutive  30-day  period when the market  price of our
                  stock is $0.10 per share or less at the time of conversion;

         2.       Highgate  may  convert up to $500,000  worth of the  principal
                  amount plus accrued  interest of the Convertible  Debenture in
                  any  consecutive  30-day period when the price of our stock is
                  greater  than  $0.10  per  share  at the  time of  conversion,
                  provided,  however, that Highgate may convert in excess of the
                  foregoing amounts if we and Highgate mutually agree; and

         3.       Upon the  occurrence of an event of default (as defined in the
                  Convertible Debenture),  Highgate may, in its sole discretion,
                  accelerate  full repayment of all debentures  outstanding  and
                  accrued   interest   thereon  or  may,   notwithstanding   any
                  limitations  contained in the Convertible Debenture and/or the
                  Purchase  Agreement,  convert the  Convertible  Debenture  and
                  accrued  interest  thereon  into  shares of our  common  stock
                  pursuant to the Convertible Debenture.

A chart showing the number of shares issuable upon  hypothetical  conversions at
particular  conversion prices is set forth in the "Risk Factors" section on page
18.

Pursuant  to the  Convertible  Debenture,  interest is to be paid at the time of
maturity or conversion.  We may, at our option,  pay accrued interest in cash or
in shares of common stock. If paid in stock,  the conversion  price shall be the
closing  bid  price of the  common  stock on  either  (i) the date the  interest
payment is due; or (ii) if the  interest  payment is not made when due, the date
on which the interest payment is made.

We filed this  registration  statement to register the resale of shares issuable
to Highgate upon conversions by Highgate of the Convertible Debenture.  However,
this registration statement does not register the resale of any shares issued to
Highgate  as  payment of  interest  accrued on the  Convertible  Debenture,  and
neither  this  registration  statement  nor the  prospectus  may be used to sell
shares  issued to  Highgate as payment of  interest  accrued on the  Convertible
Debenture.

On June 15,  2006,  we entered  into an  agreement  with  Highgate  to amend the
registration  rights  agreement,  pursuant  to which we  agreed  to use our best
efforts to have the registration  statement declared effective by July 31, 2006.
On August 10, 2006, we entered into a further  agreement  with Highgate to amend
the registration  rights agreement,  pursuant to which we agreed to use our best
efforts to have the  registration  statement  declared  effective  by August 31,
2006. Under the second amendment  agreement,  if the registration  statement has
not been  declared  effective  by August 31,  2006,  Highgate  may declare us in
default under the Convertible Debenture.

The number of shares issuable in connection with this registration  statement is
also  limited  by our  authorized  capital,  which  as of  July  20,  2006,  was
750,000,000  shares.  In other words,  we are not  authorized to issue more than
750,000,000  shares of our common  stock,  irrespective  of how many  shares are
covered by this  registration  statement and prospectus,  unless we increase our
authorized capital, as discussed below in the "Risk Factors" section on page 22.

The terms of the Convertible  Debenture include and set forth other information,
including  certain  limitations on conversions by Highgate and redemption of the
Convertible  Debenture,  all  discussed  more  fully  below in the  Section  "5%
Convertible  Debenture."  Additionally,  in connection  with the issuance of the
Convertible  Debenture,  we entered into  additional  agreements  with Highgate,
including a registration rights agreement,  a security agreement,  and an escrow
agreement,  all  discussed  more  fully  below in the  Section  "5%  Convertible
Debenture."



                                       4



Recent Developments

Diverse Media Group

On March  21,  2006,  the  Company  issued a press  release  "CirTran  Forms New
Division  to  Serve  Direct  Response  and  Entertainment  Industries."  The new
division will concentrate its efforts on product  marketing,  production,  media
funding  and   merchandise   manufacturing   services   working  as  a  complete
vertically-integrated  platform that can augment our  manufacturing  services in
the direct response industry.  Our experience in this industry over the past two
years  has  taught  us that  there is a need for a single  source  solution.  In
addition,  we feel it  will  help us  capture  additional  business  that  might
otherwise had been lost at the manufacturing level allowing us to participate in
all additional areas.

CirTran Products Division

On December 2, 2005,  we announced  that we had formed a new  division,  CirTran
Products, which will offer products for sale at retail. The new division will be
run from our new Los Angeles  office,  with Trevor  Saliba,  our executive  vice
president for  worldwide  business  development,  working to develop  sales.  We
anticipate that consumer products built by our CirTran Asia subsidiary,  as well
as other products which we plan to acquire, will be available for retail sale in
2006

CirTran Products was established to pursue manufacturing relationships on both a
contracted and proprietary basis in the consumer products industry.  Proprietary
products will be product lines where the intellectual property (logo, trade name
etc.) are owned by  CirTran  Products  as well as  exclusively  manufactured  by
CirTran  Corporation.  The marketing efforts may also be managed  exclusively by
CirTran, or CirTran may choose to engage third party consultants or partner with
an independent  marketing firm. CirTran Products also intends to pursue contract
manufacturing  relationships in the consumer products industry which can include
product lines including:  home/garden,  kitchen,  health/beauty,  toys, licensed
merchandise  and apparel for film,  television,  sports and other  entertainment
properties.  Licensed  merchandise  and  apparel can be defined as any item that
bears the image of,  likeness,  or logo of a product sold or  advertised  to the
public.   Licensed  merchandise  and  apparel  are  sold  and  marketed  in  the
entertainment (film and television) and sports (sports  franchises)  industries.
As of July 20, 2006, we had  concentrated our product  development  efforts into
three areas, home/kitchen appliances,  beauty products and licensed merchandise.
We anticipate  that these products will be introduced  into the market under one
uniform  brand  name or under a  separate  trademarked  names  owned by  CirTran
Products.

Additional Convertible Debenture Transaction

         On December 30, 2005, we entered into a securities  purchase  agreement
(the "Purchase  Agreement")  with Cornell Capital  Partners,  a Delaware limited
partnership ("Cornell Capital"),  relating to the issuance by us of a 5% Secured
Convertible  Debenture,  due July 30, 2008, in the aggregate principal amount of
$1,500,000 (the "Cornell Debenture").

         We also paid a commitment  fee of $120,000,  and a  structuring  fee of
$10,000 to Cornell Capital. As such, of the total purchase amount of $1,500,000,
the net proceeds to us were  $1,370,000.  We will use these proceeds for general
corporate and working capital purposes, in our discretion.

         The Cornell  Debenture  bears interest at a rate of 5%. Cornell Capital
is entitled to convert, at its option, all or part of the principal amount owing
under the Debenture  into shares of the  Company's  common stock at a conversion
price equal one hundred  percent  (100%) of the lowest  closing bid price of the
Common Stock as listed on the OTC Bulletin  Board,  as quoted by Bloomberg  L.P.
for the twenty (20) trading days  immediately  preceding  the  Conversion  Date,
subject  to  certain  restrictions  and  limitations  set  forth in the  Cornell
Debenture.

         Under  the  terms of the  Cornell  Debenture,  except  upon an event of
default as defined in the Cornell Debenture, Cornell Capital may not convert the
Cornell  Debenture  for a number of  shares  of  common  stock in excess of that


                                       5



number of shares of common stock which,  upon giving effect to such  conversion,
would cause the aggregate number of shares of Common Stock beneficially owned by
Cornell Capital and its affiliates to exceed 4.99% of the outstanding  shares of
the common stock following such conversion.

         Pursuant to the Cornell  Debenture,  interest is to be paid at the time
of maturity or conversion.  We may, at our option,  pay accrued interest in cash
or in shares of our common stock. If paid in stock,  the conversion  price shall
be the closing bid price of the common stock on either (i) the date the interest
payment is due; or (ii) if the  interest  payment is not made when due, the date
on which the interest payment is made.

         Also pursuant to the Cornell Debenture, we have the right to redeem, by
giving 3 days'  written  notice to  Cornell  Capital,  a  portion  or all of the
Cornell Debenture then outstanding by paying an amount equal to one hundred five
percent  (105%) of the amount  redeemed plus interest  accrued  thereon.  In the
event that we redeem only a portion of the outstanding  principal  amount of the
Cornell Debenture,  Cornell Capital may convert all or any portion of the unpaid
principal  or  interest  of the  Cornell  Debenture  not being  redeemed  by us.
Additionally, if after the earlier to occur of (x) fifteen (15) months following
the date of the  purchase  of the  Cornell  Debenture  or (y) twelve (12) months
following  the date on which the  initial  registration  statement  is  declared
effective, all or any portion of the Cornell Debenture remains outstanding, then
we, at the  request of Cornell  Capital,  are  required  to redeem  such  amount
outstanding  at the rate of five hundred  thousand  dollars  ($500,000) per each
30-day period. Finally, upon the occurrence of an event of default as defined in
the Cornell Debenture, Cornell Capital can convert all outstanding principal and
accrued  interest  under  the  Cornell  Debenture  irrespective  of  any  of the
limitations set forth in the Cornell  Debenture  and/or the Purchase  Agreement,
and in such event, all such principal and interest shall become  immediately due
and payable.

         In connection with the Purchase  Agreement,  we also agreed to grant to
Cornell  Capital  warrants  (the  "Cornell  Warrants")  to  purchase  up  to  an
additional  10,000,000  shares of our common stock. The Cornell Warrants have an
exercise  price of $0.09 per  share,  and  expire  three  years from the date of
issuance. The Cornell Warrants also provide for cashless exercise if at the time
of exercise there is not an effective  registration  statement or if an event of
default has occurred.

         Additionally, we entered into an investor registration rights agreement
(the "Registration Rights Agreement") with Cornell Capital, pursuant to which we
agreed to file,  within 120 days of the  closing of the  purchase of the Cornell
Debenture,  a  registration  statement  to register  the resale of shares of our
common  stock  issuable  to  Cornell  Capital  upon  conversion  of the  Cornell
Debenture.  We  agreed  to  register  the  resale  of up to  42,608,696  shares,
consisting of 32,608,696 shares underlying the Cornell Debenture, and 10,000,000
shares  underlying  the Cornell  Warrants.  We agreed to keep such  registration
statement  effective  until all of the shares  issuable  upon  conversion of the
Cornell  Debenture  have  been  sold.  In the  event  that we  issue  more  than
32,608,696 shares of its common stock upon conversion of the Cornell  Debenture,
we will file additional registration statements as necessary.

         On June 15, 2006,  we entered  into an agreement  with Cornell to amend
the  registration  rights  agreement,  pursuant  to which we  agreed to file the
registration  statement  not later  than  August 15,  2006,  instead of 120 days
following  the closing of the issuance of the Cornell  Debenture.  On August 10,
2006, we entered into a further agreement with Cornell to extend the filing date
to October 15, 2006. Under the second agreement,  if the registration  statement
has not been filed by October 15, 2006,  Cornell may declare us in default under
the Cornell Debenture.

         We also entered into a security  agreement (the  "Security  Agreement")
with Cornell  Capital,  pursuant to which we granted a second position  security
interest in all of our property, including goods; inventory; contract rights and
general intangibles;  documents, receipts, and chattel paper; accounts and other
receivables;  products and proceeds;  and any interest in any subsidiary,  joint
venture, or other investment interest to secure our obligation under the Cornell
Debenture and the related agreements.

         We also entered into an escrow agreement (the "Escrow  Agreement") with
Cornell  Capital  relating  to the holding  and  disbursement  of payment of the
purchase price of the Cornell  Debenture and cash payments made by us in payment
of the  obligations  owing under the Cornell  Debenture.  We agreed with Cornell


                                       6



Capital  to  appoint  David  Gonzalez  as the  Escrow  Agent  under  the  Escrow
Agreement.

         By way  of  background,  we  have  previously  entered  into  financing
transactions with Cornell Capital.  In April 2003, we had entered into an equity
line of credit agreement with Cornell Capital, pursuant to which we drew a total
of  $2,150,000 on the equity line,  and issued a total of  57,464,386  shares of
common stock to Cornell  Capital.  In May 2004, we entered into a standby equity
distribution  agreement with Cornell  Capital,  but the agreement was terminated
before any funds were drawn or any shares  were  issued.  Between  June 2003 and
January 2005,  Cornell Capital loaned to us an aggregate of $5,595,000  pursuant
to promissory notes issued to Cornell Capital.  These notes were paid in full by
May 2005.

         Highgate  House  Funds,   Ltd.,  a  Cayman  Island   exempted   company
("Highgate"),  who is the Selling Shareholder under this registration statement,
and Cornell Capital have the same general partner,  Yorkville Advisors, but have
different  portfolio  managers.  Additionally,  the escrow  agent  appointed  in
connection  with the  purchase  and sale of both the Cornell  Capital  debenture
transaction and the Highgate debenture transaction is David Gonzalez,  who is an
officer of Cornell Capital.

         The Company does not anticipate that it will use any of the proceeds of
the sale of the Cornell Debenture to Cornell Capital to repay the debenture sold
to Highgate.

Exclusive Manufacturing Agreement

On December  28,  2005,  we signed an  Exclusive  Manufacturing  Agreement  (the
"Agreement") with Arrowhead Industries, Inc. ("Arrowhead"), pursuant to which we
will become the exclusive  manufacturer of a tool for assisting with the removal
of door hinges called the "Hinge Helper" (the  "Product").  Under the Agreement,
Arrowhead  agreed to buy the Product  exclusively  from us for the period of the
Agreement,  which is three years.  The Product will be  manufactured by us or by
sub-manufacturers selected by us.

The Agreement provides that Arrowhead will own all right, title, and interest in
the Product, and will sell and market the Product under its trademarks,  service
marks, or trade names.

On January 9, 2006, we issued a press release which  referred,  in the title, to
the Agreement as a "$22 Million Exclusive  Manufacturing  Agreement." The dollar
amount referenced  relates to the potential amount of income or revenue which we
may receive over the anticipated life of the Agreement.

CirTran  announced  on January 9, 2006,  that  Arrowhead  Industries,  Inc.,  of
Windermere,  Florida,  had awarded us an exclusive  contract to manufacture  its
patented Hinge Helper (TM)  do-it-yourself  utility tool for the home. The Hinge
Helper  will  be  manufactured  by  CirTran-Asia,   the  Company's   China-based
subsidiary.  The exclusive  manufacturing  contract for the product is for three
years.  Arrowhead  has filmed a Hinge Helper  infomercial  for TV with an airing
date scheduled for late April.

The  Hinge  Helper is a unique  hand  tool  designed  and  developed  for use by
household  customers as well as tradesmen.  Recognized by the U.S. Patent Office
(#6,308,390  B1),  its  trademark  and  patent  are owned by and  registered  to
Arrowhead.  The specific  advantage of the Hinge Helper is its  ease-of-use  and
simplistic  design. It can be applied to any residential hinge on wood, metal or
composite  doors,  and is  being  manufactured  with  highly-durable  materials,
enabling it to carry a lifetime guarantee.

The contract is for three years,  and Arrowhead  agreed to purchase a minimum of
ten million (10,000,000) units of the Product (the "Minimum Quantity"),  subject
to the terms and conditions of the Agreement.  Arrowhead and CirTran have agreed
on the Minimum Quantity in good faith, although the parties acknowledged that in
certain  circumstances  described  in  the  agreement,   the  agreement  may  be
terminated prior to the sale of the entire Minimum Quantity. Arrowhead agreed to
submit  purchase orders for the Product from time to time in accordance with the
terms  of the  agreement.  Arrowhead  agreed  to pay  CirTran  for  the  Product
purchased at the prices  ranging from $2.95 to $1.90 per unit,  depending on the
cumulative  number of units of Product  which have been  purchased by Arrowhead.


                                       7



Arrowhead  will also be entitled to a rebate equal to 10% of the purchase  Price
paid for Product in the previous Tier.  Rebates will be payable only in the form
of a credit memo against future purchases.  Rebate credit memos will not be paid
in cash and may not be applied against outstanding  balances.  We will calculate
eligibility for the Rebate as soon as practicable following the end of the month
in which a new Tier is entered.

We have  produced hand made  samples,  which have been sent to Arrowhead.  These
were approved and we are awaiting final approval for the production samples that
were  supplied  at the end of March  2006..  Once  the  production  samples  are
approved, we will start production according to the release schedule that should
be provided by Arrowhead shortly thereafter.

Aegis Assessments

On March 14th, 2006, we announced that we had received a $250,000 order to build
and  deliver  the  first  production  run of the next  generation  SafetyNet(TM)
RadioBridge(TM)  which we  redesigned  at the  request  and on  behalf  of Aegis
Assessments,  Inc., a Scottsdale,  Arizona-based  homeland security  contractor.
Since the  announcement,  we have been procuring  materials to  manufacture  the
units  and ship to Aegis so they can  start  fulfilling  their  orders  to their
customers.  We delivered the new,  redesigned units and received payment in full
from Aegis in April 2006.

Settlement of Legal Proceedings

On April 12th,  2006, we announced  that we had settled all major  litigation in
which we were a defendant.  These  litigation  matters had been described in our
previous SEC filings and were settled for less than the original  claims against
us. We were able to settle these cases with a total cash outlay of only $200,000
after originally having exposure of up to $4.25 million.  We settled with Howard
Salamon, a financial consultant who originally sued us for $1.75 million through
the  issuance  of 4 million  restricted  shares  and a warrant  to  purchase  an
additional 7 million shares  exercisable at $.05 per share.  We also settled our
dispute with  Sunborne XII, LLC, a Colorado  limited  liability  company and the
owner of a building  in Colorado  Springs,  Colorado,  to which we expanded  our
operations in the late 1990s, for $200,000 in cash.  Sunborne's claim originally
ranged up to $2.5 million.  Both  settlements were reached in February 2006. Our
subsidiary,  CirTran  Asia,  will  continue to proceed  with its action  against
International Edge, Inc., Michael Casey Enterprises,  Inc., Michael Casey, David
Hayek, and HIPMG, Inc., as discussed below under "Legal Proceedings."

Real Deal Grill

On April  18th,  2006,  we  announced  that we had  joined  forces  with  former
heavyweight  champion  Evander  Holyfield  to market and promote  "The Real Deal
Grill(TM),"  a new  electric  indoor/outdoor  cooking  product to be sold via TV
infomercials.   We  arranged  with  the  former  champion's  company,  Holyfield
Management,  Inc.,  of Georgia,  for his  services to promote the product and to
film a series  of TV  infomercials  featuring  Mr.  Holyfield  and The Real Deal
Grill,  which are scheduled to be filmed in Florida in May 2006.  Mr.  Holyfield
will receive a talent fee for all units sold.

HBD/Reliant Agreement

On April 19, 2006, we announced that we had signed an agreement relating to "The
Real Deal Grill(TM) (the "Grill"),  which will initially be sold on TV worldwide
and endorsed by Evander Holyfield,  the four-time heavyweight boxing champion of
the world. The agreement was signed with Harrington Business Development ("HBD")
of St.  Petersburg,  Florida,  giving  HBD the rights to market the Grill in the
Americas and Japan (the  "Territory").  Under the contract,  HBD will  initially
market the Grill on TV through  infomercials in the U.S., Canada,  South America
and Japan,  which will be filmed in Florida featuring Mr.  Holyfield.  Under the
terms of the  contract,  we have paid  one-half  of the costs of  producing  the
initial infomercial,  in the amount of $37,500.  Under the contract, HBD granted
to us the  right to use the raw  footage,  including  audio and  video,  for the
initial  infomercial to produce  infomercials  or other  advertisements  for the
Grill for use solely outside of the Territory. The agreement has an initial term


                                       8



of 3 years  and may be  renewed.  HBD is part  of  Reliant  International  Media
Corporation  ("Reliant"),  a full-service  direct  response  company  founded by
industry  pioneers and leaders Tim and Kevin  Harrington.  The Harringtons,  who
have been in the direct response industry since the early 1980's,  have produced
long and short form infomercials for products in numerous categories, which have
been seen on TV around the world.

In further consideration for use of the Infomercial footage, we agreed to pay to
HBD a royalty of $2.00 per unit of product on all  products  sold outside of the
territory covered by the agreement (consisting of North America,  South America,
and Japan) by the Company or  sublicensees of the  Infomercial  footage,  net of
returns and warranty  replacements.  For purposes of this royalty obligation,  a
unit of product consists of the Real Deal Grill itself including any accessories
included in the price of the grill.  The royalty to HBD for any  accessories  or
options which are advertised in the Infomercial and which may be sold separately
shall be 10% of the  wholesale  price for such items  received  by the  Company.
Sales will be calculated  on a cash basis,  and royalties are due within 14 days
of the receipt of payment by the Company for the product.

As of July 20, 2006, we had not received any purchase orders for the Grill,  the
infomercial had not been filmed,  and we had not begun  manufacturing the Grill.
Once we receive the initial  purchase  order,  we anticipate  that we will begin
manufacturing, although there can be no guarantee that HBD or Reliant will place
any  orders  or that we will  receive  the  maximum  amount  possible  under the
agreement,  announced as $30 million,  which assumed that HBD would purchase $30
million worth of the Grill.

Diverse Talent Group Agreement

On May 26, 2006,  Diverse  Media Group Corp.  ("DMG") a Utah  corporation  and a
wholly-owned  subsidiary of CirTran Corporation,  entered into an assignment and
exclusive  services  agreement  (the "Services  Agreement")  with Diverse Talent
Group,  Inc., a California  corporation,  ("DT  Group") and  Christopher  Nassif
("Nassif" and together  with DT Group,  "DT").  The Services  Agreement was made
effective as of April 1, 2006 (the "Effective  Date").  The term of the Services
Agreement is for five years, and expires on March 31, 2011.

Prior to entering into the Services  Agreement,  Nassif and DT Group  operated a
talent agency in Los Angeles, California, with extensive industry contacts. DMG,
a  subsidiary  of the  Company,  was  seeking to  commence a  diversified  media
business of product  marketing,  infomercial  production,  media  financing  and
product  merchandising   services  to  the  Direct  Response  and  Entertainment
Industries.

Pursuant  to the  Services  Agreement,  DMG and DT  entered  into  an  exclusive
operations  relationship  whereby  DMG agreed to  outsource  its  talent  agency
operations to DT and to provide financing to DT to assist in DT's growth.  Under
the  Services  Agreement,  DMG and DT  created a  relationship  whereby DT would
operate exclusively under the DMG business structure.

Pursuant  to the  Services  Agreement,  DT agreed to provide  all  creative  and
operational  needs of DMG's talent division.  DT agreed to supply these services
exclusively  to DMG.  Additionally,  all  gross  revenues  generated  from  DT's
operations after the Effective Date are to be paid to DMG.

At the time of signing the Services Agreement, DMG paid to DT an initial payment
of $50,000 in consideration of the following:

         -        the right to use the name "Diverse" and be associated with the
                  existing reputation of DT;
         -        the right to obtain DT's services on an exclusive basis;
         -        all accounts receivable and contracts receivable of DTGroup as
                  of the Effective Date; and
         -        the assignment by DT of certain talent contracts.

As  future  compensation  for  services  provided,  DMG  agreed  to  pay to DT a
percentage of the gross profits for the talent contracts entered into between DT
and its clients.  The percentage ranges from 62.5% to 85%, depending on the type


                                       9



of talent  contract and the amount of gross  compensation  paid under the talent
contract.

In connection  with the Services  Agreement,  Nassif  entered into an employment
agreement (the "Employment  Agreement") with DMG. Nassif's continued  employment
with DMG is an express condition of the Services Agreement. Under the Employment
Agreement,  DMG agreed to cause to be issued to DT options  (the  "Options")  to
purchase a total of 2,500,000  shares of the  Company's  common  stock,  with an
exercise price of $0.045 per share.  The Options will expire five years from the
date of grant if not exercised  prior to that date. The Options vest as follows:
500,000 on the date of grant, and an additional 500,000 on each of the next four
anniversaries of the Effective Date,  subject to Nassif's  continued  employment
with DMG.

Additionally,  Nassif will receive 5% of the gross margin received by DMG on any
new business  opportunities  generated for DMG through Nassif's personal efforts
and contacts (the "New  Business  Payments").  The New Business  Payments may be
made in cash or in shares of the Company's  restricted common stock,  subject to
compliance with all applicable securities laws.

DMG also agreed in the  Services  Agreement  to provide  financing to DT, in the
form of a non-interest-bearing  capital line of credit (the "Capital Line"), not
to exceed $200,000,  pursuant to a loan agreement (the "Loan Agreement"). DT may
make  weekly  draws  not to  exceed  $20,000,  on terms as set forth in the Loan
Agreement.

In  connection  with the Loan  Agreement,  DT and DMG  entered  into a  security
agreement  (the  "Security  Agreement"),  pursuant  to which DT granted to DMG a
security  interest (the "Security  Interest") in all of the personal property of
DT, including  inventory,  accounts,  equipment,  general  intangibles,  deposit
accounts,  and  other  items  listed in the  Security  Agreement.  The  Security
Interest secures DT's obligations to DMG under the Capital Line.

Also in  connection  with the  Loan  Agreement,  Nassif  provided  a  fraudulent
transaction  guarantee  (the  "Guarantee"),  pursuant to which Nassif  agreed to
indemnify  DMG and its  officers,  affiliates,  and others  against  any damages
arising out of any fraudulent actions by DT.

May 2006 Private Offering

On May 24, 2006, we closed a private placement of shares of our common stock and
warrants (the "Private  Offering").  Pursuant to a securities purchase agreement
(the "Agreement"),  we sold Fourteen Million, Two Hundred Eighty-five  Thousand,
Seven Hundred Fifteen  (14,285,715) shares of our Common Stock (the "Shares") to
ANAHOP, Inc., a California corporation (the "Purchaser"). The consideration paid
for the Shares was One Million Dollars ($1,000,000).  There were no underwriting
discounts.  In addition to the Shares,  we issued  warrants (the  "Warrants") to
designees of the Purchaser as follows:

         -        A  warrant  to  purchase  up to  10,000,000  shares,  with  an
                  exercise price of $0.15 per share,  exercisable  upon the date
                  of issuance, to Albert Hagar.
         -        A warrant to purchase up to 5,000,000 shares, with an exercise
                  price  of  $0.15  per  share,  exercisable  upon  the  date of
                  issuance, to Fadi Nora.
         -        A warrant to purchase up to 5,000,000 shares, with an exercise
                  price  of  $0.25  per  share,  exercisable  upon  the  date of
                  issuance, to Fadi Nora.
         -        A  warrant  to  purchase  up to  10,000,000  shares,  with  an
                  exercise price of $0.50 per share, to Albert Hagar.

The Warrants  have exercise  prices  ranging from $0.15 to $0.50 as noted above,
and are  exercisable  as of the date of issuance and through and  including  the
date which is five years  following the date on which our Common Stock is listed
for trading on either the Nasdaq Small Cap Market,  the Nasdaq  Capital  Market,
the American Stock  Exchange,  or the New York Stock  Exchange (the  "Expiration
Date").

With  respect to the  shares  underlying  the  Warrants,  we  granted  piggyback
registration  rights as follows:  (A) once all of the warrants  with an exercise


                                       10



price of $0.15 (the "Fifteen Cent Warrants")  have been exercised,  we agreed to
include in the next  registration  statement  that is filed by us the resales of
the shares  issued upon exercise of the Fifteen Cent  Warrants;  (B) once all of
the warrants with an exercise price of $0.25 (the  "Twenty-five  Cent Warrants")
have been  exercised,  we agreed to include in the next  registration  statement
that is filed by us the  resales  of the  shares  issued  upon  exercise  of the
Twenty-five  Cent  Warrants;  and (C) once all of the warrants  with an exercise
price of $0.50 (the "Fifty Cent  Warrants")  have been  exercised,  we agreed to
include in the next  registration  statement  that is filed by us the resales of
the shares issued upon exercise of the Fifty Cent Warrants. We did not grant any
registration rights with respect to the Shares.

The Shares and the Warrants were issued without  registration under the 1933 Act
in  reliance  on  Section  4(2) of the 1933 Act and the  rules  and  regulations
promulgated thereunder.  We intend to use the proceeds from the Private Offering
for working capital and general business purposes.

Closing and Approval of Asset Purchase Agreement

On June 6,  2006,  CirTran  Corporation  (the  "Company")  and  Advanced  Beauty
Solutions,  LLC ("ABS") closed a transaction (the "Asset Purchase")  whereby the
Company  purchased  certain  assets of ABS,  subject to the approval of the U.S.
Bankruptcy  Court  adjudicating  the  bankruptcy  proceedings  of ABS (the  "ABS
Bankruptcy  Court").  On June 7, 2006, the ABS Bankruptcy Court entered an order
approving the Asset Purchase.

Background
----------

On January 19, 2005,  the Company  signed an Exclusive  Manufacturing  Agreement
with ABS, a California limited liability company, relating to the manufacture of
a flat iron hair  product in  California.  On July 7, 2005,  the Company  signed
another Exclusive  Manufacturing Agreement with ABS, relating to the manufacture
of a hair dryer product in California.

In early  October  2005,  the Company was notified that ABS had defaulted on its
obligation to its financing company.  Following the notice of ABS's default, the
Company  terminated the  agreements  for both products based on the default.  In
January  2006,  following  efforts to resolve the disputes with ABS, the Company
filed a lawsuit  against ABS,  claiming  breach of contract,  interference  with
contractual  relationships,  unjust  enrichment,  and fraud, and seeking damages
from ABS.

With  respect to the flat iron  products,  through  October  2005,  CirTran  had
shipped  directly to ABS  approximately  $4,746,000  worth of the  product,  and
CirTran  had  received  from  ABS or  its  finance  company  total  payments  of
approximately  $788,000.  In November  2005,  the Company  repossessed  from ABS
approximately  $2,341,000  worth of the  products in the United  States,  as the
Company was permitted to do pursuant to the agreement.

Since  November  2005,  the  Company  has been  pursuing  its  rights  under the
agreements  and has been  offering  the flat iron  product for sale  directly to
ABS's customers.  In doing so, the Company sold to ABS's international customers
directly  approximately  $426,000 worth of the flat iron product.  The shipments
have  all  been  paid in  full.  These  products  shipped  were  not part of the
repossessed inventory.

On January 24, 2006, ABS filed a voluntary  petition for relief under chapter 11
of the United States  Bankruptcy Code in the United States  Bankruptcy Court for
the Central  District of  California,  San Fernando  Valley  Division  (the "ABS
Bankruptcy  Court"),  Case No. SV 06-10076  GM. On January 30,  2006,  a hearing
("Hearing")  was held to consider the Emergency  Motion for Order  Approving the
Settlement  and Compromise of the Disputed  Secured Claims of Inventory  Capital
Group,  Inc.  ("ICG"),  and Media Funding  Corporation  ("MFC") (the "Settlement
Motion") filed by ABS. The continued  Hearing on the Settlement  Motion was held
on February 16, 2006,  at which time the  settlement  was  modified.  Prior to a
separate  hearing  held on March  24,  2006,  on ABS's  Motion  for  Order:  (1)
Approving Sale and Assignment of Substantially All Assets of the Estate Free and
Clear of Liens; (2) Approving  Assumption and Assignment of Leases and Executory
Contracts  Included in the Sale and Rejection of Leases and Executory  Contracts
Not Included in the Sale; and (3) Granting  Related Relief (the "Sale  Motion"),


                                       11



the settlement was further modified.

Pursuant to the Sale Motion,  the Company and ABS entered into  negotiations for
the purchase by the Company of certain of the assets and  assumption  of certain
of the obligations  (described more fully below) of ABS. Because ABS was subject
to the  jurisdiction  of the ABS  Bankruptcy  Court,  any agreement  between the
Company and ABS  relating to the sale of ABS's  assets had to be approved by the
ABS Bankruptcy Court.

On June 6, 2006,  the Company and ABS signed an agreement  (the "Asset  Purchase
Agreement"),  subject to the ABS Bankruptcy  Court's approval.  On June 7, 2006,
the ABS Bankruptcy Court entered orders  approving the Asset Purchase  Agreement
and granting the Sale Motion,  and approving the  settlement  and  compromise of
certain disputed claims against ABS.

Pursuant  to the  settlement  of  ABS's  bankruptcy  proceedings  and the  Asset
Purchase Agreement, the Company has an allowed claim against the ABS's estate in
the amount of $2,350,000, of which $750,000 is to be credited to the purchase of
substantially  all of ABS's assets.  Under the settlement,  the Company shall be
allowed to  participate as a general  unsecured  creditor of ABS's estate in the
amount of $1,600,000 on a pari passu basis with the $2,100,000 general unsecured
claim of certain  insiders  of ABS and  subject to the prior  payment of certain
secured,  priority,  and  non-insider  claims  in the  amount  of  approximately
$1,507,011.

Under the Asset Purchase Agreement, the Company agreed to purchase substantially
all of ABS's assets in exchange for:

         (i)      a cash payment in the amount of $1,125,000;
         (ii)     a reduction of CirTran's  allowed claim in the Bankruptcy Case
                  by $750,000;
         (iii)    the assumption of any assumed liabilities; and
         (iv)     the  obligation  to pay ABS a royalty  equal to $3.00 per True
                  Ceramic  Pro  flat  iron  unit  sold  by  ABS  (the   "Royalty
                  Obligation").

The Assets include personal property;  intellectual property;  certain executory
contracts and unexpired leases; inventory;  ABS's rights under certain insurance
policies;  deposits and prepaid expenses; books and records;  goodwill;  certain
causes of action;  permits;  customer and supplier lists; and telephone  numbers
and listings (collectively, the "Assets").

Under  the  Asset  Purchase  Agreement,  the  Royalty  Obligation  is  capped at
$4,135,000.  To the extent  the  amounts  paid to ABS on account of the  Royalty
Obligation  equal less than $435,000 on the 2 year  anniversary  of the Closing,
then,  within  30 days of such  anniversary,  the  Company  agreed to pay ABS an
amount equal to $435,000 less the royalty  payments made to date. As part of the
settlement,  the Company agreed to exchange general releases with, among others,
ABS, Jason Dodo (the manager of ABS), Inventory Capital Group ("ICG"), and Media
Funding Corporation ("MFC"). The settlement also resolved a related dispute with
ICG in which ICG  assigned  $65,000  of its  secured  claim  against  ABS to the
Company.

Pursuant to the court-approved settlement, payments under the Royalty Obligation
will be made in the following order:

         (a)      The Royalty  Obligation  payments will be made  exclusively to
         ICG and MFC (collectively, the "Secured Parties") until (i) the Secured
         Parties  have  been  paid in full on  account  of  their  $1,243,208.44
         secured claim,  or (ii) the Secured  Parties have been paid $100,000 in
         payments under the Royalty Obligation, whichever comes first.

         (b)      The next $70,000 Royalty Obligation payments will be made to a
         service provider to ABS (in the amount of $50,000) and to an individual
         with an allowed claim (in the amount of $20,000).

         (c)      Following  the  payments to the Secured  Parties and others as
         set forth immediately above, the remaining Royalty Obligation  payments


                                       12



         will be used for  distribution to allowed general  unsecured claims not
         including  those of the Company and certain  insiders with unpaid notes
         (the "Insider Noteholders").

         (d)      Following  payments as set forth in (a),  (b),  and (c) above,
         the  Royalty  Obligation  payments  will be shared  pro rata  among the
         Insider   Noteholders   (with  a  total  allowed   aggregate  claim  of
         $2,100,000),  and the Company  (with a general  unsecured  claim in the
         amount of $1,600,000), until paid in full.

         The total  claims  against  ABS's  estate  that must be paid before the
Company begins to share in the Royalty Obligation payments is $435,000.

Marketing and Distribution Agreement

         On July 3, 2006,  we finalized a Marketing and  Distribution  Agreement
(the "MD Agreement")  with Media  Syndication  Global,  LLC, a Delaware  limited
liability  company  ("MSG").  The MD  Agreement  relates  to the  marketing  and
distribution  by MSG of a product  designed by Advanced  Beauty  Solutions,  LLC
("ABS"), which we purchased (as discussed above).

Background
----------

         In a Current  Report filed with the SEC on June 13, 2006,  we announced
that we had closed a  transaction  (the "Asset  Purchase")  whereby we purchased
certain  assets of ABS,  subject to the  approval of the U.S.  Bankruptcy  Court
adjudicating the bankruptcy proceedings of ABS (the "Bankruptcy Court"). On June
7, 2006, the Bankruptcy Court entered an order approving the Asset Purchase.

         Pursuant to the order entered by the Bankruptcy Court, we were required
to give to Tristar Products, Inc. ("Tristar") a first-right opportunity to enter
into a world-wide  marketing and  distribution  agreement with the Company.  The
term of the first-right period ended on July 3, 2006.

         Prior to the approval of the Asset  Purchase by the  Bankruptcy  Court,
and in anticipation of such approval,  we had entered into the MD Agreement with
MSG, subject to (A) the approval of the Asset Purchase by the Bankruptcy  Court;
(B) our completion of the purchase of ABS's assets; and (C) our failure to enter
into a  distribution  agreement  with Tristar.  We entered into the MD Agreement
with MSG on April 24, 2006,  although the effective date of the MD Agreement was
the  date  on  which  all  three   conditions   listed  above  were   satisfied.
Additionally,  the MD Agreement  provided to MSG the opportunity to perform test
marketing of the product, which was successfully completed.

         Pursuant  to  the MD  Agreement,  we  granted  to  MSG  the  exclusive,
world-wide rights to advertise,  promote, market, sell, and otherwise distribute
the True  Ceramic  Pro Bionic  hair  styler  (the  "Product"),  designed by ABS.
Additionally,  MSG agreed  that during the term of the MD  Agreement,  MSG would
purchase  100% of its  requirements  of the Product,  together with any products
that are substantially  similar to the Product (a "Similar  Product"),  from us.
MSG also  agreed  that it would not  purchase,  manufacture,  or cause any third
party to manufacture any Similar Product during the term of the MD Agreement and
for one year following the termination of the MD Agreement, except from us.

         Under the MD Agreement,  MSG is required to purchase an initial minimum
quantity of 10,000 units,  and yearly  quantities of at least 400,000 units. The
initial term of the MD Agreement is for three years from the effective  date. If
MSG has purchased the required minimum  quantities  during the initial term, the
MD Agreement will renew for additional one-year terms.

         The MD Agreement may be terminated by either party upon 45 days' notice
to the other  party upon the breach by the other  party of any  material  terms,
covenants,  conditions,  or obligations under the MD Agreement.  However, if the
breach  upon which such  notice of  termination  is based  shall have been fully
cured to the  reasonable  satisfaction  of the  non-breaching  party within such
notice period,  then such notice of termination  shall be deemed  rescinded.  We


                                       13



agreed  with MSG that such right of  termination  was in  addition to such other
rights and remedies as the terminating party would have under applicable law.

         We agreed with MSG that all customer  lists,  price lists,  written and
unwritten marketing plans,  techniques,  methods and data, sales and transaction
data,  and other  information  designated or deemed either by MSG or us as being
confidential or a trade secret, would constitute confidential information of MSG
or CirTran,  respectively  ("Confidential  Information").  We agreed with MSG to
hold all Confidential  Information in the strictest confidence and shall protect
all  Confidential  Information with the same degree of care that MSG or we would
exercise with respect to its own proprietary information.

June 2006 Private Offering

         On June 30, 2006, we closed a second private placement of shares of our
common  stock  and  warrants  (the  "June  Private  Offering").  Pursuant  to  a
securities purchase agreement (the "June Agreement"), the Company agreed to sell
Twenty-Eight   Million,   Five  Hundred  Seventy-One   Thousand,   Four  Hundred
Twenty-Eight  (28,571,428)  shares of its Common  Stock (the "June  Shares")  to
ANAHOP.  The total  consideration  to be paid for the Shares will be Two Million
Dollars ($2,000,000) if all tranches of the sale close.

         Pursuant to the Agreement,  ANAHOP agreed to pay Three Hundred Thousand
Dollars  ($300,000)  at the  time of  closing,  and an  additional  Two  Hundred
Thousand  Dollars  ($200,000)  within 30 days of the closing.  (The  payments of
$300,000  and  $200,000  are  referred  to  collectively  as the "First  Tranche
Payment.") Upon the receipt of the First Tranche  Payment,  we agreed to issue a
certificate  or  certificates  to the  Purchaser  representing  7,142,857 of the
Shares.

         The remaining $1,500,000 is to be paid by ANAHOP as follows:

                  (i)      No later than thirty calendar days following the date
                           on  which  any  class of our  capital  stock is first
                           listed for  trading  on either  the Nasdaq  Small Cap
                           Market, the Nasdaq Capital Market, the American Stock
                           Exchange,  or the New  York  Stock  Exchange,  ANAHOP
                           agreed to pay an additional $500,000 to us; and

                  (ii)     No later than sixty  calendar days following the date
                           on  which  any  class of our  capital  stock is first
                           listed for  trading  on either  the Nasdaq  Small Cap
                           Market, the Nasdaq Capital Market, the American Stock
                           Exchange,  or the New  York  Stock  Exchange,  ANAHOP
                           agreed to pay an  additional  $1,000,000  to us. (The
                           payments of $500,000 and  $1,000,000  are referred to
                           collectively as the "Second Tranche Payment.")

         Upon receipt by us of the Second Tranche Payment,  we agreed to issue a
certificate or  certificates  to ANAHOP  representing  the remaining  21,428,571
Shares.  Additionally,  once we have  received the Second  Tranche  Payment,  we
agreed to issue warrants to designees of the Purchaser as follows:

                  -        A warrant to purchase up to 20,000,000  shares,  with
                           an  exercise  price of $0.15 per  share,  exercisable
                           upon the date of issuance, to Albert Hagar.
                  -        A warrant to purchase up to 10,000,000  shares,  with
                           an exercise price of $0.15 per share, to Fadi Nora.
                  -        A warrant to purchase up to 10,000,000  shares,  with
                           an  exercise  price of $0.25 per  share,  exercisable
                           upon the date of issuance, to Fadi Nora.
                  -        A warrant to purchase up to 23,000,000  shares,  with
                           an  exercise  price of $0.50 per  share,  exercisable
                           upon the date of issuance, to Albert Hagar.

         The Warrants have exercise  prices ranging from $0.15 to $0.50 as noted
above,  and are exercisable as of the date of issuance and through and including
the later of (1) the fifth  anniversary  of the date of the  Warrant  or (2) the
fifth  anniversary  of the date on which our  Common  Stock is first  listed for
trading on either the Nasdaq Small Cap Market,  the Nasdaq Capital  Market,  the


                                       14



American Stock Exchange, or the New York Stock Exchange (the "Expiration Date").

         With  respect  to  the  shares  underlying  the  Warrants,  we  granted
piggyback  registration rights as follows:  (A) Once all of the warrants with an
exercise price of $0.15 (the "Fifteen Cent Warrants")  have been  exercised,  we
agreed to include  in the next  registration  statement  that is filed by us the
resales of the shares  issued upon  exercise of the Fifteen Cent  Warrants;  (B)
Once all of the warrants with an exercise price of $0.25 (the  "Twenty-five Cent
Warrants")  have been exercised,  we agreed to include in the next  registration
statement  that is filed by us the resales of the shares issued upon exercise of
the Twenty-five Cent Warrants; and (C) Once all of the warrants with an exercise
price of $0.50 (the "Fifty Cent  Warrants")  have been  exercised,  we agreed to
include in the next  registration  statement  that is filed by us the resales of
the shares issued upon exercise of the Fifty Cent Warrants. We did not grant any
registration rights with respect to the Shares.

         The Shares and the Warrants were issued without  registration under the
1933  Act in  reliance  on  Section  4(2) of the  1933  Act and  the  rules  and
regulations promulgated thereunder.  We intend to use the proceeds from the June
Private Offering for working capital and general business purposes.

Lockdown Agreements

         On July 20, 2006, we entered into two lockdown agreements with existing
security holders.

         The first  agreement  (the  "Cornell  Agreement")  was with Cornell and
related to the Cornell  Debenture.  Pursuant to the Cornell  Agreement,  Cornell
agreed that it would not convert any of the principal or interest on the Cornell
Debenture or exercise any of the Warrants  granted to Cornell until we had taken
the steps necessary to increase our authorized capital. As such, we were able to
lock down  50,000,000  shares  underlying  the Cornell  Debenture and 10,000,000
shares underlying the Cornell Warrants.

         The second agreement (the "ANAHOP  Agreement") was with ANAHOP,  Albert
Hagar,  and  Fadi  Nora,  and  related  to the May and  June  private  placement
transactions  discussed above. Pursuant to the ANAHOP Agreement,  Hagar and Nora
agreed  that they  would not  exercise  any of the  warrants  they  received  in
connection  with the May or June private  offerings until we had taken the steps
necessary to increase our authorized capital.  Additionally,  ANAHOP agreed that
it would not make the Second  Tranche  Payment to  purchase  the Second  Tranche
Shares  until we had  taken the  steps  necessary  to  increase  our  authorized
capital.  As  such,  under  the  ANAHOP  Agreement,  we were  able to lock  down
21,428,571 shares (the Second Tranche Shares),  and 93,000,000 shares underlying
the warrants issued to Hagar and Nora in the May and June private placements.

Press Release Regarding Sales Increase

         On July 19, 2006,  the Company  issued a press  release  stating it was
projecting  an  increase  in  sales  of 30%  for the  second  quarter  of  2006,
consisting  of sales of  approximately  $2.2  million,  compared  with  sales of
approximately  $1.7 million for the first quarter of 2006.  The  projection  was
based on a preliminary  summary of second  quarter sales for the Company and its
subsidiaries as follows:

                                         Sales for the          Sales for the
                                      Second Quarter 2006    Second Quarter 2005

Electronics Assembly                     $     687,470         $     946,162
CirTran Asia, Inc.                             944,958             3,332,275
CirTran Products Corporation                   243,652                   -0-
Racore Technology Corporation                    6,830                40,747
Diverse Media Group Corporation                374,896                   -0-
                                         -------------         -------------

Total Sales                              $   2,257,806         $   4,309,184

Although as of August 10,  2006,  the Company had not  finalized  its  financial
statements for the quarter ended June 30, 2006, it appears that sales  decreased
to  $3,995,630  for the six month  period  ended June 30,  2006,  as compared to
$7,229,649  during the same  period in 2005,  for a decrease  of  $3,234,019  or
44.7%.  A  significant  portion of this sales  decrease can be attributed to the
bankruptcy of a major customer,  Advanced Beauty Solutions,  Inc. (ABS).  During
the second  quarter of 2005,  the Company  recorded  sales of  $2,002,363 to ABS
whereas  there were no sales to ABS in the  second  quarter of 2006 due to ABS's
filing of bankruptcy in January 2006.

As  of  August  10,  2006,  other  financial  information  about  the  Company's
operations  for the  second  quarter  of 2006  was  being  prepared  and will be
released  when the Company  issues its  quarterly  report on Form 10-QSB for the
quarter ended June 30, 2006.


                                       15



                                  Risk Factors

The short- and long-term success of CirTran is subject to certain risks, many of
which are  substantial in nature and outside the control of CirTran.  You should
consider carefully the following risk factors,  in addition to other information
contained  herein.  When  used in this  prospectus,  words  such as  "believes,"
"expects,"   "intends,"   "plans,"   "anticipates,"   "estimates,"  and  similar
expressions are intended to identify forward-looking statements,  although there
may be certain  forward-looking  statements not accompanied by such expressions.
You should  understand that several  factors govern whether any  forward-looking
statement  contained  herein will or can be achieved.  Any one of those  factors
could cause actual results to differ  materially  from those  projected  herein.
These forward-looking  statements include plans and objectives of management for
future operations,  including the strategies,  plans and objectives  relating to
the products and the future economic performance of CirTran and its subsidiaries
discussed above. We disclaim any intention or obligation to update or revise and
forward-looking  statement,  whether  as a  result  of new  information,  future
events, or otherwise. In light of the significant  uncertainties inherent in the
forward-looking  statements included herein, the inclusion of any such statement
should not be regarded as a  representation  by CirTran or any other person that
the objectives or plans of CirTran will be achieved.

In addition to the other information in this report,  the following risk factors
should be  considered  carefully in  evaluating  our business  before making any
investment  decisions  with  respect  to any of our  shares of common  stock.  A
purchase  of our  common  stock is  speculative  and  involves  significant  and
substantial risks. Any person who is not in a position to lose the entire amount
of his investment should forego purchasing our common stock.

Risks Related to Our Operations

We have a history of operating losses which could have a material adverse impact
on our ability to continue operations.

Our current assets exceeded our current  liabilities by $300,528 as of March 31,
2006.  Our  accumulated  deficit  increased  to  $19,605,311  at March 31, 2006,
compared to  $19,327,310  at  December  31,  2005.  Our net loss for the quarter
ending March 31, 2006, was $277,998,  compared to $201,728 for the quarter ended
March 31,  2005.  The change was mostly  attributable  to  settlements  of notes
payable. Our current liabilities exceeded our current assets by $1,142,874 as of
December 31, 2005,  and by $3,558,826 as of December 31, 2004.  Our net loss for
the year ending  December  31,  2005,  was  $527,708,  which  included a gain on
forgiveness  of debt of  $337,761,  compared  to  $658,322  for the  year  ended
December 31, 2004,  which  included a gain on forgiveness of debt of $1,713,648.
Our ability to operate  profitably  depends on our ability to increase our sales
further and achieve sufficient gross profit margins for sustained growth. We can
give no  assurance  that we will be able to increase our sales  sufficiently  to
enable us to operate  profitably,  which could have a material adverse impact on
our  business.  Our ability to obtain  funding has had a material  effect on our
operations.  Additionally,  there is no guarantee that the  fluctuations  in the
volume  of our  sales  will  stabilize  or that we will be able to  continue  to
increase our revenues to exceed our  expenses.  There are doubts that we will be
able to continue as a going concern.

Our current liabilities exceeded our current assets, which raises doubts that we
may continue as a going concern.

Our current assets exceeded our current  liabilities by $300,528 as of March 31,
2006.  For the three months ended March 31, 2006 and 2005,  we had negative cash
flows from operations of $719,898 and $385,701, respectively. As of December 31,
2005,  our  current  liabilities  exceeded  our  current  assets by  $1,142,874,
compared to $3,558,826 as of December 31, 2004.  For the year ended December 31,
2005 and 2004,  we had negative cash flows from  operations  of  $1,751,744  and
$1,680,054, respectively. There can be no guarantee that our current assets will
exceed our current  liabilities.  As such,  and in light of our recent  history,
there remains a doubt we will be able to meet our  obligations  as they come due
and will be able to execute our long-term  business  plans.  If we are unable to
meet our  obligations  as they come due or are unable to execute  our  long-term
business plans, we may be forced to curtail our operations,  sell part or all of
our assets, or seek protection under bankruptcy laws.


                                       16



The "going  concern"  paragraph  in the  reports of our  independent  registered
public  accounting  firm for the years ended December 31, 2005 and 2004,  raises
doubts about our ability to continue as a going concern.

The independent  registered  public  accounting firm's reports for our financial
statements  for  the  years  ended  December  31,  2005  and  2004,  include  an
explanatory  paragraph regarding substantial doubt about our ability to continue
as a going  concern.  This may have an adverse  effect on our  ability to obtain
financing for our operations and to further develop and market our products.

Our volume of sales has fluctuated  significantly  over the last four years, and
there is no guarantee that we will be able to increase sales. These fluctuations
in sales volume could have a material  adverse  impact on our ability to operate
our business profitably.

Our sales volume  increased  in the year of 2005 as compared to 2004.  Our sales
volumes for the previous  four years have changed as indicated by the  following
levels of net sales for the  periods  indicated:  $2,299,668  for the year ended
December  31,  2002;  $1,215,245  for the  year  ended  December  31,  2003  and
$8,862,715 for the year ended December 31, 2004. For the year ended December 31,
2005 our sales  increased to  $12,992,512  which is a 46.6%  increase  from year
ended December 31, 2004.  This increase  indicates an increasing  trend in sales
volume.  There is no guarantee that the  fluctuations in the volume of our sales
will stabilize or that we will be able to continue to increase our sales volume.

One of our  customers  was  responsible  for  approximately  71% of our accounts
receivable at December 31, 2005. That customer filed bankruptcy in January 2006.
If the  bankruptcy  estate  is  unable to make  full  payments  on this  account
receivable,  or if such  payments  are  delayed,  the  resulting  impact  on our
collections could have a material adverse impact on our business.

As of December  31, 2005,  one  customer,  Advanced  Beauty  Solutions  ("ABS"),
accounted for  approximately  71% of our accounts  receivable,  in the amount of
$2,350,000.  On January 24, 2006, ABS filed a voluntary petition for relief (the
"ABS Bankruptcy Case") under Chapter 11 of the U.S.  Bankruptcy Code. We have an
allowed claim of $2,350,000  against ABS's estate (the "Estate").  In connection
with a settlement of the ABS Bankruptcy Case, we recently closed the purchase of
the assets of ABS,  which  included a  reduction  of our claim by  approximately
$750,000, leaving us with a remaining claim of approximately $1,600,000. On June
7, 2006, the transaction was approved by the ABS Bankruptcy Court.

We intend to continue to produce and sell the ceramic flat iron  products  under
our contracts with ABS. However,  we are required to pay to the Estate royalties
on each unit sold.  The Estate will then use those  royalties  to pay the claims
against the Estate, including our claim of approximately  $1,600,000.  There can
be no guarantee that we will be able to sell  sufficient  quantities of the flat
iron  products  and pay  royalties to the Estate to allow us to recover the full
amount of our remaining  claim.  If we are unable to recover the claimed amount,
the resulting impact on our collections  could have a material adverse impact on
our business operations.

We are involved in numerous legal  proceedings that may give rise to significant
liabilities, which could impair our ability to continue as a going concern.

We are involved in legal  proceedings,  several of which involve  lawsuits filed
against us. As of July 20,  2006,  one company had a judgment  against us in the
amount of $37,966,  and there were additional claims, in connection with pending
litigation, in the aggregate amount of approximately  $10,000,000.  This pending
litigation  involves CirTran Asia and the other plaintiffs whom have filed their
reply  to  the  counterclaim,  disputing  all  of the  allegations  and  claims.
International Edge filed a motion to dismiss for lack of jurisdiction, which was
pending as of the date of this  report.  This claim  involves  licensing  issues
relating to a product  which  generated  approximately  $3,510,000 in revenue in
2004 and $960,000 in 2005. As discussed in the "Legal  Proceedings"  section, we
are currently attempting to negotiate with each of these claimants to settle the
claims against  CirTran,  although in many cases,  we have not yet reached final
settlements.  There  can be no  assurance  that we will be  successful  in those


                                       17



negotiations  or that,  if  successful,  we will be able to service  any payment
obligations which may result from such settlements.

There is  substantial  risk,  therefore,  that the existence and extent of these
liabilities  could  adversely  affect our  business,  operations  and  financial
condition.  The  liabilities  and claims could also result in a reduction in our
revenues to the extent that claims relate to specific products or licenses. As a
result,  we may be forced to  curtail  our  operations,  sell part or all of our
assets,  or seek  protection  under  bankruptcy  laws.  Additionally,  there  is
substantial  risk that our vendors  could  expand  their  collection  efforts to
collect the unpaid amounts.  If they undertake  significant  collection efforts,
and if we are unable to negotiate  settlements  or satisfy our  obligations,  we
could be forced into bankruptcy.

In connection with the sale of the Convertible Debentures, we granted a security
interest  in all of our  assets  to secure  our  payment  obligations  under the
Convertible  Debentures.  If we are unable to satisfy our  payment  obligations,
Highgate or Cornell  Capital  could  execute on the  security  interest and take
control of our assets.

In connection with the sale of the Convertible Debenture to Highgate, we entered
into a security agreement with Highgate, pursuant to which we pledged all of our
property,  including goods; inventory;  contract rights and general intangibles;
documents, receipts, and chattel paper; accounts and other receivables; products
and  proceeds;  and any  interest in any  subsidiary,  joint  venture,  or other
investment interest to secure our obligation under the Convertible Debenture and
the  related  agreements.   Similarly,  in  connection  with  the  sale  of  the
Convertible  Debenture to Cornell Capital,  we entered into a security agreement
with  Cornell  Capital,  pursuant  to which we gave a second  position  security
interest and pledged all of our property,  including goods; inventory;  contract
rights and general intangibles; documents, receipts, and chattel paper; accounts
and  other  receivables;   products  and  proceeds;  and  any  interest  in  any
subsidiary, joint venture, or other investment interest to secure our obligation
under the Cornell Capital Convertible  Debenture and the related agreements.  In
the  event  that we are  unable  to  make  our  payment  obligations  under  the
Convertible  Debentures  or to work out  alternate  arrangements  with  Highgate
and/or  Cornell  Capital,  or to arrange for  financing to enable us to make our
payment obligations to Highgate and/or Cornell Capital,  Highgate and/or Cornell
Capital  could  execute on the security  interest and take control of all of our
property and assets.

We are dependent on the continued  services of our President and other officers,
and the untimely  death or  disability  of Iehab  Hawatmeh  could have a serious
adverse effect upon our Company.

We view the continued services of our president,  Iehab Hawatmeh,  and our other
officers as critical to the success of our  Company.  Though we have  employment
agreements with Mr. Iehab Hawatmeh,  Mr. Trevor Saliba,  and Mr. Shaher Hawatmeh
(see  "Executive  Compensation"),  and a key-man life  insurance  policy for Mr.
Iehab  Hawatmeh,  the untimely death or disability of Mr.  Hawatmeh could have a
serious adverse affect on our operations.

Our international  business  activities subject us to risks that could adversely
affect our business.

For the year ended  December 31,  2005,  sales of products  manufactured  in the
United States accounted for 24.1 percent of our total net revenues, and sales of
products  manufactured  in China  accounted  for 75.9  percent  of our total net
revenues. Our sales of our products manufactured internationally have increased,
and now represents a larger percentage of our sales.  Additionally,  the portion
of our  products  that are  produced at  facilities  in close  proximity  to our
CirTran-Asia  production  facilities in ShenZhen,  China,  has  increased.  As a
result,  we are subject to the risks inherent in international  operations.  Our
international business activities could be affected,  limited, or disrupted by a
variety of factors, including:

         *        the imposition of or changes in governmental controls,  taxes,
                  tariffs, trade restrictions and regulatory requirements;

         *        the  costs  and  risks  of  localizing  products  for  foreign
                  countries;


                                       18



         *        longer accounts receivable payment cycles;

         *        changes  in the  value of  local  currencies  relative  to our
                  functional currency;

         *        import and export restrictions;

         *        loss of tax benefits due to international production;

         *        general   economic  and  social   conditions   within  foreign
                  countries;

         *        taxation in multiple jurisdictions; and/or

         *        political instability, war or terrorism.

All of these  factors  could harm future sales of our products to  international
customers or future production outside of the United States of our products, and
have a  material  adverse  effect on our  business,  results of  operations  and
financial condition.

We may continue to expand our operations in international  markets.  Our failure
to effectively manage our international operations could harm our business.

Entering  new  international  markets,  including  our  entry  into  China  with
CirTran-Asia,  may require significant management attention and expenditures and
could adversely affect our operating margins and earnings. To date, we have only
recently  begun to penetrate  international  markets.  To the extent that we are
unable to do so, our growth in international  markets would be limited,  and our
business could be harmed.

We expect that our international business operations will be subject to a number
of material risks, including, but not limited to:

         *        difficulties in managing foreign sales channels;

         *        difficulties   in   enforcing    agreements   and   collecting
                  receivables through foreign legal systems and addressing other
                  legal issues;

         *        longer payment cycles;

         *        taxation issues;

         *        differences in international  telecommunications standards and
                  regulatory agencies;

         *        product  requirements  different  from  those  of our  current
                  customers;

         *        fluctuations in the value of foreign currencies; and

         *        unexpected domestic and international regulatory,  economic or
                  political changes.

A combination of any or all of these risks could have a material  adverse impact
both on our international  business,  and on our core business operations in the
United States.

We are dependent on the  continued  services of Charles Ho, the President of our
CirTran-Asia  subsidiary,  and the untimely  death or disability of Mr. Ho could
have a serious adverse effect upon our subsidiary and Company.


                                       19



We view the continued  services of Charles Ho, the president of our CirTran-Asia
subsidiary,  as critical to the  success of that  subsidiary.  Though we have an
employment  agreement  with Mr. Ho (see  "Executive  Compensation"),  we have no
key-man life  insurance  policy for Mr. Ho. The untimely  death or disability of
Mr. Ho could have a serious adverse affect on our  international  operations and
our operations overall.

We have not held an annual  shareholder  meeting in several  years,  which could
result in a legal action being  brought  against the Company to compel an annual
meeting.

We have not held an annual meeting of shareholders since 2001. Under Nevada law,
if a Nevada  corporation  does  not hold a  meeting  to elect  directors  of the
corporation  within  eighteen  months after the last  election of  directors,  a
shareholder  or  shareholders  owning at least fifteen  percent of the Company's
outstanding  voting  stock  can  apply to a court  for an order  compelling  the
Company to hold a shareholder  meeting to elect  directors.  Because it has been
more than eighteen  months since our last meeting where  directors were elected,
an action  could be  brought,  pursuant  to Nevada  law,  against the Company to
compel us to hold an annual meeting and elect directors of the Company.

Our authorized  capital  presently  would be  insufficient  to allow us to issue
shares upon conversion of our  outstanding  derivative  securities,  which could
result in our being in default or subject to claims of breach of  contract,  and
could have a material adverse impact on our business.

Our authorized  capital stock consists of 750,000,000 shares of common stock. As
of  July  20,  2006,  we  had  636,874,906  shares  issued  and  outstanding.  A
hypothetical  conversion  of the  remaining  principal  amount  of the  Highgate
Convertible  Debenture,  namely  $3,000,000,  would  result in the  issuance  of
100,000,000 shares, assuming a hypothetical conversion price of $0.03 per share.
Conversion of the full principal  amount of the Cornell  Convertible  Debenture,
namely  $1,500,000,  would result in the issuance of 50,000,000 shares of common
stock,   assuming  a   hypothetical   conversion   price  of  $0.03  per  share.
Additionally,  in May 2006,  we issued  warrants to purchase up to an additional
30,000,000  shares of our  common  stock and in June 2006,  we  entered  into an
agreement to issue  additional  warrants to purchase up to 63,000,000  shares of
our common stock,  although we have entered into a lockdown  agreement  with the
holders of the 93,000,000 warrants.  Presently, we do not have sufficient shares
to permit a full conversion of all of the convertible debentures and exercise of
outstanding  warrants.  We have also  entered  into a  lockdown  agreement  with
Cornell relating to the Cornell Debenture, whereby Cornell agreed not to convert
any of the Cornell  Debenture  until we can  increase  our  authorized  capital.
Nevertheless,   under  the  Highgate  Convertible   Debenture  and  the  Cornell
Convertible Debenture,  failure to deliver shares upon conversion can constitute
an event of default,  giving  Highgate or Cornell,  as applicable,  the right to
accelerate  the  payment  of all  remaining  amounts  due and  owing  under  the
debentures.  Additionally,  failure  to  deliver  shares  upon  exercise  of the
warrants could result in claims being brought against us for breach of contract,
among others.

We intend to hold an annual  meeting of  shareholders  to seek  approval  of our
shareholders to amend our articles of  incorporation  to increase our authorized
capital,  although  there  can be no  guarantee  that we will be able to  obtain
shareholder  approval  to do so. If we do not  receive  shareholder  approval to
increase our authorized capital, we would not have sufficient shares to permit a
full  conversion of the  convertible  debentures and exercise of the outstanding
warrants.  A failure  to deliver  shares  upon  conversion  or  exercise  of our
outstanding  derivative  securities or to increase our authorized  capital could
have a material adverse impact on our business and operations

Risks Related to Our Industry

The  variability  of customer  requirements  in the  electronics  industry could
adversely affect our results of operations.

Electronic  manufacturing  service  providers  must provide  increasingly  rapid
turnaround  time for their  OEM  customers.  We do not  obtain  firm,  long-term
purchase  commitments  from our  customers  and have  experienced  a demand  for
reduced  lead-times in customer  orders.  Our customers may cancel their orders,


                                       20



change production quantities or delay design and production for several factors.
Cancellations,  reductions  or delays by a customer or group of customers  could
adversely affect our results of operations.  Additional  factors that affect the
electronics  industry  and that  could  have a  material  adverse  effect on our
business  include the  inability of our  customers to adapt to rapidly  changing
technology and evolving industry standards and the inability of our customers to
develop and market their products. If our customers' products become obsolete or
fail to gain commercial acceptance,  our results of operations may be materially
and  adversely  affected,  which could make it difficult for us to continue as a
going concern.

Our customer mix and base  fluctuates  significantly,  and  responding  to these
fluctuations  could cause us to lose  business or have delayed  revenues,  which
could have a material adverse impact on our business.

A  percentage  of our revenue is  generated  from our  electronics  assembly and
manufacturing  services.  Of this amount our three  largest  customers  generate
approximately  12% of the total  revenue.  Our  customers  include  electronics,
telecommunications,  networking,  automotive,  gaming,  exercise equipment,  and
medical  device OEMs that  contract  with us for the  manufacture  of  specified
quantities  of  products at a  particular  price and during a  relatively  short
period  of  time.  As a  result,  the  mix  and  number  of our  clients  varies
significantly  from time to time.  Responding to the fluctuations and variations
in the mix and number of our  clients can cause  significant  time delays in the
operation  of our  business and the  realization  of revenues  from our clients.
These delays could have a material  adverse  impact on our  business,  resulting
from,  among other things,  the costs  associated  from  shifting  operations to
respond to different orders.

Our  industry is subject to rapid  technological  change.  If we are not able to
adequately  respond  to  changes,  our  services  may  become  obsolete  or less
competitive and our operating results may suffer.

We may not be able to effectively respond to the technological requirements of a
changing  market,   including  the  need  for  substantial   additional  capital
expenditures that may be required as a result of these changes.  The electronics
manufacturing  services industry is characterized by rapidly changing technology
and  continuing  process  development.  The future  success of our business will
depend in large part upon our ability to maintain and enhance our  technological
capabilities and successfully  anticipate or respond to technological changes on
a cost-effective and timely basis. In addition, our industry could in the future
encounter  competition  from new or revised  technologies  that render  existing
technology less competitive or obsolete.  If we are unable to respond adequately
to such changes,  our business  operations  could be adversely  impacted,  which
could make it difficult for us to continue as a going concern.

There may be  shortages of required  components  which could cause us to curtail
our manufacturing or incur higher than expected costs.

Component  shortages  or price  fluctuations  in such  components  could have an
adverse  effect on our  results  of  operations  by  delaying  or making it more
difficult  or  expensive  for  us to  fill  customer  orders.  We  purchase  the
components we use in producing  circuit board  assemblies  and other  electronic
manufacturing  services  and we may be  required  to bear the risk of  component
price  fluctuations.  In  addition,  shortages  of  electronic  components  have
occurred  in the past and may occur in the  future.  These  shortages  and price
fluctuations  could  potentially  have  an  adverse  effect  on our  results  of
operations, again by delaying or making it more difficult or expensive for us to
fill orders or to seek new orders.

Holders of  CirTran  common  stock are  subject  to the risk of  additional  and
substantial  dilution to their  interests as a result of the issuances of common
stock in connection with the Convertible Debentures.

The following table describes the number of shares of common stock that would be
issuable,  assuming that the full principal amount of the Convertible Debentures
(excluding any interest  accrued) was converted into shares of our common stock,
irrespective  of the  availability  of  registered  shares  and  any  conversion
limitations contained in the Convertible  Debentures,  and further assuming that
the applicable  conversion or exercise  prices at the time of such conversion or
exercise were the following amounts:


                                       21



--------------------------------------------------------------------------------
               Shares Issuable Upon    Shares Issuable        Total Shares
               Conversion of           Upon Conversion of     Issuable in
               $3,000,000 Principal    $1,500,000             Connection with
               Amount of               Principal Amount       Conversion of
               Convertible             of Convertible         Aggregate
Hypothetical   Debenture by            Debenture by           Principal Amount
Conversion     Highgate House          Cornell Capital        of Convertible
Price          Funds, Ltd.             Partners               Debentures
--------------------------------------------------------------------------------
  $0.01        300,000,000             150,000,000             450,000,000
--------------------------------------------------------------------------------
  $0.02        150,000,000              75,000,000             225,000,000
--------------------------------------------------------------------------------
  $0.03        100,000,000              50,000,000             150,000,000
--------------------------------------------------------------------------------
  $0.04         75,000,000              37,500,000             112,500,000
--------------------------------------------------------------------------------
  $0.05         60,000,000              30,000,000              90,000,000
--------------------------------------------------------------------------------
  $0.10         30,000,000              15,000,000              45,500,000
--------------------------------------------------------------------------------

Given the formula for  calculating  the shares to be issued in  connection  with
conversions of the Convertible Debentures, there effectively is no limitation on
the  number of shares of common  stock  which may be issued in  connection  with
conversions  of the  Convertible  Debentures,  except  for the  number of shares
registered under  prospectuses  and related  registration  statements.  As such,
holders  of our  common  stock  may  experience  substantial  dilution  of their
interests to the extent that Highgate  and/or Cornell Capital  converts  amounts
under the Convertible Debentures.

Although we have entered into an agreement with Cornell  wherein  Cornell agreed
that it would not  convert  any of the  principal  or  interest  on the  Cornell
Debenture or exercise any of the Warrants  granted to Cornell until we had taken
the steps necessary to increase our authorized  capital, if we are successful in
increasing our authorized  capital,  Cornell will be able to convert the Cornell
Debenture  pursuant to its terms,  which could result in the dilution  described
above.

Our  issuances  of shares in  connection  with  conversions  of the  Convertible
Debentures  likely will result in overall  dilution to market value and relative
voting  power  of  previously  issued  common  stock,   which  could  result  in
substantial  dilution to the value of shares held by shareholders prior to sales
under this prospectus.

The issuance of common stock in connection  with  conversions of the Convertible
Debenture by Highgate and Cornell Capital may result in substantial  dilution to
the equity  interests of holders of CirTran common stock other than Highgate and
Cornell  Capital.   Specifically,  the  issuance  of  a  significant  amount  of
additional common stock will result in a decrease of the relative voting control
of our common stock issued and outstanding prior to the issuance of common stock
in connection  with  conversions  of the  Convertible  Debentures.  Furthermore,
public resales of our common stock by Highgate and/or Cornell Capital  following
the issuance of common stock in connection  with  conversions of the Convertible
Debentures  likely will depress the prevailing market price of our common stock.
Even  prior to the time of actual  conversions  and public  resales,  the market
"overhang"  resulting  from the mere  existence of our  obligation to honor such
conversions  or exercises  could  depress the market price of our common  stock,
which could make it more  difficult for existing  investors to sell their shares
of our common  stock,  and could  reduce the amount  they would  receive on such
sales.

Existing  shareholders likely will experience  increased dilution with decreases
in market  value of  common  stock in  relation  to our  issuances  of shares in
connection with the Convertible Debentures,  which could have a material adverse
impact on the value of their shares.

The formulas for  determining  the number of shares of common stock to be issued
in connection with conversions of the Convertible Debentures are based, in part,
on  the  market  price  of the  common  stock.  With  respect  to  the  Highgate
Convertible  Debenture,  the conversion price is are equal to the lower of $0.10
per share or the lowest  closing  bid price of our common  stock over the twenty
trading days after the  conversion  notice is tendered by us to  Highgate.  With
respect to the Cornell Capital  Convertible  Debenture,  the conversion price is
are equal to the lowest  closing  bid price of our common  stock over the twenty
trading days after the conversion  notice is tendered by us to Cornell  Capital.
As a result,  the lower the market  price of our common  stock at and around the


                                       22



time we issue  shares to  Highgate  or Cornell  Capital in  connection  with the
Convertible Debentures,  the more shares of our common stock Highgate or Cornell
Capital, respectively, will receive. Any increase in the number of shares of our
common stock issued upon  conversion of principal or interest on the Convertible
Debentures  as a result  of  decreases  in the  prevailing  market  price  would
compound the risks of dilution described in the preceding paragraphs.

There is an increased  potential  for short sales of our common stock due to the
sales of shares issued to Highgate and Cornell  Capital in  connection  with the
Convertible  Debentures,  which could materially  effect the market price of our
stock.

Downward  pressure  on the market  price of our common  stock that  likely  will
result from sales of our common stock by Highgate  and/or Cornell Capital issued
in connection with  conversions of the Convertible  Debentures,  could encourage
short sales of common  stock by Highgate or Cornell  Capital.  A "short sale" is
defined  as the sale of stock by an  investor  that the  investor  does not own.
Typically,  investors  who sell short  believe  that the price of the stock will
fall, and anticipate selling at a price higher than the price at which they will
buy the stock.  Significant  amounts of such short  selling  could place further
downward  pressure on the market price of our common stock,  which could make it
more difficult for existing shareholders to sell their shares.

The  restrictions  on  the  number  of  shares  issued  upon  conversion  of the
Convertible  Debentures  may have little if any effect on the adverse  impact of
our issuance of shares in connection  with the  Convertible  Debentures,  and as
such, Highgate and Cornell Capital may sell a large number of shares,  resulting
in   substantial   dilution  to  the  value  of  shares  held  by  our  existing
shareholders.

Both   Highgate  and  Cornell   Capital  are   prohibited,   except  in  certain
circumstances,  from  converting  amounts of the  Convertible  Debentures to the
extent that the  issuance of shares  would  cause  Highgate or Cornell  Capital,
respectively, to beneficially own more than 4.99% of our then outstanding common
stock. These  restrictions,  however, do not prevent Highgate or Cornell Capital
from selling  shares of common stock  received in connection  with a conversion,
and then  receiving  additional  shares of  common  stock in  connection  with a
subsequent  conversion.  In this way,  either  Highgate or Cornell Capital could
sell more than 4.99% of the outstanding  common stock in a relatively short time
frame while never  holding  more than 4.99% at one time.  As a result,  existing
shareholders  and new investors  could  experience  substantial  dilution in the
value of their shares of our common stock.

The trading  market for our common stock is limited,  and investors who purchase
shares  from  Highgate  or Cornell  Capital may have  difficulty  selling  their
shares.

The public trading market for our common stock is limited. On July 15, 2002, our
common stock was listed on the OTC Bulletin Board. Nevertheless,  an established
public  trading  market for our common stock may never develop or, if developed,
it may not be able to be sustained.  The OTCBB is an unorganized,  inter-dealer,
over-the-counter  market that provides  significantly  less liquidity than other
markets.  Purchasers of our common stock therefore may have  difficulty  selling
their shares should they desire to do so.

It may be more difficult for us to raise funds in subsequent  stock offerings as
a result of the sales of our common  stock by Highgate  and  Cornell  Capital in
connection with the Convertible Debentures.

As noted above,  sales by Highgate  and/or Cornell Capital likely will result in
substantial   dilution  to  the   holdings  and  interest  of  current  and  new
shareholders.  Additionally,  as noted  above,  the  volume  of  shares  sold by
Highgate and Cornell Capital could depress the market price of our stock.  These
factors could make it more difficult for us to raise additional  capital through
subsequent  offerings of our common stock,  which could have a material  adverse
effect on our operations.

We may be required  to pay  liquidated  damages to Highgate  for failure to meet
certain obligations under the registration rights agreement.

In  connection  with the sale of the  Debenture to  Highgate,  we entered into a
registration rights agreement with Highgate, pursuant to which we agreed to file


                                       23



a registration  statement  within 120 days of closing the sale of the Debenture,
and to have the registration  statement declared effective within 90 days of its
filing.  More than 90 days have  passed  since  the  filing of the  registration
statement,  and it has not yet been declared  effective.  Under the terms of the
registration  rights  agreement,  we were  required  to pay one  percent  of the
liquidated  value of the Debenture  outstanding  as  liquidated  damages for the
period  commencing  one day after the date on which the  registration  statement
should have been declared  effective and ending sixty days thereafter,  plus two
percent of the liquidated  value of the  Convertible  Debentures  outstanding as
liquidated  damages for each thirty-day period  commencing  sixty-one days after
the date on which the registration statement was to be declared effective during
which the  registration  statement has not been  declared  effective by the SEC.
Although  we recently  entered  into an  amendment  to the  registration  rights
agreement  pursuant to which Highgate agreed to a later date by which we need to
have the  registration  statement  effective,  there can be no guarantee that we
will be  successful  in  meeting  this  extended  deadline.  As such,  we may be
required to make substantial liquidated damages payments to Highgate.

Our common  stock is  considered  a penny  stock.  Penny  stocks are  subject to
special  regulations,  which may make them more  difficult  to trade on the open
market.

Securities in the OTC market are generally more difficult to trade than those on
the Nasdaq  National  Market,  the  Nasdaq  SmallCap  Market or the major  stock
exchanges.  In addition,  accurate  price  quotations are also more difficult to
obtain.  The  trading  market  for  our  common  stock  is  subject  to  special
regulations governing the sale of penny stock.

A "penny  stock," is defined  by  regulations  of the  Securities  and  Exchange
Commission  as an equity  security  with a market  price of less than  $5.00 per
share.  However,  an equity security with a market price under $5.00 will not be
considered a penny stock if it fits within any of the following exceptions:

         *        the  equity  security  is  listed  on  Nasdaq  or  a  national
                  securities exchange;

         *        the  issuer  of the  equity  security  has been in  continuous
                  operation  for less than three  years,  and either has (a) net
                  tangible assets of at least $5,000,000,  or (b) average annual
                  revenue of at least $6,000,000; or

         *        the  issuer  of the  equity  security  has been in  continuous
                  operation  for more than  three  years,  and has net  tangible
                  assets of at least $2,000,000.

If you buy or sell a penny stock,  these  regulations  require that you receive,
prior to the  transaction,  a disclosure  explaining  the penny stock market and
associated risks.  Furthermore,  trading in our common stock would be subject to
Rule 15g-9 of the Exchange Act,  which relates to  non-Nasdaq  and  non-exchange
listed securities.  Under this rule, broker-dealers who recommend our securities
to persons other than established customers and accredited investors must make a
special  written  suitability  determination  for the  purchaser and receive the
purchaser's  written  agreement to a transaction  prior to sale.  Securities are
exempt from this rule if their market price is at least $5.00 per share.

Penny  stock  regulations  will tend to reduce  market  liquidity  of our common
stock,  because  they  limit  the  broker-dealers'   ability  to  trade,  and  a
purchaser's  ability to sell the stock in the secondary market. The low price of
our common  stock will have a negative  effect on the amount and  percentage  of
transaction costs paid by individual  shareholders.  The low price of our common
stock  may also  limit  our  ability  to raise  additional  capital  by  issuing
additional  shares.  There are several  reasons for these  effects.  First,  the
internal  policies of many  institutional  investors  prohibit  the  purchase of
low-priced stocks. Second, many brokerage houses do not permit low-priced stocks
to be used as  collateral  for margin  accounts  or to be  purchased  on margin.
Third, some brokerage house policies and practices tend to discourage individual
brokers from dealing in low-priced  stocks.  Finally,  broker's  commissions  on
low-priced  stocks usually represent a higher percentage of the stock price than
commissions  on higher priced stocks.  As a result,  our  shareholders  will pay
transaction  costs that are a higher  percentage of their total share value than


                                       24



if our share price were substantially higher.

The price of our common  stock is  volatile,  and an investor may not be able to
resell our shares at or above the purchase price.

In recent years, the stock market in general, and the OTC Bulletin Board and the
securities of technology companies in particular,  has experienced extreme price
and trading volume fluctuations. These fluctuations have often been unrelated or
disproportionate  to the operating  performance of individual  companies.  These
broad  market  fluctuations  may  materially  adversely  affect our stock price,
regardless of operating  results.  Investors in our common stock should be aware
that they may not be able to resell  our  shares at or above the price  paid for
them due to the fluctuations in the market.

There may be additional  unknown risks which could have a negative  effect on us
and our business.

The risks and  uncertainties  described  in this  section  are not the only ones
facing CirTran.  Additional risks and uncertainties not presently known to us or
that we currently deem  immaterial may also impair our business  operations.  If
any of the foregoing risks actually occur, our business, financial condition, or
results of operations could be materially adversely affected.  In such case, the
trading price of our common stock could decline.

                                 Use of Proceeds

All of the shares of common stock issued in connection  with  conversions of the
Convertible  Debenture,  if and when  sold,  are being  offered  and sold by the
Highgate as the Selling Shareholder or its pledgees,  donnees,  transferees,  or
other successors in interest. We will not receive any proceeds from those sales.

Under  the  Convertible  Debenture  and  related  purchase  agreement,  we  used
$2,265,000  to repay  two  promissory  notes to  Cornell  Capital  Partners,  LP
("Cornell"),  one in the  amount of  $1,700,000,  and the other in the amount of
$565,000.

We also paid a  commitment  fee of  $240,765,  a  structuring  fee of $10,000 to
Highgate,  and legal fees of $5,668.  As such, of the total  purchase  amount of
$3,750,000,  the net proceeds to us were $1,228,567.  We used these proceeds for
general corporate and working capital purposes.

As discussed below in the section "MET Advisors Agreement," we presently have no
acquisitions  pending or anticipated.  Nevertheless,  we will continue to review
potential  acquisition  candidates  as they arise,  and we may choose to use the
proceeds of the sale of the  Convertible  Debenture  in  connection  with future
acquisitions.

                         Determination of Offering Price

The Selling  Shareholders may sell our common stock at prices then prevailing or
related to the then current market price, or at negotiated  prices. The offering
price may have no  relationship to any  established  criteria or value,  such as
book value or earnings per share.  Additionally,  because we have not  generated
any  profits for several  years,  the price of our common  stock is not based on
past earnings,  nor is the price of the shares of our common stock indicative of
current  market value for the assets we own. No valuation or appraisal  has been
prepared for our business or possible business expansion.

                             DESCRIPTION OF BUSINESS

This discussion should be read in conjunction with  Managements'  Discussion and
Analysis of Financial Condition and Results of Operations included in our Annual
Report on Form 10-KSB for the year ended December 31, 2005.


                                       25



Overview

We  provide a mixture  of high and  medium  size  volume  turnkey  manufacturing
services   using   surface   mount   technology,   ball-grid   array   assembly,
pin-through-hole  and custom  injection  molded cabling for leading  electronics
OEMs in the communications,  networking,  peripherals,  gaming, law enforcement,
consumer products,  telecommunications,  automotive,  medical, and semiconductor
industries.   Our  services   include   pre-manufacturing,   manufacturing   and
post-manufacturing   services.   Through  our  subsidiary,   Racore   Technology
Corporation, we design and manufacture Ethernet technology products. Our goal is
to offer customers the significant  competitive  advantages that can be obtained
from  manufacture   outsourcing,   such  as  access  to  advanced  manufacturing
technologies, shortened product time-to-market, reduced cost of production, more
effective  asset  utilization,  improved  inventory  management,  and  increased
purchasing power.

During  2004,  we  established  a new  division,  CirTran-Asia,  Inc,  which has
contributed  to a large  portion of the  increase  in revenue for the year ended
December  31, 2004 and the year ended  December 31,  2005.  This  division is an
Asian-based,  wholly  owned  subsidiary  of CirTran  Corporation  and provides a
myriad of  manufacturing  services to the direct  response  and retail  consumer
markets.  Our experience and expertise in manufacturing  enables CirTran-Asia to
enter a project at any phase:  engineering and design,  product  development and
prototyping,   tooling,  and  high-volume  manufacturing.   We  anticipate  that
CirTran-Asia  will pursue  manufacturing  relationships  beyond printed  circuit
board   assemblies,   cables,   harnesses  and  injection   molding  systems  by
establishing   complete   "box-build"   or  "turn-key"   relationships   in  the
electronics,  retail, and direct consumer markets.  This strategic move into the
Asian  market  has  helped  to  elevate  CirTran  to an  international  contract
manufacturer  status for multiple products in a wide variety of industries,  and
has, in short order, allow us to target large-scale contracts.

CirTran has established a dedicated  satellite office for CirTran-Asia,  and has
retained Mr.  Charles Ho to lead the new  division.  Having proven the value and
reliability of its core products,  CirTran Corporation has chosen to expand into
previously untapped product lines.

On December 2, 2005,  we announced  that we had formed a new  division,  CirTran
Products, which will offer products for sale at retail. The new division will be
run from our new Los Angeles  office,  with Trevor  Saliba,  our executive  vice
president for  worldwide  business  development,  working to develop  sales.  We
anticipate that consumer products built by our CirTran Asia subsidiary,  as well
as other products which we plan to acquire, will be available for retail sale in
2006.

On March 21, 2006, we announced  that we had formed a new  subsidiary to provide
end-to-end services to the direct response and entertainment industries. The new
division  will  provide  product  marketing,   production,   media  funding  and
merchandise  manufacturing  services.  Forming this new division was a necessary
step to maximize product  manufacturing  opportunities for CirTran's proprietary
products and to provide  marketing  services for  individual  entrepreneurs  and
inventors.  The new division  will be  headquartered  in  CirTran's  Los Angeles
(Century  City)  offices  and be  headed  by Mr.  Saliba.  We are  presently  in
development  of  proprietary  programs to be  launched in the product  marketing
division,  production services and media funding divisions. We are also in final
discussions  on two  projects  for our  merchandising  division.  We continue to
pursue  opportunities  in the direct  response  and  entertainment  division  to
maximize manufacturing and business opportunities.

On June 1, 2006, the Company,  through its newly formed subsidiary Diverse Media
Group ("Diverse Media"), signed an exclusive services agreement with the Diverse
Talent Group,  Inc. ("DTG") a nationally  known talent and literary agency,  and
its founder and CEO Christopher  Nassif. The agreement covers a five-year period
that  commenced on April 1, 2006,  when the  companies  began  co-marketing  and
working  together,  and includes the assignment of all of DTG's talent  contacts
and the first  right of  refusal  on all new and  existing  business  to Diverse
Media.

By joining forces with DTG, the Company  intends to add business and a record of
business  success to this new joint venture.  The Company  believes that Diverse
Media can meet its needs of marketing-driven  companies in the U.S. and overseas
by pairing  talent and products to establish a  recognizable  and  long-standing
brand.  Management  believes  that  talent  and  product  together  can create a
powerful brand and it is the intention of Diverse Media, in its partnership with
DTG, to develop  this  concept.  The  agreement  also  provides the Company with


                                       26



access to the  Diverse  Talent  Group's  talent  pool  which  will be a valuable
resource in developing in-house marketing programs for future products. By doing
so,  CirTran  anticipates  that it will be able to generate a  potential  profit
margin from the marketing of its programs.  Plans for Diverse Media also include
the  establishment  of  a  full-service   music  division  as  well  as  product
merchandise  and direct response  divisions,  although there can be no guarantee
that the Company will be able to establish these additional divisions.

Included in the terms of the agreement, Diverse Media agreed to provide DTG with
a $200,000  line of credit.  The line will be available to DTG in  increments of
$20,000  per week,  which DTG will use to cover  operating  expenses  during its
seasonally slow periods from about June to August, which coincides with the lull
in industry  production prior to its new fall programming  releases.  As of July
20, 2006, DTG had drawn $40,000 on the line of credit.

         Fitness Products

In  early  June  2004,  the  Company  entered  into an  exclusive  manufacturing
agreement  with  certain  Developers,  including  Charles Ho, the  President  of
CirTran-Asia.   Under  the  terms  of  the  agreement,   CirTran,   through  its
wholly-owned  subsidiary  CirTran-Asia,  has the exclusive  right to manufacture
certain  products  developed  by the  Developers  or any  of  their  affiliates.
Pursuant to the  agreement,  we could enter into  addendum  agreements  with the
developers with respect to particular  products to be produced and manufactured.
The agreement  was to be for an initial term of 36 months,  and may be continued
after  that on a  month-to-month  basis  unless  terminated  by either  party by
providing written notice.

On June 7, 2004, we announced that CirTran-Asia had received an initial purchase
order on May 26, 2004,  from  International  Edge relating to the manufacture of
80,000 abdominal  fitness  machines.  This order was the first order placed with
CirTran-Asia under the exclusive manufacturing agreement.  Subsequently, on June
14, 2004, we received  another  order for 80,000 units of the abdominal  fitness
machines,  which  was  announced  on June 16,  2004,  through a  separate  press
release.  The Company  received  many orders  subsequent  to these first orders.
Since these announcements,  CirTran-Asia has manufactured, shipped, and received
payments of approximately $5,546,000. On August 13, 2004, we also announced that
on August 11, 2004 we had received new orders for Wal-Mart.  The Company shipped
to Wal-Mart  the  complete  order of  abdominal  fitness  machines  and received
payments of approximately  $400,000  through the date of this Report.  The units
were distributed to Wal-Mart stores throughout Canada.

On September 9, 2004, we announced that on September 6, 2004,  CirTran-Asia  had
been awarded the rights to manufacture  the Ab Trainer Club Pro, a new abdominal
fitness  machine,  for  Tristar  Products,   under  an  exclusive  manufacturing
agreement.  This new product is another type of abdominal fitness machine. Since
this  announcement,  and  through  the  date of this  Report,  CirTran-Asia  had
manufactured and shipped units, and received payments of approximately $42,000.

On September 10, 2004, we announced that on September 7, 2004,  CirTran-Asia had
been  awarded  the  rights  to  manufacture  the  AbRoller,  another  type of an
abdominal   fitness   machine,   for  Tristar   Products,   under  an  exclusive
manufacturing agreement.  Since this announcement,  and through the date of this
Report,  CirTran-Asia had manufactured and shipped units, and received  payments
of approximately $1,700,000.

On September  14, 2004,  we  announced  that on September 7, 2004,  we had begun
manufacturing  the  Instant  Abs  product,  another  type of  abdominal  fitness
machine, for Tristar Products, under an exclusive manufacturing agreement. Since
this  announcement,  and  through  the  date of this  Report,  CirTran-Asia  had
manufactured,   and  shipped  units,  and  received  payments  of  approximately
$640,000.

On September 30, 2004, we announced that on September 23, 2004, CirTran-Asia had
been awarded the rights to  manufacture  the Denise Austin  Pilates  product,  a
pilates fitness machine, for Tristar Products,  under an exclusive manufacturing
agreement.  Since  this  announcement,  and  through  the  date of this  Report,
CirTran-Asia  had  manufactured  and shipped  units,  and  received  payments of
approximately $85,000.


                                       27



On April 28, 2005,  CirTran-Asia  announced  that it has been awarded a contract
(the "April 2005 Agreement") from Guthy - Renker  Corporation  ("GRC") to be the
exclusive  manufacturer of a new fitness machine (the "Fitness Product") for the
sold-on-TV direct response industry.  Pursuant to the April 2005 Agreement,  GRC
agreed to purchase all of its  requirements  of the Fitness  Product  during the
term of the April 2005  Agreement,  which is defined as running from the signing
of the agreement  through the time when the Fitness Product is not being sold in
quantity.  Since  signing  the April 2005  Agreement,  we have  received  orders
totaling approximately $1,370,000.  Since these announcements,  CirTran-Asia has
manufactured and shipped orders and has received  $1,033,000 as payment for such
shipments.

         New Products

On August 11, 2004, we announced  that  CirTran-Asia  received a purchase  order
from Emson in New York,  on August 10,  2004  relating to the  manufacture  of a
household   cooking   appliance   for  hot  dogs  and   sausages.   Since  these
announcements,   and  through  the  date  of  this  Report,   CirTran-Asia   had
manufactured  and  shipped  units,   and  received   payments  of  approximately
$1,630,000.

On October 1, 2004, we entered into an agreement  with  Transactional  Marketing
Partners,  Inc. ("TMP"), for consulting services.  Pursuant to the agreement, we
engaged TMP to provide  strategic  planning and for introduction of new business
to us. Under the agreement,  we agreed to pay to TMP a fee of ten percent of the
net proceeds received by us from business brought to us by TMP. The fee is to be
paid within 15 calendar days  following the end of the month in which we receive
the net proceeds. Additionally, we agreed to pay $7,500 during each of the first
six months of the term of the  agreement,  with such payments being viewed as an
advance against the fee to be earned.  The advance  payments are not refundable,
but will be deducted  from fees earned by TMP. The agreement had an initial term
of six months,  beginning October 1, 2004, and could automatically  extended for
successive  six-month  periods unless either party gives written notice at least
30 days prior to the  expiration  of the term of the agreement of its intent not
to renew. Additionally,  we may terminate the agreement at any time by giving 30
days'  written  notice.  In March  2006,  the parties  have agreed to  six-month
extensions through September 2006. The parties will evaluate the relationship at
that  time and  decide  if  there  needs to be  another  extension.  To date the
relationship  has proven  successful,  resulting in multiple  new  manufacturing
relationships.

On January 19,  2005,  CirTran  Corporation  signed an  Exclusive  Manufacturing
Agreement with Advanced Beauty Solutions L.L.C.  ("ABS"),  a company relating to
the manufacture of a hair product in California.  In early October 2005, we were
notified that ABS had defaulted on its obligation to its financing  company.  We
have  stopped  shipping  under credit and are in the process of  exercising  our
rights permitted by the agreements.

On July 7, 2005,  CirTran  Corporation  signed another  Exclusive  Manufacturing
Agreement  with ABS,  relating  to the  manufacture  of a hair dryer  product in
California.  We had  already  begun  shipment  on  previous  contracts  and were
projecting to begin early in 2006.

In October  2005,  following  the notice of ABS's  default,  we  terminated  the
agreement for both  products  based on the default.  In January 2006,  following
efforts to resolve the disputes  with ABS, the Company  filed a lawsuit  against
ABS, claiming breach of contract,  interference with contractual  relationships,
unjust enrichment, and fraud, and seeking damages from ABS.

With  respect to the flat iron  products,  through  October  2005,  CirTran  had
shipped  directly to ABS  approximately  $4,746,000  worth of the  product,  and
CirTran  had  received  from  ABS or its  finance  company  a  total  amount  of
approximately  $788,000. In November 2005, we repossessed from ABS approximately
$2,341,000  worth of the products in the United States,  as we were permitted to
do pursuant to the agreement.

Since  November  2005,  we have been pursuing our rights under the agreement and
have been offering the flat iron product for sale  directly to ABS's  customers.
In doing so, we sold to ABS's  international  customers  directly  approximately
$426,000  worth of the flat iron product.  The  shipments  have all been paid in


                                       28



full. These products shipped were not part of the repossessed inventory.

On January 24, 2006, ABS filed a voluntary  petition for relief under chapter 11
of the United States  Bankruptcy Code in the United States  Bankruptcy Court for
the Central  District of  California,  San Fernando  Valley  Division  (the "ABS
Bankruptcy  Court"),  Case No. SV 06-10076  GM. On January 30,  2006,  a hearing
("Hearing")  was held to consider the Emergency  Motion for Order  Approving the
Settlement  and Compromise of the Disputed  Secured Claims of Inventory  Capital
Group,  Inc.  ("ICG"),  and Media Funding  Corporation  ("MFC") (the "Settlement
Motion") filed by ABS. The continued  Hearing on the Settlement  Motion was held
on February 16, 2006,  at which time the  settlement  was  modified.  Prior to a
separate  hearing  held on March  24,  2006,  on ABS's  Motion  for  Order:  (1)
Approving Sale and Assignment of Substantially All Assets of the Estate Free and
Clear of Liens; (2) Approving  Assumption and Assignment of Leases and Executory
Contracts  Included in the Sale and Rejection of Leases and Executory  Contracts
Not Included in the Sale; and (3) Granting  Related Relief (the "Sale  Motion"),
the  settlement  was  further  modified.   The  modifications  to  the  proposed
settlement  were read into the ABS  Bankruptcy  Court's record at the Hearing on
the  Settlement  Motion  and the  March  24,  2006  hearing  on the Sale  Motion
("Proposed  Modifications").  Written notice of the Proposed  Modifications  was
provided  to  creditors  and parties in  interests  on March 27,  2006,  and the
Declaration  of James C.  Bastian,  Jr.,  attesting  that no  objections  to the
Proposed  Modifications  have  been  received  by ABS,  was  filed  with the ABS
Bankruptcy Court.

On June 6, 2006,  the Company and ABS signed an agreement  (the "Asset  Purchase
Agreement"),  subject to the ABS Bankruptcy  Court's approval.  On June 7, 2006,
the ABS Bankruptcy Court entered orders  approving the Asset Purchase  Agreement
and granting the Sale Motion,  and approving the  settlement  and  compromise of
certain disputed claims against ABS.

Pursuant  to the  settlement  of  ABS's  bankruptcy  proceedings  and the  Asset
Purchase Agreement, the Company has an allowed claim against the ABS's estate in
the amount of $2,350,000, of which $750,000 is to be credited to the purchase of
substantially  all of ABS's assets.  Under the settlement,  the Company shall be
allowed to  participate as a general  unsecured  creditor of ABS's estate in the
amount of $1,600,000 on a pari passu basis with the $2,100,000 general unsecured
claim of certain  insiders  of ABS and  subject to the prior  payment of certain
secured,  priority,  and  non-insider  claims  in the  amount  of  approximately
$1,507,011.

Under the Asset Purchase Agreement, the Company agreed to purchase substantially
all of ABS's assets in exchange for:

         i)       a cash payment in the amount of $1,125,000;
         ii)      a reduction of CirTran's  allowed claim in the Bankruptcy Case
                  by $750,000;
         iii)     the assumption of any assumed liabilities; and
         iv)      the  obligation  to pay ABS a royalty  equal to $3.00 per True
                  Ceramic  Pro  flat  iron  unit  sold  by  ABS  (the   "Royalty
                  Obligation").

The Assets include personal property;  intellectual property;  certain executory
contracts and unexpired leases; inventory;  ABS's rights under certain insurance
policies;  deposits and prepaid expenses; books and records;  goodwill;  certain
causes of action;  permits;  customer and supplier lists; and telephone  numbers
and listings (collectively, the "Assets").

Under  the  Asset  Purchase  Agreement,  the  Royalty  Obligation  is  capped at
$4,135,000.  To the extent  the  amounts  paid to ABS on account of the  Royalty
Obligation  equal less than $435,000 on the 2 year  anniversary  of the Closing,
then,  within  30 days of such  anniversary,  the  Company  agreed to pay ABS an
amount equal to $435,000 less the royalty  payments made to date. As part of the
settlement,  the Company agreed to exchange general releases with, among others,
ABS, Jason Dodo (the manager of ABS), Inventory Capital Group ("ICG"), and Media
Funding Corporation ("MFC"). The settlement also resolved a related dispute with
ICG in which ICG  assigned  $65,000  of its  secured  claim  against  ABS to the
Company.

Pursuant to the court-approved settlement, payments under the Royalty Obligation
will be made in the following order:


                                       29



         (a)      The Royalty  Obligation  payments will be made  exclusively to
         ICG and MFC (collectively, the "Secured Parties") until (i) the Secured
         Parties  have  been  paid in full on  account  of  their  $1,243,208.44
         secured claim,  or (ii) the Secured  Parties have been paid $100,000 in
         payments under the Royalty Obligation, whichever comes first.

         (b)      The next $70,000 Royalty Obligation payments will be made to a
         service provider to ABS (in the amount of $50,000) and to an individual
         with an allowed claim (in the amount of $20,000).

         (c)      Following  the  payments to the Secured  Parties and others as
         set forth immediately above, the remaining Royalty Obligation  payments
         will be used for  distribution to allowed general  unsecured claims not
         including  those of the Company and certain  insiders with unpaid notes
         (the "Insider Noteholders").

         (d)      Following  payments as set forth in (a),  (b),  and (c) above,
         the  Royalty  Obligation  payments  will be shared  pro rata  among the
         Insider   Noteholders   (with  a  total  allowed   aggregate  claim  of
         $2,100,000),  and the Company  (with a general  unsecured  claim in the
         amount of $1,600,000), until paid in full.

         The total  claims  against  ABS's  estate  that must be paid before the
Company begins to share in the Royalty Obligation payments is $435,000.

On December  28,  2005,  we signed an  Exclusive  Manufacturing  Agreement  (the
"Agreement") with Arrowhead Industries, Inc. ("Arrowhead"), pursuant to which we
will become the exclusive  manufacturer of a tool for assisting with the removal
of door hinges called the "Hinge Helper" (the  "Product").  Under the Agreement,
Arrowhead  agreed to buy the Product  exclusively  from us for the period of the
Agreement,  which is three years.  The Product will be  manufactured by us or by
sub-manufacturers selected by us.

The Agreement provides that Arrowhead will own all right, title, and interest in
the Product, and will sell and market the Product under its trademarks,  service
marks, or trade names.

On January 9, 2006, we issued a press release which  referred,  in the title, to
the Agreement as a "$22 Million Exclusive  Manufacturing  Agreement." The dollar
amount referenced  relates to the potential amount of income or revenue which we
may receive over the anticipated life of the Agreement.

CirTran  announced  on January 9, 2006,  that  Arrowhead  Industries,  Inc.,  of
Windermere,  Florida,  had awarded us an exclusive  contract to manufacture  its
patented Hinge Helper (TM)  do-it-yourself  utility tool for the home. The Hinge
Helper  will  be  manufactured  by  CirTran-Asia,   the  Company's   China-based
subsidiary.  The exclusive  manufacturing  contract for the product is for three
years.  Arrowhead  has filmed a Hinge Helper  infomercial  for TV with an airing
date scheduled for late April.

The  Hinge  Helper is a unique  hand  tool  designed  and  developed  for use by
household  customers as well as tradesmen.  Recognized by the U.S. Patent Office
(#6,308,390  B1),  its  trademark  and  patent  are owned by and  registered  to
Arrowhead.  The specific  advantage of the Hinge Helper is its  ease-of-use  and
simplistic  design. It can be applied to any residential hinge on wood, metal or
composite  doors,  and is  being  manufactured  with  highly-durable  materials,
enabling it to carry a lifetime guarantee.

The contract is for three years,  and Arrowhead  agreed to purchase a minimum of
ten million units of the Product (the "Minimum Quantity"),  subject to the terms
and  conditions  of the  Agreement.  Arrowhead  and  CirTran  have agreed on the
Minimum  Quantity  in good faith,  although  the  parties  acknowledged  that in
certain  circumstances  described  in  the  agreement,   the  agreement  may  be
terminated prior to the sale of the entire Minimum Quantity. Arrowhead agreed to
submit  purchase orders for the Product from time to time in accordance with the
terms  of the  agreement.  Arrowhead  agreed  to pay  CirTran  for  the  Product
purchased at the prices  ranging from $2.95 to $1.90 per unit,  depending on the
cumulative  number of units of Product  which have been  purchased by Arrowhead.


                                       30



Arrowhead  will also be entitled to a rebate equal to 10% of the purchase  Price
paid for Product in the previous Tier.  Rebates will be payable only in the form
of a credit memo against future purchases.  Rebate credit memos will not be paid
in cash and may not be applied against outstanding  balances.  We will calculate
eligibility for the Rebate as soon as practicable following the end of the month
in which a new Tier is entered.

We have  produced hand made  samples,  which have been sent to Arrowhead.  These
were approved and we are awaiting final approval for the production samples that
were  supplied  at the end of  March  2006.  Once  the  production  samples  are
approved, we will start production according to the release schedule that should
be provided by Arrowhead  shortly  thereafter.  As of July 20, 2006, the product
samples had been approved.  Arrowhead had released and the Company shipped 1,500
units to test media. We are awaiting final production releases.

         Electronics Business and Lines of Products

On June 10, 2005,  we  announced  that Racore  Technology  Inc.,  ("Racore"),  a
subsidiary of CirTran  Corporation,  received a purchase order from the New York
Fire  Department,  an established  city public  department on the east coast for
fiber optic Ethernet network adapters. Since this announcement,  the product has
been  manufactured  and shipped,  and a payment of $9,000 has been received.  We
continue to market and solicit  orders on the Racore  product  line from various
commercial and public agency clients.

On June 23, 2005, we announced that CirTran Corporation entered the "sold-on-TV"
market  by having  its  CirTran-Asia  subsidiary  build  consumers'  electronics
products  in  China,  and  is  now  bringing  business  to  the  United  States,
refurbishing  popular skill-stop slot machines from Japan for home amusement use
in the United  States.  We continue to receive the imported  machines  from Rock
Bottom  Slots,  perform  the  conversion  and  refurbishment  services  and ship
directly to the customer.

On June 24,  2005,  we  announced  that  Racore  received a purchase  order from
Lockheed-Martin,  a well-known aerospace  manufacturing  company for fiber optic
token-ring  network adapters.  Direct sales of new and repeat business from this
company have totaled more than $30,000.  Since this announcement the product has
been  manufactured  and shipped,  and payment has been received.  As of July 20,
2006, we had shipped an additional $45,000 worth of product to this company.

On July 22, 2005, we announced  that Racore  received a purchase  order from the
United  States  Air Force for  OptiCORE  network  interface  cards.  Since  this
announcement,  the product has been  manufactured  and shipped,  and payments of
$15,000 have been received.

On August 1, 2005, we announced that Racore  received a purchase order for fiber
optics  products  from  Cherokee City  Appraisal  District,  another city public
department  located in the southern  United  States for fiber optic PCI Ethernet
network  interface cards with VF-45  connectors.  Since this  announcement,  the
product  has been  manufactured  and  shipped,  and a payment of $1,030 has been
received.

On August 4, 2005, we announced that Racore  received a purchase order from Walt
Disney World, a well-known amusement park in the southeastern United States, for
more than $21,000 worth of network interface cards. Since this announcement, the
product has been manufactured and shipped, and payment has been received.

On August 9, 2005,  we announced  that CirTran  Corporation  completed the first
phase of the redevelopment of the next-generation SafetyNet(TM) RadioBridge(TM).
Since this  announcement,  the Company has completed working on the second phase
of the contract. On March 14, 2006, we announced that we had received a $250,000
order to build and  deliver  the  first  production  run of the next  generation
SafetyNet(TM)  RadioBridge(TM)  which we redesigned at the request and on behalf
of Aegis  Assessments,  Inc.,  a  Scottsdale,  Arizona-based  homeland  security
contractor.  We delivered the new, redesigned units and received payment in full
from Aegis in April 2006.

On  September  13, 2005,  we  announced  that Racore had been named an "approved
vendor" by the City of New York. Racore began its current business  relationship


                                       31



with the City of New York in April when it received a request for an  evaluation
unit of the Racore  M8190A  Fiber  Optic Fast  Ethernet  Network  Adapters  with
Volition Patch Cords. Racore  subsequently  received an order placed through one
of its  value-added  resellers.  Since this  announcement,  the product has been
manufactured and shipped, and a payment of $4,500 has been received.

On October  11,  2005,  we  announced  that  CirTran  Corporation  was opening a
satellite  office in Los  Angeles  in  accordance  with the  Company's  internal
expansion program.  The new 2,500-square foot office will be located on the 17th
floor at 1875 Century Park East in the Century City  Entertainment  and Business
District of Los  Angeles.  Scheduled to open in late  November,  the office will
serve as headquarters for CirTran's business  development and strategic planning
activities for the Company's multiple business divisions including  electronics,
consumer products, direct response/retail and "as sold-on-TV" products.  Current
plans call for  CirTran  to open  additional  satellite  offices in New York and
London in 2006.  Since this  announcement,  we have leased  office  space in Los
Angeles, California.

On December 2, 2005,  we announced  that we had formed a new  division,  CirTran
Products, which will offer products for sale at retail. The new division will be
run from our new Los Angeles  office,  with Trevor  Saliba,  our executive  vice
president for  worldwide  business  development,  working to develop  sales.  We
anticipate that consumer products built by our CirTran Asia subsidiary,  as well
as other products which we plan to acquire, will be available for retail sale in
2006

CirTran Products was established to pursue manufacturing relationships on both a
contracted and proprietary basis in the consumer products industry.  Proprietary
products will be product lines where the intellectual property (logo, trade name
etc.) are owned by  CirTran  Products  as well as  exclusively  manufactured  by
CirTran  Corporation.  The marketing efforts may also be managed  exclusively by
CirTran, or CirTran may choose to engage third party consultants or partner with
an independent  marketing firm. CirTran Products also intends to pursue contract
manufacturing  relationships in the consumer products industry which can include
product lines including:  home/garden,  kitchen,  health/beauty,  toys, licensed
merchandise  and apparel for film,  television,  sports and other  entertainment
properties.  Licensed  merchandise  and  apparel can be defined as any item that
bears the image of,  likeness,  or logo of a product sold or  advertised  to the
public.   Licensed  merchandise  and  apparel  are  sold  and  marketed  in  the
entertainment (film and television) and sports (sports  franchises)  industries.
As of July 20, 2006, we have concentrated our product  development  efforts into
three areas, home/kitchen appliances,  beauty products and licensed merchandise.
We anticipate  that these products will be introduced  into the market under one
uniform  brand  name or  under  separate  trademarked  names  owned  by  CirTran
Products.

Industry Background

The  contract  manufacturing  industry  specializes  in  providing  the  program
management,  technical and  administrative  support and manufacturing  expertise
required to take  products from the early design and  prototype  stages  through
volume  production and  distribution.  The goal is to provide a quality product,
delivered  on time and at the lowest  cost,  to the  client.  This full range of
services gives the client an  opportunity to avoid large capital  investments in
plant,  inventory,   equipment  and  staffing  and  to  concentrate  instead  on
innovation,  design and marketing. By using our contract manufacturing services,
our customers  have the ability to improve the return on their  investment  with
greater  flexibility  in responding to market  demands and exploiting new market
opportunities.

We believe two  important  trends have  developed in the contract  manufacturing
industry.   First,   we  believe   customers   increasingly   require   contract
manufacturers to provide complete turnkey  manufacturing  and material  handling
services, rather than working on a consignment basis where the customer supplies
all  materials  and the  contract  manufacturer  supplies  only  labor.  Turnkey
contracts involve design, manufacturing and engineering support, the procurement
of all  materials,  and  sophisticated  in-circuit  and  functional  testing and
distribution.  The  manufacturing  partnership  between  customers  and contract
manufacturers  involves an increased use of "just-in-time"  inventory management
techniques  that minimize the  customer's  investment in component  inventories,
personnel and related facilities, thereby reducing costs.


                                       32



We believe a second  trend in the  industry,  that  relates  to our  electronics
division,  has been the  increasing  shift  from  pin-through-hole,  or PTH,  to
surface mount technology,  or SMT, interconnection  technologies.  Surface mount
and pin-through-hole printed circuit board assemblies are printed circuit boards
on which various electronic components, such as integrated circuits, capacitors,
microprocessors  and resistors are mounted.  These assemblies are key functional
elements of many types of  electronic  products.  PTH  technology  involves  the
attachment of electronic components to printed circuit boards with leads or pins
that  are  inserted  into  pre-drilled  holes in the  boards.  The pins are then
soldered  to  the  electronic  circuits.  The  drive  for  increasingly  greater
functional  density has resulted in the emergence of SMT,  which  eliminates the
need for holes and  allows  components  to be placed on both  sides of a printed
circuit.  SMT  requires  expensive,  highly  automated  assembly  equipment  and
significantly  more  operational  expertise than PTH technology.  We believe the
shift to SMT from PTH technology has increased the use of contract manufacturers
by OEMs  seeking  to avoid  the  significant  capital  investment  required  for
development and maintenance of SMT expertise.

Electronics Assembly and Manufacture

As of December 31, 2005, approximately 23% of our revenues were generated by our
low-volume  electronics  assembly  activities,  which  consist  primarily of the
placement  and  attachment of electronic  and  mechanical  components on printed
circuit  boards  and  flexible  (i.e.,   bendable)   cables.  We  also  assemble
higher-level  sub-systems and systems  incorporating  printed circuit boards and
complex   electromechanical   components  that  convert   electrical  energy  to
mechanical  energy,  in some cases  manufacturing  and  packaging  products  for
shipment directly to our customers' distributors.  In addition, we provide other
manufacturing  services,   including   refurbishment  and  remanufacturing.   We
manufacture  on a  turnkey  basis,  directly  procuring  any of  the  components
necessary  for  production  where the OEM  customer  does not  supply all of the
components  that are  required  for  assembly.  We also  provide  design and new
product  introduction  services,  just-in-time  delivery on low to medium volume
turnkey and  consignment  projects  and projects  that require more  value-added
services,  and  price-sensitive,  high-volume  production.  Our goal is to offer
customers  significant   competitive   advantages  that  can  be  obtained  from
manufacturing   outsourcing,   such  as   access   to   advanced   manufacturing
technologies, shortened product time-to-market, reduced cost of production, more
effective  asset  utilization,   improved  inventory  management  and  increased
purchasing power.

As part of our  electronics  assembly and  manufacture  focus, in April 2004, we
entered into a Preferred Manufacturing Agreement (the "Broadata Agreement") with
Broadata  Communications,  Inc.  ("Broadata").  Under  this  agreement,  we will
perform exclusive "turn-key"  manufacturing services handling most of Broadata's
manufacturing   operations  from  material   procurement  to  complete  finished
box-build. Specifically,  Broadata agreed that during the three-year term of the
Broadata  Agreement,  we would be the  exclusive  manufacturer  of the  Broadata
products  covered  by the  Broadata  Agreement.  Under the  Broadata  Agreement,
Broadata issues us purchase  orders  specifying the work to be completed and the
delivery time. The price paid for work performed under the Broadata Agreement is
our costs plus 10%,  plus an assembly fee of $0.07 per  component  and an hourly
charge of $18 per hour for manual assembly,  mechanical  assembly,  and testing,
subject  to  periodic  review  and  adjustment.  We agreed to ship the  products
manufactured  FOB West  Valley  City,  Utah.  Beginning  in May  2005,  we began
handling  a  portion  of  Broadata's   manufacturing  operations  from  material
procurement to complete finished box-build. The initial term of the agreement is
three years,  continuing month to month thereafter  unless  terminated by either
party.


Ethernet Technology

Through our subsidiary,  Racore Technology  Corporation  ("Racore"),  we design,
manufacture, and distribute Ethernet cards. These components are used to connect
computers through fiber optic networks.  In addition,  we produce private label,
custom  designed  networking  products  and  technologies  on an OEM basis.  Our
products serve major industrial,  financial,  and  telecommunications  companies
worldwide.   We  market  our  products  through  an  international   network  of
distributors,  value added resellers, and systems integrators who sell, install,
and support our entire product catalogue.


                                       33



Additionally,  we have  established,  and  continue  to seek to  establish,  key
business alliances with major multinational  companies in the computing and data
communications  industries for which we produce  private label,  custom designed
networking  products and technologies on an OEM basis. These alliances generally
require that Racore either  develop  custom  products or adapt  existing  Racore
products  to become part of the OEM  customer's  product  line.  Under a typical
contract,  Racore  provides  a  product  with the  customer's  logo,  packaging,
documentation,  and custom  software  and drivers to allow the product to appear
unique and proprietary to the OEM customer. Contract terms generally provide for
a  non-recurring  engineering  charge  for  the  development  and  customization
charges,  together  with a  contractual  commitment  for a specific  quantity of
product over a given term.

Contract Manufacturing

Through our  subsidiary,  CirTran-Asia,  we design,  engineer,  manufacture  and
supply products in the electronics,  consumer  products and general  merchandise
industries for various marketers,  distributors and national retailers. This new
division is our Asian-based, wholly owned subsidiary, and provides manufacturing
services to the direct response and retail consumer markets.  Our experience and
expertise in manufacturing enables CirTran-Asia to enter a project at any phase:
engineering  and design;  product  development  and  prototyping;  tooling;  and
high-volume manufacturing.  This strategic move into the Asian market has helped
to elevate CirTran to an international contract manufacturer status for multiple
products in a wide variety of industries, and has, in short order, allowed us to
target large-scale contracts.

CirTran has established a dedicated  satellite office for CirTran-Asia,  and has
retained Mr.  Charles Ho to lead the new  division.  Having proven the value and
reliability of its core products,  CirTran Corporation has chosen to expand into
previously untapped product lines.  CirTran-Asia intends to pursue manufacturing
relationships  beyond printed circuit board  assemblies,  cables,  harnesses and
injection  molding  systems by establishing  complete  "box-build" or "turn-key"
relationships in the electronics, retail, and direct consumer markets.

Market and Business Strategy

Our goal is to benefit from the  increased  market  acceptance  of, and reliance
upon,  the use of  manufacturing  specialists  by many  OEMs,  marketing  firms,
distributors and national  retailers.  We believe the trend towards  outsourcing
manufacturing  will continue.  OEMs utilize  manufacturing  specialists for many
reasons, including the following:

         *        To Reduce Time to Market. Due to intense competitive pressures
in the  electronics  and  general  manufacturing  industry,  OEMs are faced with
increasingly shorter product life-cycles and, therefore,  have a growing need to
reduce  the time  required  to bring a product to  market.  We believe  OEMs can
reduce their time to market by using a manufacturing  specialist's manufacturing
expertise and infrastructure.

         *        To Reduce  Investment.  The  investment  required for internal
manufacturing   has  increased   significantly  as  products  have  become  more
technologically advanced and are shipped in greater unit volumes. We believe use
of   manufacturing   specialists   allows   OEMs  to  gain  access  to  advanced
manufacturing  capabilities while substantially  reducing their overall resource
requirements.

         *        To  Focus  Resources.  Because  the  electronics  industry  is
experiencing greater levels of competition and more rapid technological  change,
many OEMs are focusing their resources on activities and technologies  which add
the greatest value to their operations.  By offering  comprehensive  electronics
assembly  and  related   manufacturing   services,   we  believe   manufacturing
specialists  allow OEMs to focus on their own core  competencies such as product
development and marketing.

         *        To  Access  Leading   Manufacturing   Technology.   Electronic


                                       34



products  and  electronics  manufacturing  technology  have become  increasingly
sophisticated  and  complex,  making  it  difficult  for  OEMs to  maintain  the
necessary technological expertise to manufacture products internally. We believe
OEMs are motivated to work with a manufacturing specialist to gain access to the
specialist's expertise in interconnect, test and process technologies.

         *        To  Improve   Inventory   Management  and  Purchasing   Power.
Electronics  industry OEMs are faced with  increasing  difficulties in planning,
procuring and managing  their  inventories  efficiently  due to frequent  design
changes,  short product  life-cycles,  large required  investments in electronic
components,  component price  fluctuations and the need to achieve  economies of
scale in  materials  procurement.  OEMs can reduce  production  costs by using a
manufacturing  specialist's  volume  procurement  capabilities.  In addition,  a
manufacturing  specialist's expertise in inventory management can provide better
control over inventory levels and increase the OEM's return on assets.

An important element of our strategy is to establish partnerships with major and
emerging OEM leaders in diverse segments across the electronics industry. Due to
the costs inherent in supporting customer relationships, we focus our efforts on
customers  with  which the  opportunity  exists to  develop  long-term  business
partnerships.  Our goal is to provide  our  customers  with total  manufacturing
solutions  for both new and more  mature  products,  as well as  across  product
generations.

Another element of our strategy is to provide a complete range of  manufacturing
management and  value-added  services,  including  materials  management,  board
design,  concurrent engineering,  assembly of complex printed circuit boards and
other electronic assemblies, test engineering, software manufacturing, accessory
packaging  and  post-manufacturing  services.  We believe that as  manufacturing
technologies  become more complex and as product life cycles shorten,  OEMs will
increasingly  contract  for  manufacturing  on a  turnkey  basis as they seek to
reduce their time to market and capital  asset and inventory  costs.  We believe
that the  ability to manage and  support  large  turnkey  projects is a critical
success factor and a significant  barrier to entry for the market it serves.  In
addition,  we believe that due to the difficulty and long lead-time  required to
change manufacturers, turnkey projects generally increase an OEM's dependence on
its manufacturing specialist, which can result in a more stable customer base.

In our high volume  electronics,  consumer  products,  and  general  merchandise
manufacturing divisions, we believe we add value by providing turn-key solutions
in design, engineering, manufacturing and supply of products to our clients.

Suppliers; Raw Materials

Our sources of  components  for our  electronics  assembly  business  are either
manufacturers or distributors of electronic components. These components include
passive  components,  such as  resisters,  capacitors  and  diodes,  and  active
components,  such as  integrated  circuits and  semi-conductors.  Our  suppliers
include  Siemens,  Muriata-Erie,   Texas  Instruments,   Fairchild,  Harris  and
Motorola.  Distributors  from whom we obtain  materials  include  Avnet,  Future
Electronics,  Digi-key  and  Force  Electronics.  Although  we have  experienced
shortages  of  various   components  used  in  our  assembly  and  manufacturing
processes,  we  typically  hedge  against  such  shortages by using a variety of
sources and, to the extent possible, by projecting our customer's needs.

Research and Development

During 2005 and 2004,  CirTran  Corporation  spent  approximately  $200,000  and
$75,000, respectively, on research and development of new products and services.
The costs of that research and  development  were paid for by our customers.  In
addition,  during the same periods, our subsidiary,  Racore, spent approximately
$45,000 and $42,536,  respectively.  None of Racore's  expenses were paid for by
its  customers.  We remain  committed,  particularly  in the case of Racore,  to
continuing  to develop  and  enhance  our  product  line as part of our  overall
business strategy.


                                       35



Beginning  in 2004,  Racore  started  working  more  aggressively  on  marketing
existing  products by  simplifying  ordering  and sales  processing  to existing
customers.  We are also working  towards some cost reduced  versions of existing
product  line and  adding  new sales  channels.  We are also in the  process  of
expanding the current  product line,  adding new product  categories to existing
sales channels, along with products with reduced development costs, quicker time
to market,  higher profit margins,  greatly reduced support costs, less pressure
from competitors and shorter sales cycles.

In the coming  months,  we  anticipate  that  Racore will  redesign  some of its
products to reduced versions of existing  products,  but also similar yet unique
products that will satisfy  market needs which  currently have no deliverable or
affordable  solutions.  These products will realize reduced  development  costs,
quicker time to market,  higher profit  margins,  greatly reduced support costs,
less pressure from  competitors,  and shorter sales and delivery  cycles.  These
products will leverage our expertise in the areas of fiber optics, security, and
portability.

We  possess  advanced  design  and  engineering  capabilities  with  experienced
professional  staffs  at both  our  Salt  Lake  City and  ShenZhen  offices  for
electrical,  software,  mechanical and industrial design.  This provides the end
client a total  solution  for  original  design,  re-design  and final design of
products.

Sales and Marketing

As of July 20, 2006, we had three  individuals on our internal sales staff,  and
we have continued to pursue sales  representative  relationships with firms that
work as  independent  contractors  in  generating  new  business.  We  signed an
agreement  with TMP and  have  other  outside  independent  contractors  that we
continue to work with. This is  advantageous to the Company,  as it provides the
Company with a broad sales  network with no direct cost.  It is our intention to
continue  pursuing  sales  representative  relationships  as  well  as  internal
salaried  sales  executives.  Early  in 2006  the  Company  opened  a  dedicated
satellite  sales/engineering  office in Los Angeles to headquarter  all business
development  activities  companywide.  The Company has since begun staffing this
office with  administrative  and project  management staff. The Company is still
pursuing  product  development  and  business  development   professionals  with
concentrated  efforts on the direct  response,  product and retail  distribution
divisions  as  well  as  sales  executives  for  the  electronics  manufacturing
division.

We are working  aggressively to market existing  products  through current sales
channels.  We will also add major new conduits to deliver  products and services
directly to end users, as well as motivate our distributors, partners, and other
third party  sales  mechanisms.  We continue to simplify  and improve the sales,
order, and delivery process.  We are also pursuing strategic  relationships with
retail  distribution firms to engage with us in a reciprocal  relationship where
they would act as CirTran's  retail  distribution  arm and we would act as their
manufacturing  arm with  both  parties  giving  the  other  priority  and  first
opportunity to work on the other's products.

Historically,  we have had substantial  recurring sales from existing customers,
though we continue to seek out new  customers to generate  increased  sales.  We
treat sales and marketing as an integrated process involving direct salespersons
and project  managers,  as well as senior  executives.  We also use  independent
sales  representatives  in  certain  geographic  areas.  We  have  also  engaged
strategic  consulting  groups to make  strategic  introductions  to generate new
business.  This  strategy  has  proven  successful,  and has  already  generated
multiple  manufacturing  contracts.  These  relationships were responsible for a
portion of sales  generated in 2005 and we anticipate  will be a major factor in
our sales growth for 2006 and 2007.

During the typical sales process, a customer provides us with specifications for
the  product it wants,  and we develop a bid price for  manufacturing  a minimum
quantity that includes  manufacture  engineering,  parts,  labor,  testing,  and
shipping.  If the bid is  accepted,  the  customer is  required to purchase  the
minimum  quantity and additional  product is sold through purchase orders issued
under the original contract. Special engineering services are provided at either
an hourly rate or at a fixed contract price for a specified task.

In 2005, 38% of our net sales were derived from pre-existing customers,  whereas
during the year ended December 31, 2004,  only 20% of our net sales were derived
from customers  that were also customers  during 2003. In 2005, 62% of our sales


                                       36



were derived from new  business,  with the majority of those sales being secured
by  exclusive  manufacturing  contracts.  In 2005,  our major new  customer  was
Advanced Beauty  Solutions,  LLC which accounted for about 35% of our net sales.
Our second and third largest customers for 2005 were also new customers, Tristar
Products  with  about  14%,  and Emson  with 9% of our net  sales.  Our  largest
pre-existing  customer was Dynojet  Research Inc. with over 8% of our net sales.
We anticipate  that our exclusive  manufacturing  contracts  with  Guthy-Renker,
Reliant and Arrowhead Industries will contribute  significantly to our sales for
2006 and 2007 as those  projects  are  scheduled  to roll out in the  second and
third quarter of 2006. Historically, a small number of customers accounted for a
significant  portion of our electronics  assembly and  manufacture  division net
sales.

Our  expansion  into China  manufacturing  has allowed us to increase our sales,
manufacturing  capacity and output with minimal capital investment required.  By
using  various   subcontractors  among  which  are  Zhejiang  Hengtai  Machinery
Manufacturing  Co., Ltd.,  which  manufactures  the Supreme Pilates and Zhejiang
Cuiori Electrical Appliances Co., Ltd,, which manufactures the Perfect Grill, we
leverage our upfront  payments for  inventories and tooling to control costs and
receive  benefits  from  economics of scale in Asian  manufacturing  facilities.
These  expenses  can be upwards of  $100,000  per  product.  The  Company  will,
depending  on the  contract,  prepay  anywhere  from 10% to 50% of the  purchase
orders  for  materials  to some of the  factories  we have  contracts  with.  In
exchange  for theses  financial  commitments,  the  Company  receives  dedicated
manufacturing  responsiveness  hence  eliminating the costly expense  associated
with capitalizing complete proprietary facilities.

Backlog  consists of contracts or purchase  orders with delivery dates scheduled
within  the  next  twelve  months.   As  of  July  20,  2006,  our  backlog  was
approximately $1,152,000 with confirmed deliveries dates. The Company also has a
total of approximately  $90,000,000 of signed  contracts for blanket  quantities
(i.e. the full amount of the contract), in which the customer agrees to purchase
a set amount and will issue  purchases  against  the  contract  when  product is
needed.  The majority of these blanket  quantities orders are two contracts from
Arrowhead for  $22,000,000  and Reliant for  $30,000,000.  We have a $30,000,000
contract  from  Guthy - Renker  Corporation,  a  contract  from  Emson for about
$7,000,000 along with a few other smaller  contracts.  Each contract  contains a
buy out clause  that  varies,  depending  on the  product and amounts of product
agreed upon.

In December  of 2004,  we issued a press  release  relating to our hiring of Mr.
Patrick L. Gerrard Sr. as a director of our corporate  Quality Control  Systems.
We also announced that we had received an order for the United States Air Force.
The products were built and shipped to them.

Management has continued its internal plan for increasing sales,  reducing costs
and  restructuring the overall  financial  condition.  As part of this strategy,
sales for the Company in 2005 were greater  than sales in 2004,  and the Company
reached an offer in compromise with the Internal Revenue Service in 2004 and the
State of Utah in 2006 settling all outstanding tax liabilities.

The year 2004 was a critical year for CirTran Corporation.  The most significant
event for CirTran in 2004 was the  acceptance  of the offer in compromise by the
Internal Revenue Service settlement of the Company's prior tax obligation.  This
has  been a top  priority  for  management  and the  board of  directors  as the
Company's viability was in question.  With this new milestone,  management feels
the Company is financially  stable and in position to continue its plan to grow.
In addition,  our effort to enter high-volume  manufacturing in the electronics,
consumer products and general  merchandise  industries has had a dramatic impact
to the  Company's  sales and backlog.  Also,  management's  constant  pursuit of
establishing  the Company as a world-class  manufacturer was recognized with the
Company  receiving  ISO9001:2000  certification  on March 31,  2005.  This is an
international monitoring agency that requires all companies who are certified to
comply with a set standard of policies on quality and manufacturing.

Material Contracts and Relationships

We generally use form agreements  with standard  industry terms as the basis for
our contracts  with our customers.  The form  agreements  typically  specify the
general terms of our economic  arrangement with the customer (number of units to


                                       37



be manufactured,  price per unit and delivery  schedule) and contain  additional
provisions that are generally  accepted in the industry regarding payment terms,
risk  of  loss  and  other  matters.  We  also  use a form  agreement  with  our
independent  marketing  representatives  that features  standard terms typically
found in such agreements.

Cogent Agreement

On September  14, 2003, we entered into an agreement  with Cogent  Capital Corp.
("Cogent"),  under which we engaged  Cogent to provide  strategic  planning  and
advisory  services  relating  to  acquisitions  and with a view to  obtaining  a
listing on either the American Stock Exchange or the NASDAQ. In a September 2003
press release,  we mentioned  that Cogent was assisting us in connection  with a
proposed direct  investment in CirTran,  but that transaction was not closed. We
continue to work with Cogent,  and they continue to provide  strategic  planning
and advice.

MET Advisors Agreement

In August 2003,  we entered into an agreement  with MET Advisors  ("MET")  under
which we retained MET to identify and provide detailed  information on potential
acquisition  targets.  Pursuant  to the MET  agreement,  we  agreed to pay MET a
transaction fee equal to 5% of the total value of the transaction  (but not less
than  $100,000),  together with expenses  incurred by MET in connection with the
potential acquisition.

In January and March 2004, we issued press releases  relating to a new agreement
with a contract  electronics  manufacturer.  The January 21, 2004, press release
stated that we had entered into a Letter of Intent to purchase all the assets of
a leading contract electronics  manufacturer of printed circuit board assemblies
based in Orange County,  California.  The March 2, 2004 press release was issued
to give an update on the due diligence  process.  However,  the letter of intent
expired on March 5, 2004,  and no agreement was reached  regarding an extension.
We have decided not to pursue further negotiations relating to this matter.

In March 2004, we issued two additional press releases relating to our potential
acquisition  of an  interest  in a  manufacturer  of digital  fiber  optic cable
equipment. On March 18, 2004, we announced that we had signed a letter of intent
to acquire a minority interest in a manufacturer  based in southern  California,
and that in connection with the acquisition,  we anticipated that we would enter
into an exclusive manufacturing  agreement. On March 26, 2004, we announced that
we anticipated  that we expected to finalize the acquisition of the interest and
the exclusive  agreement.  On April 13, 2004,  we entered into a stock  purchase
agreement  with  Broadata   Communications,   Inc.,  a  California   corporation
("Broadata")  under  which we  purchased  400,000  shares of  Broadata  Series B
Preferred  Stock (the  "Broadata  Preferred  Shares") for an aggregate  purchase
price of $300,000. The Broadata Preferred Shares are convertible, at our option,
into an  equivalent  number of shares  of  Broadata  common  stock,  subject  to
adjustment.  The Broadata Preferred Shares are not redeemable by Broadata.  As a
holder of the Broadata Preferred Shares, we have the right to vote the number of
shares of Broadata  common  stock into which the Broadata  Preferred  Shares are
convertible  at the  time of the  vote.  Separate  from the  acquisition  of the
Broadata  Preferred  Shares,  we also  entered  into a  Preferred  Manufacturing
Agreement  with  Broadata.  Under  this  agreement,  we will  perform  exclusive
"turn-key"  manufacturing  services  handling most of  Broadata's  manufacturing
operations from material  procurement to complete  finished  box-build of all of
Broadata's  products.  The  initial  term  of  the  agreement  is  three  years,
continuing month to month thereafter unless terminated by either party.

As of July 20, 2006, we had no other  acquisitions  planned or  anticipated.  We
continue to work with MET and Cogent with respect to potential acquisitions.

Competition

The  electronic  manufacturing  services  industry  is large and  diverse and is
serviced by many  companies,  including  several that have achieved  significant
market share.  Because of our market's size and  diversity,  we do not typically


                                       38



compete for  contracts  with a discreet  group of  competitors.  We compete with
different companies depending on the type of service or geographic area. Certain
of our  competitors  may have  greater  manufacturing,  financial,  research and
development and marketing  resources.  We also face competition from current and
prospective  customers  that  evaluate  our  capabilities  against the merits of
manufacturing products internally.

We believe that the primary  basis of  competition  in our  targeted  markets is
manufacturing technology, quality, responsiveness,  the provision of value-added
services  and  price.  To  remain  competitive,  we  must  continue  to  provide
technologically advanced manufacturing services,  maintain quality levels, offer
flexible delivery  schedules,  deliver finished products on a reliable basis and
compete favorably on the basis of price.

Furthermore,  the  Asian  manufacturing  market  is  growing  at a  rapid  pace.
Particularly  in  China,  therefore,   management  feels  that  the  Company  is
strategically positioned to hedge against unforeseen obstacles and continues its
efforts to increase  establishing  additional  relationships  with manufacturing
partners, facilities and personnel.

Regulation

We are  subject  to  typical  federal,  state  and  local  regulations  and laws
governing the  operations of  manufacturing  concerns,  including  environmental
disposal,  storage and discharge  regulations and laws, employee safety laws and
regulations and labor practices laws and regulations.  We are not required under
current  laws  and   regulations  to  obtain  or  maintain  any  specialized  or
agency-specific   licenses,   permits,   or   authorizations   to  conduct   our
manufacturing services.  Other than as discussed in "Item 3 - Legal Proceedings"
concerning delinquent payroll taxes, we believe we are in substantial compliance
with all relevant regulations applicable to our business and operations.

Employees

As of July 20,  2006,  we  employed a total  staff of 104  persons in the United
States.  In  our  Salt  Lake  headquarters,   we  employed  101  persons:  6  in
administrative  positions,  5 in  engineering  and design,  88 in  clerical  and
manufacturing, and 2 in sales. In our sales office in Los Angeles, we employed 3
persons:  1  administrative  and  sales,  1  project  manager,  and  1  clerical
assistant. At this time we are actively searching for additional qualified sales
staff for our new office. In our CirTran-Asia  division, we employed 7 people: 1
administrative, 2 accounting staff, 2 quality engineers, and 2 design engineers.
We believe that our relationship with our employees is good.

Corporate Background

Our core business was commenced by Circuit Technology, Inc. ("Circuit"), in 1993
by our president, Iehab Hawatmeh. Circuit enjoyed increasing sales and growth in
the  subsequent  five years,  going from $2.0  million in sales in 1994 to $15.4
million in 1998, leading to the purchase of two additional SMT assembly lines in
1998 and the acquisition of Racore Computer Products, Inc., in 1997. During that
period,  Circuit hired additional management personnel to assist in managing its
growth,  and Circuit  executed  plans to expand its  operations  by  acquiring a
second manufacturing  facility in Colorado.  Circuit subsequently  determined in
early 1999, however, that certain large contracts that accounted for significant
portions of our total revenues provided  insufficient  profit margins to sustain
the growth and resulting  increased overhead.  Furthermore,  internal accounting
controls  then in place  failed to apprise  management  on a timely basis of our
deteriorating financial position.

We were  incorporated  in Nevada in 1987,  under the name  Vermillion  Ventures,
Inc., for the purpose of acquiring other operating corporate  entities.  We were
largely inactive until July 1, 2000, when we issued a total of 10,000,000 shares
of our common  stock  (150,000,000  of our shares as presently  constituted)  to
acquire,  through  our  wholly-owned  subsidiary,  CirTran  Corporation  (Utah),
substantially all of the assets and certain liabilities of Circuit.

In 1987, Vermillion Ventures, Inc. filed an S-18 registration statement with the
United States  Securities  and Exchange  Commission  ("SEC") but did not at that
time become a registrant under the Securities Exchange Act of 1934 ("1934 Act").


                                       39



From 1989 until 2000, Vermillion did not make any filings with the SEC under the
1934 Act. In July 2000,  we commenced  filing  regular  annual,  quarterly,  and
current reports with the SEC on Forms 10-KSB, 10-QSB, and 8-K, respectively, and
have made all filings  required of a public company since that time. In February
2001,  we filed a Form 8-A with the SEC and became a  registrant  under the 1934
Act.  We may be subject  to  certain  liabilities  arising  from the  failure of
Vermillion to file reports with the SEC from 1989 to 1990,  but we believe these
liabilities are minimal because there was no public market for the common shares
of  Vermillion  from 1989 until the third quarter of 1990 (when our shares began
to be  traded  on the  Pink  Sheets)  and  it is  likely  that  the  statute  of
limitations  has run on whatever public trades in the shares of our common stock
may have taken place during the period  during which  Vermillion  failed to file
reports.

On August 6, 2001, we effected a 1:15 forward split and stock distribution which
increased the number of our issued and  outstanding  shares of common stock from
10,420,067  to  156,301,005.  We also  increased  our  authorized  capital  from
500,000,000 to 750,000,000 shares.

The short- and long-term success of CirTran is subject to certain risks, many of
which are  substantial in nature and outside the control of CirTran.  You should
consider carefully the following risk factors,  in addition to other information
contained herein. When used in this Report, words such as "believes," "expects,"
"intends,"  "plans,"  "anticipates,"  "estimates,"  and similar  expressions are
intended to identify forward-looking  statements,  although there may be certain
forward-looking  statements  not  accompanied  by such  expressions.  You should
understand  that several  factors govern whether any  forward-looking  statement
contained  herein will or can be achieved.  Any one of those factors could cause
actual  results  to  differ  materially  from  those  projected  herein.   These
forward-looking statements include plans and objectives of management for future
operations,  including  the  strategies,  plans and  objectives  relating to the
products and the future  economic  performance  of CirTran and its  subsidiaries
discussed above.

Description of Property

On December 17, 2003, we entered into a ten-year  lease  agreement (the "Lease")
with PFE Properties,  LLC, a Utah limited liability company (the "Lessor"),  for
our existing 40,000 square-foot headquarters and manufacturing facility, located
at 4125 South 6000 West in Salt Lake City,  Utah. The workspace  includes 10,000
square feet of office space to support the Company's Administration,  Sales, and
Engineering  Staff.  The 30,000 square feet of  manufacturing  space  includes a
highly secured  inventory area,  shipping and receiving areas, and manufacturing
and   assembly   space  that   support   six  full   surface-mount   lines  with
state-of-the-art  equipment  capable of placing over 360 million  components per
year.

On March 31, 2005, the Company entered into a Membership  Acquisition  Agreement
(the  "Acquisition  Agreement")  with  Rajayee  Sayegh  (the  "Seller")  for the
purchase  of one  hundred  percent  (100%) of the  membership  interests  in PFE
Properties LLC, a Utah limited liability company ("PFE").  Under the Acquisition
Agreement, the Company agreed to issue twenty million (20,000,000) shares of its
restricted  common stock, with a fair value of $800,000 on the date of issuance.
No registration rights were granted. The shares were issued without registration
under the 1933 Act in reliance on Section 4(2) of the Securities Act of 1933, as
amended (the "1933 Act"), and the rules and regulations promulgated thereunder.

The primary asset of PFE is its rights,  titles and interests in and to a parcel
of real property,  together with any improvements,  rents and profits thereon or
associated therewith, located at 4125 S. 6000 W., West Valley City, Utah, 84128,
where the Company presently has its headquarters and manufacturing facility.

Following the  acquisition  of the PFE  interests,  PFE will continue to own the
building. PFE will remain a separate LLC due to liability issues and the Company
will continue to make intercompany lease payments under the 2003 lease.

Our facilities in Shenzhen,  China,  constitute a sales and business office.  We
have  no   manufacturing   facilities  in  China.  Our  office  in  Shenzhen  is
approximately  1,600 square feet. Under the terms of our lease on the space, the


                                       40



monthly payment is 15,000 Renminbi,  which in was  approximately  $1,900 on July
20, 2006. The term of the lease is for two years, running from July 18, 2004.

As of December,  2005,  CirTran had begun  occupying a  commercial  space in the
Century City  district of Los Angeles  located at 1875 Century Park East,  Suite
1790. The space is  approximately  2,500 square feet of office space. The office
will serve as the Business Development,  Sales, Marketing and Strategic Planning
Headquarters company-wide and for all divisions and subsidiaries.  The sublease,
which was  signed in October  of 2005  expires  in  October  of 2007.  The lease
payment is $4,500 per month, all inclusive.

We believe that the  facilities and equipment  described  above are generally in
good condition, are well maintained, and are generally suitable and adequate for
our current and projected operating needs.

Where to get additional information

Federal  securities  laws  require us to file  information  with the  Commission
concerning our business and operations.  Accordingly, we file annual, quarterly,
and special reports, and other information with the Commission.  You can inspect
and copy this  information at the public  reference  facility  maintained by the
Commission at Judiciary  Plaza, 450 Fifth Street,  N.W., Room 1024,  Washington,
D.C. 20549.

You can get  additional  information  about the  operation  of the  Commission's
public  reference  facilities by calling the Commission at  1-800-SEC-0330.  The
Commission also maintains a web site  (http://www.sec.gov) at which you can read
or download our reports and other information.

CirTran's   internet   address'  are   www.cirtran.com.,   www.cirtran-asia.com,
www.racore.com.










                                       41



MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

Overview

We  provide a mixture  of high and  medium  size  volume  turnkey  manufacturing
services   using   surface   mount   technology,   ball-grid   array   assembly,
pin-through-hole  and custom  injection  molded cabling for leading  electronics
OEMs in the communications,  networking,  peripherals,  gaming, law enforcement,
consumer products,  telecommunications,  automotive,  medical, and semiconductor
industries.   Our  services   include   pre-manufacturing,   manufacturing   and
post-manufacturing   services.   Through  our  subsidiary,   Racore   Technology
Corporation, we design and manufacture Ethernet technology products. Our goal is
to offer customers the significant  competitive  advantages that can be obtained
from  manufacture   outsourcing,   such  as  access  to  advanced  manufacturing
technologies, shortened product time-to-market, reduced cost of production, more
effective  asset  utilization,  improved  inventory  management,  and  increased
purchasing power.

During  2004,  we  established  a new  division,  CirTran-Asia,  Inc,  which has
contributed to a large portion of the increase in revenue since that time.  This
division is an Asian-based,  wholly owned subsidiary of CirTran  Corporation and
provides a myriad of  manufacturing  services to the direct  response and retail
consumer  markets.  Our  experience  and  expertise  in  manufacturing   enables
CirTran-Asia to enter a project at any phase:  engineering  and design,  product
development  and  prototyping,   tooling,  and  high-volume  manufacturing.   We
anticipate that  CirTran-Asia  will pursue  manufacturing  relationships  beyond
printed  circuit board  assemblies,  cables,  harnesses  and  injection  molding
systems by establishing complete "box-build" or "turn-key"  relationships in the
electronics,  retail, and direct consumer markets.  This strategic move into the
Asian  market  has  helped  to  elevate  CirTran  to an  international  contract
manufacturer  status for multiple products in a wide variety of industries,  and
has, in short order, allow us to target large-scale contracts.

CirTran has established a dedicated  satellite office for CirTran-Asia,  and has
retained Mr.  Charles Ho to lead the new  division.  Having proven the value and
reliability of its core products,  CirTran Corporation has chosen to expand into
previously untapped product lines.

On December 2, 2005,  we announced  that we had formed a new  division,  CirTran
Products, which will offer products for sale at retail. The new division will be
run from our new Los Angeles  office,  with Trevor  Saliba,  our executive  vice
president for  worldwide  business  development,  working to develop  sales.  We
anticipate that consumer products built by our CirTran Asia subsidiary,  as well
as other products which we plan to acquire, will be available for retail sale in
2006.

On March 21, 2006, we announced  that we had formed a new  subsidiary to provide
end-to-end services to the direct response and entertainment industries. The new
division  will  provide  product  marketing,   production,   media  funding  and
merchandise  manufacturing  services.  Forming this new division was a necessary
step to maximize product  manufacturing  opportunities for CirTran's proprietary
products and to provide  marketing  services for  individual  entrepreneurs  and
inventors.  The new division  will be  headquartered  in  CirTran's  Los Angeles
(Century  City)  offices  and be  headed  by Mr.  Saliba.  We are  presently  in
development  of  proprietary  programs to be  launched in the product  marketing
division, production services and media funding divisions.

Significant Accounting Policies

Financial  Reporting  Release  No.  60,  which  was  recently  released  by  the
Securities  and  Exchange  Commission,  requires  all  companies  to  include  a
discussion of critical accounting policies or methods used in the preparation of
financial statements.  Note 1 of the Notes to the Financial Statements contained
in our  Annual  Report on form  10-KSB  includes  a summary  of the  significant
accounting  policies  and  methods  used  in the  preparation  of our  Financial
Statements.  The  following  is a  brief  discussion  of  the  more  significant
accounting policies and methods used by us.

Our discussion and analysis of our financial condition and results of operations
is based upon our consolidated financial statements, which have been prepared in


                                       42



accordance with accounting  principles  generally accepted in the United States.
These  principles  require us to make  estimates and  judgments  that affect the
reported  amounts of assets,  liabilities,  revenues and  expenses,  and related
disclosure  of  contingent  assets and  liabilities.  We base our  estimates  on
historical  experience and on various other  assumptions that are believed to be
reasonable under the circumstances. Estimated amounts may differ under different
assumptions or conditions, and actual results could differ from the estimates.

         Revenue Recognition

Revenue is recognized when products are shipped. Title passes to the customer or
independent sales representative at the time of shipment.  Returns for defective
items  are  repaired  and  sent  back to the  customer.  Historically,  expenses
experienced with such returns have not been significant and have been recognized
as incurred.

         Inventories

Inventories  are  stated at the lower of  average  cost or market  value.  Costs
include  labor,  material,  and  overhead  costs.  Overhead  costs  are based on
indirect costs allocated  among 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. The Company determines market value on
current  resale  amounts  and whether  technological  obsolescence  exists.  The
Company has  agreements  with most of its customers that require the customer to
purchase  inventory  items  related  to their  contracts  in the event  that the
contracts  are  cancelled.  The market value of related  inventory is based upon
those agreements.

The Company typically orders inventory on a customer-by-customer basis. In doing
so the Company  enters into binding  agreements  that the customer will purchase
any excess  inventory  after all orders  are  complete.  Almost 80% of the total
inventory  in  the  electronics  manufacturing  division  is  secured  by  these
agreements.

Related Party Transactions

Certain transactions involving Abacas Ventures, Inc., the Saliba Private Annuity
Trust and the Saliba  Living  Trust are regarded as related  party  transactions
under  FAS  57.  Disclosure  concerning  these  transactions  is set out in this
section  under  "Liquidity  and  Capital  Resources -  Liquidity  and  Financing
Arrangements," and in "Certain Relationships and Related Transactions."

Results of Operations - Comparison of Periods ended March 31, 2006 and 2005, and
Years Ended December 31, 2005 and 2004

         Sales and Cost of Sales

Net sales  decreased  to  $1,737,824  for the three month period ended March 31,
2006, as compared to $2,920,465  during the same period in 2005,  for a decrease
of 40.5%.  This decrease was attributed to the loss of sales in the CirTran Asia
division due to legal issues with the Ab King Pro and ABS (see Legal Proceedings
section).  Cost of sales  decreased by 48.2%, to $990,370 during the three month
period ended March 31, 2006, from $1,949,773 during the same period in 2005. The
decrease in cost of sales is directly due to the decrease in revenue.  Our gross
profit  margin for the three month period ended March 31,  2006,  was 43.0%,  up
from 33.2% for the same period in 2005. The majority of the increase is due to a
considerable  decrease in CirTran-Asia  sales which have more favorable  margins
compared  to  the  electronics   assembly  and  Ethernet   technology   business
operations. The sales in these divisions have remained consistent.


                                       43



Net sales  increased  46.6% to $12,992,512 for the year ended December 31, 2005,
as compared to  $8,862,715  for the year ended  December  31,  2004.  This sales
increase can be attributed to several factors. The biggest factor contributed to
the  increase  of net sales  during  the 2005 was the  establishment  of the new
division  CirTran-Asia,  which has  contributed  $4,569,221  of the  increase in
revenue.  Another factor was the strengthening of the overall marketing strategy
of the Company.  We have added many new  customers  mostly in CirTran Asia which
contributed to the large increase. Also, industry-wide,  we are seeing more OEMs
release  larger  order  commitments  with  extended  time  tables.   The  second
significant factor directly related to CirTran is our marketing  approach.  Most
contract  manufacturers  approach  customers  on  a  job-by-job  basis.  CirTran
approaches  customers on a partner  basis.  We have developed a program where we
can be more effective when we control the material procurement,  purchasing, and
final assembly, providing the customer a final quality product delivered on time
and at a lower  market cost.  This  approach  for the  electronics  assembly and
manufacture  division has resulted in sales to new customers of $170,504  during
the year ended  December  31,  2005.  The  biggest  factor  contributing  to the
increase of net sales during 2005 was our contract manufacturing division, which
has resulted in sales to new customers of $4,598,211.

Cost of sales decreased by 4.6%, from $7,030,934  during year ended December 31,
2004, to $6,706,135 during year ended December 31, 2005. The decrease in cost of
sales is due to an  increase in revenue.  Our gross  profit  margin for the year
ended December 31, 2005,  was 48.1%,  up from 20.5% from the year ended December
31, 2004. The increase in margins is attributable to the outsourcing strategy of
most of  CirTran  Asia's  business  to other  subcontractors  in China to better
control cost of materials, direct labor, and scrap.

The following  charts present (i) comparisons of sales,  cost of sales and gross
profit  generated  by our two main areas of  operations,  i.e.,  Asia  Division,
electronics  assembly and Ethernet  technology,  during 20043 and 2005; and (ii)
comparisons  during these two years for each division between sales generated by
pre-existing customers and sales generated by new customers.


------------  ------------  -------------  ------------------  -----------------
                 Period         Sales        Cost of Sales     Gross Loss/Margin
------------  ------------  -------------  ------------------  -----------------
Contract      Three months  $     941,239    $     735,136     $         206,103
Manufacture   ended March
              31, 2006
              ------------  -------------  ------------------  -----------------
              Three months      2,124,844        1,609,774               515,070
              ended March
              31, 2005
              ------------  -------------  ------------------  -----------------
              Year ended        9,865,023        5,739,436             4,125,587
              December 31,
              2005
              ------------  -------------  ------------------  -----------------
              Year ended        5,458,944        4,736,479               722,465
              December 31,
              2004
------------  ------------  -------------  ------------------  -----------------
Electronics   Three months        774,359          244,877               529,482
Assembly      ended March
              31, 2006
              ------------  -------------  ------------------  -----------------


                                       44



              ------------  -------------  ------------------  -----------------
              Three months        773,013          329,239               443,774
              ended March
              31, 2005
              ------------  -------------  ------------------  -----------------
              Year ended        3,002,038          973,953(2)          2,028,085
              December 31,
              2005
              ------------  -------------  ------------------  -----------------
              Year ended        3,354,057        2,282,253(1)          1,071,804
              December 31,
              2004
------------  ------------  -------------  ------------------  -----------------
Ethernet      Three months         22,226           10,357                11,869
Technology    ended March
              31, 2006
              ------------  -------------  ------------------  -----------------
              Three months         22,608           10,760                11,848
              ended March
              31, 2005
              ------------  -------------  ------------------  -----------------
              Year ended          125,451           79,850(3)             45,601
              December 31,
              2005
              ------------  -------------  ------------------  -----------------
              Year ended           49,714           25,202                24,512
              December 31,
              2004
------------  ------------  -------------  ------------------  -----------------


------------  ------------  -------------  ------------------  -----------------
                                Total        Pre-existing            New
                 Period         Sales          Customers          Customers
------------  ------------  -------------  ------------------  -----------------
Contract      Three months   $   941,239    $       725,543      $     215,696
Manufacture   ended March
              31, 2006
              ------------  -------------  ------------------  -----------------
              Three months     2,124,844          1,339,957            784,887
              ended March
              31, 2005
              ------------  -------------  ------------------  -----------------
              Year ended       9,865,023          5,266,812          4,598,211
              December 31,
              2005
              ------------  -------------  ------------------  -----------------
              Year ended       5,458,944                  0          5,458,944
              December 31,
              2004
------------  ------------  -------------  ------------------  -----------------


                                       45



------------  ------------  -------------  ------------------  -----------------
Electronics   Three months       774,359            768,105             6,254
Assembly      ended March
              31, 2006
              ------------  -------------  ------------------  -----------------
              Three months       773,013              5,562            767,451
              ended March
              31, 2005
              ------------  -------------  ------------------  -----------------
              Year ended       3,002,038          2,831,534            170,504
              December 31,
              2005
              ------------  -------------  ------------------  -----------------
              Year ended       3,354,057          2,796,720            557,337
              December 31,
              2004
------------  ------------  -------------  ------------------  -----------------
Ethernet      Three months        22,226             19,361              2,865
Technology    ended March
              31, 2006
              ------------  -------------  ------------------  -----------------
              Three months        22,608             18,645              3,963
              ended March
              31, 2005
              ------------  -------------  ------------------  -----------------
              Year ended         125,451            101,004             24,447
              December 31,
              2005
              ------------  -------------  ------------------  -----------------
              Year ended          49,714             30,257             19,457
              December 31,
              2004
------------  ------------  -------------  ------------------  -----------------

         (1) Includes the write-down of carrying value of inventories of $13,000
         (2) Includes the write-down of carrying value of inventories of $17,364
         (3) Includes the write-down of carrying value of inventories of $20,725


         Inventory

We  use  just-in-time  manufacturing,  which  is  a  production  technique  that
minimizes work-in-process inventory and manufacturing cycle time, while enabling
us to deliver  products to customers in the quantities and time frame  required.
This  manufacturing  technique requires us to maintain an inventory of component
parts to meet customer orders.  Inventory at March 31, 2006, was $2,203,537,  as
compared to  $2,271,604  at December  31,  2005.  The  decrease in  inventory is
nominal.

Inventory  at December 31, 2005 was  $2,271,604,  as compared to  $1,453,754  at
December 31, 2004. The increase in inventory is due to the  repossession  of ABS
finished goods inventory.


                                       46



         Selling, General and Administrative Expenses

During  the  three   months  ended  March  31,   2006,   selling,   general  and
administrative  expenses  were $837,520  versus  $959,891 for the same period in
2005,  a 12.7%  decrease.  The decrease in selling,  general and  administrative
expenses is nominal.

During the year ended  December 31, 2005,  selling,  general and  administrative
expenses were  $5,923,075  versus  $3,362,933  for 2004, a 76.1%  increase.  The
increase was due to expenses  related to the CirTran-Asia  division,  along with
our  efforts  to  aggressively  market  our  products.   Selling,   general  and
administrative  expenses as a  percentage  of sales as of December 30, 2005 were
45.6% as compared to 37.9% during 2004. This increase is due to expenses related
to the CirTran-Asia division,  along with our efforts to aggressively market our
products

         Other Income and Expense

Interest  expense for three  months  ended March 31,  2006,  was  $1,086,253  as
compared to $143,770  for the same  period in 2005,  an increase of 655.5%.  The
increase  is  primarily  due  to the  derivative  treatment  of the  convertible
debenture, discussed below. The estimated fair value of the derivative liability
decreased for the three months ended March 31, 2006. This decrease resulted in a
gain on derivative valuation of $893,651.

The Company determined that the features of the Debentures fell under derivative
accounting treatment.  Accordingly,  the Company recognizes these derivatives as
liabilities on its balance sheet and measures them at their estimated fair value
and recognizes the change in the estimated fair value as a gain or (loss) in the
period of the change.  The Company  estimates the fair value of theses  embedded
derivatives  using the  Black-Scholes  Model,  which is based on a sophisticated
analysis of  historical  factors that affect the value of the  company's  common
stock.  The fair value of the  derivatives  instruments is measured each quarter
and  the  resultant  change  in  value  is;  recorded  as an  adjustment  to the
derivative's carrying value and the attendant gain or loss is recognized for the
period.  During the 1st quarter of 2006, the estimated  value of the derivatives
decreased by $893,561 which is reported as a "Gain on derivative  valuation" for
the period.

As a result of the above  factors,  we had net loss of $277,998  for the quarter
ended March 31, 2006,  as compared to $201,728  for the quarter  ended March 31,
2005. This net loss is attributed to a substantial decrease in sales.

Interest  expense for 2005 was  $1,225,252  as compared to $495,637  for 2004, a
increase of 147.2%.  The increase is  primarily  due to the increase in interest
expense  related the  convertible  debentures,  accretion  expense and  interest
accrued. Also, included are the settlement of various notes payable and interest
income charged to delinquent  accounts receivable  accounts.  As of December 31,
2005 and 2004,  the amount of our  liability  for  delinquent  state and federal
payroll  taxes and  estimated  penalties  and  interest  thereon was $98,316 and
$723,660,  respectively.  We  had a gain  on  forgiveness  of  debt  related  to
previously unpaid liabilities in the amount of $337,761 and a gain on derivative
valuation of $169,570.

Our overall net loss decreased 19.8% to $527,708 for the year ended December 31,
2005, as compared to $658,322 for the year ended December 31, 2004.

Details of the ABS transaction
------------------------------

In  connection  with the  Advanced  Beauty  Solutions,  LLC  ("ABS")  bankruptcy
proceedings,  the  Company  acquired  all of the assets of ABS for an  aggregate
purchase  price of  $2,310,000.  The assets  purchased  included  inventory of a
product which had been the subject of an agreement  between the Company and ABS,
the True Ceramic Pro flat iron.  Pursuant to the asset purchase  agreement,  the
Company must pay a royalty to the ABS bankruptcy  estate in connection  with the
sale by the Company of the True  Ceramic Pro units.  The royalty  portion of the
purchase price is contingent,  based on sales of each True Ceramic Pro flat iron
unit.  The  amount of the  royalty  to be paid is $3 per unit and is  limited to
total of  $4,135,000.  The  minimum  guaranteed  royalty  payment  of  $435,000,
guaranteed  by the  Company,  is due  within  two years of the date of the asset
purchase  agreement.  Pursuant to the  bankruptcy  court's  orders,  the initial
$435,000 amount of royalty payments paid into the ABS estate will be disbursed


                                       47



to other  individuals  and entities with claims against ABS's estate.  After the
guaranteed  payment of $435,000  has been made,  the royalty  payments  into the
estate shall be prorated among five individuals and entities with claims against
ABS's  bankruptcy  estate who have an aggregate  claim against the ABS estate of
$2,100,000 (constituting approximately 56.7% of the remaining claims against the
estate) and the Company,  which has an aggregate claim against the ABS estate of
$1,600,000 (constituting approximately 43.3% of the remaining claims against the
estate). Following the payment of an aggregate of $4,135,000 in royalty payments
to the ABS estate, the Company shall have no further royalty  obligations to the
estate.

The  purchase  price of  $2,310,000  for the ABS  assets  will be  allocated  as
follows:  to the assets  acquired,  which  include a  contractually  agreed-upon
estimated  inventory  value of $376,000,  which is subject to adjustment for any
decrease in the actual  inventory  value,  with that  adjustment  being  applied
against the purchase price; the ABS website, with an estimated value of $10,000;
and intangible assets, including registered trademarks,  copyrights, infomercial
master tapes, and patents, the aggregate value of which is $1,924,000.

Purchase of Assets
------------------

In connection  with  agreements  between the Company and ABS, the Company had an
approved claim against the ABS estate of $2,350,000.  The Company and ABS agreed
upon, and the bankruptcy  court approved,  the purchase by the Company of assets
of ABS. The  aggregate  purchase  price paid was  $2,310,000,  consisting of the
following: $1,125,000 in cash, which was paid at the time of the finalization of
the purchase of the assets; a reduction of the Company's  approved claim against
the ABS estate in the amount of $750,000;  and a guaranteed  royalty  payment to
the ABS estate of $435,000.  The cash portion of the purchase  price funded with
the proceeds of sales of the Company's restricted stock and from operations. The
Company's  approved  claim was  reduced  by  $750,000,  which went from being an
account  receivable to being part of the carrying value of the assets purchased,
leaving an approved claim against the ABS estate of  $1,600,000.  The guaranteed
royalty payment of $435,000 is discussed above.

A summary of the ABS asset purchase transaction is as follows:

         Purchase of Assets by CirTran Corporation
         Cash                                                       $  1,125,000
         Reduction of ABS Accounts Receivable                            750,000
         Guaranteed Royalty Payment                                      435,000
         Total Purchase Price                                       $  2,310,000

A summary of the treatment of the account receivable from ABS is as follows:

         Allocation of Accounts Receivable from ABS
         Assets Purchased w/ Accts. Rec.                            $    750,000
         Note  Receivable from Bankruptcy Estate                       1,600,000
         Total Allocation of Accounts Receivable Balance            $  2,350,000

Funds for the payment of the ABS asset purchase consisted of $1,000,000 that the
Company raised through a private placement of 14,285,715 shares of the Company's
common  stock,  and $125,000  which was obtained  from Company  operations.  The
shares in the private offering were purchased by and issued to ANAHOP,  Inc. The
Company disclosed the sale of the shares and accompanying  warrants in a Current
Report on Form 8-K filed with the SEC on May 30, 2006.

Liquidity and Capital Resources

Our expenses are currently  greater than our revenues.  We have had a history of
losses  preceeding  this  quarter,  and our  accumulated  deficit  increased  to
$19,605,311 at March 31, 2006, compared to $19,327,310 at December 31, 2005. Our


                                       48



net loss for the  quarter  ending  March 31,  2006,  was  $277,998,  compared to
$201,728 for the quarter ended March 31, 2005. Our current  assets  exceeded our
current  liabilities  by  $300,528  as  of  March  31,  2006,  and  our  current
liabilities  exceeded our current  assets by $1,142,874 as of December 31, 2005.
The change was mostly  attributable  to settlements  of notes  payable.  For the
three  months  ended March 31, 2006 and 2005,  we had  negative  cash flows from
operations of $719,698 and $385,701 respectively.

Through  July 20,  2006,  Highgate  had  converted  $750,000 of the  Convertible
Debentures,  into 24,193,548 shares of our restricted common stock in accordance
with the terms of the Convertible Debenture agreement.

On June 1, 2006 the company,  through its newly formed subsidiary  Diverse Media
Group ("Diverse Media"), signed an exclusive services agreement with the Diverse
Talent Group,  Inc.  ("DTG") and DTG's CEO,  Christopher  Nassif.  The agreement
covers a five-year period that commenced on April 1, 2006. Included in the terms
of the agreement, Diverse Media will provide DTG with a $200,000 line of credit.
The line will be available to DTG in increments  of $20,000 per week,  which DTG
will use to cover  operating  expenses  during its seasonally  slow periods from
June until August, which coincides with the lull in industry production prior to
the new fall programming releases. Diverse Media will initially fund the line of
credit with proceeds from operations of CirTran Corporation, its parent company.
As of July 20, 2006, DTG had not drawn any funds on the line of credit.

Our accumulated deficit was $19,327,310 at December 31, 2005, and $18,799,602 at
December  31,  2004.  Our net loss for the year  ending  December  31,  2005 was
$527,708,  compared  to $658,322  for the year ending  December  31,  2004.  Our
current liabilities exceeded our current assets by $1,142,874 as of December 31,
2005,  and $3,558,826 as of December 31, 2004. The decrease in the difference is
due to the  settlement  of notes  payable and the  agreement  with the  Internal
Revenue  Service.  Also, in the difference is an increase in cash, net inventory
and trade accounts  payable.  For the years ended December 31, 2005 and 2004, we
recorded  negative  cash flows from  operations of  $1,751,744  and  $1,680,054,
respectively.

         Cash

We had cash on hand of $443,637 at March 31, 2006,  and  $1,427,865  at December
31, 2005.

Net cash used in  operating  activities  was $719,898 for the three months ended
March 31, 2006. Cash received from customers of $2,076,845 was not sufficient to
offset cash paid to vendors, suppliers, and employees of $2,128,964.

The non-cash  charges were for  depreciation  and  amortization  of $114,939 and
accretion expense of $965,512.  Because the Company has negative cash flows from
operations,  it must rely on sources of cash other than customers to support its
operations.  It is anticipated  that various methods of equity financing will be
required to support operations until cash flows from operations are positive.

Net cash used in  investing  activities  during the three months ended March 31,
2006, consisted of equipment and furniture purchases of $166,730.  Net cash used
by financing activities was $97,600 during the three months ended March 31, 2006
and was  primarily  related to  payments  on notes  payable to  stockholders  of
$95,806.

We had cash on hand of $1,427,865  at December 31, 2005,  compared to $81,101 at
December 31, 2004. The increase in cash on hand is due to a new cash  management
system that was  established  during 2003,  and cash  proceeds  from the Cornell
convertible debenture.

Net cash used in operating  activities  was $1,751,744 for the fiscal year ended
December  31, 2005.  During  2005,  net cash used in  operations  was  primarily
attributable to $527,708 in net losses from operations, a gain on forgiveness of
debt of  $337,761,  an increase  in accounts  receivable  of  $2,126,097,  and a
decrease in accrued  liabilities of $446,452,  partially  offset by increases in
accounts  payable of $291,143 and in accrued prepaid  expenses of $277,987.  The
non-cash charge was for depreciation and amortization of $324,955.

Net cash used in investing  activities during the fiscal year ended December 31,


                                       49



2005, consisted of the property and equipment purchases of $295,346.

Net cash provided by financing  activities was $3,354,523 during the fiscal year
ended  December  31,  2005.   Principal  sources  of  cash  were  proceeds  from
stockholder  notes payable of $123,220,  proceeds of $3,102,067 from convertible
debentures,  net of cash paid for offering costs;  proceeds from the exercise of
options and  warrants to purchase  common stock of $33,000,  and  proceeds  from
notes payable to related parties of $95,586.

         Accounts Receivable

At March 31,  2006,  we had  receivables  of  $3,019,960,  net of a reserve  for
doubtful  accounts of $158,374,  as compared to $3,358,981 at December 31, 2005,
net of a  reserve  of  $158,374.  This  decrease  was  primarily  attributed  to
decreased  sales in the last two months of the first  quarter as compared to the
last two months in 2005.  Receivables  include the unpaid balance from ABS. (See
ABS  discussion   immediately   following  this   paragraph.)  The  Company  has
implemented an aggressive process to collect past due accounts over the past two
years. Individual accounts are continually monitored for collectibilty.  As part
of monitoring  individual customer accounts,  the Company evaluates the adequacy
of its  allowance for doubtful  accounts.  Since the  implementation  of the new
collection process, very few accounts have been deemed uncollectible.

ABS

We did not reserve for doubtful accounts on the amount of $2,350,000 for the ABS
receivable  while awaiting the outcome of the settlement  offer we had submitted
the to the bankruptcy court  adjudicating  ABS's bankruptcy (the "ABS Bankruptcy
Court").  The ABS Bankruptcy Court ultimately accepted our offer, and the amount
will be removed from the account receivable as part of the settlement.

As  discussed  below in the "Legal  Proceedings"  section,  we  entered  into an
agreement with ABS, which was approved by the ABS Bankruptcy  Court, to purchase
certain  assets of ABS  pursuant  to an asset  purchase  agreement  (the  "Asset
Purchase Agreement").  Under the Asset Purchase Agreement, we agreed to purchase
substantially all of ABS's assets in exchange for:

         i)       a cash payment in the amount of $1,125,000;
         ii)      a reduction of CirTran's  allowed claim in the Bankruptcy Case
                  by $750,000;
         iii)     the assumption of any assumed liabilities; and
         iv)      the  obligation  to pay ABS a royalty  equal to $3.00 per True
                  Ceramic  Pro  flat  iron  unit  sold  by  ABS  (the   "Royalty
                  Obligation").

For further details, see the "Legal Proceedings" Section.

At December 31, 2005, we had  receivables  of  $3,358,981,  net of a reserve for
doubtful  accounts of $158,374,  as compared to $1,288,719 at December 31, 2004,
net of a reserve of $41,143.

This increase was primarily attributed to sales having  substantially  increased
in the last months of the year as compared to the last two months in 2005.  Also
included is the unpaid balance of accounts receivable from ABS. (See ABS history
beginning  on page 13). The Company has  implemented  an  aggressive  process to
collect  past due  accounts  over the past two years.  Individual  accounts  are
continually  monitored  for  collectibilty.  As  part of  monitoring  individual
customer  accounts,  the Company  evaluates  the adequacy of its  allowance  for
doubtful accounts.  Since the implementation of the new collection process, very
few accounts have been deemed uncollectible.


                                       50



          Accounts Payable

Accounts  payable were  $528,963 at March 31, 2006, as compared to $1,239,519 at
December 31, 2005. The decrease is related to a drop in sales and paying vendors
in a timely manner.

Accounts payable were $1,239,519 at December 31, 2005, as compared to $1,104,392
at December 31, 2004. This increase is due to an increase in sales.

         Liquidity and Financing Arrangements

We have a history of  substantial  losses from  operations and using rather than
providing cash in operations. We had an accumulated deficit of $19,605,311 and a
total  stockholders'  equity of  $3,165,931  at March 31, 2006.  As of March 31,
2006, our monthly operating costs and interest  expenses averaged  approximately
$640,000 per month.

We had an accumulated deficit of $19,327,310 and a total stockholders' equity of
$1,268,054  at December 31, 2005.  In  addition,  during 2005 and 2004,  we have
used, rather than provided, cash in our operations. As of December 31, 2005, our
monthly operating costs and interest expenses  averaged  approximately  $607,000
per month.

Since February 2000, we have operated without a line of credit. Abacas Ventures,
Inc., an entity whose shareholders include the Saliba Private Annuity Trust, one
of our  major  shareholders  (see  "Item  11 -  Security  Ownership  of  Certain
Beneficial  Owners and  Management")  and a related  entity,  the Saliba  Living
Trust, purchased our line of credit of $2,792,609, and this amount was converted
into a note  payable to Abacas  bearing an interest  rate of 10%. As of December
31, 2001, a total of $2,405,507,  plus $380,927 in accrued interest, was owed to
Abacas  pursuant to this note payable.  During 2002, we entered into  agreements
with the Saliba  Private  Annuity  Trust and the Saliba Living Trust to exchange
19,987,853 shares of our common stock for $1,499,090 in principal amount of this
debt and to issue an  additional  6,666,667  shares to these trusts for $500,000
cash which was used for working  capital for the Company.  During December 2002,
an additional  $1,020,154 of principal and $479,846 of accrued  interest owed to
Abacas was  converted to  30,000,000  shares of our common  stock.  We issued no
common stock to Abacas during 2003.  During 2003 and 2002, the Company  received
$350,000  and  $845,000 of cash  proceeds  under the terms of a bridge loan from
Abacas.  The Company made principal payments of $875,000 and 156,268 during 2003
and 2002,  respectively,  on the bridge loan. At December 31, 2003,  the balance
owed on the bridge loan was $163,742.  See "Item 12 - Certain  Relationships and
Related Transactions."

During  2003  and  2002,  we  converted   approximately  $34,049  and  $316,762,
respectively  of trade  payables into notes and stock.  During  January 2002, in
addition to the  above-described  transactions with the Saliba trusts, we issued
16,666,666  shares of restricted  common stock at a price of $0.075 per share in
exchange  for the  cancellation  of  $1,250,000  of  notes  payable  to  various
stockholders. See "Item 12 - Certain Relationships and Related Transactions." We
continue to work with vendors in an effort to convert other trade  payables into
long-term  notes  and  common  stock  and to cure  defaults  with  lenders  with
forbearance agreements that we are able to service.

Despite our efforts to make our debt-load more serviceable,  significant amounts
of  additional  cash will be needed to reduce our debt and fund our losses until
such time as we are able to become profitable.

During the year ended  December 31, 2004,  Abacas  completed  negotiations  with
several  vendors of the  Company,  whereby  Abacas  purchased  various  past due
amounts for goods and  services  provided by vendors,  as well as notes  payable
(see Note 7). The total of these  obligations  was  $1,263,713.  The Company has
recorded this transaction as a $1,263,713  non-cash increase to the note payable
owed to Abacas, pursuant to the terms of the Abacas agreement.

The total  principal  amount  owed to Abacas  between  the note  payable and the
bridge  loan  was  zero  and  $1,530,587  as of  December  31,  2005  and  2004,
respectively. The total accrued interest owed to Abacas between the note payable
and the bridge  loan was zero and  $430,828  as of  December  31, 2005 and 2004,
respectively, and is included in accrued liabilities.


                                       51



In March  2005,  the  shareholders  of Abacas  agreed to  cancel  $2,050,000  to
principal and accrued  interest in return for the Company's  issuing  51,250,000
shares  of our  restricted  common  stock  to the  shareholders  of  Abacas.  No
registration rights were granted.

As of December 31, 2004,  the Company had accrued  liabilities  in the amount of
$500,000 for delinquent payroll taxes, including interest and penalties, owed to
the Internal Revenue Service.  The Company,  in response to collection  notices,
filed a due process appeal with the Internal Revenue  Service's  Appeals Office.
The appeal was resolved by an agreement with the Appeals Office that allowed the
Company to file an offer in  compromise of all federal tax  liabilities  owed by
the  Company  based on its  ability  to pay.  The  Company  filed  its  offer in
compromise  with the IRS in November 2003, and after meeting with IRS personnel,
filed a revised offer in compromise on August 31, 2004. The Company was notified
in November  2004 that the IRS had accepted the offer in  compromise.  Under the
offer,  the  Company  was  required  to  pay an  aggregate  amount  of  $500,000
(representing  payments  of $350,000 by Circuit  Technology,  Inc.,  $100,000 by
CirTran  Corporation,  and $50,000 by Racore  Technology,  Inc.), not later than
February 3, 2005. These amounts were paid. Additionally, the Company must remain
current in its payment of taxes for 5 years,  and may not claim any NOLs for the
years 2001 through  2015,  or until the three  companies  pay taxes in an amount
equal to the taxes waived by the offer in compromise.

Management  believes that each of the related party transactions were as fair to
the Company as could have been made with unaffiliated third parties.

In conjunction with our efforts to improve our results of operations,  discussed
above, we are also actively seeking  infusions of capital from investors and are
seeking to replace our operating line of credit.  It is unlikely that we will be
able, in our current financial  condition,  to obtain additional debt financing;
and if we did acquire more debt, we would have to devote additional cash flow to
paying the debt and securing the debt with assets. We may therefore have to rely
on equity  financing  to meet our  anticipated  capital  needs.  There can be no
assurances  that we will be  successful in obtaining  such capital.  If we issue
additional  shares for debt  and/or  equity,  this will  dilute the value of our
common stock and existing shareholders' positions.

Subsequent to our acquisition of Circuit in July 2000, we took steps to increase
the marketability of our shares of common stock and to make an investment in our
Company  by  potential  investors  more  attractive.   These  efforts  consisted
primarily of seeking to become  current in our filings with the  Securities  and
Exchange  Commission  and of seeking  approval for quotation of our stock on the
NASD Over the Counter Electronic  Bulletin Board. NASD approval for quotation of
our stock on the Over the Counter Electronic Bulletin Board was obtained in July
2002.

There can be no assurance  that we will be  successful  in  obtaining  more debt
and/or  equity  financing in the future or that our results of  operations  will
materially  improve in either  the short or the long term.  If we fail to obtain
such financing and improve our results of operations,  we will be unable to meet
our obligations as they become due. That would raise substantial doubt about our
ability to continue as a going concern.

Notes  Payable to Equity  Line  Investor - During  2003,  we borrowed a total of
$1,830,000  from  Cornell  Capital  Partners,  LP,  pursuant  to nine  unsecured
promissory  notes.  The loans were made and the notes were issued from June 2003
through December 2003. In lieu of interest, we paid fees to the lender,  ranging
from 5% to 10%,  of the  amount of the loan.  These fees have been  recorded  as
interest  expense.  The fees were negotiated in each instance and agreed upon by
us and by the lender and its  affiliate.  The notes were  repayable over periods
ranging  from 70 days to 131 days.  Each of the notes  stated that if we did not
repay the notes  when due,  a default  interest  rate of 24% would  apply to the
unpaid  balance.  Through  December  31,  2003,  we directed  the  repayment  of
$1,180,000  of these  notes  from  proceeds  generated  under  the  Equity  Line
Agreement,  as discussed below. At December 31, 2003, the balance owing on these
notes was $650,000.  All notes were paid when due or before,  and at no time did
we incur the 24% penalty interest rate.

During  the year  ended  December  31,  2004,  Cornell  loaned us an  additional
$3,200,000 pursuant to four additional unsecured promissory notes, $1,700,000 of
which  remained  outstanding  at December 31, 2004.  The loans were made and the


                                       52



notes were issued in January  through June 2004,  bringing  the total  aggregate
loans from Cornell to $5,030,000.  As before, in lieu of interest,  we paid fees
to the lender,  ranging from 4% to 5%, of the amount of the loan.  The fees were
negotiated  in each  instance  and  agreed  upon by us and by the lender and its
affiliate.  The notes were repayable over periods of 88 days and 193 days.  Each
of the notes  stated  that if we did not repay  the  notes  when due,  a default
interest rate of 24% would apply to the unpaid balance.

As noted  above,  we  received  proceeds  of  $5,030,000  from notes  payable to
Cornell.  We used the  proceeds  from these  notes to fund  operating  losses of
approximately  $2,938,000,  pay down accounts  payable,  notes payable and other
settlements of approximately  $1,401,000,  purchase equipment and tooling in the
amount of $391,000, and to invest in Broadata in the amount of $300,000.  During
January 2005, the Company received  proceeds of $565,000 from an additional note
payable to Cornell to fund the settlement with the Internal Revenue Service

With the sale of the Convertible  Debenture in May 2005 to Highgate,  $2,265,000
of the proceeds were paid to Cornell to repay  promissory notes in the amount of
$1,700,000 and $565,000.

Prior Equity Line of Credit  Agreement - In conjunction  with efforts to improve
the results of our operations,  discussed above, on November 5, 2002, we entered
into an Equity Line of Credit Agreement with Cornell. We subsequently terminated
that  agreement,  and on April 8, 2003,  we entered into an amended  equity line
agreement  (the "Equity Line  Agreement")  with  Cornell.  Under the Equity Line
Agreement,  we had the right to draw up to  $5,000,000  from Cornell  against an
equity line of credit (the "Equity  Line"),  and to put to Cornell shares of our
common stock in lieu of repayment of the draw. The number of shares to be issued
was  determined  by  dividing  the amount of the draw by the lowest  closing bid
price of our common stock over the five  trading  days after the advance  notice
was tendered. Cornell was required under the Equity Line Agreement to tender the
funds requested by us within two trading days after the five-trading-day  period
used to determine the market price.

During  the year  ended  December  31,  2004,  we drew an  aggregate  amount  of
$2,150,000  under the Equity  Line  Agreement,  pursuant  to draws on the Equity
Line, net of fees of $86,000,  and issued a total of 57,464,386 shares of common
stock to Cornell  under the Equity Line  Agreement.  At our  direction,  Cornell
retained the proceeds of the draws under the Equity Line  Agreement  and applied
them as payments on the notes to Cornell, discussed above.

Pursuant to the Equity Line  Agreement,  in connection with each draw, we agreed
to pay a fee of 4% of the amount of the draw to Cornell as consideration for its
providing the Equity Line.  Total fees paid for the year ended December 31, 2004
were $128,000. Of these payments,  $86,000 was offset against additional paid-in
capital as shares were issued  under the Equity Line  Agreement  and $68,000 was
recorded as deferred offering costs for total deferred offering costs of $68,000
at December 31, 2004. These deferred  offering costs were expensed as the Equity
Line Agreement was terminated in  conjunction  with the sale of the  Convertible
Debenture in May 2005.

Standby  Equity  Distribution  Agreement  - We  entered  into a  Standby  Equity
Distribution Agreement (the "Agreement") dated May 21, 2004, with Cornell. Under
the Agreement, we had the right, at our sole discretion, to sell periodically to
Cornell shares of our common stock for an aggregate  purchase price of up to $20
million.  The  purchase  price for the shares sold to Cornell was to be equal to
the lowest volume-weighted  average price of our common stock during the pricing
period consisting of the five consecutive  trading days after we gave an advance
notice. The periodic sale of shares was known as an advance. We could request an
advance,  by giving a written  advance notice to Cornell,  and could not request
advances more frequently than every seven trading days. A closing was to be held
on the first  trading  day  after the end of the  pricing  period.  The  maximum
advance amount was one million dollars ($1,000,000) per advance,  with a minimum
of seven  trading  days  between  advances.  In  addition,  we could not request
advances  if the  shares to be issued in  connection  with such  advances  would
result in Cornell owning more than 9.9% of our outstanding common stock.

Cornell was to retain a commitment fee of 5% of the amount of each advance under
the Agreement.

With the sale of the  Convertible  Debenture  in May 2005,  the  Standby  Equity
Distribution Agreement and related agreements were terminated.


                                       53



Convertible  Debenture - On May 26, 2005, we entered into a securities  purchase
agreement (the "Purchase Agreement") with Highgate,  relating to the issuance of
a 5% Secured  Convertible  Debenture,  due December 31, 2007,  in the  aggregate
principal amount of $3,750,000 (the "Convertible Debenture").

In connection with the issuance of the Convertible Debenture, we used $2,265,000
to repay two promissory notes to Cornell Capital Partners,  LP ("Cornell"),  one
in the amount of $1,700,000,  and the other in the amount of $565,000.  Highgate
and  Cornell  have  the  same  general  partner,  Yorkville  Advisors,  but have
different portfolio managers.

We also paid a  commitment  fee of  $240,765,  a  structuring  fee of $10,000 to
Highgate,  and legal fees of $5,668.  As such, of the total  purchase  amount of
$3,750,000, the net proceeds to us were $1,228,567,  which we received following
the closing of the issuance of the Convertible Debenture. We used these proceeds
for general corporate and working capital purposes.

The  Convertible  Debenture bears interest at a rate of 5%. Highgate is entitled
to convert,  at its option,  all or part of the principal amount owing under the
Convertible  Debenture  into shares of our common  stock at a  conversion  price
equal to the lesser of (a) $0.10 per share, or (b) an amount equal to the lowest
closing bid price of the Common  Stock as listed on the OTC Bulletin  Board,  as
quoted by Bloomberg L.P. for the twenty (20) trading days immediately  preceding
the conversion date. Except as otherwise set forth in the Convertible Debenture,
Highgate's  right to  convert  principal  amounts  owing  under the  Convertible
Debenture into shares of our common stock is limited as follows:

         1.       Highgate  may  convert up to $250,000  worth of the  principal
                  amount plus accrued  interest of the Convertible  Debenture in
                  any  consecutive  30-day  period when the market  price of our
                  stock is $0.10 per share or less at the time of conversion;

         2.       Highgate  may  convert up to $500,000  worth of the  principal
                  amount plus accrued  interest of the Convertible  Debenture in
                  any  consecutive  30-day period when the price of our stock is
                  greater  than  $0.10  per  share  at the  time of  conversion,
                  provided,  however, that Highgate may convert in excess of the
                  foregoing amounts if we and Highgate mutually agree; and

         3.       Upon the  occurrence of an event of default (as defined in the
                  Convertible Debenture),  Highgate may, in its sole discretion,
                  accelerate  full repayment of all debentures  outstanding  and
                  accrued   interest   thereon  or  may,   notwithstanding   any
                  limitations  contained in the Convertible Debenture and/or the
                  Purchase  Agreement,  convert the  Convertible  Debenture  and
                  accrued  interest  thereon  into  shares of our  common  stock
                  pursuant to the Convertible Debenture.

Pursuant  to the  Convertible  Debenture,  interest is to be paid at the time of
maturity or conversion.  We may, at our option,  pay accrued interest in cash or
in shares of common stock. If paid in stock,  the conversion  price shall be the
closing  bid  price of the  common  stock on  either  (i) the date the  interest
payment is due; or (ii) if the  interest  payment is not made when due, the date
on which the interest payment is made.

The Company granted Highgate registration rights,  pursuant to which the Company
agreed to file, within 120 days of the closing of the purchase of the debenture,
a  registration  statement  to  register  the resale of shares of the  Company's
common stock issuable upon conversion of the principal amount of the Convertible
Debenture.  The  Company  agreed to  register  the  resale of up to  100,000,000
shares,  and to keep  such  registration  statement  effective  until all of the
shares issuable upon  conversion of the principal of the  Convertible  Debenture
have been  sold.  In the event that the  Company  issues  more than  100,000,000
shares of its common stock, it will file additional  registration  statements as
necessary.


                                       54



On June 15,  2006,  we entered  into an  agreement  with  Highgate  to amend the
registration  rights  agreement,  pursuant  to which we  agreed  to use our best
efforts to have the registration  statement declared effective by July 31, 2006.
Under  the  amendment,  if the  registration  statement  has not  been  declared
effective  by July 31,  2006,  Highgate  may  declare  us in  default  under the
Convertible Debenture.

As noted above,  through July 20, 2006,  Highgate had converted  $750,000 of the
Convertible Debentures, into 24,193,548 shares of our restricted common stock in
accordance with the terms of the Convertible Debenture agreement.

Additional  Convertible Debenture Transaction - On December 30, 2005, we entered
into a securities  purchase with Cornell Capital,  relating to the issuance of a
5% Secured Convertible Debenture,  due July 30, 2008, in the aggregate principal
amount of $1,500,000 (the "Cornell Debenture").

We also paid a commitment  fee of $120,000 and a  structuring  fee of $10,000 to
Cornell Capital. As such, of the total amount of $1,500,000, the net proceeds to
us were $1,370,000. We will use these proceeds for general corporate and working
capital purposes, at our discretion.

The  Cornell  Debenture  bears  interest  at a rate of 5%.  Cornell  Capital  is
entitled to convert,  at its option,  all or part of the principal  amount owing
under the Debenture  into shares of the  Company's  common stock at a conversion
price equal one hundred  percent  (100%) of the lowest  closing bid price of the
Common Stock as listed on the OTC Bulletin  Board,  as quoted by Bloomberg  L.P.
for the twenty (20) trading days  immediately  preceding  the  Conversion  Date,
subject  to  certain  restrictions  and  limitations  set  forth in the  Cornell
Debenture.

Under the terms of the  Cornell  Debenture,  except  upon an event of default as
defined in the Cornell  Debenture,  Cornell  Capital may not convert the Cornell
Debenture  for a number of shares  of common  stock in excess of that  number of
shares of common stock which, upon giving effect to such conversion, would cause
the  aggregate  number of shares of Common Stock  beneficially  owned by Cornell
Capital and its  affiliates  to exceed  4.99% of the  outstanding  shares of the
common stock following such conversion.

Pursuant  to the  Cornell  Debenture,  interest  is to be  paid  at the  time of
maturity or conversion.  We may, at our option,  pay accrued interest in cash or
in shares of our common stock. If paid in stock,  the conversion  price shall be
the  closing bid price of the common  stock on either (i) the date the  interest
payment is due; or (ii) if the  interest  payment is not made when due, the date
on which the interest payment is made.

Also pursuant to the Cornell Debenture, we have the right to redeem, by giving 3
days'  written  notice  to  Cornell  Capital,  a portion  or all of the  Cornell
Debenture then outstanding by paying an amount equal to one hundred five percent
(105%) of the amount redeemed plus interest accrued  thereon.  In the event that
we redeem  only a portion of the  outstanding  principal  amount of the  Cornell
Debenture,  Cornell  Capital  may  convert  all or  any  portion  of the  unpaid
principal  or  interest  of the  Cornell  Debenture  not being  redeemed  by us.
Additionally, if after the earlier to occur of (x) fifteen (15) months following
the date of the  purchase  of the  Cornell  Debenture  or (y) twelve (12) months
following  the date on which the  initial  registration  statement  is  declared
effective, all or any portion of the Cornell Debenture remains outstanding, then
we, at the  request of Cornell  Capital,  are  required  to redeem  such  amount
outstanding  at the rate of five hundred  thousand  dollars  ($500,000) per each
30-day period. Finally, upon the occurrence of an event of default as defined in
the Cornell Debenture, Cornell Capital can convert all outstanding principal and
accrued  interest  under  the  Cornell  Debenture  irrespective  of  any  of the
limitations set forth in the Cornell  Debenture  and/or the Purchase  Agreement,
and in such event, all such principal and interest shall become  immediately due
and payable.

In connection  with the Purchase  Agreement,  we also agreed to grant to Cornell
Capital  warrants (the  "Warrants")  to purchase up to an additional  10,000,000
shares of our common  stock.  The Warrants  have an exercise  price of $0.09 per
share,  and expire  three years from the date of  issuance.  The  Warrants  also
provide  for  cashless  exercise  if at the  time of  exercise  there  is not an
effective registration statement or if an event of default has occurred.


                                       55



Additionally,  we entered into an investor  registration  rights  agreement (the
"Registration  Rights  Agreement")  with Cornell  Capital,  pursuant to which we
agreed to file,  within 120 days of the  closing of the  purchase of the Cornell
Debenture,  a  registration  statement  to register  the resale of shares of our
common  stock  issuable  to  Cornell  Capital  upon  conversion  of the  Cornell
Debenture.  We  agreed  to  register  the  resale  of up to  42,608,696  shares,
consisting of 32,608,696 shares underlying the Cornell Debenture, and 10,000,000
shares underlying the Warrants.  We agreed to keep such  registration  statement
effective  until all of the  shares  issuable  upon  conversion  of the  Cornell
Debenture have been sold. In the event that we issue more than 32,608,696 shares
of its common  stock upon  conversion  of the  Cornell  Debenture,  we will file
additional registration statements as necessary.

On June 15,  2006,  we  entered  into an  agreement  with  Cornell  to amend the
registration  rights  agreement,  pursuant  to  which  we  agreed  to  file  the
registration  statement  not later  than  August 15,  2006,  instead of 120 days
following  the  closing of the  issuance  of the  Cornell  Debenture.  Under the
amendment,  if the registration statement has not been filed by August 15, 2006,
Cornell may declare us in default under the Cornell Debenture.

We also  entered  into a security  agreement  (the  "Security  Agreement")  with
Cornell  Capital,  pursuant  to which we  granted  a  second  position  security
interest in all of our property, including goods; inventory; contract rights and
general intangibles;  documents, receipts, and chattel paper; accounts and other
receivables;  products and proceeds;  and any interest in any subsidiary,  joint
venture, or other investment interest to secure our obligation under the Cornell
Debenture and the related agreements.

We also entered into an escrow  agreement (the "Escrow  Agreement") with Cornell
Capital  relating  to the holding and  disbursement  of payment of the  purchase
price of the Cornell  Debenture  and cash  payments made by us in payment of the
obligations owing under the Cornell Debenture. We agreed with Cornell Capital to
appoint David Gonzalez as the Escrow Agent under the Escrow Agreement.

A chart showing the number of shares issuable upon  hypothetical  conversions at
particular  conversion prices is set forth in the "Risk Factors" section on page
23.

Through July 20, 2006,  Cornell had not converted  any  principal  amount of the
Cornell  Convertible  Debenture.  On July 20, 2006, we entered into an agreement
with  Cornell  (the  "Cornell  Agreement").  Pursuant to the Cornell  Agreement,
Cornell agreed that it would not convert any of the principal or interest on the
Cornell  Debenture or exercise any of the Warrants  granted to Cornell  until we
had taken the steps necessary to increase our authorized capital.

By way of background,  we have  previously  entered into financing  transactions
with  Cornell  Capital.  In April 2003,  we had  entered  into an equity line of
credit agreement with Cornell Capital.  Between December 2003 and March 2004, we
drew a total of $2,150,000 on the equity line,  and issued a total of 57,464,386
shares of common  stock to  Cornell  Capital.  In May 2004,  we  entered  into a
standby equity  distribution  agreement with Cornell Capital,  but the agreement
was  terminated  before any funds were drawn or any shares were issued.  Between
June  2003 and  January  2005,  Cornell  Capital  loaned to us an  aggregate  of
$5,595,000  pursuant to promissory notes issued to Cornell Capital.  These notes
were paid in full by May 2005.

Highgate and Cornell have the same general partner, Yorkville Advisors, but have
different  portfolio  managers.  Additionally,  the escrow  agent  appointed  in
connection  with the  purchase  and sale of both the Cornell  Capital  debenture
transaction and the Highgate debenture transaction is David Gonzalez,  who is an
officer of Cornell Capital.

The Company does not anticipate that it will use any of the proceeds of the sale
of the  Cornell  Debenture  to Cornell  Capital to repay the  debenture  sold to
Highgate.


                                       56



Purchase of ABS Assets

Funds for the  payment  of the cash  portion of the  purchase  of the ABS assets
consisted of $1,000,000  that the Company raised  through a private  offering of
14,285,715 shares of the Company's common stock, and $125,000 which was obtained
from  Company  operations.  The shares in the  private  offering  were issued to
ANAHOP,  Inc.  The  Company  disclosed  the sale of the shares and  accompanying
warrants in a Current Report on Form 8-K filed with the SEC on May 30, 2006.

In  connection  with the  Advanced  Beauty  Solutions,  LLC  ("ABS")  bankruptcy
proceedings,  the  Company  acquired  all of the assets of ABS for an  aggregate
purchase  price of  $2,310,000.  The assets  purchased  included  inventory of a
product which had been the subject of an agreement  between the Company and ABS,
the True Ceramic Pro flat iron. Pursuant to the asset purchase agreement and the
orders of the bankruptcy court, the Company is required to make royalty payments
to the ABS estate of $3 per unit of the True  Ceramic Pro sold.  Pursuant to the
bankruptcy  court's orders, the initial $435,000 amount of royalty payments paid
into the ABS estate will be disbursed  to other  individuals  and entities  with
claims against ABS's estate.  After the guaranteed  payment of $435,000 has been
made,  the royalty  payments  into the ABS estate  will be  prorated  among five
individuals and entities with claims against ABS's bankruptcy estate who have an
aggregate claim against the ABS estate of $2,100,000 and the Company,  which has
an aggregate claim against the ABS estate of $1,600,000.

In connection  with its efforts to sell the True Ceramic Pro units,  the Company
recently entered into a marketing and distribution contract (the "MD Agreement")
with Media Syndication Global, LLC ("MSG"),  granting worldwide exclusive rights
to MSG to advertise,  promote,  market,  sell and otherwise  distribute the True
Ceramic Pro units.  The Company  disclosed the MD Agreement in a Current  Report
filed on Form 8-K, filed July 10, 2006.

Under the terms of the agreement with MSG, the initial minimum sales quantity is
10,000  units and the  minimum  subsequent  orders is 50,000  units in any three
month period,  which can be prorated,  but not less than 400,000 units in any 12
month  period.  The initial term of the MD  Agreement is for three years,  after
which the agreement will renew for terms of one year each, provided that MSG has
purchased the minimum requirements under the MD Agreement.

Based on the terms of the MD Agreement and the terms of the  bankruptcy  court's
orders,  the Company  anticipates  that it will need to sell at least  1,378,333
units to generate  enough  royalty  income to repay (A) the  guaranteed  royalty
payment of $435,000  (which is the  equivalent  of 145,000  units),  and (B) the
$3,700,000 in royalty  payments  consisting of (i) $2,100,000 (the equivalent of
700,000  units) to five  individuals  and entities  with claims  against the ABS
estate,  and (ii) $1,600,000 (the equivalent of 533,333 units) to the Company as
payment of the Company's  claim  against the ABS estate.  Based on minimum sales
quantity  included  in the  terms of the MD  Agreement  with  MSG,  the  Company
anticipates  that it would take the Company  approximately  forty-two  months to
achieve the necessary unit sales to make the full $4,135,000 payment.

Forward-looking statements

All  statements  made in this  prospectus,  other than  statements of historical
fact, which address activities,  actions,  goals, prospects, or new developments
that we expect or  anticipate  will or may occur in the future,  including  such
things  as  expansion  and  growth of  operations  and other  such  matters  are
forward-looking statements. Any one or a combination of factors could materially
affect our operations and financial condition. These factors include competitive
pressures,  success or failure of  marketing  programs,  changes in pricing  and
availability of parts inventory, creditor actions, and conditions in the capital
markets.  Forward-looking  statements  made by us are based on  knowledge of our
business  and the  environment  in which we  currently  operate.  Because of the
factors  listed  above,  as well as other  factors  beyond our  control,  actual
results may differ from those in the forward-looking statements. We disclaim any
obligation or intention to update any forward-looking statement.

5% Convertible Debenture

On May 26, 2005, we entered into a securities  purchase agreement (the "Purchase
Agreement")  with Highgate House Funds,  Ltd., a Cayman Island exempted  company
("Highgate" or the "Selling  Shareholder"),  relating to the issuance by us of a


                                       57



5% Secured  Convertible  Debenture,  due  December 31,  2007,  in the  aggregate
principal amount of $3,750,000 (the "Convertible Debenture").

In connection with the issuance of the Convertible Debenture, we used $2,265,000
to repay two promissory notes to Cornell Capital Partners,  LP ("Cornell"),  one
in the amount of $1,700,000,  and the other in the amount of $565,000.  Highgate
and  Cornell  have  the  same  general  partner,  Yorkville  Advisors,  but have
different portfolio managers.

We also paid a commitment fee of $240,765,  a structuring  fee of $10,000 to the
Selling  Shareholder,  and legal fees of $5,668.  As such, of the total purchase
amount of $3,750,000, the net proceeds to us were $1,228,567,  which we received
following  the closing of the  purchase of the  Convertible  Debenture.  We used
these proceeds for general corporate and working capital purposes.

The  Convertible  Debenture  bears  interest  at  a  rate  of  5%.  The  Selling
Shareholder is entitled to convert,  at its option, all or part of the principal
amount owing under the Convertible  Debenture into shares of our common stock at
a conversion  price equal to the lesser of (a) $0.10 per share, or (b) an amount
equal to the lowest  closing bid price of the Common  Stock as listed on the OTC
Bulletin  Board,  as quoted by  Bloomberg  L.P. for the twenty (20) trading days
immediately  preceding the conversion date. Except as otherwise set forth in the
Convertible  Debenture,  the Selling  Shareholder's  right to convert  principal
amounts owing under the Convertible Debenture into shares of our common stock is
limited as follows:

         1.       The Selling  Shareholder  may convert up to $250,000  worth of
                  the principal  amount plus accrued interest of the Convertible
                  Debenture  in any  consecutive  30-day  period when the market
                  price of our  stock is $0.10  per share or less at the time of
                  conversion;

         2.       The Selling  Shareholder  may convert up to $500,000  worth of
                  the principal  amount plus accrued interest of the Convertible
                  Debenture in any  consecutive  30-day period when the price of
                  our  stock is  greater  than  $0.10  per  share at the time of
                  conversion,  provided,  however,  that the Selling Shareholder
                  may convert in excess of the  foregoing  amounts if we and the
                  Selling Shareholder mutually agree; and

         3.       Upon the  occurrence of an event of default (as defined in the
                  Convertible  Debenture),  the Selling  Shareholder may, in its
                  sole  discretion,  accelerate full repayment of all debentures
                  outstanding   and   accrued    interest    thereon   or   may,
                  notwithstanding  any limitations  contained in the Convertible
                  Debenture   and/or  the   Purchase   Agreement,   convert  the
                  Convertible Debenture and accrued interest thereon into shares
                  of our common stock pursuant to the Convertible Debenture.

A chart showing the number of shares issuable upon  hypothetical  conversions at
particular  conversion prices is set forth in the "Risk Factors" section on page
16.

Pursuant  to the  Convertible  Debenture,  interest is to be paid at the time of
maturity or conversion.  We may, in our option,  pay accrued interest in cash or
in shares of common stock. If paid in stock,  the conversion  price shall be the
closing  bid  price of the  common  stock on  either  (i) the date the  interest
payment is due; or (ii) if the  interest  payment is not made when due, the date
on which the interest payment is made.

Under the terms of the Convertible Debenture, except upon an event of default as
defined in the Convertible  Debenture,  the Selling  Shareholder may not convert
the  Convertible  Debenture  for a number of shares of common stock in excess of
that  number of  shares  of  common  stock  which,  upon  giving  effect to such
conversion,  would  cause  the  aggregate  number  of  shares  of  Common  Stock
beneficially owned by the Selling Shareholder and its affiliates to exceed 4.99%
of the outstanding shares of the common stock following such conversion.

Also  pursuant to the  Convertible  Debenture,  we have the right to redeem,  by
giving 3 days' written  notice to the Selling  Shareholder,  a portion or all of
the  Convertible  Debenture  then  outstanding  by paying an amount equal to one


                                       58



hundred  five  percent  (105%) of the  amount  redeemed  plus  interest  accrued
thereon. In the event that we redeem only a portion of the outstanding principal
amount of the Convertible Debenture,  the Selling Shareholder may convert all or
any portion of the unpaid principal or interest of the Convertible Debenture not
being redeemed.  Additionally, if after the earlier to occur of (x) fifteen (15)
months  following the date of the purchase of the  Convertible  Debenture or (y)
twelve  (12)  months  following  the  date on  which  the  initial  registration
statement is declared effective, all or any portion of the Convertible Debenture
remains outstanding,  then we, at the request of the Selling Shareholder,  shall
redeem such amount  outstanding  at the rate of five  hundred  thousand  dollars
($500,000) per each 30-day period.  Finally,  upon the occurrence of an event of
default as defined in the  Convertible  Debenture,  the Selling  Shareholder can
convert all  outstanding  principal and accrued  interest under the  Convertible
Debenture  irrespective  of any of the  limitations set forth in the Convertible
Debenture and/or the Purchase  Agreement,  and in such event, all such principal
and interest shall become immediately due and payable.

In  connection  with  the  Purchase  Agreement,  we  entered  into  an  investor
registration  rights agreement (the  "Registration  Rights  Agreement") with the
Selling  Shareholder,  pursuant to which, we agreed to file,  within 120 days of
the  closing  of the  purchase  of the  Convertible  Debenture,  a  registration
statement  to  register  the  resale  of shares of the  Company's  common  stock
issuable to the Selling Shareholder upon conversion of the principal or interest
on the  Convertible  Debenture.  We  agreed  to  register  the  resale  of up to
100,000,000 shares, and to keep such registration  statement effective until all
of the shares issuable upon  conversion of the principal or accrued  interest on
the  Convertible  Debenture have been sold. In the event that we issue more than
100,000,000 shares of common stock upon conversion of the Convertible Debenture,
we will file additional registration statements as necessary.

This registration statement does not register the resale of any shares issued to
Highgate  as  payment of  interest  accrued on the  Convertible  Debenture,  and
neither  this  registration  statement  nor the  prospectus  may be used to sell
shares  issued to  Highgate as payment of  interest  accrued on the  Convertible
Debenture.  The number of shares issuable in connection  with this  registration
statement is also limited by our authorized capital,  which as of July 20, 2006,
was 750,000,000 shares. In other words, we are not authorized to issue more than
750,000,000  shares of our common  stock,  irrespective  of how many  shares are
covered by this  registration  statement and prospectus,  unless we increase our
authorized capital, as discussed above in the "Risk Factors" section on page 22.

We also entered into a security  agreement (the "Security  Agreement")  with the
Selling Shareholder, pursuant to which we pledged all of our property, including
goods; inventory; contract rights and general intangibles;  documents, receipts,
and chattel paper;  accounts and other receivables;  products and proceeds;  and
any interest in any subsidiary,  joint venture,  or other investment interest to
secure  our  obligation   under  the  Convertible   Debenture  and  the  related
agreements.

We also  entered into an escrow  agreement  (the  "Escrow  Agreement")  with the
Selling  Shareholder  relating to the holding and disbursement of payment of the
purchase  price of the  Convertible  Debenture  and cash  payments made by us in
payment of the obligations owing under the Convertible Debenture. David Gonzalez
was appointed as the Escrow Agent under the Escrow Agreement.

We sold the Convertible  Debenture without registration under the Securities Act
of 1933,  as amended  (the "1933 Act") in  reliance on Section  4(2) of the 1933
Act,  and  the  rules  and  regulations  promulgated  thereunder.   Upon  future
conversions,  if any,  of the  Convertible  Debenture  into shares of our common
stock, we intend to issue the shares without  registration under the 1933 Act in
reliance  on  Section  4(2) of the  1933  Act,  and the  rules  and  regulations
promulgated  thereunder.  As noted above,  we anticipate that any resales by the
Selling  Shareholder  of the shares issued upon  conversion  of the  Convertible
Debenture will be made pursuant to this registration statement.

Through  July 20,  2006,  Highgate  had  converted  $750,000 of the  Convertible
Debentures,  for  24,193,548  shares of our restricted  common stock.  Once this
registration statement has been declared effective by the SEC, Highgate may sell
those shares under this registration  statement,  although there is no guarantee
that Highgate will sell any or all of the shares.


                                       59



Selling shareholder

One of our  investors,  Highgate  House Funds,  Ltd., a Cayman  Island  exempted
company,  is the Selling  Shareholder in connection with this prospectus and the
registration  statement of which it is a part. Highgate is not affiliated in any
way  with  CirTran  or any of our  affiliates,  except  that  the  escrow  agent
appointed in connection  with the Purchase  Agreement and the Escrow  Agreement,
David Gonzalez, is an officer of Cornell Capital Partners,  LLP ("Cornell"),  an
entity with which we previously entered into two transactions, an equity line of
credit  agreement  and a standby  equity  distribution  agreement.  Highgate and
Cornell have the same general partner,  Yorkville  Advisors,  but have different
portfolio  managers.  Both the equity line of credit  agreement  and the standby
equity distribution agreement have been terminated.  Additionally,  as described
above, prior to our entering into the Purchase Agreement with Highgate,  Cornell
had previously made loans to us in the aggregate  amounts of $5,595,000,  all of
which  have  been  repaid,  including  two notes for  $1,700,000  and  $565,000,
respectively, which loans we repaid with part of the proceeds of the sale of the
Convertible Debenture.

This prospectus, and the registration statement of which it is a part, cover the
resales of the shares to be issued to  Highgate,  the  Selling  Shareholder,  in
connection with conversions of the Convertible Debenture.

Through  July 20,  2006,  Highgate  had  converted  $750,000 of the  Convertible
Debentures,  for  24,193,548  shares of our restricted  common stock.  Once this
registration statement has been declared effective by the SEC, Highgate may sell
those shares under this registration  statement,  although there is no guarantee
that Highgate will sell any or all of the shares.

The  following  table  provides  information  about  the  actual  and  potential
ownership  of shares of our common  stock by  Highgate  in  connection  with the
Convertible  Debenture  as of July  20,  2006,  and  the  number  of our  shares
registered  for sale in this  prospectus.  The number of shares of common  stock
issuable to Highgate in connection with conversions of the Convertible Debenture
varies according to the market price at and immediately  preceding the date of a
conversion by Highgate.  Solely for purposes of estimating  the number of shares
of common  stock that would be  issuable  to  Highgate as set forth in the table
below,  we have assumed a hypothetical  conversion by Highgate on July 20, 2006,
of the full remaining  amount of $3,000,000  principal amount of the Convertible
Debenture (with no interest  accrued) at a per share price of $0.03.  The actual
per share price and the number of shares  issuable  upon actual  conversions  by
Highgate  could  differ  substantially.  This  prospectus  and the  registration
statement of which it is a part covers the resale of up to 100,000,000 shares of
our common stock  issuable to Highgate in  connection  with  conversions  of the
principal  or  interest  on the  Convertible  Debenture.  The  number  of shares
issuable in connection with this  registration  statement is also limited by our
authorized capital,  which as of July 20, 2006, was 750,000,000 shares. In other
words, we are not authorized to issue more than 750,000,000 shares of our common
stock,  irrespective  of how  many  shares  are  covered  by  this  registration
statement and prospectus, unless we increase our authorized capital.

Under the terms and  conditions  of the  Convertible  Debenture and the Purchase
Agreement,  Highgate is prohibited from converting amounts under the Convertible
Debenture that would cause Highgate to  beneficially  own more than 4.99% of the
then-outstanding  shares of our  common  stock  following  such  issuance.  This
restriction  does not prevent  Highgate from  receiving  and selling  shares and
thereafter  receiving  additional  shares. In this way, Highgate could sell more
than 4.99% of our  outstanding  common  stock in a  relatively  short time frame
while  never  beneficially  owning  more than 4.99% of the  outstanding  CirTran
common stock at any one time. For purposes of  calculating  the number of shares
of common stock issuable to Highgate assuming a conversion of the full amount of
the  Convertible  Debenture,  as set  forth  below,  the  effect  of such  4.99%
limitation has been  disregarded.  The number of shares  issuable to Highgate as
described in the table below  therefore  may exceed the actual  number of shares
Highgate may be entitled to beneficially  own under the  Convertible  Debenture.
The  following   information  is  not  determinative  of  Highgate's  beneficial
ownership  of our common  stock  pursuant  to Rule 13d-3 or any other  provision
under the Securities Exchange Act of 1934, as amended.


                                       60





--------------- ---------- -------------- ----------- ----------- --------- -------------
                                          Percentage
                Shares     Shares of      of Common
                of         Common         Stock                             Percentage
                Common     Stock          Issuable to                       of
                Stock      Issuable       Selling     Number of   Number of Common
                Owned by   to Selling     Shareholder Shares of   Shares of Stock
                Selling    Shareholder    in          Common      Common    Beneficially
                Share-hold in             Connection  Stock       Stock     Owned
                Prior to   Connection     with        Registered  Owned     After
Name of Selling Offering   with           Debenture   Hereunder   After     the
Shareholder     (1)        Debenture      (2)         (3)         Offering  Offering
--------------- ---------- -------------- ----------- ----------- --------- -------------
                                                          
Highgate House
Funds, Ltd.         0      124,193,548(4)    16.90%   100,000,000    0(5)      0%(5)
--------------- ---------- -------------- ----------- ----------- --------- -------------


---------------------

         (1)      To our knowledge, and based on representations from Highgate's
management,  Highgate owned 24,193,548 shares of our common stock as of July 20,
2006.  Highgate House Funds,  Ltd., is an entity managed by Yorkville  Advisors,
LLC. Adam Gottbetter is the co-portfolio manager of Yorkville Advisors, LLC.

         (2)      As noted  above,  Highgate is  prohibited  by the terms of the
Convertible  Debenture from converting amounts of the Convertible Debenture that
would  cause it to  beneficially  own more  than  4.99% of the then  outstanding
shares of our common stock following such put. The percentages set forth are not
determinative of the Selling  Shareholder's  beneficial  ownership of our common
stock  pursuant  to Rule  13d-3 or any  other  provision  under  the  Securities
Exchange Act of 1934, as amended.

         (3)      The registration  statement of which this prospectus is a part
covers up to 100,000,000  shares of common stock issuable in connection with the
Convertible Debenture. Because the specific circumstances of the issuances under
the  Convertible  Debenture  are  within  the  discretion  of  Highgate  and are
therefore  unascertainable  at this time,  the precise total number of shares of
our common  stock  offered by the  Selling  Shareholder  cannot be fixed at this
time,  but cannot  exceed  100,000,000  unless we file  additional  registration
statements registering the resale of the additional shares. The amount set forth
in the table  represents the number of shares of our common stock that have been
issued and that would be issuable, and hence offered in part hereby,  assuming a
conversion of the full principal amount of the Convertible  Debenture (excluding
any interest  accrued  thereon) as of December 12,  2005.  The actual  number of
shares of our common  stock  offered  hereby may differ  according to the actual
number of shares issued upon such conversions.

         (4)      Includes:

                  24,193,548        shares   of   common   stock   issued   upon
                                    conversion by Highgate of $750,000 principal
                                    amount of the Debenture as of July 20, 2006;
                                    and

                  100,000,000       shares  of  common  stock  issuable  upon  a
                                    hypothetical  conversion  of  the  remaining
                                    $3,000,000    principal    amount   of   the
                                    Convertible  Debenture  as of July 20, 2006.
                                    This   prospectus   registers   only  up  to
                                    100,000,000  shares of common stock issuable
                                    in   connection    with   the    Convertible
                                    Debenture.  Accordingly,  we may  not  issue
                                    shares in excess  of  100,000,000  unless we
                                    file  additional   registration   statements
                                    registering  the  resale  of the  additional
                                    shares.

         (5)      Assumes a hypothetical  conversion of the remaining $3,000,000
principal  amount of the  Convertible  Debenture  as of July 20,  2006,  and the
issuance  of  100,000,000  shares  of  our  common  stock,  in  addition  to the
24,193,548  shares  previously  issued to Highgate  upon  conversion of $750,000
principal  amount of the  Debenture,  together  with the sale by Highgate of all
such shares.  There is no assurance  that  Highgate  will sell any or all of the
shares  offered  hereby.  However,  Highgate is  contractually  prohibited  from
converting  amounts of the  Convertible  Debenture  that would  cause it to hold
shares in excess of 4.99% of the  then-issued  and shares of our  common  stock.


                                       61



This number and  percentage  may change based on Highgate's  decision to sell or
hold the Shares. There is no assurance that Highgate will sell any or all of the
shares  offered  hereby.  If  Highgate  sells all of the shares  issued to it in
connection with the Convertible  Debenture,  the number of shares held following
such sales would be 0 and the percentage of ownership would be 0%. Additionally,
as noted, this registration  statement registers the resale of up to 100,000,000
shares by Highgate.  In the event that we issue more than 100,000,000  shares to
Highgate in connection with conversions of the Debenture, we will be required to
file additional  registration  statements to cover the resale of such shares. As
noted above, the number of shares issuable in connection with this  registration
statement is also limited by our authorized capital,  which as of July 20, 2006,
was 750,000,000 shares. In other words, we are not authorized to issue more than
750,000,000  shares of our common  stock,  irrespective  of how many  shares are
covered by this  registration  statement and prospectus,  unless we increase our
authorized capital.

Plan of Distribution

The Selling Shareholder,  its pledgees,  donees, transferees or other successors
in interest,  may from time to time sell the Shares of our Common Stock directly
to  purchasers  or  indirectly  to or through  underwriters,  broker-dealers  or
agents.  The  Selling  Shareholder  may sell all or part of its shares in one or
more transactions at fixed prices,  varying prices,  prices at or related to the
then-current  market price or at negotiated prices. The Selling Shareholder will
determine the specific  offering  price of the Shares from time to time that, at
that  time,  may be higher or lower than the  market  price of our Common  Stock
quoted on the OTC Bulletin Board.

The  Selling   Shareholder  and  any  underwriters,   broker-dealers  or  agents
participating  in the  distribution  of the  Shares of our  Common  Stock may be
deemed to be  "underwriters"  within the meaning of the  Securities Act of 1933,
and any profit from the sale of such shares by the Selling  Shareholder  and any
compensation  received by any underwriter,  broker-dealer or agent may be deemed
to be underwriting  discounts under the Securities Act. The Selling  Shareholder
may agree to indemnify any underwriter, broker-dealer or agent that participates
in  transactions  involving  sales of the  Warrants  or shares  against  certain
liabilities, including liabilities arising under the Securities Act.

Because the Selling Shareholder may be deemed to be an "underwriter"  within the
meaning of the Securities  Act, the Selling  Shareholder  will be subject to the
prospectus  delivery  requirements  of the Securities  Act. We have informed the
Selling  Shareholder  that the  anti-manipulative  provisions  of  Regulation  M
promulgated  under the Exchange  Act may apply to its sales in the market.  With
certain  exceptions,   Regulation  M  precludes  the  Selling  Shareholder,  any
affiliated purchasers, and any broker-dealer or other person who participates in
such  distribution  from bidding for or purchasing,  or attempting to induce any
person  to bid  for or  purchase  any  security  which  is  the  subject  of the
distribution  until the  entire  distribution  is  complete.  Regulation  M also
prohibits  any  bids or  purchases  made in order to  stabilize  the  price of a
security in connection with the distribution of that security.

The  method  by  which  the  Selling  Shareholder,   or  its  pledgees,  donees,
transferees or other successors in interest, may offer and sell their Shares may
include, but are not limited to, the following:

         *        sales on the  over-the-counter  market,  or  other  securities
                  exchange  on which the  Common  Stock is listed at the time of
                  sale, at prices and terms then prevailing or at prices related
                  to the then-current market price;
         *        sales in privately negotiated transactions;
         *        sales for their own account pursuant to this prospectus;
         *        through  the  writing of  options,  whether  such  options are
                  listed  on  an  options  exchange  or  otherwise  through  the
                  settlement of short sales;
         *        cross or block trades in which  broker-dealers will attempt to
                  sell the  shares  as  agent,  but may  position  and  resell a
                  portion of the block as a principal in order to facilitate the
                  transaction;
         *        purchases  by  broker-dealers  who then  resell the shares for
                  their own account;
         *        brokerage transactions in which a broker solicits purchasers;
         *        any  combination  of these  methods  of sale;  and


                                       62



         *        any other method permitted pursuant to applicable law.

Any Shares of Common  Stock  covered by this  prospectus  that  qualify for sale
under Rule 144 or Rule 144A of the  Securities Act may be sold under Rule 144 or
Rule 144A rather than under this prospectus.  The Shares of our Common Stock may
be sold in some states only through  registered or licensed  brokers or dealers.
In  addition,  in some  states,  the Shares of our Common  Stock may not be sold
unless they have been  registered  or qualified for sale or the sale is entitled
to an exemption from registration.

The Selling Shareholder may enter into hedging  transactions with broker-dealers
or  other  financial   institutions.   In  connection  with  such  transactions,
broker-dealers or other financial  institutions may engage in short sales of our
securities in the course of hedging the  positions  they assume with the Selling
Shareholder.  The  Selling  Shareholder  may also  enter  into  options or other
transactions with  broker-dealers or other financial  institutions which require
the  delivery  to such  broker-dealer  or  other  financial  institution  of the
securities  offered hereby,  which shares such  broker-dealer or other financial
institution may resell  pursuant to this prospectus (as  supplemented or amended
to reflect such transaction).

To our knowledge,  there are currently no plans,  arrangements or understandings
between the Selling  Shareholder  and any  underwriter,  broker-dealer  or agent
regarding the sale of Shares of our Common Stock by the Selling Shareholder.

The Selling Shareholder will pay all fees,  discounts and brokerage  commissions
in connection  with any sales,  including  any fees to finders.  We will pay all
expenses of preparing and reproducing  this  prospectus,  including  expenses or
compliance with state securities laws and filing fees with the SEC.

Under  applicable  rules and regulations  under  Regulation M under the Exchange
Act, any person engaged in the distribution of securities may not simultaneously
engage in market making activities,  subject to certain exceptions, with respect
to the securities for a specified  period set forth in Regulation M prior to the
commencement of such distribution and until its completion. In addition and with
limiting  the  foregoing,  the  Selling  Shareholder  will  be  subject  to  the
applicable  provisions of the  Securities Act and the Exchange Act and the rules
and regulations thereunder,  including, without limitation,  Regulation M, which
provisions  may limit the timing of  purchases  and sales of the  securities  by
Selling  Shareholder.   The  foregoing  may  affect  the  marketability  of  the
securities offered hereby.

The Selling  Shareholder  may be deemed to be an  "underwriter"  as such term is
defined  in the  Securities  Act,  and  any  commissions  paid or  discounts  or
concessions allowed to any such person and any profits received on resale of the
securities  offered hereby may be deemed to be underwriting  compensation  under
the Securities Act.

         Prior History and Dealings with Selling Shareholder and Related
         Entities

As noted above in the "Recent Developments" section, Highgate House Funds, Ltd.,
the Selling Shareholder under this registration  statement,  and Cornell Capital
have the same general partner,  Yorkville Advisors, but have different portfolio
managers.  In  addition  to the  Convertible  Debentures  issued to  Cornell  in
December 2005, we have entered into prior financing transactions with Cornell in
the past four years.

         -        In April  2003,  we  entered  into an  equity  line of  credit
                  agreement  with Cornell,  pursuant to which we drew a total of
                  $3,330,000  on  the  equity  line,   and  issued  a  total  of
                  121,717,894  shares of common  stock to  Cornell  Capital.  We
                  registered  the  resale by Cornell  of those  shares  into the
                  market on a registration statement on Form SB-2.

         -        In May 2004,  we entered  into a standby  equity  distribution
                  agreement  with  Cornell   Capital,   but  the  agreement  was
                  terminated  before any funds  were  drawn or any  shares  were
                  issued.


                                       63



         -        Between June 2003 and January 2005,  Cornell Capital loaned to
                  us an aggregate of  $5,595,000  pursuant to  promissory  notes
                  issued to Cornell  Capital.  These  notes were paid in full by
                  May 2005.

         In the prior financing deals with Cornell, specifically the Equity Line
of Credit  transaction,  Cornell sold all of the shares of our common stock that
were  issued in  connection  with the  Equity  Line.  Although  we do not have a
history of dealing with Highgate,  there is a strong  possibility  that Highgate
will  also sell all of the  shares  that we issue to it in  connection  with the
conversions of the Convertible Debentures, rather than holding any of the shares
for any  extended  period  of time.  Such  sales  could  result  in  substantial
dilution.

         As  noted  immediately  above  in the  "Selling  Shareholder"  section,
through  July 20,  2006,  Highgate  had  converted  $750,000 of the  Convertible
Debenture,  for  24,193,548  shares of our  restricted  common stock.  Once this
registration statement has been declared effective by the SEC, Highgate may sell
those shares under this registration  statement,  although there is no guarantee
that Highgate will sell any or all of the shares.

         Additionally,  with respect to sales by Highgate, the following factors
should be considered:

         -        We  have  limited  funds  to  use  to  repay  the  Convertible
                  Debentures  issued  both to Highgate  and to  Cornell,  and as
                  such, it is likely that we will rely on the conversions of the
                  Convertible  Debentures  into  shares of our common  stock for
                  repayment,  which will result in dilution to the  positions of
                  our current shareholders;

         -        The  Convertible  Debentures  issued  to  Highgate  include  a
                  conversion  cap,  pursuant to which  Highgate  cannot  convert
                  principal  amounts of the  Convertible  Debentures  that would
                  result  in its  owning  more  than  4.99%  of our  issued  and
                  outstanding common stock. These restrictions,  however, do not
                  prevent  Highgate from selling shares of common stock received
                  in connection with a conversion, and then receiving additional
                  shares  of  common  stock  in  connection  with  a  subsequent
                  conversion.  In this way,  Highgate could sell more than 4.99%
                  of the  outstanding  common stock in a  relatively  short time
                  frame while never  holding  more than 4.99% at one time.  As a
                  result,   existing   shareholders   and  new  investors  could
                  experience  substantial  dilution in the value of their shares
                  of our common stock.

         -        Our  average  daily  trading  volume as of July 20,  2006,  as
                  reported  by  the  OTC  Bulletin  Board,   was   approximately
                  2,089,000  shares.  As such,  there can be no  assurance  that
                  there  will be  sufficient  volume  to  support  the  sales by
                  Highgate of a substantial  number of shares issued or issuable
                  to it upon  conversion of the Convertible  Debentures.  To the
                  extent that Highgate is unable to sell  sufficient  shares and
                  to reduce the principal  amount of the Debentures,  we will be
                  required  to  continue  to pay  interest  on  the  outstanding
                  principal balance.

         -        The  Convertible  Debentures  mature on December 31, 2007.  As
                  such,  assuming  that  we make no  principal  payments  on the
                  Convertible  Debentures,  as of July 20, 2006,  the  remaining
                  outstanding   balance  of   $3,000,000   would   convert  into
                  approximately  100,000,000  shares of our common stock,  which
                  Highgate  would need to sell into the market.  Although  there
                  can be no way to accurately determine the effect of such sales
                  on our share price, it is likely that the introduction of such
                  a large volume of shares could significantly depress the share
                  price,  which  would  result in our  obligation  to issue more
                  shares, in light of the floating conversion price.

         -        Each of the  factors  listed  above  could be  worsened by the
                  actions of Cornell  Capital in selling  shares  issuable  upon
                  conversion  of the  convertible  debentures  issued to Cornell
                  Capital  in  December  2005.  Although  the  resale by Cornell
                  Capital is not covered by this prospectus or the  registration
                  statement of which it is a part, we have contractually  agreed
                  with  Cornell   Capital  that  we  will  file  a  registration
                  statement  to register  its resales  into the market.  If both


                                       64



                  Highgate  and Cornell are selling  into the market at the same
                  time,  such sales could have a material  adverse impact on our
                  sales price.

         -        Although we are  permitted  under the  Convertible  Debentures
                  issued  both to  Highgate  and to  Cornell  Capital to pay the
                  principal  amounts  due in cash,  we may not be in a financial
                  position to do so, and as such, we may rely on  conversions by
                  Highgate and Cornell Capital of outstanding  principal amounts
                  to reduce our obligations under the Convertible Debentures.

         As noted above,  we are not selling any shares under this prospectus or
the registration  statement of which it is a part.  Highgate is the sole selling
shareholder hereunder. As such, any decisions with respect to whether or when to
sell any shares  issued or issuable to Highgate  upon  conversion  of  principal
amounts  of  the  Convertible   Debentures  are  completely   within  Highgate's
discretion, and we will not participate or be involved in any such sales.

Regulation M

We have informed the Selling  Shareholders  that Regulation M promulgated  under
the  Securities  Exchange Act of 1934 may be  applicable to them with respect to
any purchase or sale of our common stock. In general,  Rule 102 under Regulation
M prohibits any person  connected with a  distribution  of our common stock from
directly or indirectly  bidding for, or  purchasing  for any account in which it
has a  beneficial  interest,  any of the  Shares  or any right to  purchase  the
Shares,  for a period of one  business  day before and after  completion  of its
participation in the distribution.

During any distribution period,  Regulation M prohibits the Selling Shareholders
and  any  other  persons  engaged  in  the  distribution  from  engaging  in any
stabilizing  bid or  purchasing  our  common  stock  except  for the  purpose of
preventing  or retarding a decline in the open market price of the common stock.
None of these persons may effect any  stabilizing  transaction to facilitate any
offering at the market. As the Selling Shareholders will be offering and selling
our common stock at the market,  Regulation M will prohibit them from  effecting
any stabilizing transaction in contravention of Regulation M with respect to the
Shares.

We also have advised the Selling Shareholders that they should be aware that the
anti-manipulation  provisions  of Regulation M under the Exchange Act will apply
to purchases  and sales of shares of common  stock by the Selling  Shareholders,
and that there are restrictions on  market-making  activities by persons engaged
in the distribution of the shares.  Under Regulation M, the Selling Shareholders
or their  agents may not bid for,  purchase,  or attempt to induce any person to
bid for or purchase,  shares of our common stock while such Selling Shareholders
are distributing  shares covered by this  prospectus.  Regulation M may prohibit
the Selling  Shareholders  from covering short sales by purchasing  shares while
the distribution is taking place,  despite any contractual rights to do so under
the Agreement. We have advised the Selling Shareholders that they should consult
with their own legal counsel to ensure compliance with Regulation M.

Legal Proceedings

We assumed certain liabilities of Circuit  Technology,  Inc., in connection with
our  transactions  with  that  entity in the year  2000,  and as a result we are
defendant in a number of legal actions involving nonpayment of vendors for goods
and services  rendered.  We have  accrued  these  payables  and have  negotiated
settlements  with respect to some of the  liabilities,  including those detailed
below, and are currently negotiating  settlements with other vendors. As of July
20, 2006, the only remaining  liability of Circuit  Technology is C/S Utilities,
discussed below.

C/S  Utilities  notified the Company that (as  successor to Circuit  Technology,
Inc.) it  believes  it has a claim  against the Company in the amount of $32,472
regarding utilities services. The claim was assigned to BC Services, Inc., which
obtained a judgment  against  Circuit  Technology,  Inc., for $37,966 in El Paso
County, Colorado,  District Court on February 13, 2003. The Company is reviewing
its records in an effort to confirm the validity of the claims and is evaluating
its options.


                                       65



CirTran Asia v. Mindstorm Civil No.  050902290,  Third Judicial  District Court,
Salt Lake County,  State of Utah. In February,  2005,  CirTran Asia brought suit
against Mindstorm Technologies, LLC, for nonpayment for goods provided. On April
22, 2005,  the  defendant  filed its answer and  counterclaim,  following  which
defendant's  counsel  withdrew  from   representation.   CirTran  Asia  notified
defendant  that under  governing  rules it was  required  to  appoint  successor
counsel.  The  defendant  failed to do so,  and failed to  prosecute  its claim.
CirTran  Asia  moved for  default  judgment,  which was  granted.  CirTran  Asia
submitted a proposed order of default  judgment in the amount of $288,529 to the
court in September 2005, which has been signed.

CirTran Asia v. Robinson,  Civil No.  050915272,  Third Judicial District Court,
Salt Lake County,  State of Utah. On August 30, 2005,  CirTran Asia brought suit
against Glenn Robinson,  one of the principals of Mindstorm  Technologies,  LLC,
for nonpayment for goods provided. Mr. Robinson filed an answer and subsequently
filed for personal bankruptcy. CirTran Asia is reviewing its options and intends
to  vigorously  pursue this  action.  On March 30,  2006,  CirTran  Asia filed a
complaint  against Mr.  Robinson under Section 523 of the U.S.  Bankruptcy  Code
seeking a  determination  that any debts owed by Mr. Robinson to CirTran Asia is
excepted  from any  discharge  granted to Mr.  Robinson.  As of the date of this
Report, the case was proceeding in discovery.

CirTran Asia, et al. v.  International  Edge, et al.,  Civil No. 2:05 CV 413BSJ,
U.S.  District  Court,  District of Utah. On May 11, 2005,  CirTran Asia,  UKING
System Industry Co., Ltd., and Charles Ho filed suit against International Edge,
Inc.,  Michael Casey  Enterprises,  Inc., Michael Casey, David Hayek, and HIPMG,
Inc., for breach of contract,  breach of the implied  covenant of good faith and
fair dealing, interference with economic relationships, and fraud in relation to
certain   licensing   issues  relating  to  the  Ab  King  Pro.  The  defendants
counterclaimed,  alleging  breach of  contract,  fraud,  defamation  and related
claims,  all  related  to the Ab King  Pro,  seeking  damages  in the  amount of
$10,000,000.  CirTran  Asia and the other  plaintiffs  filed  their reply to the
counterclaim,  disputing all of the allegations and claims.  International  Edge
filed a motion to dismiss for lack of jurisdiction,  which was denied.  The case
is presently in the discovery  stage.  Sales from this product in the year ended
December 31, 2004 were approximately $3,510,000,  and in the year ended December
31, 2005, were approximately $960,000. CirTran Asia intends to vigorously pursue
this action.

CirTran  Corporation vs. Advanced Beauty  Solutions,  LLC, and Jason Dodo, Civil
No. 060900332,  Third Judicial District Court, Salt Lake County,  State of Utah.
On January 9, 2006,  CirTran  Corporation  brought suit against  Advanced Beauty
Solutions ("ABS") and Jason Dodo, asserting claims including breach of contract,
breach of the implied covenant of good faith and fair dealing, interference with
economic relations, fraud and unjust enrichment.

On January 24, 2006, ABS filed a voluntary  petition for relief under chapter 11
of the United States  Bankruptcy Code in the United States  Bankruptcy Court for
the Central  District of  California,  San Fernando  Valley  Division  (the "ABS
Bankruptcy  Court"),  Case No. SV 06-10076  GM. On January 30,  2006,  a hearing
("Hearing")  was held to consider the Emergency  Motion for Order  Approving the
Settlement  and Compromise of the Disputed  Secured Claims of Inventory  Capital
Group,  Inc.  ("ICG"),  and Media Funding  Corporation  ("MFC") (the "Settlement
Motion") filed by ABS. The continued  Hearing on the Settlement  Motion was held
on February 16, 2006,  at which time the  settlement  was  modified.  Prior to a
separate  hearing  held on March  24,  2006,  on ABS's  Motion  for  Order:  (1)
Approving Sale and Assignment of Substantially All Assets of the Estate Free and
Clear of Liens; (2) Approving  Assumption and Assignment of Leases and Executory
Contracts  Included in the Sale and Rejection of Leases and Executory  Contracts
Not Included in the Sale; and (3) Granting  Related Relief (the "Sale  Motion"),
the  settlement  was  further  modified.   The  modifications  to  the  proposed
settlement  were read into the ABS  Bankruptcy  Court's record at the Hearing on
the  Settlement  Motion  and the  March  24,  2006  hearing  on the Sale  Motion
("Proposed  Modifications").  Written notice of the Proposed  Modifications  was
provided  to  creditors  and parties in  interests  on March 27,  2006,  and the
Declaration  of James C.  Bastian,  Jr.,  attesting  that no  objections  to the
Proposed  Modifications  have  been  received  by ABS,  was  filed  with the ABS
Bankruptcy Court.

On June 6, 2006,  the Company and ABS signed an agreement  (the "Asset  Purchase
Agreement"),  subject to the ABS Bankruptcy  Court's approval.  On June 7, 2006,
the ABS Bankruptcy Court entered orders  approving the Asset Purchase  Agreement


                                       66



and granting the Sale Motion,  and approving the  settlement  and  compromise of
certain disputed claims against ABS.

Pursuant  to the  settlement  of  ABS's  bankruptcy  proceedings  and the  Asset
Purchase Agreement, the Company has an allowed claim against the ABS's estate in
the amount of $2,350,000, of which $750,000 is to be credited to the purchase of
substantially  all of ABS's assets.  Under the settlement,  the Company shall be
allowed to  participate as a general  unsecured  creditor of ABS's estate in the
amount of $1,600,000 on a pari passu basis with the $2,100,000 general unsecured
claim of certain  insiders  of ABS and  subject to the prior  payment of certain
secured,  priority,  and  non-insider  claims  in the  amount  of  approximately
$1,507,011.

Under the Asset Purchase Agreement, the Company agreed to purchase substantially
all of ABS's assets in exchange for:

         i)       a cash payment in the amount of $1,125,000;
         ii)      a reduction of CirTran's  allowed claim in the Bankruptcy Case
                  by $750,000;
         iii)     the assumption of any assumed liabilities; and
         iv)      the  obligation  to pay ABS a royalty  equal to $3.00 per True
                  Ceramic  Pro  flat  iron  unit  sold  by  ABS  (the   "Royalty
                  Obligation").

The Assets include personal property;  intellectual property;  certain executory
contracts and unexpired leases; inventory;  ABS's rights under certain insurance
policies;  deposits and prepaid expenses; books and records;  goodwill;  certain
causes of action;  permits;  customer and supplier lists; and telephone  numbers
and listings (collectively, the "Assets").

Under  the  Asset  Purchase  Agreement,  the  Royalty  Obligation  is  capped at
$4,135,000.  To the extent  the  amounts  paid to ABS on account of the  Royalty
Obligation  equal less than $435,000 on the 2 year  anniversary  of the Closing,
then,  within  30 days of such  anniversary,  the  Company  agreed to pay ABS an
amount equal to $435,000 less the royalty  payments made to date. As part of the
settlement,  the Company agreed to exchange general releases with, among others,
ABS, Jason Dodo (the manager of ABS), Inventory Capital Group ("ICG"), and Media
Funding Corporation ("MFC"). The settlement also resolved a related dispute with
ICG in which ICG  assigned  $65,000  of its  secured  claim  against  ABS to the
Company.

Pursuant to the court-approved settlement, payments under the Royalty Obligation
will be made in the following order:

         a)       The Royalty  Obligation  payments will be made  exclusively to
                  ICG and MFC  (collectively,  the "Secured  Parties") until (i)
                  the Secured Parties have been paid in full on account of their
                  $1,243,208.44  secured claim, or (ii) the Secured Parties have
                  been paid $100,000 in payments  under the Royalty  Obligation,
                  whichever comes first.

         b)       The next $70,000 Royalty Obligation payments will be made to a
                  service  provider to ABS (in the amount of $50,000)  and to an
                  individual with an allowed claim (in the amount of $20,000).

         c)       Following  the  payments to the Secured  Parties and others as
                  set forth immediately  above, the remaining Royalty Obligation
                  payments  will be used for  distribution  to  allowed  general
                  unsecured  claims  not  including  those  of the  Company  and
                  certain    insiders    with   unpaid   notes   (the   "Insider
                  Noteholders").

         d)       Following  payments as set forth in (a),  (b),  and (c) above,
                  the Royalty Obligation  payments will be shared pro rata among
                  the Insider  Noteholders (with a total allowed aggregate claim
                  of  $2,100,000),  and the  Company  (with a general  unsecured
                  claim in the amount of $1,600,000), until paid in full.


                                       67



         The total  claims  against  ABS's  estate  that must be paid before the
Company begins to share in the Royalty Obligation payments is $435,000.

         CirTran  v.  Guthy-Renker  Corporation  and Ben Van De Bunt,  Civil No.
20060980298,  Third Judicial District Court, Salt Lake County, State of Utah. In
May 2006, the Company filed suit against Guthy-Renker Corporation and one of its
officers,  claiming breach of contract,  breach of the implied  covenant of good
faith   and   fair   dealing,    interference   with   economic   relationships,
misrepresentation,  and punitive damages. The suit seeks damages in an amount to
be proven at trial.  The defendants filed a motion to stay litigation and compel
arbitration  in the  matter.  As of July 20,  2006,  the Company had not filed a
response to the motion.

Directors, Executive Officers, Promoters and Control Persons

Directors and Officers

The  following  sets forth the names,  ages and  positions of our  directors and
officers and the officers of our  operating  subsidiaries,  CirTran  Corporation
(Utah) and CirTran Asia, along with their dates of service in such capacities.

     Name                  Age                    Positions

Iehab J. Hawatmeh          39       President,  Chief Executive  Officer,
                                    Secretary and Director of CirTran
                                    Corporation;  President  of CirTran
                                    Corporation
                                    (Utah).
                                    Served since July 2000.

Trevor Saliba              32       Director since June 2001. Senior
                                    Vice-President,  Sales and Marketing.
                                    Served since January 2002.

Shaher Hawatmeh            40       Chief Operating Officer
                                    Served since June 2004

Charles Ho                 51       President, CirTran-Asia
                                    Served since June 2004

Richard T. Ferrone         58       Chief Financial Officer
                                    Served since May 2006

Iehab J. Hawatmeh, MBA
Chairman, President & CEO

Mr.  Iehab  Hawatmeh  founded  CirTran  Corporation  in 1993  and has  been  its
Chairman,  President and CEO since its inception.  He also served  previously as
the Company's Chief Financial  Officer until the hiring of Richard T. Ferrone in
May 2006.  Mr.  Hawatmeh  oversees  all  daily  operation  including  financial,
technical, operational and sales functions for the company. Under Mr. Hawatmeh's
direction,  the  company  has seen its  annual  sales  exceed $20  million,  its
employment exceed 360 and completed two strategic acquisitions. Prior to forming
the company,  Mr.  Hawatmeh  was the  Processing  Engineering  Manager for Tandy
Corporation  overseeing  the company's  entire  contract  manufacturing  printed
circuit board assembly division.  In addition,  Mr. Hawatmeh was responsible for
developing and implementing Tandy's facility Quality Control and Processing Plan
model which is used by CirTran  today.  Mr.  Hawatmeh  received  his Master's of
Business Administration from University of Phoenix and his Bachelor's of Science
in Electrical and Computer Engineering from Brigham Young University.  Iehab and
Shaher Hawatmeh are brothers.


                                       68



Raed Hawatmeh.

Mr. Raed Hawatmeh resigned as a Director as of May 10, 2006.

Trevor M. Saliba, MS
Senior Vice President,
Worldwide Business Development

Mr. Saliba is responsible  for sales and marketing  activities  worldwide and is
responsible for overseeing all worldwide business development strategies for the
company.  Mr. Saliba was elected to the Board of Directors in 2001.  From 1997 -
2001 he was President and CEO of Saliba Corp., a privately held contracting firm
he founded.  From 1995-1997 he was an Associate with Morgan Stanley. From 1992 -
1995 he was Vice President of Sales and Marketing for SNJ Industries. Mr. Saliba
holds a Bachelors  Degree in  Business  Administration  and a Masters  Degree in
Finance from La Salle University and has completed an Advanced  Graduate Program
in Engineering and Management at the University of California, Berkeley.

In June 2002 Mr.  Saliba filed for personal  bankruptcy  in the U.S.  Bankruptcy
Court  in Los  Angeles,  California,  which  has not yet  been  discharged.  The
bankruptcy was unrelated to Mr. Saliba's involvement in CirTran.

James Snow
Vice President,
Product Development
President - Racore Technology Corporation

Mr. Snow is the Vice President of Product  Development  for CirTran  Corporation
and also President of Racore  Technology Corp., a wholly owned subsidiary of the
company.  Mr. Snow  directly  oversees the design,  planning and  management  of
Racore's  proprietary  Local Area Network  (LAN)  products and provides  network
consulting  services  to  clients.  Mr.  Snow held the  position  of Director of
Forward  Planning and Project  Engineering for Phillips  Telecommunications  and
Data Systems (a Division of N.V.  Phillips) from 1982 - 1992. In addition he was
a Principle  Engineer for Digital  Equipment  Corp.  from 1992 - 1994.  Mr. Snow
holds  a  Bachelor's  degree  in  Electrical   Engineering  from  Brigham  Young
University and Business Management from Brookhaven College.

Shaher Hawatmeh
Chief Operating Officer

Mr. Shaher Hawatmeh  joined the company in 1993 as its Controller  shortly after
its founding.  Today,  Mr. Hawatmeh  directly  oversees all daily  manufacturing
production,  customer  service,  budgeting  and  forecasting  for  the  company.
Following the companies  acquisition  of Pro Cable  Manufacturing  in 1996,  Mr.
Hawatmeh  directly  managed the entire  company,  supervising all operations for
approximately  two years and  successfully  oversaw the  integration of this new
division into the company. Prior to joining CirTran, Mr. Hawatmeh worked for the
Utah  State Tax  Commission.  Mr.  Hawatmeh  earned  his  Master's  of  Business
Administration  with an emphasis in Finance from the  University  of Phoenix and
his Bachelor's of Science in Business  Administration and a Minor in Accounting.
Iehab and Shaher Hawatmeh are brothers.


                                       69



Charles Ho
President, CirTran-Asia

Mr. Ho, who became the President of our CirTran-Asia  division on June 15, 2004,
served for six years as the chairman of Meicer  Semiconductor  Co., Ltd., one of
the leading  semiconductor  manufacturers located in China, and was a co-founder
of two of the leading design and manufacturing firms of DVD and CD players: Lead
Data Co., Ltd., and Media Group.  Mr. Ho has served as CEO for Uking System Inc.
since 1986 and is still  holds that  position.  Mr. Ho has a Master of  Business
Administration  Degree from the  University  of South  Australia and Bachelor of
Science  degree  in  Industrial   Design  from  National  Taipei  University  of
Technology.

Richard T. Ferrone
Chief Financial Officer

Prior to joining the Company,  Mr. Ferrone had headed his own  accounting  firm,
Ferrone  &  Associates,  which  he  established  in  Salt  Lake  City  in  1994.
Previously, he was vice president and CFO for then-publicly-held GCI Industries,
Inc./Golf  Card  International  for seven years,  and served as CFO of Huntsman,
Christensen  Real Estate & Development  Co. Mr.  Ferrone had also served as vice
president  and chief  financial  officer  for BSD Medical  Corporation  after he
started his career with a regional CPA firm in Salt Lake City. Mr. Ferrone has a
B.S. in  Accounting  from the  University  of Utah,  where he also studied for a
Master of Professional Accountancy with a tax emphasis.

Indemnification Provisions

Our Bylaws provide,  among other things,  that our officers or directors are not
personally  liable  to us or to our  stockholders  for  damages  for  breach  of
fiduciary duty as an officer or director,  except for damages for breach of such
duty resulting from (a) acts or omissions which involve intentional  misconduct,
fraud, or a knowing  violation of law, or (b) the unlawful payment of dividends.
Our Bylaws also  authorize us to indemnify  our  officers  and  directors  under
certain  circumstances.   We  anticipate  we  will  enter  into  indemnification
agreements with each of our executive  officers and directors  pursuant to which
we will agree to indemnify  each such person for all  expenses  and  liabilities
incurred by such person in connection  with any civil or criminal action brought
against  such  person by reason of their  being an  officer or  director  of the
Company. In order to be entitled to such indemnification,  such person must have
acted in good faith and in a manner reasonably  believed to be in or not opposed
to the best interests of the Company and, with respect to criminal actions, such
person  must  have had no  reasonable  cause to  believe  that his  conduct  was
unlawful.


Commission's Position on Indemnification for Securities Act Liabilities

Our Bylaws provide,  among other things,  that our officers or directors are not
personally  liable  to us or to our  stockholders  for  damages  for  breach  of
fiduciary duty as an officer or director,  except for damages for breach of such
duty resulting from (a) acts or omissions which involve intentional  misconduct,
fraud, or a knowing  violation of law, or (b) the unlawful payment of dividends.
Our Bylaws also  authorize us to indemnify  our  officers  and  directors  under
certain  circumstances.   We  anticipate  we  will  enter  into  indemnification
agreements with each of our executive  officers and directors  pursuant to which
we will agree to indemnify  each such person for all  expenses  and  liabilities
incurred by such person in connection  with any civil or criminal action brought
against  such  person by reason of their  being an  officer or  director  of the
Company. In order to be entitled to such indemnification,  such person must have
acted in good faith and in a manner reasonably  believed to be in or not opposed
to the best interests of the Company and, with respect to criminal actions, such
person  must  have had no  reasonable  cause to  believe  that his  conduct  was
unlawful.

Insofar as indemnification  for liabilities  arising under the Securities Act of
1933 may be permitted to our directors, officers or controlling persons pursuant
to the  foregoing  provisions,  or  otherwise,  we have been advised that in the
opinion of the  Securities  and  Exchange  Commission  such  indemnification  is
against  public  policy  as  expressed  in the  Securities  Act of 1933  and is,
therefore, unenforceable.


                                       70



Security Ownership of Certain Beneficial Owners and Management

The  following  table sets forth the number and  percentage  of the  634,853,832
outstanding  shares of our common  stock  which,  according  to the  information
supplied to us, were beneficially owned, as of July 20, 2006, by (i) each person
who is  currently a director,  (ii) each  executive  officer,  (iii) all current
directors  and  executive  officers  as a group and (iv) each person who, to our
knowledge,  is the beneficial  owner of more than 5% of our  outstanding  common
stock.

Except as otherwise  indicated,  the persons named in the table have sole voting
and dispositive power with respect to all shares beneficially owned,  subject to
community  property laws where  applicable.  Beneficial  ownership is determined
according to the rules of the Securities and Exchange Commission,  and generally
means that person has beneficial  ownership of a security if he or she possesses
sole or shared voting or investment  power over that  security.  Each  director,
officer,  or 5% or more  shareholder,  as the  case  may be,  has  furnished  us
information with respect to beneficial ownership. Except as otherwise indicated,
we believe that the beneficial owners of the common stock listed below, based on
the  information  each of them has given to us, have sole  investment and voting
power with respect to their  shares,  except where  community  property laws may
apply.

--------------------------------------------------------------------------------
Name and                                                 Common     Percent of
Address                               Relationship       Shares       Class
--------------------------------------------------------------------------------
Saliba Private Annuity Trust (1)      5%                75,698,990      11.92%
115 S. Valley Street                  Shareholder
Burbank, CA 91505

--------------------------------------------------------------------------------
Iehab J. Hawatmeh                     Director,         62,288,465       9.81%
4125 South 6000 West                  Officer
West Valley City, Utah 84128          & 5%
                                      Shareholder
--------------------------------------------------------------------------------
Raed Hawatmeh (3)                     5%                31,007,530       4.84%
10989 Bluffside Drive                 Shareholder
Studio City, CA 91604

--------------------------------------------------------------------------------
Trevor Saliba (2)                     Director          13,275,000       2.09%
13848 Valleyheart Drive
Sherman Oaks, CA 91423

--------------------------------------------------------------------------------
Charles Ho                            Officer of                 0       0.00%
4125 South 6000 West                  Subsidiary of
West Valley City, Utah 84128          Company

--------------------------------------------------------------------------------
Shaher Hawatmeh                       Chief Operating    6,107,079       0.96%
4125 South 6000 West                  Officer
West Valley City, Utah 84128

--------------------------------------------------------------------------------
Richard T. Ferrone                    Chief Financial            0       0.00%
4125 South 6000 West                  Officer
West Valley City, Utah 84128

--------------------------------------------------------------------------------
All Officers and Directors as a Group                   81,670,544      12.84%
(4 persons)
--------------------------------------------------------------------------------

-------------------


                                       71



(1)      Includes  13,189,620 shares held by the Saliba Living Trust.  Thomas L.
Saliba and Betty R.  Saliba are the  trustees  of The  Saliba  Living  Trust and
Thomas L. Saliba is the sole trustee of The Saliba Private Annuity Trust.  These
persons  control the voting and  investment  decisions of the shares held by the
respective  trusts.  Mr. Thomas L. Saliba is a nephew of the  grandfather of Mr.
Trevor  Saliba,  one of our directors and officers.  Mr. Trevor Saliba is one of
five passive  beneficiaries  of Saliba Private  Annuity Trust and has no control
over its operations or management.  Mr. Saliba disclaims beneficial control over
the shares indicated.

(2)      Includes  options to purchase up to  1,000,000  shares each that can be
exercised anytime at exercise prices of $0.027 per share.

(3)      Includes  options  to  purchase  up to  6,250,000  shares  that  can be
exercised anytime at exercise prices of $0.02 - $0.03 per share.

Description of Common Stock

Effective August 6, 2001, our authorized  capital was increased from 500,000,000
to 750,000,000  shares of common stock,  $0.001 par value, and we also effected,
effective  the same date,  a 1:15  forward  split of our issued and  outstanding
shares of common stock  through a forward  split and share  distribution.  As of
July 20, 2006,  636,874,906 (post forward-split) shares of our common stock were
issued and outstanding. We are not authorized to issue preferred stock.

Each  holder  of our  common  stock  is  entitled  to a pro  rata  share of cash
distributions  made  to  shareholders,  including  dividend  payments,  and  are
entitled  to one vote for each share of record on all  matters to be voted on by
shareholders.  There is no cumulative voting with respect to the election of our
directors or any other  matter.  Therefore,  the holders of more than 50% of the
shares voted for the election of directors can elect all of the  directors.  The
holders of our common stock are entitled to receive  dividends  when,  as and if
declared by our board of directors,  in its sole discretion,  from funds legally
available for such use. In the event of our liquidation,  dissolution or winding
up, the  holders of common  stock are  entitled  to share  ratably in all assets
remaining  available for  distribution  to them after payment of our liabilities
and after  provision has been made for each class of stock,  if any,  having any
preference in relation to our common stock.  Holders of our common stock have no
conversion, preemptive or other subscription rights, and there are no redemption
provisions applicable to our common stock.

Our obligations to issue shares of our common stock include the following:

         -        Highgate  Convertible   Debenture:   Assuming  a  hypothetical
                  conversion  of the  remaining  $3,000,000,  at a  hypothetical
                  conversion   price  of  $0.03  per  share,   we  would   issue
                  100,000,000 shares of our common stock.
         -        Cornell   Convertible   Debenture:   Assuming  a  hypothetical
                  conversion  of the  remaining  $1,500,000,  at a  hypothetical
                  conversion price of $0.03 per share, we would issue 50,000,000
                  shares of our common stock.
         -        ANAHOP,  Inc.: Pursuant to a private offering in June 2006, we
                  agreed  to issue an  aggregate  of  28,571,428  shares  of our
                  common stock in two tranches.  The first tranche  involved the
                  payment by ANAHOP of $500,000  and our  issuance of  7,142,857
                  shares of common stock,  and the second tranche  involving the
                  payment by ANAHOP of an additional $1,500,000 and our issuance
                  of  21,428,571  shares of common  stock.  As of July 20, 2006,
                  ANAHOP  had paid  $300,000  of the  amount  due for the  first
                  tranche,  and we had not issued the 7,142,857 shares of common
                  stock.  Also,  as of July 20,  2006,  ANAHOP  had not made the
                  payment  for the  second  tranche,  and we had not  issued the
                  21,428,571 shares of common stock.
         -        Warrants:  As of July 20, 2006, we had warrants outstanding to
                  issue 110,000,000 shares of our common stock.
         -        Options:  As of July 20, 2006, we had options  outstanding  to
                  issue 11,250,500 shares of our common stock.


                                       72



On July 20, 2006,  we entered  into lock down  agreements  with Cornell  Capital
(with respect to the  50,000,000  shares  underlying  the Cornell  Debenture and
10,000,000  shares underlying a warrant held by Cornell) and with ANAHOP and its
designees  (with  respect  to  93,000,000  shares  underlying  warrants  and the
21,428,571 shares in the second tranche).  Under the agreements,  Cornell agreed
not to convert any of the Cornell Debenture or exercise any of its warrants, and
ANAHOP and its designees  agreed not to exercise any of the 93,000,000  warrants
or to make the second tranche  payment,  until we have taken the steps necessary
to amend our articles of incorporation and increase our authorized capital.

We have never declared or paid a cash dividend on our capital  stock,  nor do we
expect to pay cash dividends on our common stock in the foreseeable  future.  We
currently  intend to retain our earnings,  if any, for use in our business.  Any
dividends  declared  in the  future  will be at the  discretion  of our board of
directors and subject to any restrictions that may be imposed by our lenders.

We have  elected not to be governed  by the terms and  provisions  of the Nevada
Private  Corporations Law that are designed to delay,  defer or prevent a change
in control of the Company.

Registration Rights and Related Matters

Pursuant  to an  agreement  dated  November  3,  2000,  and as part of our  debt
settlement with Future Electronics  Corporation  ("Future"),  we granted certain
registration  rights to Future with  respect to 5,281,050  (352,070  pre-forward
split)  shares  of our  common  stock.  These  rights  provide  Future  with the
opportunity,  subject to certain terms and  conditions,  to include up to 50% of
our common stock that it holds in any registration  statement filed by us. Among
other things,  we have agreed to pay any costs incurred with the registration of
such stock and to keep any registration statement we file active for a period of
180 days or until the distribution  contemplated in the  registration  statement
has been completed. Future's registration rights are assignable and transferable
to any  individual  or entity  that does not  directly  compete  with us.  These
registration rights are not exercisable,  however,  with respect to registration
statements  relating  solely  to the sale of  securities  to  participants  in a
company stock plan or relating solely to corporate reorganizations. In addition,
the rights would not be fully  exercisable if an  underwriter  managing a public
offering  determined in good faith that market factors  required a limitation on
the number of shares that Future (or its assignee)  would  otherwise be entitled
to have registered.

In  connection  with  our  debt  settlement  with  Future,   our  three  largest
shareholders,  Iehab  Hawatmeh,  Raed Hawatmeh and Roger Kokozyon (see "Security
Ownership of Certain  Beneficial Owners and  Management"),  entered into lock-up
agreements with Future, whereby they agreed not to sell to the public any shares
of our  common  stock held by them.  Such  lock-up  agreements  expired of their
terms, were not renewed, and are no longer in effect.












                                       73



In May 2005, in connection  with our issuance of the Convertible  Debenture,  we
granted to Highgate  registration  rights,  pursuant to which we agreed to file,
within 120 days of the closing of the purchase of the Convertible  Debenture,  a
registration  statement  to  register  the resale of shares of our common  stock
issued or issuable upon  conversion of the debenture.  We also agreed to use our
best efforts to have the registration  statement  declared  effective within 270
days after filing the registration  statement.  We agreed to register the resale
of up to 100,000,000  shares, and to keep such registration  statement effective
until all of the shares  issued or issuable upon  conversion of the  Convertible
Debenture have been sold.

In December 2005, in connection with our issuance of the Cornell  Debenture,  we
granted to Cornell  registration  rights,  pursuant  to which we agreed to file,
within 120 days of the  closing of the  purchase  of the  Cornell  Debenture,  a
registration  statement  to  register  the resale of shares of our common  stock
issued or issuable upon conversion of the Cornell  Debenture.  We also agreed to
use our best  efforts  to have the  registration  statement  declared  effective
within 270 days after filing the registration  statement.  We agreed to register
the resale of up to 32,608,696 shares and 10,000,000 shares underlying warrants,
and to keep such registration statement effective until all of the shares issued
or issuable upon conversion of the Cornell Debenture have been sold.

In  connection  with the  settlement  of litigation  with Salamon  Brothers,  an
investment  firm,  we issued of 4 million  restricted  shares  and a warrant  to
purchase an  additional  7 million  shares  exercisable  at $.05 per share,  and
agreed to register the resale by the  investment  firm of the shares  issued and
those underlying the warrants.

In connection with the offerings to ANAHOP, we granted  registration rights with
respect to the resale of shares issuable upon conversion of the warrants held by
ANAHOP's  designees.  The rights granted were piggyback  rights,  and state that
upon the exercise by a holder of all of the warrants with a particular  exercise
price,  we agreed to include the resale of such shares in the next  registration
statement filed by the Company following such exercise.

Certain Relationships and Related Transactions

An explanation of the relationship between CirTran and Abacas Ventures, Inc., is
as follows:

Two  trusts,  the Saliba  Living  Trust and the  Saliba  Private  Annuity  Trust
(collectively,  the "Saliba Trusts"),  were investors in Circuit  Technology,  a
Utah  corporation  and  predecessor  entity of the Company.  The trustees of the
trusts are Tom and Betty Saliba,  and Tom Saliba,  respectively.  (Tom Saliba is
the  nephew  of the  grandfather  of  Trevor  Saliba,  one of the  directors  of
CirTran.) In July 2000,  CirTran  Corporation  merged with  Circuit  Technology.
Through that merger,  the Saliba  Trusts  became  shareholders  of CirTran.  The
Saliba  Trusts  are also  two of the  shareholders  of an  entity  named  Abacas
Ventures, Inc. ("Abacas").  At the time of the merger, CirTran was in default on
several of its obligations, including an obligation to Imperial Bank. The Saliba
Trusts,  through  Abacas,  purchased the bank's claim against CirTran to protect
their  investment  in CirTran.  Since that time,  Abacas has continued to settle
debts of CirTran to improve  Abacas's  position and to take advantage of certain
discounts  that  creditors  of CirTran  offered to settle their  claims.  On two
occasions,  the Abacas shareholders have agreed to convert outstanding debt owed
by CirTran to Abacas  into shares of CirTran  common  stock  (discussed  below).
Abacas continues to work with the company to settle claims by creditors  against
CirTran,  and, on occasion,  to provide funding.  There can be no assurance that
Abacus will agree to convert its existing  debt,  or any debt it acquires in the
future, into shares of CirTran, or that conversions will occur at a price and on
terms that are  favorable  to  CirTran.  If Abacus and CirTran  cannot  agree on
acceptable  conversion  terms,  Abacus may demand  payment of some or all of the
debt. If CirTran does not have sufficient  cash or credit  facilities to pay the
amount then due and owing by CirTran to Abacus,  Abacus may  exercise its rights
as a senior secured lender and commence foreclosure or other proceedings against
the assets of  CirTran.  Such  actions by Abacus  could have a material  adverse
effect upon CirTran and its ability to continue in business.

In January,  2002, the Company entered into an agreement with Abacas under which
the Company issued an aggregate of 19,987,853  shares of common stock to four of
Abacas's  shareholders  in exchange for  cancellation  by Abacas of an aggregate
amount of $1,499,090  in senior debt owed to the  creditors by the Company.  The
shares were issued with an exchange price of $0.075 per share, for the aggregate
amount of $1,500,000.


                                       74



In December, 2002, the Company entered into an agreement with Abacas under which
the Company issued an aggregate of 30,000,000  shares of common stock to four of
Abacas's  shareholders  in exchange for  cancellation  by Abacas of an aggregate
amount of $1,500,000  in senior debt owed to the  creditors by the Company.  The
shares were issued with an exchange price of $0.05 per share,  for the aggregate
amount of $1,500,000.

During  2002,  the Company  entered  into a verbal  bridge loan  agreement  with
Abacas.  This  agreement  allows the  Company to  request  funds from  Abacas to
finance the build-up of  inventory  relating to specific  sales.  The loan bears
interest  at 24%  and is  payable  on  demand.  There  are no  required  monthly
payments.  During the years ended  December  31, 2004 and 2003,  the Company was
advanced  $3,128,281  and  $350,000,  respectively,  and made cash  payments  of
$3,025,149 and $875,000, respectively.

During the year ended  December 31, 2004,  Abacas  completed  negotiations  with
several  vendors of the  Company,  whereby  Abacas  purchased  various  past due
amounts for goods and  services  provided by vendors,  as well as notes  payable
(see Note 6). The total of these  obligations  was  $1,263,713.  The Company has
recorded this transaction as a $1,263,713  non-cash increase to the note payable
owed to Abacas, pursuant to the terms of the Abacas agreement.

The total  principal  amount  owed to Abacas  between  the note  payable and the
bridge  loan was  $1,530,587  and  $163,742  as of  December  31, 2004 and 2003,
respectively. The total accrued interest owed to Abacas between the note payable
and the bridge loan was  $430,828 and $230,484 as of December 31, 2004 and 2003,
respectively, and is included in accrued liabilities.

In March  2005,  the  shareholders  of Abacas  agreed to  cancel  $2,050,000  of
principal and accrued  interest in return for the Company's  issuing  51,250,000
shares of our  restricted  common stock to certain  shareholders  of Abacas.  No
registration  rights were  granted.  As of July 20,  2006,  Abacas had no claims
against us.

         Additional Information

As of December 31, 2001, Iehab Hawatmeh had loaned us a total of $1,390,125. The
loans were demand  loans,  bore  interest  at 10% per annum and were  unsecured.
Effective  January  14,  2002,  we  entered  into four  substantially  identical
agreements with existing  shareholders  pursuant to which we issued an aggregate
of 43,321,186  shares of restricted  common stock at a price of $0.075 per share
for $500,000 in cash and the cancellation of $2,749,090  principal amount of our
debt. Two of these agreements were with the Saliba Private Annuity Trust, one of
our principal  shareholders,  and a related entity, the Saliba Living Trust. The
Saliba  trusts  are also  principals  of Abacas  Ventures,  Inc.,  which  entity
purchased our line of credit in May 2000. Pursuant to the Saliba agreements, the
trusts were issued a total of 26,654,520  shares of common stock in exchange for
$500,000 cash and the  cancellation  of $1,499,090 of debt. We used the $500,000
cash  from the sale of the  shares  for  working  capital.  As a result  of this
transaction,  the  percentage  of our common  stock owned by the Saliba  Private
Annuity Trust and the Saliba Living Trust increased from approximately  6.73% to
approximately 17.76%. Mr. Trevor Saliba, one of our directors and officers, is a
passive  beneficiary of the Saliba Private Annuity Trust.  Pursuant to the other
two agreements made in January 2002, we issued an aggregate of 16,666,666 shares
of  restricted  common  stock at a price of $0.075 per share in exchange for the
cancellation  of  $1,250,000  of notes  payable by two  shareholders,  Mr. Iehab
Hawatmeh (our president, a director and our principal shareholder) and Mr. Rajai
Hawatmeh. Of these shares,  15,333,333 were issued to Iehab Hawatmeh in exchange
for the cancellation of $1,150,000 in debt. As a result of this transaction, the
percentage  of our common stock owned by Mr.  Hawatmeh  increased  from 19.9% to
approximately 22.18%.

In February  2000,  prior to its  acquisition  of Vermillion  Ventures,  Inc., a
public company, Circuit Technology, Inc., while still a private entity, redeemed
680,145 shares (as presently constituted) of common stock held by Raed Hawatmeh,
who was a director of Circuit  Technology,  Inc. at that time,  in exchange  for
$80,000 of expenses paid on behalf of the director.  No other stated or unstated
rights,  privileges,  or agreements existed in conjunction with this redemption.
This  transaction  was  consistent  with other  transactions  where  shares were
offered for cash.


                                       75



In 1999,  Circuit  entered  into an  agreement  with Cogent  Capital  Corp.,  or
"Cogent," a  financial  consulting  firm,  whereby  Cogent  agreed to assist and
provide  consulting  services to Circuit in connection with a possible merger or
acquisition.  Pursuant  to the  terms  of  this  agreement,  we  issued  800,000
(pre-forward split) restricted shares (12,000,000  post-forward split shares) of
our common stock to Cogent in July 2000 in connection  with our  acquisition  of
the assets and certain  liabilities  of  Circuit.  The  principal  of Cogent was
appointed a director of Circuit after  entering  into the  financial  consulting
agreement  and  resigned as a director  prior to the  acquisition  of Circuit by
Vermillion Ventures, Inc. on July 1, 2000.

Also, as of December 31, 2004 the company owed I&R Properties, LLC, the previous
owner of our principal office and manufacturing facility for unpaid accrued rent
and accrued  interest.  The Company settled with owed I&R  Properties,  LLC., on
accrued  rent  and  interest  of  $400,000  by  issuing   10,000,000  shares  of
unregistered common stock in March 2005. I&R Properties,  LLC, is an entity that
is owned as follows:  40% by Iehab Hawatmeh,  our President,  CEO, and Chairman;
10% by Shaher  Hawatmeh,  Chief Operating  Officer of CirTran and the brother of
Iehab Hawatmeh;  and 50% by Raed Hawatmeh, a director of CirTran, but who is not
related to Iehab or Shaher Hawatmeh.

Management  believed at the time of each of these  transactions and continues to
believe  that each of these  transactions  were as fair to the  Company as could
have been made with unaffiliated third parties.

         Purchase of Interests in Landlord

On March 31, 2005, the Company entered into a Membership  Acquisition  Agreement
(the  "Acquisition  Agreement")  with  Rajayee  Sayegh  (the  "Seller")  for the
purchase  of one  hundred  percent  (100%) of the  membership  interests  in PFE
Properties LLC, a Utah limited liability company ("PFE").  Under the Acquisition
Agreement, the Company agreed to issue twenty million (20,000,000) shares of its
restricted  common stock, with a fair value of $800,000 on the date of issuance.
No registration rights were granted. The shares were issued without registration
under the 1933 Act in reliance on Section 4(2) of the Securities Act of 1933, as
amended (the "1933 Act"), and the rules and regulations promulgated thereunder.

The primary asset of PFE is its rights,  titles and interests in and to a parcel
of real property,  together with any improvements,  rents and profits thereon or
associated therewith, located at 4125 S. 6000 W., West Valley City, Utah, 84128,
where the Company presently has its headquarters and manufacturing facility.

Prior to the purchase of the  membership  interests,  on December 17, 2003,  the
Company had entered into a ten-year  lease with PFE for the property.  The lease
payments were $16,974.  Following the acquisition of the PFE interests, PFE will
continue  to own the  building,  and the  Company  will  continue  to make lease
payments under the 2003 lease.

Market for Common Equity and Related Stockholder Matters

Our common stock traded  sporadically on the Pink Sheets under the symbol "CIRT"
from July 2000 to July 2002.  Effective  July 15,  2002,  the NASD  approved our
shares of common  stock for  quotation on the NASD  Over-the-Counter  Electronic
Bulletin Board.  The following  table sets forth,  for the calendar years ending
December 31, 2004,  2003,  and 2002,  the prices of our common stock as reported
and summarized on the Pink Sheets.  These prices are based on  inter-dealer  bid
and asked prices, without markup, markdown,  commissions, or adjustments and may
not represent actual transactions.


                                       76



           Calendar Quarter Ended                High Bid     Low Bid
           ----------------------                --------     -------
           March 31, 2006                         $0.04        $0.04
           December 31, 2005                      $0.03        $0.02
           September 30, 2005                     $0.04        $0.03
           June 30, 2005                          $0.05        $0.03
           March 31, 2005                         $0.05        $0.03
           December 31, 2004                      $0.04        $0.02
           September 30, 2004                     $0.06        $0.03
           June 30, 2004                          $0.09        $0.04
           March 31, 2004                         $0.08        $0.01
           December 31, 2003                      $0.03        $0.02
           September 30, 2003                     $0.03        $0.01
           June 30, 2003                          $0.04        $0.01
           March 31, 2003                         $0.04        $0.01
           December 31, 2002                      $0.12        $0.03
           September 30, 2002                     $0.16        $0.03
           June 30, 2002                          $0.07        $0.02
           March 31, 2002                         $0.08        $0.02

As of July 20, 2006, we had  approximately  526  shareholders  of record holding
636,874,906 shares of common stock.

We have not paid,  nor  declared,  any  dividends  on our common stock since our
inception  and do not intend to declare any such  dividends  in the  foreseeable
future. Our ability to pay dividends is subject to limitations imposed by Nevada
law.  Under Nevada law,  dividends  may be paid to the extent the  corporation's
assets exceed its liabilities and it is able to pay its debts as they become due
in the usual course of business.

Recent Sales of Unregistered Securities

On June 30, 2006, we closed a second  private  placement of shares of our common
stock and  warrants  (the "June  Private  Offering").  Pursuant to a  securities
purchase  agreement  (the  "June   Agreement"),   the  Company  agreed  to  sell
Twenty-Eight   Million,   Five  Hundred  Seventy-One   Thousand,   Four  Hundred
Twenty-Eight  (28,571,428)  shares of its Common  Stock (the "June  Shares")  to
ANAHOP, Inc., a California  corporation.  The total consideration to be paid for
the Shares will be Two Million Dollars  ($2,000,000) if all tranches of the sale
close.  We also  issued  warrants  (the "June  Warrants")  to  purchase up to an
additional 63,000,000 shares of our common stock to designees of ANAHOP.

With respect to the shares  underlying the June Warrants,  we granted  piggyback
registration  rights as follows:  (A) once all of the warrants  with an exercise
price of $0.15 (the "Fifteen Cent Warrants")  have been exercised,  we agreed to
include in the next  registration  statement  that is filed by us the resales of
the shares  issued upon exercise of the Fifteen Cent  Warrants;  (B) once all of
the warrants with an exercise price of $0.25 (the  "Twenty-five  Cent Warrants")
have been  exercised,  we agreed to include in the next  registration  statement
that is filed by us the  resales  of the  shares  issued  upon  exercise  of the
Twenty-five  Cent  Warrants;  and (C) once all of the warrants  with an exercise
price of $0.50 (the "Fifty Cent  Warrants")  have been  exercised,  we agreee to
include in the next  registration  statement  that is filed by us the resales of
the shares issued upon exercise of the Fifty Cent Warrants. We did not grant any
registration  rights  with  respect  to the  Shares  sold  in the  June  private
placement.

The Shares and the June  Warrants sold in the June 2006 private  placement  were
issued  without  registration  under the 1933 Act in reliance on Section 4(2) of
the 1933 Act and the rules and regulations promulgated thereunder.  We intend to
use the  proceeds  from the Private  Offering  for  working  capital and general
business purposes.

On May 24, 2006, we closed a private placement of shares of our common stock and
warrants in which we sold Fourteen Million,  Two Hundred  Eighty-five  Thousand,


                                       77



Seven Hundred Fifteen  (14,285,715) shares of our Common Stock (the "Shares") to
ANAHOP, and issued warrants to purchase up to an additional 30,000,000 shares of
our common stock to designees of ANAHOP.  The consideration  paid for the Shares
was One Million Dollars ($1,000,000).

With  respect to the  shares  underlying  the  Warrants,  we  granted  piggyback
registration  rights as follows:  (A) once all of the warrants  with an exercise
price of $0.15 (the "Fifteen Cent Warrants")  have been exercised,  we agreed to
include in the next  registration  statement  that is filed by us the resales of
the shares  issued upon exercise of the Fifteen Cent  Warrants;  (B) once all of
the warrants with an exercise price of $0.25 (the  "Twenty-five  Cent Warrants")
have been  exercised,  we agreed to include in the next  registration  statement
that is filed by us the  resales  of the  shares  issued  upon  exercise  of the
Twenty-five  Cent  Warrants;  and (C) once all of the warrants  with an exercise
price of $0.50 (the "Fifty Cent  Warrants")  have been  exercised,  we agreee to
include in the next  registration  statement  that is filed by us the resales of
the shares issued upon exercise of the Fifty Cent Warrants. We did not grant any
registration rights with respect to the Shares.

The Shares and the Warrants were issued without  registration under the 1933 Act
in  reliance  on  Section  4(2) of the 1933 Act and the  rules  and  regulations
promulgated  thereunder.  We used the  proceeds  from the Private  Offering  for
working  capital and general  business  purposes,  including the purchase of the
assets of ABS (discussed above in the "Recent Developments" section).
















                                       78



In January 2006,  Highgate converted $750,000 of its convertible  debenture into
24,193,548 shares of the Company's  restricted common stock at a conversion rate
of $0.031 per share,  which was the lower of $0.10 or 100% of the lowest closing
bid price of the Company's  commons stock over the 20 trading days preceding the
conversion.

In February 2006, we issued 4,000,000 shares of our restricted  common stock and
a warrant to purchase an additional  7,000,000  shares with an exercise price of
$0.06 per share in settlement of litigation.

In each case the securities were issued in connection with private  transactions
with accredited investors pursuant to Section 4(2) of the Securities Act of 1933
and the regulations promulgated thereunder.

In December 2005, we entered into a securities  purchase  agreement with Cornell
Capital Partners ("Cornell"),  concerning the issuance of an aggregate principal
amount of $1,500,000 of Convertible Debentures.  The issuance of the Convertible
Debentures to Cornell was made in reliance on Section 4(2) of the Securities Act
of 1933,  as amended  (the  "1933  Act") and rules and  regulations  promulgated
thereunder,  as a transaction not involving any public offering.  No advertising
or general  solicitation  was  employed  in  offering  the  securities,  and the
Convertible  Debenture was issued to only one investor which represented that it
is an "accredited  investor" as that term is defined in Regulation D promulgated
pursuant to the Securities Act of 1933. Through April 17, 2006, we had issued no
shares of our common stock in connection with any conversions of the Convertible
Debentures, and we had received notice of no conversions from Cornell.

In May 2005,  we entered  into a securities  purchase  agreement  with  Highgate
concerning  the  issuance  of the  Convertible  Debenture.  The  issuance of the
Convertible  Debenture  to Highgate  was made in reliance on Section 4(2) of the
1933 Act, and rules and regulations promulgated thereunder, as a transaction not
involving  any public  offering.  No  advertising  or general  solicitation  was
employed in offering the securities, and the Convertible Debenture was issued to
only one investor which represented that it is an "accredited  investor" as that
term is defined in Regulation D promulgated  pursuant to the  Securities  Act of
1933.  Through April 17, 2006, we had issued 24,193,548 shares of our restricted
common  stock in  connection  with  conversions  of $750,000 of the  Convertible
Debentures,  and we had received  notice of the conversion  from Highgate.  This
registration statement is filed to register the resale of shares into the market
that Highgate will receive upon conversion of the Convertible Debenture, and our
issuances of shares to Highgate will be made without registration under the 1933
Act in reliance on Section 4(2) of the 1933 Act,  and the rules and  regulations
promulgated thereunder.

In March 2005, the Company  entered into  agreements  with eight  individuals or
entities  (collectively,  the "Lenders") to whom the Company was indebted, in an
aggregate  amount of $2,450,000,  pursuant to which, the Company agreed to issue
an aggregate of 61,250,000 shares of its restricted common stock in exchange for
the Lenders'  agreeing to cancel the debt obligations owed by the Company.  With
respect  to  $2,050,000  of the  indebtedness,  that  amount  was owed to Abacas
Ventures, Inc. ("Abacas"), a company that had purchased certain of the Company's
obligations.  Abacas agreed to the  cancellation of the Company's  obligation to
Abacas  in return  for the  Company's  issuing  shares to  certain  of  Abacas's
shareholders  and  the  other  named  individuals.   Trevor  Saliba,  who  is  a
beneficiary  of the Saliba  Private  Annuity  Trust,  has been a director of the
Company  since June 2001.  The remaining  $400,000 was due to I&R  Properties in
connection with past rent on the Company's headquarters building. I&R Properties
is a company owned and controlled by individuals who are officers, directors and
principal  stockholders.  The  issuances  of shares to the Lenders  were made in
reliance on Section 4(2) of the 1933 Act, and rules and regulations  promulgated
thereunder,  as a transaction not involving any public offering.  No advertising
or general solicitation was employed in the issuance of the securities.

On March 31, 2005, the Company entered into a Membership  Acquisition  Agreement
(the  "Acquisition  Agreement")  with  Rajayee  Sayegh  (the  "Seller")  for the
purchase  of one  hundred  percent  (100%) of the  membership  interests  in PFE
Properties LLC, a Utah limited liability company ("PFE").  Under the Acquisition
Agreement, the Company agreed to issue twenty million (20,000,000) shares of its
restricted  common stock,  with an estimated value of $800,000.  No registration
rights were granted.  The shares were issued without registration under the 1933
Act in reliance on Section 4(2) of the  Securities  Act of 1933, as amended (the


                                       79



"1933  Act"),  and  the  rules  and  regulations  promulgated  thereunder,  as a
transaction  not  involving  any  public  offering.  No  advertising  or general
solicitation was employed in the issuance of the securities

Pursuant to the Equity Line of Credit Agreement,  we were entitled to put to the
Equity Line Investor,  in lieu of repayment of amounts drawn on the Equity Line,
shares of the Company's common stock.  Although the Company filed a registration
statement to register  the resale by the Equity Line  Investor of the shares put
to it by the  Company,  the  issuances  of  shares to the  Company  were made in
reliance on Section 4(2) of the 1933 Act, and rules and regulations  promulgated
thereunder,  as a transaction not involving any public offering.  No advertising
or general solicitation was employed in offering the securities,  and the shares
were issued to only one investor  which  represented  that it is an  "accredited
investor" as that term is defined in  Regulation D  promulgated  pursuant to the
Securities Act of 1933.  Through December 31, 2003, we issued  64,253,508 shares
of common  stock to the Equity  Line  Investor in  connection  with draws on the
Equity Line.  Subsequent to December 31, 2003,  and through  August 31, 2004, we
issued an  aggregate  of  57,464,386  shares of Common  Stock to the Equity Line
Investor in  connection  with draws on the Equity Line.  We used the proceeds of
the draws on the Equity Line to pay outstanding liabilities,  including notes to
Cornell, the Equity Line Investor,  discussed above. As noted above, the Company
has terminated the Equity Line of Credit Agreement.

In December, 2002, the Company entered into an agreement with Abacas under which
the Company issued an aggregate of 30,000,000 shares of common stock in exchange
for cancellation of an aggregate amount of $1,500,000 in senior debt owed to the
creditors by the Company. The shares were issued with an exchange price of $0.05
per share,  for the aggregate  amount of  $1,500,000.  The Company did not grant
registration  rights to the four  creditors.  The  shares  were  issued  without
registration  under the 1933 Act in reliance on Section 4(2) of the 1933 Act, as
amended (the "1933 Act"), and the rules and regulations promulgated thereunder.

In January,  2002, the Company entered into an agreement with Abacas under which
the Company issued an aggregate of 19,987,853 shares of common stock in exchange
for cancellation of an aggregate amount of $1,499,090 in senior debt owed to the
creditors  by the  Company.  The shares were  issued  with an exchange  price of
$0.075 per share,  for the aggregate  amount of $1,500,000.  The Company did not
grant registration rights to the four creditors.  The shares were issued without
registration  under the 1933 Act in reliance on Section  4(2) of the  Securities
Act of 1933,  as  amended  (the  "1933  Act"),  and the  rules  and  regulations
promulgated thereunder.

Penny Stock Rules

Our  shares of common  stock  are  subject  to the  "penny  stock"  rules of the
Securities  Exchange  Act of 1934 and  various  rules under this Act. In general
terms,  "penny stock" is defined as any equity  security that has a market price
less than $5.00 per share, subject to certain exceptions. The rules provide that
any equity  security is  considered  to be a penny stock unless that security is
registered  and  traded on a  national  securities  exchange  meeting  specified
criteria set by the SEC,  authorized for quotation from the NASDAQ stock market,
issued by a registered  investment company,  and excluded from the definition on
the basis of price (at least  $5.00 per  share),  or based on the  issuer's  net
tangible assets or revenues.  In the last case, the issuer's net tangible assets
must exceed  $3,000,000 if in  continuous  operation for at least three years or
$5,000,000  if in operation for less than three years,  or the issuer's  average
revenues for each of the past three years must exceed $6,000,000.

Trading  in  shares of penny  stock is  subject  to  additional  sales  practice
requirements  for  broker-dealers  who sell penny  stocks to persons  other than
established  customers  and  accredited  investors.   Accredited  investors,  in
general,  include  individuals  with  assets in excess of  $1,000,000  or annual
income exceeding $200,000 (or $300,000 together with their spouse),  and certain
institutional investors. For transactions covered by these rules, broker-dealers
must make a special  suitability  determination for the purchase of the security
and must have received the purchaser's  written consent to the transaction prior
to the purchase.  Additionally, for any transaction involving a penny stock, the
rules require the delivery, prior to the first transaction, of a risk disclosure
document  relating to the penny stock.  A  broker-dealer  also must disclose the
commissions payable to both the broker-dealer and the registered representative,
and current  quotations for the security.  Finally,  monthly  statements must be
sent disclosing recent price  information for the penny stocks.  These rules may
restrict  the  ability of  broker-dealers  to trade or  maintain a market in our


                                       80



common  stock,  to the extent it is penny  stock,  and may affect the ability of
shareholders to sell their shares.

Executive Compensation

The  following  table sets forth  certain  information  regarding the annual and
long-term  compensation for services to us in all capacities  (including Circuit
Technologies,  Inc.) for the prior fiscal years ended  December 31, 2005,  2004,
and 2003,  of those  persons  who were  either (i) the chief  executive  officer
during the last completed  fiscal year or (ii) one of the other four most highly
compensated  executive officers as of the end of the last completed fiscal year.
The individuals  named below received no other  compensation of any type,  other
than as set out below, during the fiscal years indicated.



------------------------  -------------------------  ---------------------  ------------
                                                          Long-Term
                             Annual Compensation     Compensation Awards
------------------------  -------------------------  ---------------------  ------------
                                                     Restricted
                                         Bonus/      Stock       Stock      All
Name and                        Salary   Commission  Awards      Options    Other
Principal Position        Year  ($)      ($)         ($)         (#)        Compensation
------------------------  ----  -------  ----------  ----------  ---------  ------------
                                                          
Iehab J. Hawatmeh         2005  225,000   114,219            -   6,000,000            -
  President, Secretary,   2004  200,000         -            -   3,500,000            -
  Treasurer and Director  2003  175,000         -            -   6,500,000            -
                          2002  175,000         -            -   1,850,000            -
------------------------  ----  -------  ----------  ----------  ---------  ------------
Trevor M. Saliba          2005  120,000    31,895            -   5,000,000            -
  Sr. Vice President      2004  108,000         -            -   4,250,000            -
  and Director of         2003  127,000         -            -   3,000,000            -
  CirTran Corporation     2002  118,000         -            -     500,000            -
------------------------  ----  -------  ----------  ----------  ---------  ------------
Raed S. Hawatmeh          2005        -         -            -   4,000,000            -
  Resigned as Director    2004        -         -            -   2,500,000            -
  of CirTran              2003        -         -            -   3,000,000            -
  Corporation             2002        -         -            -     500,000            -
  May 10, 2006.
------------------------  ----  -------  ----------  ----------  ---------  ------------
Charles Ho                2005        -   460,126            -     500,000            -
  President of            2004        -   157,389            -           -            -
  CirTran Asia            2003        -         -            -           -            -
                          2002        -         -            -           -            -
------------------------  ----  -------  ----------  ----------  ---------  ------------


There have not been any employee options or stock appreciation rights granted to
executives from January 1, 2006 to July 20, 2006.

Option/SAR Grants in the Year Ended December 31, 2005

--------------  ------------  ---------------  ----------------  ---------------
                Number of     % of  Total
                Securities    Options Granted
                Underlying    to Employees
                Options/SARs  in Fiscal        Exercise or Base
Name            Granted (#)   Year             Price ($/Sh)      Expiration Date
--------------  ------------  ---------------  ----------------  ---------------
Iehab Hawatmeh  6,000,000     30.00%           $0.022 - $0.027   Jan - Dec 2010
--------------  ------------  ---------------  ----------------  ---------------
Trevor Saliba   5,000,000     25.00%           $0.022 - $0.027   Jan - Dec 2010
--------------  ------------  ---------------  ----------------  ---------------
Raed Hawatmeh   4,000,000     20.00%           $0.022 - $0.027   Jan - Dec 2010
--------------  ------------  ---------------  ----------------  ---------------
Charles Ho        500,000      2.00%           $0.06             Jan 2006
--------------  ------------  ---------------  ----------------  ---------------


                                       81



Option/SAR Grants in the Year Ended December 31, 2004

--------------  ------------  ---------------  ----------------  ---------------
                Number of     % of Total
                Securities    Options Granted
                Underlying    to Employees
                Options/SARs  in Fiscal        Exercise or Base
Name            Granted (#)   Year             Price ($/Sh)      Expiration Date
--------------  ------------  ---------------  ----------------  ---------------
Iehab Hawatmeh  3,500,000     14.58%           $0.015 - $0.03    Jan - Dec 2009
--------------  ------------  ---------------  ----------------  ---------------
Trevor Saliba   4,250,000     17.71%           $0.015 - $0.03    Jan - Dec 2009
--------------  ------------  ---------------  ----------------  ---------------
Raed Hawatmeh   3,500,000     14.58%           $0.015 - $0.03    Jan - Dec 2009
--------------  ------------  ---------------  ----------------  ---------------

Aggregated Option/SAR Exercises in the Year Ended December 31, 2005 and December
31, 2005 Option/SAR Values

--------------  ------------  ------------  ------------------  ---------------
                                            Number of
                                            Securities          Value of
                                            Underlying          Unexercised
                                            Unexercised         In-the-Money
                Shares                      Options/SARs at FY  Options/SARs at
                Acquired                    End (#)             FY-End ($)
                on            Value         Exercisable/        Exercisable/
Name            Exercise (#)  Realized ($)  Unexercisable       Unexercisable
--------------  ------------  ------------  ------------------  ---------------
Iehab Hawatmeh  8,000,000     $198,000                -         $        -
--------------  ------------  ------------  ------------------  ---------------
Trevor Saliba   4,000,000     $100,000      3,000,000/0         $ 71,000/0
--------------  ------------  ------------  ------------------  ---------------
Raed Hawatmeh   3,000,000     $73,000       5,250,000/0         $123,500/0
--------------  ------------  ------------  ------------------  ---------------
Charles Ho              -           -         500,000/0                  -
--------------  ------------  ------------  ------------------  ---------------

Aggregated Option/SAR Exercises in the Year Ended December 31, 2004 and December
31, 2004 Option/SAR Values

--------------  ------------  ------------  ------------------  ---------------
                                            Number of
                                            Securities          Value of
                                            Underlying          Unexercised
                                            Unexercised         In-the-Money
                Shares                      Options/SARs at FY  Options/SARs at
                Acquired                    End (#)             FY-End ($)
                on            Value         Exercisable/        Exercisable/
Name            Exercise (#)  Realized ($)  Unexercisable       Unexercisable
--------------  ------------  ------------  ------------------  ---------------
Iehab Hawatmeh  1,500,000     $33,750                 -         $       -
--------------  ------------  ------------  ------------------  ---------------
Trevor Saliba   2,250,000     $56,250                 -         $       -
--------------  ------------  ------------  ------------------  ---------------
Raed Hawatmeh   750,000       $11,250       2,250,000/0         $52,500/0
--------------  ------------  ------------  ------------------  ---------------

Options issuable in connection with Manufacturing Agreement -- On June 10, 2004,
we entered into an exclusive  manufacturing  agreement with certain  Developers,
including  Charles Ho, the  President  of  CirTran-Asia.  Under the terms of the
agreement,  we,  through  our wholly  owned  subsidiary  CirTran-Asia,  have the
exclusive right to manufacture  certain products  developed by the Developers or
any of their affiliates. In connection with this agreement,  through January 17,
2006, we had identified  seven  products,  in connection with which we agreed to
issue options to purchase  shares common stock to the Developers  upon the sale,
shipment  and  payment  for  specified  amounts  of  units  of a the  identified
products,  as set forth  below.  The options  will be  exercisable  at $0.06 per


                                       82



share,  vest on the grant date and expire one year after issuance.  The schedule
of units and potential options that will be issued follows:

---------------------  ------- -----------  -----------  --------  -------------
                                            Each         Options   Options
                               Options for  Multiple of  for Each  Issued
                               Initial      Units Above  Multiple  Through
                       Initial Units        Initial      of        July 20,
Product                Units   Sold(1)      Units        Units     2006
---------------------  ------- -----------  -----------  --------  -------------
Ab King Pro            500,000    500,000      100,000   100,000   1,500,000 (3)
---------------------  ------- -----------  -----------  --------  -------------
Ab Roller              500,000    500,000      200,000   100,000           -
---------------------  ------- -----------  -----------  --------  -------------
Ab Trainer Club Pro     25,000    500,000       15,000   100,000           -
---------------------  ------- -----------  -----------  --------  -------------
Instant Abs            100,000    500,000       50,000   100,000           -
---------------------  ------- -----------  -----------  --------  -------------
Hot Dog Express (2)    300,000  1,000,000      100,000   200,000           -
---------------------  ------- -----------  -----------  --------  -------------
Condiment Caddy        200,000    250,000      100,000   100,000           -
---------------------  ------- -----------  -----------  --------  -------------
Denise Austin Pilates  200,000    500,000      100,000   100,000           -
---------------------  ------- -----------  -----------  --------  -------------

(1)      Except as set forth in Notes (2) and (3), the options set forth in this
table are issuable to Charles Ho, President of our subsidiary CirTran-Asia.

(2)      Of the  options  for  initial  units  sold for this  product,  Mr.  Ho,
President of CirTran-Asia,  is entitled to receive  700,000,  with the remaining
300,000  going to the other  developer.  For each  multiple  of units  above the
initial units,  Mr. Ho and the other  developers are each entitled to receive an
additional 100,000 options, for an aggregate of 200,000 options.

(3)      Of the options issued in connection with this product,  Mr. Ho received
500,000, and two other developers each received 500,000 options.

As of July 20, 2006, we had issued a total of 1,500,000  options pursuant to the
agreement relating to the Ab King Pro, but had not received sufficient orders or
shipped  sufficient  quantities  of the  other  products  listed in the table to
trigger the issuance of additional options. Of the 1,500,000 options issued, Mr.
Ho received 500,000 options.  The 1,500,000 options were issued with an exercise
price of $0.06 per share,  and all  1,500,000  options  expired in January  2006
pursuant to their terms.

During 2004, Mr. Ho received approximately $157,400 in commissions in connection
with the  manufacturing  agreement.  During 2005, Mr. Ho received  approximately
$460,200 in commissions in connection with the  manufacturing  agreement.  As of
July 20, 2006,  Mr. Ho had received  approximately  $112,000 in  commissions  in
connection with the manufacturing agreement.

Mr.  Ho's   commissions  are  calculated  by   predetermined   percentages  from
manufacturing  agreements  and/or  appendixes.   Most  of  the  commissions  are
calculated  using the sales price less freight and cost of sales to the factory,
that amount is then  multiplied  by the contract  percentage,  per unit for each
product, after the payment has been received.


                                       83



Employment Agreements

On July 1, 2004, CirTran Corporation  entered into an employment  agreement with
Iehab Hawatmeh, dated as of June 26, 2004. The agreement, which is for a term of
five years and renews automatically on a year-to year basis, provides for a base
salary of $225,000,  plus a bonus of 5% of our earnings before interest,  taxes,
depreciation,  and amortization,  payable quarterly,  as well as any other bonus
our board of directors may approve. Under the Agreement,  Mr. Hawatmeh agreed to
serve as our Chief  Executive  Officer and  President  and to perform such other
duties as  delegated  by our board of  directors.  The  agreement  provides  for
benefits including health insurance  coverage,  cell phone, car allowance,  life
insurance, and D&O insurance. Under the Agreement, Mr. Hawatmeh's employment may
be terminated for cause, or upon his death or disability.  In the event that Mr.
Hawatmeh  is  terminated  without  cause,  we are  obligated  to pay  him,  as a
severance payment, an amount equal to five full years of his then-current annual
base compensation,  half upon such termination and half one year later, together
with a continuation of insurance benefits for a period of five years.

Additionally,  on July 1, 2004, CirTran  Corporation  entered into an employment
agreement with Trevor Saliba, dated as of June 26, 2004. The agreement, which is
for a term of three  years and renews  automatically  on a year-to  year  basis,
provides  for a base salary of  $120,000,  plus a bonus of 1% of our gross sales
generated  directly by Mr. Saliba,  a bonus of 5% of all gross  investments made
into CirTran which are directly generated and arranged by Mr. Saliba, a bonus of
1% of the net  purchase  price of any  acquisitions  completed  by us which  are
directly generated and arranged by Mr. Saliba (payable in CirTran common stock),
as well as any  other  bonus  our  board of  directors  may  approve.  Under the
Agreement,  Mr. Saliba agreed to serve as our Executive  Vice President of Sales
and  Marketing,  and to perform  such other  duties as delegated by our board of
directors.  The  agreement  provides for  benefits  including  health  insurance
coverage, cell phone, car allowance,  life insurance,  and D&O insurance.  Under
the Agreement,  Mr. Saliba's employment may be terminated for cause, or upon his
death or disability.  In the event that Mr. Saliba is terminated  without cause,
we are  obligated  to pay him, as a severance  payment,  an amount  equal to one
years'  salary.  If the Agreement  expires of its terms or is terminated for any
reason,  Mr.  Saliba may not  compete  with us for a period of one year from the
date of termination of the agreement.  Mr. Saliba also agreed not to solicit our
employees or customers, or attempt to induce anyone to cease doing business with
us for a period of two years after the termination of the agreement.

On July 1, 2004, we also entered into an employment agreement,  dated as of June
26, 2004, with Shaher  Hawatmeh,  the brother of Iehab Hawatmeh.  The agreement,
which is for a term of three years and renews  automatically  on a year-to  year
basis,  provides  for a base  salary  of  $150,000,  plus a  bonus  of 1% of our
earnings  before  interest,  taxes,  depreciation,  and  amortization,   payable
quarterly,  as well as any other bonus our board of directors may approve. Under
the  Agreement,  Mr.  Shaher  Hawatmeh  agreed to serve as our  Chief  Operating
Officer,  and to  perform  such  other  duties  as  delegated  by our  board  of
directors.  The  agreement  provides for  benefits  including  health  insurance
coverage,  cell phone, life insurance,  and D&O insurance.  Under the Agreement,
Mr. Shaher Hawatmeh's  employment may be terminated for cause, or upon his death
or  disability.  In the event that Mr.  Shaher  Hawatmeh is  terminated  without
cause, we are obligated to pay him, as a severance  payment,  an amount equal to
one years'  salary.  If the Agreement  expires of its terms or is terminated for
any reason, Mr. Shaher Hawatmeh may not compete with us for a period of one year
from the date of termination of the agreement.  Mr. Shaher  Hawatmeh also agreed
not to solicit our employees or customers,  or attempt to induce anyone to cease
doing  business with us for a period of two years after the  termination  of the
agreement.

On June 15, 2004,  our  subsidiary,  CirTran-Asia,  entered  into an  employment
agreement with Charles Ho. The agreement, which is for a term of three years and
renews automatically on a year-to year basis,  provides that for each additional
product that Mr. Ho procures pursuant to the agreement between  CirTran-Asia and
Michael  Casey  Enterprises,  LTD.,  Mr. Ho shall be  entitled  to receive  such
compensation  as  provided  for in that  agreement  in the  form of  options  to
purchase shares of CirTran common stock. Under the Agreement,  CirTran-Asia will
not provide benefits to Mr. Ho., and his employment may be terminated for cause,
or upon his death or  disability.  If the  Agreement  expires of its terms or is
terminated  for any reason,  Mr. Ho may not compete  with us for a period of one
year from the date of termination  of the  agreement.  Mr. Ho also agreed not to
solicit our employees or  customers,  or attempt to induce anyone to cease doing
business  with  us for a  period  of two  years  after  the  termination  of the
agreement.


                                       84



On May 15,  2006,  Richard  T.  Ferrone  entered  into a  three-year  employment
contract with the Company to serve as the Chief Financial Officer of the Company
to perform those duties delegated by the Board of Directors and the President of
the Company and all other duties consistent with such  description.  The term of
his  employment  started on May 15,  2006,  and will  continue  for three  years
thereafter,  unless  sooner  terminated  by  either  party  as  provided  in the
agreement.  Thereafter,  the  agreement  will  be  automatically  renewed  on  a
year-to-year basis after the expiration of the initial or any subsequent term of
the Agreement  unless  terminated by either party as provided in the  agreement.
Mr. Ferrone will receive,  commencing on May 15, 2006, a base salary of $120,000
per year.  The base salary  shall be reviewed by the Board  annually  and may be
increased as determined by the Board.  The Board's  determination of salary will
be based primarily on Mr. Ferrone's ability to meet, and to cause the Company to
meet, annually  established goals. He is also entitled to a bonus of $30,000 per
year, payable in quarterly increments. In addition, he may be granted options to
purchase shares of the Company's common stock as determined from time to time by
the Board or the Committee  established  pursuant to the Company's  Stock Option
Plan.

2001 Stock Plan

The 2001 Stock Plan has been fully distributed.

2002 Stock Plan

The 2002 Stock Plan has been fully distributed.

2003 Stock Plan

In November  2003,  our board  approved and adopted our 2003 Stock Plan,  or the
2003 Plan, subject to shareholder approval. An aggregate of 35,000,000 shares of
our common  stock are  subject to the 2003 Plan,  which  provides  for grants to
employees,  officers,  directors  and  consultants  of  both  non-qualified  (or
non-statutory)  stock options and "incentive  stock options" (within the meaning
of Section 422 of the Internal Revenue Code of 1986, as amended).  The 2003 Plan
also provides for the grant of certain stock purchase rights,  which are subject
to a purchase  agreement  between us and the recipient.  The purpose of the 2003
Plan is to enable us to  attract  and retain the best  available  personnel  for
positions of substantial responsibility, to provide additional incentive to such
persons, and to promote the success of our business.

The 2003 Plan is administered by our board of directors,  which  designates from
time to time the  individuals  to whom awards are made under the 2003 Plan,  the
amount of any such  award and the price and other  terms and  conditions  of any
such award.  The 2003 Plan shall  continue in effect until the date which is ten
years  from the date of its  adoption  by the  board of  directors,  subject  to
earlier  termination  by our board.  The board may suspend or terminate the 2003
Plan at any time.

The board determines the persons to whom options are granted,  the option price,
the number of shares to be covered by each  option,  the period of each  option,
the  times at which  options  may be  exercised  and  whether  the  option is an
incentive or non-statutory  option.  No employee may be granted options or stock
purchase  rights under the 2003 Plan for more than an  aggregate  of  15,000,000
shares in any given  fiscal year.  We do not receive any monetary  consideration
upon the granting of options.  Options are  exercisable  in accordance  with the
terms of an option agreement entered into at the time of grant.

The board may also award our shares of common stock under the 2003 Plan as stock
purchase rights.  The board determines the persons to receive awards, the number
of shares to be awarded and the time of the award. Shares received pursuant to a
stock  purchase  right are  subject to the terms,  conditions  and  restrictions
determined  by the  board at the time the  award  is  made,  as  evidenced  by a
restricted stock purchase agreement.

As of April 8, 2005,  35,000,000  options to purchase shares of common stock and
no stock purchase  rights had been granted under the 2003 Plan.  Therefore,  the
2003 Plan had been fully distributed.


                                       85



2004 Stock Plan

In December  2004,  our board  approved and adopted our 2004 Stock Plan,  or the
2004 Plan, subject to shareholder approval. An aggregate of 40,000,000 shares of
our common  stock are  subject to the 2003 Plan,  which  provides  for grants to
employees,  officers,  directors  and  consultants  of  both  non-qualified  (or
non-statutory)  stock options and "incentive  stock options" (within the meaning
of Section 422 of the Internal Revenue Code of 1986, as amended).  The 2004 Plan
also provides for the grant of certain stock purchase rights,  which are subject
to a purchase  agreement  between us and the recipient.  The purpose of the 2004
Plan is to enable us to  attract  and retain the best  available  personnel  for
positions of substantial responsibility, to provide additional incentive to such
persons, and to promote the success of our business.

The 2004 Plan is administered by our board of directors,  which  designates from
time to time the  individuals  to whom awards are made under the 2004 Plan,  the
amount of any such  award and the price and other  terms and  conditions  of any
such award.  The 2004 Plan shall  continue in effect until the date which is ten
years  from the date of its  adoption  by the  board of  directors,  subject  to
earlier  termination  by our board.  The board may suspend or terminate the 2004
Plan at any time.

The board determines the persons to whom options are granted,  the option price,
the number of shares to be covered by each  option,  the period of each  option,
the  times at which  options  may be  exercised  and  whether  the  option is an
incentive or non-statutory  option.  No employee may be granted options or stock
purchase  rights under the 2004 Plan for more than an  aggregate  of  15,000,000
shares in any given  fiscal year.  We do not receive any monetary  consideration
upon the granting of options.  Options are  exercisable  in accordance  with the
terms of an option agreement entered into at the time of grant.

The board may also award our shares of common stock under the 2004 Plan as stock
purchase rights.  The board determines the persons to receive awards, the number
of shares to be awarded and the time of the award. Shares received pursuant to a
stock  purchase  right are  subject to the terms,  conditions  and  restrictions
determined  by the  board at the time the  award  is  made,  as  evidenced  by a
restricted stock purchase agreement.

As of July 20, 2006,  40,000,000  options to purchase shares of common stock and
no stock purchase rights had been granted under the 2004 Plan.

The  following  table  sets  forth   information   about  the  Company's  equity
compensation  plans,  including  the number of  securities to be issued upon the
exercise of outstanding  options,  warrants,  and rights;  the weighted  average
exercise price of the outstanding options,  warrants, and rights; and the number
of securities  remaining available for issuance under the specified plan through
July 20, 2006.


                                       86





-------------------------  --------------------------  -------------------------  -------------------------
                           Number of securities to be  Weighted average exercise  Number of securities
                           issued upon exercise of     price of outstanding       remaining available for
                           outstanding options,        options, warrants, and     future issuance under
Plan Category              warrants, and rights        rights                     equity compensation plans
-------------------------  --------------------------  -------------------------  -------------------------
                                                                         
Equity compensation plans
approved by shareholders
                                     0                            0                          0
-------------------------  --------------------------  -------------------------  -------------------------

Equity compensation plans     2002 Plan: 500            2002 Plan: $0.0001/share   2002 Plan: 0 options
not approved by                          options
shareholders                  2003 Plan: 3,750,000      2003 Plan: $0.01/share     2003 Plan: 0 options
                                         options
                              2004 Plan:  5,500,000     2004 Plan: $0.03/share     2004 Plan: 0 options
                                         options

-------------------------  --------------------------  -------------------------  -------------------------

Total                                    9,250,500                 $0.03/share                      0
-------------------------  --------------------------  -------------------------  -------------------------




Changes in and  disagreements  with  accountants  on  accounting  and  financial
disclosure

None.

Index to Financial Statements
                                                                          Page
Report of Independent Certified Public Accountants                         F-2
Consolidated Balance Sheets as of December 31, 2005 and 2004               F-3
Consolidated Statements of Operations for the Years Ended
 December 31, 2005 and 2004                                                F-4
Consolidated Statement of Stockholders' Deficit for the Years
 Ended December 31, 2004 and 2005                                          F-5
Consolidated Statements of Cash Flows for the Years Ended
 December 31, 2005 and 2004                                                F-6
Notes to Consolidated Financial Statements                                 F-8

Consolidated Balance Sheets as of March 31, 2006 and
 December 31, 2005                                                         Q-2
Consolidated Statements of Operations for the Three Months
 Ended March 31, 2006 and 2005                                             Q-3
Consolidated Statements of Cash Flows for the Three Months
 Ended March 31, 2006 and 2005                                             Q-4
Notes to Consolidated Financial Statements                                 Q-6


Experts

Our  consolidated  balance  sheets as of  December  31,  2005 and 2004,  and the
consolidated  statements of operations,  stockholders'  deficit, and cash flows,
for the years then ended,  have been included in the  registration  statement on
Form SB-2 of which this  prospectus  forms a part,  in reliance on the report of
Hansen,  Barnett & Maxwell,  independent certified public accountants,  given on
the authority of that firm as experts in auditing and accounting.

Legal matters

The validity of the Shares  offered  hereby will be passed upon for us by Durham
Jones & Pinegar, P.C., 111 East Broadway, Suite 900, Salt Lake City, Utah 84111.








                                       87



                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

     The following financial statements of CirTran Corporation and related notes
thereto and auditors' report thereon are filed as part of this Form 10-KSB:

                                                                        Page

    Report of Independent Registered Public Accounting Firm              F-2

    Consolidated Balance Sheets as of December 31, 2005 and 2004         F-3

    Consolidated Statements of Operations for the Years Ended
     December 31, 2005 and 2004                                          F-4

    Consolidated  Statement of Stockholders' Equity (Deficit) for
     the Years Ended December 31, 2004 and 2005                          F-5

    Consolidated Statements of Cash Flows for the Years Ended
     December 31, 2005 and 2004                                          F-6

    Notes to Consolidated Financial Statements                           F-8


















                                      F-1


   HANSEN, BARNETT & MAXWELL
  A Professional Corporation
 CERTIFIED PUBLIC ACCOUNTANTS                Registered with the Public Company
              AND                               Accounting Oversight Board
     BUSINESS CONSULTANTS
   5 Triad Center, Suite 750
Salt Lake City, UT 84180-1128
     Phone: (801) 532-2200
      Fax: (801) 532-7944
        www.hbmcpas.com


             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Directors and the Stockholders
CirTran Corporation


We  have  audited  the  accompanying  consolidated  balance  sheets  of  CirTran
Corporation  and  Subsidiaries as of December 31, 2005 and 2004, and the related
consolidated statements of operations,  stockholders' equity (deficit), and cash
flows  for  the  years  then  ended.   These   financial   statements   are  the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance  with the standards of the Public  Company
Accounting Oversight Board (United States). Those standards require that we plan
and  perform  the  audits to  obtain  reasonable  assurance  about  whether  the
financial  statements  are free of  material  misstatement.  An  audit  includes
examining,  on a test basis,  evidence supporting the amounts and disclosures in
the  financial  statements.  An audit also  includes  assessing  the  accounting
principles  used  and  significant  estimates  made  by  management,  as well as
evaluating the overall  financial  statement  presentation.  We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects,  the financial position of CirTran Corporation
and  Subsidiaries  as of December  31,  2005 and 2004,  and the results of their
operations  and their cash flows for the years  then  ended in  conformity  with
accounting principles generally accepted in the United States of America.

The accompanying  consolidated  financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2 to the
consolidated  financial statements,  the Company has an accumulated deficit, has
suffered  losses from  operations  and has negative  working  capital that raise
substantial doubt about its ability to continue as a going concern. Management's
plans in regards to these matters are also described in Note 2. The consolidated
financial  statements do not include any adjustments  that might result from the
outcome of this uncertainty.



                                                      HANSEN, BARNETT & MAXWELL

Salt Lake City, Utah
March 29, 2006


                                      F-2



                      CIRTRAN CORPORATION AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS

December 31,                                               2005            2004
--------------------------------------------------------------------------------
ASSETS
Current Assets
Cash and cash equivalents                          $  1,427,865    $     81,101
Trade accounts receivable, net of
  allowance for doubtful accounts
  of $158,374 and $41,143, respectively               3,358,981       1,288,719
Inventory, Net of reserve of
  $751,296 and $547,405, respectively                 2,271,604       1,453,754
Prepaid Deposits                                        142,188               -
Other                                                   252,941         153,062
--------------------------------------------------------------------------------
   Total Current Assets                               7,453,579       2,976,636

Property and Equipment, Net                           2,686,737         840,793

Investment in Securities, at Cost                       300,000         300,000

Other Assets, Net                                       361,581           8,000

Deposits                                                100,000         100,000

Deferred Offering Costs                                       -          68,000
--------------------------------------------------------------------------------

Total Assets                                       $ 10,901,897    $  4,293,429
--------------------------------------------------------------------------------

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

Current Liabilities
Accounts payable                                   $  1,239,519    $  1,104,392
Accrued liabilities                                   1,222,018       2,066,022
Deferred revenue                                        119,945               -
Derivative liability                                  4,910,303               -
Convertible Debenture                                   996,252               -
Current maturities of long-term notes payable            12,610       1,815,875
Notes payable to stockholders                            95,806          18,586
Notes payable to related parties                              -       1,530,587
--------------------------------------------------------------------------------
   Total Current Liabilities                          8,596,453       6,535,462
--------------------------------------------------------------------------------

Long-Term Notes Payable, Less Current Maturities      1,037,390               -
--------------------------------------------------------------------------------
Commitments and Contingencies

Stockholders' Equity (Deficit)
Common stock, par value $0.001; authorized
  750,000,000 shares; issued and outstanding
  shares: 583,368,569 and 474,118,569 net of
  0 and 3,000,000 shares held in treasury at
  no cost at December 31, 2005 and 2004,
  respectively                                          583,364         474,114
Additional paid-in capital                           20,012,000      16,083,455
Accumulated deficit                                 (19,327,310)    (18,799,602)
--------------------------------------------------------------------------------
   Total Stockholders' Equity (Deficit)               1,268,054      (2,242,033)
--------------------------------------------------------------------------------
Total Liabilities and Stockholders'
  Equity (Deficit)                                 $ 10,901,897    $  4,293,429
--------------------------------------------------------------------------------

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


                                      F-3



                      CIRTRAN CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS


For the Years Ended December 31,                      2005            2004
--------------------------------------------------------------------------------

Net Sales                                        $  12,992,512    $   8,862,715
Cost of Sales                                       (6,706,135)      (7,030,934)
Writedown of carrying value of inventories             (38,089)         (13,000)
--------------------------------------------------------------------------------

      Gross Profit                                   6,248,288        1,818,781
--------------------------------------------------------------------------------

Operating Expenses
   Selling, general and administrative expenses      5,923,075        3,362,933
   Non-cash employee compensation expense              135,000          332,181
--------------------------------------------------------------------------------
      Total Operating Expenses                       6,058,075        3,695,114
--------------------------------------------------------------------------------

         Loss From Operations                          190,213       (1,876,333)
--------------------------------------------------------------------------------

Other Income (Expense)
   Interest                                         (1,225,252)        (495,637)
   Gain on forgiveness of debt                         337,761        1,713,648
   Gain on derivative valuation                        169,570                -
--------------------------------------------------------------------------------
      Total Other Expense, Net                        (717,921)       1,218,011
--------------------------------------------------------------------------------

Net Loss                                         $    (527,708)   $    (658,322)
--------------------------------------------------------------------------------

Basic and diluted loss per common share          $       (0.00)   $       (0.00)
--------------------------------------------------------------------------------
Basic and diluted weighted-average
   common shares outstanding                       554,085,007      451,620,617
--------------------------------------------------------------------------------


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


                                      F-4






                                      CIRTRAN CORPORATION AND SUBSIDIARIES
                           CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
                                 FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2005

                                          Common Stock
                                    --------------------------    Additional
                                      Number                        Paid-in       Accumulated
                                     of Shares       Amount         Capital         Deficit          Total
---------------------------------------------------------------------------------------------------------------
                                                                                  
Balance - December 31, 2003         349,087,699   $    349,088   $ 12,876,941    $(18,141,280)   $ (4,915,251)

Shares issued for conversion
   of  notes payable to equity
   line investor                     57,464,386         57,460      2,006,540               -       2,064,000

Shares issued for settlement
   of notes payable                   1,542,495          1,542         53,458               -          55,000

Shares issued for
   settlement expense                 1,000,000          1,000         59,000               -          60,000

Shares issued as settlement
   of salaries, accrued salaries
   and related interest              45,273,989         45,274        498,014               -         543,288

Options granted to employees,
   consultants and attorneys                  -              -        334,952               -         334,952

Exercise of stock options
   by directors and employees        14,250,000         14,250        259,500               -         273,750

Exercise of stock options by
   consultants and attorneys          5,500,000          5,500         (4,950)              -             550

Net loss                                      -              -              -        (658,322)       (658,322)
---------------------------------------------------------------------------------------------------------------

Balance - December 31, 2004         474,118,569        474,114     16,083,455     (18,799,602)     (2,242,033)

Shares issued for purchase of
   PFE                               20,000,000         20,000        780,000               -         800,000

Shares issued for settlement
   of notes payable & accrued
   interest                          51,250,000         51,250      2,004,694               -       2,055,944

Shares issued for
   settlement expense                13,000,000         13,000        491,371               -         504,371

Options granted to employees,
   consultants and attorneys                  -              -        229,330               -         229,330

Exercise of stock options
   by directors and employees        18,500,000         18,500        429,000               -         447,500

Exercise of stock options by
   consultants and attorneys          6,500,000          6,500         (5,850)              -             650

Net loss                                      -              -              -        (527,708)       (527,708)
---------------------------------------------------------------------------------------------------------------

Balance - December 31, 2005         583,368,569   $    583,364   $ 20,012,000    $(19,327,310)   $  1,268,054
---------------------------------------------------------------------------------------------------------------



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


                                                      F-5




                      CIRTRAN CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Years Ended December 31,                            2005           2004
--------------------------------------------------------------------------------

Cash flows from operating activities
Net loss                                             $  (527,708)   $  (658,322)
Adjustments to reconcile net loss to net
 cash used in operating activities:
  Depreciation and amortization                          324,955        249,395
  Accretion expense                                      826,124              -
  Provision for doubtful accounts                        117,231         12,267
  Provision for obsolete inventory                        38,090         13,000
  Loss on disposal of property and equipment                   -         33,238
  Gain on forgiveness of debt                           (337,761)    (1,713,881)
  Non-cash compensation expense                          135,000        226,250
  Abandoned offering costs expensed                       68,000              -
  Amortization of loan discount and loan costs           108,719              -
  Intrinsic value of options issued to employees          12,000              -
  Loan costs and interest witheld from loan proceeds      67,168        145,000
  Stock issued for employee compensation                       -        105,931
  Stock and warrants issued for settlement expense       654,153         60,000
  Options issued to attorneys and consultants for
   services                                              217,330        209,952
  Change in valuation of derivative                     (169,569)
  Accrued Interest Expense                               111,986              -
 Changes in assets and liabilities:
   Trade accounts receivable                          (2,128,289)    (1,211,799)
   Prepaid Deposits                                      (99,879)             -
   Inventories                                          (855,940)      (219,326)
   Prepaid expenses and other assets                    (277,987)        14,419
   Accounts payable                                      291,143        515,690
   Accrued liabilities                                  (446,455)       538,132
   Deferred revenue                                      119,945              -
--------------------------------------------------------------------------------
   Total adjustments                                  (1,224,036)    (1,021,732)
--------------------------------------------------------------------------------
 Net cash used in operating activities                (1,751,744)    (1,680,054)
--------------------------------------------------------------------------------

Cash flows from investing activities
Cash aquired with PFE acquisition                         39,331              -
Purchase of investment                                         -       (300,000)
Net change in deposits                                         -       (100,000)
Purchase of property and equipment                      (295,346)      (545,824)
--------------------------------------------------------------------------------
 Net cash used in investing activities                  (256,015)      (945,824)
--------------------------------------------------------------------------------

Cash flows from financing activities
Change in checks written in excess of cash in bank             -         (9,623)
Proceeds from notes payable to stockholders              123,220         18,500
Payments on notes payable to stockholders                      -        (31,752)
Proceeds from notes payable, net of cash paid for
 offering costs                                        3,102,067      2,927,000
Principal payments on notes payable                            -       (466,463)
Proceeds from notes payable to related parties            95,586      3,128,281
Payment on notes payable to related parties                    -     (3,025,149)
Proceeds from exercise of options and warrants to
 purchase common stock                                    33,000        111,500
Exercise of options issued to attorneys and
 consultants for services                                    650            550
--------------------------------------------------------------------------------
 Net cash provided by financing activities             3,354,523      2,652,844
--------------------------------------------------------------------------------

Net increase in cash and cash equivalents              1,346,764         26,966

Cash and cash equivalents at beginning of year            81,101         54,135
--------------------------------------------------------------------------------

Cash and cash equivalents at end of period           $ 1,427,865    $    81,101
--------------------------------------------------------------------------------

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


                                      F-6



                      CIRTRAN CORPORATION AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

For the Years Ended December 31,                            2005         2004
--------------------------------------------------------------------------------
Supplemental disclosure of cash flow information

Cash paid during the period for interest                 $  173,300   $  298,542

Noncash investing and financing activities

Notes issued for accounts payable and capital lease
 obligations                                             $        -   $  711,894
Acquisition of PFE Properties, LLC for stock and
 assumption of note payable                               1,868,974            -
Common stock issued for settlement of note payable
  and accrued interest                                    2,148,913    2,204,999
Deposit applied to purchase of property and equipment       100,000            -
Common stock issued for accrued rent and interest           411,402            -
Accrued interest converted to notes payable                       -        9,158
Stock options exercised for settlement of accrued
 interest and accrued compensation                          233,500       61,000
Note issued for settlement of notes payable and
 accrued interest                                                 -      551,819
Fees withheld from notes payable for Equity Line
 Agreement                                                        -       86,000
Loan costs included in notes payable                         50,850            -
Deferred offering costs withheld from notes payable
 proceeds                                                         -      128,000
Shares issued as settlement of salaries, accrued
 salaries and related interest                                    -      437,357
Stock options exercised for settlement of notes
 payable to stockholders                                     46,000            -
Loan fees incurred as part of convertible debenture
 (derivative)                                               380,765            -
Convertible debenture proceeds used to settle

  notes payable outstanding                               2,315,850            -

Initial recognition of derivative liability               5,079,872            -







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


                                      F-7



                      CIRTRAN CORPORATION AND SUBSIDIARIES
                     NOTES CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A summary of the significant  accounting  policies  consistently  applied in the
preparation of the accompanying financial statements follows.

Nature of Operations -- CirTran  Corporation  (the "Company")  provides  turnkey
manufacturing services using surface mount technology, ball-grid array assembly,
pin-through-hole,  and custom injection  molded cabling for leading  electronics
original equipment  manufacturers  ("OEMs") in the  communications,  networking,
peripherals, gaming, consumer products, telecommunications, automotive, medical,
and semiconductor industries. The Company also designs, develops,  manufactures,
and markets a full line of local area network  products,  with emphasis on token
ring and Ethernet connectivity.

In June 2004, the Company incorporated  CirTran-Asia,  Inc., a Utah corporation,
as a wholly owned  subsidiary.  CirTran-Asia  was formed to manufacture,  either
directly or through  foreign  subcontractors,  certain  products under exclusive
manufacturing agreements.

On March 31, 2005, Cirtran Corporation acquired a 100% ownership interest in PFE
Properties,  LLC (see Note 6).  Following the  acquisition of the PFE interests,
PFE will  continue to own the  building.  PFE will remain a separate  LLC due to
liability  issues and the  Company  will  continue  to make  intercompany  lease
payments under the 2003 lease.

In December  2005,  the Company  incorporated  CirTran  Products,  Inc.,  a Utah
corporation, as a wholly owned subsidiary.  CirTran Products was formed to offer
products for sale at retail. The new division will be run from the Company's Los
Angeles  Office.  The Company  anticipates  that consumer  products built by the
Company's wholly owned subsidiary  CirTran Asia, as well as other products to be
acquired, will be available for retail sale in 2006.

Principles of Consolidation -- The consolidated financial statements include the
accounts  of CirTran  Corporation,  and its wholly  owned  subsidiaries,  Racore
Technology  Corporation,  CirTran-Asia  Inc,  CirTran  Products,  Inc.  and  PFE
Properties,  LLC. All significant intercompany transactions have been eliminated
in consolidation.

Revenue  Recognition -- Revenue is recognized  when products are shipped.  Title
passes  to the  customer  or  independent  sales  representative  at the time of
shipment.  Returns  for  defective  items  are  repaired  and  sent  back to the
customer.  Historically,  expenses  experienced  with such returns have not been
significant and have been recognized as incurred.

Shipping  and  handling  fees are  included  as part of net sales.  The  related
freight  costs and  supplies  directly  associated  with  shipping  products  to
customers are included as a component of cost of goods sold.

Cash and Cash Equivalents -- The Company considers all highly-liquid, short-term
investments  with  an  original  maturity  of  three  months  or less to be cash
equivalents.

Accounts  Receivable  -- Accounts  receivable  are  carried at original  invoice
amount less an estimate made for doubtful  receivables  based on a review of all
outstanding  amounts on a monthly  basis.  Specific  reserves  are  estimated by
management based on certain assumptions and variables,  including the customer's
financial  condition,  age of the customer's  receivables and changes in payment
histories.   Trade  receivables  are  written  off  when  deemed  uncollectible.
Recoveries  of  trade  receivables  previously  written  off are  recorded  when
received.



                                      F-8



                      CIRTRAN CORPORATION AND SUBSIDIARIES
                     NOTES CONSOLIDATED FINANCIAL STATEMENTS


Inventories  --  Inventories  are stated at the lower of average  cost or market
value.  Costs include  labor,  material and overhead  costs.  Overhead costs are
based on indirect costs allocated among 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. The Company determines market value on
current  resale  amounts  and whether  technological  obsolescence  exists.  The
Company has  agreements  with most of its customers that require the customer to
purchase  inventory  items  related  to their  contracts  in the event  that the
contracts are cancelled.

Preproduction  Design and Development  Costs -- The Company incurs certain costs
associated  with the design and  development  of molds and dies for its 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
amortized  over their  useful  lives.  The company  holds title to all molds and
dies.  At December  31, 2005 and 2004 the company held  $100,000  and  $100,000,
respectively  in  deposits.  Capitalized  costs  associated  with molds and dies
included in property  and  equipment  for the years ended  December 31, 2005 and
2004 was $761,200 and $412,200, respectively.

Property and  Equipment --  Depreciation  is provided in amounts  sufficient  to
relate the cost of depreciable  assets to operations over the 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 which 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.

Depreciation and amortization  expense for the years ended December 31, 2005 and
2004 was $324,955 and $249,395, respectively.

Patents -- Legal fees and other  direct costs  incurred in obtaining  patents in
the  United  States  and other  countries  are  capitalized.  Patents  costs are
amortized  over the estimated  useful life of the patent.  During the year ended
December 31,  2005,  the Company  capitalized  $35,799 in patent  related  legal
costs. The Company is amortizing this patent over its 7 year life.  Amortization
expense was $5,114 during the year ended December 31, 2005.

Impairment of Long-Lived  Assets -- The Company  reviews its 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. The Company
evaluates,  at each balance sheet date,  whether events and  circumstances  have
occurred  that  indicate  possible  impairment.  The Company uses 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. As of
December 31, 2005, the Company does not consider any of its long-lived assets to
be impaired.

Financial  Instruments with Derivative  Features -- The Company does not hold or
issue  derivative  instruments for trading  purposes.  However,  the Company has
convertible  debentures that contain embedded  derivatives that require separate
valuation  from  the  convertible  debentures.   The  Company  recognizes  these


                                      F-9



                      CIRTRAN CORPORATION AND SUBSIDIARIES
                     NOTES CONSOLIDATED FINANCIAL STATEMENTS


derivatives  as  liabilities  in its balance  sheet and  measures  them at their
estimated fair value,  and recognizes  changes in their  estimated fair value in
earnings  (losses) in the period of change.  The Company has  estimated the fair
value of these embedded  derivatives using the Black-Scholes  model based on the
historical  volatility  of its  common  stock.  The  fair  value  of  derivative
instruments are re-measured each quarter.

Advertising  Costs  -- The  Company  expenses  advertising  costs  as  incurred.
Advertising expenses for the years ended December 31, 2005 and 2004 were $33,111
and $26,801, respectively.

Stock-Based   Compensation  --  At  December  31,  2005,  the  Company  has  one
stock-based  employee  compensation  plan, which is described more fully in Note
15. The Company  accounts for the plan under APB Opinion No. 25,  Accounting for
Stock Issued to Employees, and related  interpretations.  During the years ended
December 31, 2005 and 2004, the Company recognized compensation expense relating
to stock options and warrants of $364,330 and $226,250, respectively. During the
years ended  December  31, 2005 and 2004,  the Company  recognized  compensation
expense  relating  to  the  issuance  of  common  stock  of  $0,  and  $105,931,
respectively.  The following table  illustrates the effect on net loss and basic
and diluted  loss per common  share as if the Company had applied the fair value
recognition   provisions  of  Financial   Accounting  Standards  Board  ("FASB")
Statement No. 123,  Accounting  for  Stock-Based  Compensation,  to  stock-based
employee compensation:

                                                        Years Ended December 31,
                                                        -----------------------
                                                           2005          2004
--------------------------------------------------------------------------------
Net loss, as reported                                   $(527,708)    $(658,322)
Add:  Stock-based  employee compensation expense
      included in net loss                                364,330       332,181
Deduct:  Total stock-based employee compensation
      expense determined under fair value based method
      for all awards                                     (211,247)     (517,924)
--------------------------------------------------------------------------------
Pro forma net loss                                      $(374,625)    $(844,065)
--------------------------------------------------------------------------------
Basic and diluted loss per common share as reported     $   (0.00)    $   (0.00)
--------------------------------------------------------------------------------
Basic and diluted loss per common share pro forma       $   (0.00)    $   (0.00)
--------------------------------------------------------------------------------


Income Taxes -- The Company  utilizes the  liability  method of  accounting  for
income taxes.  Under the liability  method,  deferred tax assets and liabilities
are determined based on differences between financial reporting and tax bases of
assets and liabilities and the  carryforward of operating losses and tax credits
and are  measured  using the  enacted  tax rates and laws that will be in effect
when the differences are expected to reverse.  An allowance against deferred tax
assets is recorded  when it is more likely than not that such tax benefits  will
not be realized. Research tax credits are recognized as utilized.

Use  of  Estimates  --  In  preparing  the  Company's  financial  statements  in
accordance with accounting principles generally accepted in the United States of
America,  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.


                                      F-10



                      CIRTRAN CORPORATION AND SUBSIDIARIES
                     NOTES CONSOLIDATED FINANCIAL STATEMENTS


Concentrations of Risk -- Financial  instruments,  which potentially subject the
Company to  concentrations  of credit risk,  consist primarily of trade accounts
receivable. The Company sells substantially to recurring customers,  wherein the
customer's  ability to pay has previously been evaluated.  The Company generally
does not require  collateral.  Allowances are  maintained  for potential  credit
losses, and such losses have been within management's expectations.  At December
31, 2005 and 2004, this allowance was $158,374 and $41,143, respectively.

During the year ended  December  2005,  sales to two customers  accounted for 27
percent  and 10  percent of net  sales,  respectively.  Sales from both of these
customers were part of the contract manufacturing  segment.  Account receivables
from one customer  equaled 71% of consolidated  accounts  receivable at December
31, 2005, which created a concentration of credit risk.

During the year ended  December  2004,  sales to two customers  accounted for 52
percent and 14 percent of net sales,  respectively.  Sales from these  customers
were  from the  contract  manufacturing  segment  and the  electronics  assembly
segment,  respectively.  No individual  customer account  receivable  balance at
December 31, 2004, created a concentration of credit risk.

Fair Value of  Financial  Instruments  -- The carrying  amounts  reported in the
accompanying  consolidated  financial  statements for cash, accounts receivable,
notes  payable and  accounts  payable  approximate  fair  values  because of the
immediate or short-term maturities of these financial instruments.  The carrying
amounts of the Company's debt obligations approximate fair value.

Reclassifications -- Certain  reclassifications have been made to the prior year
financial statements to conform to the current year presentation.

Loss Per Share -- Basic loss per share is calculated by dividing 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 228,673,577 and 14,250,500
in  potentially   issuable   common  shares  at  December  31,  2005  and  2004,
respectively.  The  potentially  issuable common shares at December 31, 2005 and
2004 were  excluded from the  calculation  of diluted loss per share because the
effects are anti-dilutive.

New Accounting Standards -- In December 2004, the Financial Accounting Standards
Board (FASB) issued SFAS No. 123 (revised 2004), "Share-Based Payment," which is
an amendment to SFAS No. 123,  "Accounting for Stock-Based  Compensation."  This
new  standard  eliminates  the ability to account for  share-based  compensation
transactions  using Accounting  Principles  Board (APB) No. 25,  "Accounting for
Stock  Issued  to  Employees"  (APB 25) and  requires  such  transactions  to be
accounted for using a fair-value-based  method and the resulting cost recognized
in the  Company's  financial  statements.  This new  standard is  effective  for
interim and annual  periods  beginning  after  December 15, 2005. The Company is
currently  evaluating SFAS No. 123 as revised and intends to implement it in the
first  quarter of 2006.  At December 31, 2005,  all employee  options were fully
vested. Therefore, the implementation of this standard will not initially have a
material impact on the Company's financial statements.

In November 2004, the FASB issued SFAS No. 151,  "Inventory Costs." SFAS No. 151
clarifies the accounting for abnormal amounts of idle facility expense, freight,
handling costs, and wasted material (spoilage).  The Company will be required to
apply this  statement to inventory  costs  incurred after December 31, 2005. The
Company is  currently  evaluating  what effect this  statement  will have on the
Company's financial position and results of operations.


                                      F-11



                      CIRTRAN CORPORATION AND SUBSIDIARIES
                     NOTES CONSOLIDATED FINANCIAL STATEMENTS


In  December  2004,  the FASB issued SFAS No.  153,  "Exchange  of  Non-monetary
Assets." SFAS No. 153 amends APB Opinion No. 29,  "Accounting  for  Non-monetary
Transactions," to eliminate the exception for non-monetary  exchanges of similar
productive  assets.  The Company  will be required  to apply this  statement  to
non-monetary exchanges after December 31, 2005. The adoption of this standard is
not expected to have a material  effect on the Company's  financial  position or
results of operations.

In May  2005,  the FASB  issued  SFAS No.  154,  "Accounting  Changes  and Error
Corrections-A  Replacement of APB Opinion No. 20 and FASB Statement No. 3." SFAS
No. 154 changes the  requirements  for the  accounting  for and  reporting  of a
change in  accounting  principle.  The  Company  will be  required to apply this
statement for accounting  changes and corrections of errors made in fiscal years
beginning after December 15, 2005. The adoption of this standard is not expected
to have a material  effect on the  Company's  financial  position  or results of
operations.

In February  2006,  the FASB issued SFAS No. 155,  Accounting for Certain Hybrid
Financial  Instruments -- an amendment of FASB  Statements No. 133 and 140 (SFAS
155).  SFAS 155 amends SFAS No. 133,  Accounting for Derivative  Instruments and
Hedging  Activities and SFAS No. 140,  Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities and related interpretations.
SFAS 155 permits fair value  re-measurement for any hybrid financial  instrument
that contains an embedded  derivative that otherwise  would require  bifurcation
and  clarifies  which  interest-only  strips and  principal-only  strips are not
subject to recognition as liabilities.  SFAS 155 eliminates the prohibition on a
qualifying special-purpose entity from holding a derivative financial instrument
that pertains to a beneficial  interest other than another derivative  financial
instrument.  SFAS 155 is effective for the Company for all financial instruments
acquired or issued  beginning  January 1, 2007. The adoption of this standard is
not expected to have a material  effect on the Company's  financial  position or
results of operations.

In March  2006,  the FASB  issued  SFAS No. 156,  Accounting  for  Servicing  of
Financial  Assets - an amendment of FASB Statement No. 140 (SFAS 156).  SFAS 156
amends SFAS 156 requires an entity to  recognize a servicing  asset or servicing
liability each time it undertakes an obligation to service a financial asset. It
also  requires  all  separately   recognized   servicing  assets  and  servicing
liabilities to be initially  measured at fair value,  if  practicable.  SFAS 156
permits  an entity  to use  either  the  amortization  method or the fair  value
measurement method for each class of separately  recognized servicing assets and
servicing  liabilities.  SFAS 156 is effective  for the Company as of January 1,
2007. The adoption of this standard is not expected to have a material effect on
the Company's financial position or results of operations.

NOTE 2 - REALIZATION OF ASSETS

The  accompanying  consolidated  financial  statements  have  been  prepared  in
conformity with accounting principles generally accepted in the United States of
America,  which  contemplate  continuation  of the  Company as a going  concern.
However,  the Company  sustained  losses of $527,708  and $658,322 for the years
ended  December  31, 2005 and 2004,  respectively.  As of December  31, 2005 and
2004, the Company had an accumulated  deficit of  $19,327,310  and  $18,799,602,
respectively,  and a total  stockholders'  equity  (deficit) of  $1,268,054  and
($2,242,033), respectively. In addition, the Company used, rather than provided,
cash in its operations in the amounts of $1,751,744 and $1,680,054 for the years
ended  December  31,  2005  and  2004,  respectively.   These  conditions  raise
substantial doubt about the Company's ability to continue as a going concern.

In view of the matters described in the preceding paragraphs,  recoverability of


                                      F-12



                      CIRTRAN CORPORATION AND SUBSIDIARIES
                     NOTES CONSOLIDATED FINANCIAL STATEMENTS


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
financing  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.

As  discussed  in Note 13, the Company had entered into an equity line of credit
agreement and a standby equity  distribution  agreement with a private investor.
With the sale by the Company of the Convertible  Debenture in May 2005, this and
all  other  agreements  relating  to the  equity  line  and the  standby  equity
distribution agreement were terminated.

NOTE 3 - INVESTMENT IN SECURITIES AT COST

On April 13, 2004, the Company  entered into a stock purchase  agreement with an
unrelated  party  under  which  the  Company  purchased  400,000  shares  of the
investee's  Series B Preferred Stock (the  "Preferred  Shares") for an aggregate
purchase  price of $300,000  cash.  This  purchase  was made at fair value.  The
Preferred Shares are convertible,  at the Company's  option,  into an equivalent
number of shares of investee common stock, subject to adjustment.  The Preferred
Shares are not redeemable by the investee.  As a holder of the Preferred Shares,
the Company has the right to vote the number of shares of investee  common stock
into which the Preferred  Shares are  convertible  at the time of the vote.  The
investment  represents  less than a 5% interest in the investee.  The investment
does not have a readily  determinable  fair  value  and is stated at  historical
cost, less an allowance for impairment when circumstances indicate an investment
has been  impaired.  The Company  periodically  evaluates its  investments as to
whether  events  and   circumstances   have  occurred  which  indicate  possible
impairment.  No indicators of impairment  were noted for the year ended December
31, 2005.

Separate from the purchase of the Preferred Shares, the Company and the investee
also entered into a Preferred Manufacturing Agreement. Under this agreement, the
Company will perform exclusive "turn-key"  manufacturing  services handling most
of the investee's manufacturing operations from material procurement to complete
finished  box-build  of  all of  investee  products.  The  initial  term  of the
agreement is three years, continuing month to month thereafter unless terminated
by either party.  Sales under this agreement  totaled  $163,473 and $538,233 for
the periods ended December 31, 2005, and December 31, 2004, respectively.

NOTE 4 - INVENTORIES

Inventories consist of the following:

                                              2005                2004
      -------------------------------------------------------------------
      Raw materials                       $   924,101         $   895,723
      Work-in process                         144,993             356,160
      Finished goods                        1,202,510             201,871
      -------------------------------------------------------------------
                                          $ 2,271,604         $ 1,453,754
      -------------------------------------------------------------------


                                      F-13



                      CIRTRAN CORPORATION AND SUBSIDIARIES
                     NOTES CONSOLIDATED FINANCIAL STATEMENTS


During 2005 and 2004,  write downs of $38,090 and  $13,000,  respectively,  were
recorded to reduce  items  considered  obsolete  or slow moving to their  market
value.

NOTE 5 - ACQUISITION OF PFE PROPERTIES, LLC

On March 31, 2005,  the Company  purchased a 100% interest in PFE Properties LLC
(PFE). PFE was previously owned by a relative of the President and CEO. PFE owns
the land and  building  in which  the  Company's  manufacturing  facilities  and
administrative  offices  are  located.  The  liabilities  of PFE on the  date of
acquisition  include a  mortgage  note  payable  of  $1,050,000,  secured by the
building. The Company acquired PFE by issuing 20,000,000 shares of the Company's
restricted common stock with a fair value of $800,000 on the date of acquisition
and assuming the mortgage  note payable of  $1,050,000  and accounts  payable of
$18,974.  The results of operations for PFE have been included  beginning  March
31, 2005. The additional  $800,000 for the purchase of PFE was allocated between
the land and building value.

         The balance sheet of PFE as of March 31, 2005, is presented as follows:

      Current Assets                                    $        98,535
      Property and Equipment                                  1,770,439
                                                        ----------------
        Total Assets Acquired                                 1,868,974
                                                        ----------------
      Accounts Payable                                           18,974
      Mortgage Note Payable                                   1,050,000
                                                        ----------------
        Total Liabilities Assumed                             1,068,974
                                                        ----------------
        Net Assets Acquired                             $       800,000
                                                        ================

         The pro forma  information  is presented as if the Company had acquired
PFE on January 1, 2004, as follows:

                                                     Year Ended December 31,
                                                        2005            2004
--------------------------------------------------------------------------------
Net Sales                                          $ 12,992,512    $  8,862,715
Net Loss                                           $   (539,722)   $   (613,378)

Basic loss per share                               $          -    $          -
Diluted loss per share                             $          -    $          -


                                      F-14



                      CIRTRAN CORPORATION AND SUBSIDIARIES
                     NOTES CONSOLIDATED FINANCIAL STATEMENTS


NOTE 6 - PROPERTY AND EQUIPMENT

Property and equipment and estimated service lives consist of the following:

                                                                     Estimated
                                                                   Service Lives
                                        2005             2004         in Years
-----------------------------------------------------------------  -------------
Land                               $     360,000    $           -        N/A
Building                               1,410,439                -         39
Production equipment                   3,584,140        3,220,847       5-10
Leasehold improvements                   997,714          992,018       7-10
Office equipment                         185,556          159,199       5-10
Other                                     47,789           47,789        3-7
-----------------------------------------------------------------
                                       6,585,638        4,419,853
Less accumulated depreciation
      and amortization                 3,898,901        3,579,060
-----------------------------------------------------------------

                                    $  2,686,737    $     840,793
-----------------------------------------------------------------


NOTE 7 - RELATED PARTY TRANSACTIONS

Notes  Payable to  Stockholders  -- The Company had amounts due to  stockholders
from three separate notes.  The balance due to stockholders at December 31, 2005
and 2004,  was $95,806  and  $18,586,  respectively.  Interest  associated  with
amounts due to  stockholders is accrued at 10 percent.  Unpaid accrued  interest
was $0 and $7,976 at December 31, 2005 and 2004,  respectively,  and is included
in accrued liabilities. These notes are due on demand.

During the year ended  December 31, 2005,  in lieu of a cash  exercise  price of
$23,000,  the stockholders  forgave $23,000 of notes payable owed to them by the
Company to exercise 1,000,000 options to purchase shares of the Company's common
stock.

Notes Payable to Related Party -- During 2002, the Company entered into a verbal
bridge loan  agreement  with Abacas  Ventures,  Inc.  (Abacas).  This  agreement
allowed  the Company to request  funds from  Abacas to finance  the  build-up of
inventory  relating to  specific  sales.  The loan bore  interest at 24% and was
payable on demand.  There were no required  monthly  payments.  During the years
ended  December  31,  2005 and  2004,  the  Company  was  advanced  $95,586  and
$3,128,281,   respectively,  and  made  cash  payments  of  $0  and  $3,025,149,
respectively.

During the year ended  December 31, 2004,  Abacas  completed  negotiations  with
several  vendors of the  Company,  whereby  Abacas  purchased  various  past due
amounts for goods and services  provided by vendors,  as well as notes  payable.
The  total of these  obligations  was  $1,263,713.  The  Company  recorded  this
transaction  as a  $1,263,713  non-cash  increase  to the note  payable  owed to
Abacas, pursuant to the terms of the Abacas agreement.

During  March  2005,  the  Company  issued  51,250,000  shares of the  Company's
restricted  common  stock for payment of  $2,055,944  in  principal  and accrued
interest  on the note.  Because  Abacas is a related  party,  no gain or loss on
forgiveness of debt was recognized.


                                      F-15



                      CIRTRAN CORPORATION AND SUBSIDIARIES
                     NOTES CONSOLIDATED FINANCIAL STATEMENTS


The total  principal  amount  owed to Abacas  between  the note  payable and the
bridge  loan  was  $0  and  $1,530,587  as  of  December  31,  2005,  and  2004,
respectively. The total accrued interest owed to Abacas between the note payable
and the  bridge  loan was $0 and  $430,828  as of  December  31,  2005 and 2004,
respectively.

NOTE 8 - COMMITMENTS AND CONTINGENCIES

Settlement of Litigation -- During January 2002,  the Company  settled a lawsuit
that had alleged a breach of facilities sublease agreement involving  facilities
located in  Colorado.  The  Company's  liability  in this action was  originally
estimated to range up to $2.5  million.  The Company had filed a counter suit in
the same court for an amount exceeding $500,000 for missing equipment.

Effective  January 18, 2002,  the Company  entered  into a settlement  agreement
which  required the Company to pay the  plaintiff  the sum of $250,000.  Of this
amount,  $25,000 was paid upon  execution  of the  settlement,  and the balance,
together  with  interest  at 8% per  annum,  was  payable by July 18,  2002.  As
security for payment of the balance,  the Company  executed and delivered to the
plaintiff a Confession  of Judgment and also issued  3,000,000  shares of common
stock,  which were held in escrow and were treated as treasury stock recorded at
no cost.  The fair  value of the  3,000,000  shares  was less than the  carrying
amount of the note payable.  Because 75 percent of the balance had not been paid
by May 18,  2002,  the  Company  was  required  to  prepare  and  file  with the
Securities & Exchange Commission,  at its own expense, a registration  statement
with respect to the escrowed shares.

As of December 31, 2005, the Company was in default of its obligations under the
settlement  agreement and the total payment due  thereunder had not been made. A
registration statement with respect to the escrowed shares was not filed and the
Company did not replace the escrowed shares with registered, free-trading shares
as per the terms of the agreement.  The plaintiff filed a Confession of Judgment
and proceeded  with  execution  thereon.  The shares in escrow were released and
issued as partial settlement of $92,969 on the note payable outstanding.

In  connection  with a separate  sublease  agreement  of these  facilities,  the
Company  received a settlement from the sublessee during May 2002, in the amount
of  $152,500,  which was recorded as other  income.  The Company did not receive
cash from this  settlement,  but certain  obligations  of the Company  were paid
directly.  $109,125  of  the  principal  balance  of  the  note  related  to the
settlement  mentioned  above was paid.  Also,  $7,000 was paid to the  Company's
legal counsel as a retainer for future services.  The remaining $36,375 was paid
to the above mentioned plaintiff as a settlement of rent expense.

During  September 2002, the plaintiff filed a claim that the $109,125 portion of
the payment was to be applied as additional rent expense rather than a principal
payment on the note payable.  The Company  estimated that the probability of the
$109,125 being  considered  additional  rent expense was remote and disputed the
claim. This lawsuit was settled in 2006. (See Note 17)

Litigation - During 2003 and 2004,  an  investment  firm filed suits in the U.S.
District  Court  for  the  District  of Utah  seeking  payment  of a  commission
consisting  of common stock valued at 1,750,000 for  allegedly  introducing  the
Company to the  Equity  Line  Investor  (See Note 10).  The case was  previously
dismissed in a New York court.  The Company  estimated that the risk of loss was
remote;  therefore no accrual had been made prior to December  31,  2005.  These
suits were settled in 2006. (See Note 17)


                                      F-16



                      CIRTRAN CORPORATION AND SUBSIDIARIES
                     NOTES CONSOLIDATED FINANCIAL STATEMENTS


Various  vendors  have  notified  the Company that they believe they have claims
against the Company totaling $18,810.  None of these vendors have filed lawsuits
in relation to these claims.  The Company has accrued for these claims, and they
are included in accounts  payable.  During the year ended December 31, 2005, the
Company  determined  that the  statute of  limitations  had  expired for various
vendors.  Amounts  of  $174,990  were  written  off  and  recorded  as a gain on
forgiveness of debt. However, there can be no assurance that any or all of these
vendors  will agree with the  Company's  determination,  and the  Company may be
subject to claims or litigation in the future.

In addition,  various  vendors have  notified the Company that they believe they
have claims against the Company  totaling  $164,802.  The Company has determined
the probability of realizing any loss on these claims is remote. The Company has
made no accrual for these claims and is currently in the process of  negotiating
the dismissal of these claims with the various vendors.

Registration  Rights - In connection with the Company's  entering into an Equity
Line of Credit  Agreement,  the Company granted to the equity line investor (the
"Equity  Line  Investor")  registration  rights,  in  connection  with which the
Company was  required to file a  registration  statement  covering the resale of
shares put to the Equity Line  Investor  under the equity line.  The Company was
also  required  to keep the  registration  statement  effective  until two years
following the date of the last advance under the equity line.

Also,  in  connection  with  the  Company's   entering  into  a  standby  equity
distribution agreement, the Company granted to the investor registration rights,
in  connection  with  which the  Company  was  required  to file a  registration
statement  covering the resale of shares put to the  investor  under the standby
equity  distribution  agreement.  The  Company  was  also  required  to keep the
registration  statement effective until two years following the date of the last
advance under the standby equity distribution agreement.

In connection with the Company's issuance of a convertible  debenture (discussed
below), the Equity Line of Credit Agreement and the Standby Equity  Distribution
Agreement, together with all associated registration rights, were terminated.

In May  2005,  in  connection  with  the  Company's  issuance  of a  convertible
debenture  (discussed  below),  the  Company  granted  to the  debenture  holder
registration  rights,  pursuant to which the Company agreed to file,  within 120
days of the closing of the purchase of the debenture,  a registration  statement
to register the resale of shares of the  Company's  common stock  issuable  upon
conversion of the debenture.  The company also agreed to use its best efforts to
have the registration  statement declared effective within 270 days after filing
the registration  statement.  The Company agreed to register the resale of up to
100,000,000 shares, and to keep such registration  statement effective until all
of the shares  issuable upon  conversion of the  debenture  have been sold.  The
Company filed the  registration  statement on September 23, 2005. As of the date
of this report, the registration statement had not been declared effective.

In December  2005,  in connection  with the Company's  issuance of a convertible
debenture  (discussed  below),  the  Company  granted  to the  debenture  holder
registration  rights,  pursuant to which the Company agreed to file,  within 120
days of the closing of the purchase of the debenture,  a registration  statement
to register the resale of shares of the  Company's  common stock  issuable  upon
conversion of the debenture.  The company also agreed to use its best efforts to
have the registration  statement declared effective within 270 days after filing
the registration  statement.  The Company agreed to register the resale of up to
32,608,696  shares  and  10,000,000  warrants,  and to  keep  such  registration
statement  effective  until all of the shares  issuable  upon  conversion of the
debenture have been sold.


                                      F-17



                      CIRTRAN CORPORATION AND SUBSIDIARIES
                     NOTES CONSOLIDATED FINANCIAL STATEMENTS


Accrued  Payroll Tax  Liabilities  -- In November  2004,  the  Internal  Revenue
Service  (IRS)  accepted the Company's  Amended  Offer in Compromise  (Offer) to
settle delinquent payroll taxes,  interest and penalties.  The acceptance of the
Offer required the Company to pay $500,000 by February 3, 2005. The Company made
the required payment on February 2, 2005.  Additionally,  the Offer requires the
Company to remain  current in its payment of taxes for 5 years,  and the Company
may not claim any net operating losses for the years 2001 through 2015, or until
the Company  pays taxes in an amount  equal to the taxes  waived by the offer in
compromise.  The outstanding  balance of delinquent payroll taxes,  interest and
penalties  was  $1,955,767  on the  settlement  date.  The future cash  payments
specified by the Offer,  including  interest and  principal,  were less than the
carrying  amount of the  payable;  therefore  the Company  reduced the  carrying
amount of the  liability  to the total  future cash  payments  of  $500,000  and
recorded a gain of  $1,455,767  during the year ended  December  31,  2004.  The
payments  to the IRS were made  according  to the  settlement  agreement  during
January 2005.

Further,  the Utah State Tax  Commission  has entered into an agreement to allow
the Company to pay the tax liability owing to the State of Utah in equal monthly
installments of $4,000. Through December 2005, the Company had made the required
payments.  The balance owed to the State of Utah as of December  31,  2005,  and
December 31, 2004,  was $98,316 and  $223,660,  respectively,  including  taxes,
penalties and interest. See Note 17 for the settlement of the remaining balance.

Manufacturing  Agreement  -- On June  10,  2004,  the  Company  entered  into an
exclusive  manufacturing  agreement with certain Developers.  Under the terms of
the agreement,  the Company,  through its wholly-owned subsidiary  CirTran-Asia,
has the exclusive  right to manufacture  the certain  products  developed by the
Developers or any of their  affiliates.  The Developers will continue to provide
marketing and consulting  services  related to the products under the agreement.
Should the Developers  terminate the agreement early,  they must pay the Company
$150,000.  Revenue is recognized when products are shipped.  Title passes to the
customer or independent sales representative at the time of shipment.

In  connection  with this  agreement  the  Company  agreed to issue  options  to
purchase 1,500,000 shares common stock to the Developers upon the sale, shipment
and payment for 200,000  units of a fitness  product.  In addition,  the Company
agreed to issue  options  to  purchase  300,000  shares  of common  stock to the
Developers  for each  multiple of 100,000  units of the fitness  product sold in
excess of the initial 200,000 units within  twenty-four  months of the agreement
(June 2004).  The options will be  exercisable  at $0.06 per share,  vest on the
grant date and expire one year after  issuance.  As of December  31,  2005,  the
Company had sold, shipped and received payment for, 257,577 units of the fitness
product.  In January 2005, the Company issued 1,500,000  options under the terms
of the agreement. See Note 14.


                                      F-18



                      CIRTRAN CORPORATION AND SUBSIDIARIES
                     NOTES CONSOLIDATED FINANCIAL STATEMENTS


In connection  with the above  manufacturing  agreement,  the Company  agreed to
issue various  options to purchase shares of common stock to the Developers upon
the  sale,  shipment,  and  payment  of  certain  quantities  of the  additional
products.  In  addition,  the  Company  agreed to issue  additional  options  to
purchase  common  stock to the  developers  for each  multiple  of units sold in
excess  of  the  initial  units  within  the  first  twenty-four  months  of the
agreements.  The  schedule of units and  potential  options  that will be issued
follows:

                                Options        Each Multiple of     Options for
                  Initial      for Initial        Units above      Each Multiple
     Product       Units       Units Sold       Initial Units        of Units
--------------------------------------------------------------------------------
        1         500,000        500,000            200,000           200,000
        2          25,000        500,000             15,000           100,000
        3         100,000        500,000             50,000           100,000
        4         300,000      1,000,000            100,000           200,000
        5         200,000        250,000            100,000           100,000
        6         200,000        500,000            100,000           100,000

As of December 31, 2005, the Company had not sold,  shipped and received payment
for enough  units to require the issuance of options  related to the  additional
products  under these  agreements.  Because the  Developers  must provide future
services  for the options to vest,  the  options  are  treated as  unissued  for
accounting  purposes.  The cost of these  options  will be  recognized  when the
options are earned.

NOTE 9 - NOTES PAYABLE

Notes payable consisted of the following at December 31, 2005 and 2004:

                                                      2005           2004
--------------------------------------------------------------------------------

Notes payable to Equity Line Investor,
 no periodic interest, matures 70 to 131
 days after issuance                              $         -    $ 1,700,000

Note payable to a company, interest at
 8.00%, matured August 2002, collateralized
 by 3,000,000 shares of the Company's common
 stock held in escrow                                       -        115,875

Mortgage payable to a bank, interest at 12.50%,
 monthly payments of $10,938 to $12,699 through
 November 2008, unpaid principal due in full
 December 2008, secured by building                 1,050,000              -

--------------------------------------------------------------------------------
Total Notes Payable                               $ 1,050,000    $ 1,815,875

Less current maturities                               (12,610)    (1,815,875)
--------------------------------------------------------------------------------

Long-Term Portion of Notes Payable                $ 1,037,390           $  -
--------------------------------------------------------------------------------


                                      F-19



                      CIRTRAN CORPORATION AND SUBSIDIARIES
                     NOTES CONSOLIDATED FINANCIAL STATEMENTS


During the year ended  December  31,  2004,  the  Company  converted  five notes
payable  and accrued  interest of $551,819  into notes with Abacus (see Note 2).
Accrued  interest  of  $27,020  associated  with  these  notes  payable  was not
converted to the note payable with Abacus;  therefore,  a gain on forgiveness of
debt was recorded for $27,020 for the year ended December 31, 2004.

In March 2004, the Company settled a note payable with a financial  institution.
The outstanding  loan balance and accrued interest at the time of settlement was
$189,663.  The balance  was  settled  for $90,000 in cash and 542,495  shares of
common stock  valued at $30,000.  A gain on  forgiveness  of debt of $61,370 was
recorded on this transaction.

In April 2004, the Company settled three notes payable with a financing company.
The outstanding loan balances and accrued interest at the time of settlement was
$192,043.  The balance was settled for $75,000 in cash. A gain on forgiveness of
debt of $117,043 was recorded on this transaction.

In November  2004, the Company  settled a note payable with a  corporation.  The
outstanding  loan  balance and accrued  interest at the time of  settlement  was
$75,000.  The balance was  settled for $50,000 in cash and  1,000,000  shares of
common stock valued at $25,000.

In  December  2004,  the  Company  settled  a  note  payable  with  a  financial
institution.  The outstanding  loan balance and accrued  interest at the time of
settlement  was $36,902.  The balance was settled for $10,000 in cash. A gain on
forgiveness of debt of $26,902 was recorded on this transaction.

In December  2004, the Company  settled a note payable with an  individual.  The
outstanding  loan  balance and accrued  interest at the time of  settlement  was
$145,779. The balance was settled for $120,000 in cash. A gain on forgiveness of
debt of $25,779 was recorded on this transaction.

Certain  of  the  Company's  notes  payable   contain   various   covenants  and
restrictions,  including providing for the acceleration of principal payments in
the event of a covenant violation or a material adverse change in the operations
of the Company.  During the year ended  December 31, 2005 the Company was out of
compliance on several notes payable,  primarily due to a failure to make monthly
payments. In instances where the Company was out of compliance, the amounts were
shown as current.  Additionally,  all default provisions were accrued as part of
the principal balance of the related notes payable.

Notes Payable to Equity Line Investor -- At December 31, 2004,  the Company owed
$1.7  million  to Cornell  Capital  Partners,  LP  ("Cornell"),  pursuant  to an
unsecured promissory note. The note was repayable over 193 days and was past due
as of March 31, 2005. The note stated that if the Company did not repay the note
when due, a default interest rate of 24% would apply to the unpaid balance.  The
Company recorded accrued interest of $105,074 on the note.

In January 2005,  the Company  entered into an additional  promissory  note with
Cornell for $565,000.  The Company  received  proceeds of $503,500,  net of loan
costs of  $61,500.  The terms of the note  included  a 9%  premium  or  $50,850,
resulting  in a total note  payable of  $615,850.  The premium was  amortized to
interest  expense  over the life of the loan.  The terms of the loan stated that
interest only payments would be made for the first six months. The Company would
repay the principal,  interest,  and premium over the next six months.  The loan
was due January 2006. The Company  amortized  $11,057 of the premium as interest
expense prior to settling the loan as discussed below.


                                      F-20



                      CIRTRAN CORPORATION AND SUBSIDIARIES
                     NOTES CONSOLIDATED FINANCIAL STATEMENTS


All notes to  Cornell  were  paid on May 27,  2005,  with  funds  acquired  from
Highgate House Funds,  Ltd.  ("Highgate"),  in connection with the issuance of a
convertible  debenture.  (See  Note 11)  Payment  of  accrued  interest  was not
required  as part of the  repayment.  In  connection  with  the  repayment,  the
remaining premium of $39,793 was immediately  amortized as interest expense. The
gain from forgiveness of debt on both Cornell notes totaled $162,774.

In December 2005, the Company  entered into a transaction for the issuance of an
additional convertible debenture to Cornell for $1,500,000. (See Note 11.)

The total principal amount owed to Cornell Capital  Partners,  LP was $1,500,000
and $1,700,000 as of December 31, 2005, and 2004, respectively.

Mortgage Note Payable -- In conjunction with the acquisition of PFE, the Company
assumed a mortgage note payable for $1,050,000. The note bears interest at 12.5%
per annum. Interest only payments are required through January 2006. Starting in
February  2006,  principal  and interest  payments  will be required  based on a
twenty-year amortization of the note. The entire balance of principal and unpaid
interest will be due in December 2008.

The following is a schedule of future maturities on notes payable:

               Year Ending December 31,
               ------------------------------------------------
                       2006                              12,610
                       2007                              14,280
                       2008                              16,170
                       2009                           1,006,940
               ------------------------------------------------
                       Total                        $ 1,050,000
               ------------------------------------------------

NOTE 10 - LEASES

During 2005,  the Company  leased a satellite  office in Los  Angeles,  CA. This
office is used for sales and  promotions.  The Company  entered  into a two-year
sublease agreement with an unrelated party on of October 24, 2005. Additionally,
the Company has a lease for a facility in China that expires in 2006.

The following is a schedule of future minimum lease payments under the operating
leases:

               Year Ending December 31,
               ------------------------------------------------
                       2006                              65,944
                       2007                              44,878
               ------------------------------------------------
                       Total                        $   110,822
               ------------------------------------------------

The  building  lease  provides  for payment of property  taxes,  insurance,  and
maintenance  costs by the Company.  Rental expense for operating  leases totaled
$55,410  and  $213,688  for  the  years  ended   December  31,  2005  and  2004,
respectively.


                                      F-21



                      CIRTRAN CORPORATION AND SUBSIDIARIES
                     NOTES CONSOLIDATED FINANCIAL STATEMENTS


NOTE 11 - CONVERTIBLE DEBENTURES

Highgate - On May 26, 2005, the Company  entered into an agreement with Highgate
to issue to  Highgate  a  $3,750,000,  5%  Secured  Convertible  Debenture  (the
"Debenture").  The  Debenture is due December  2007 and is secured by all of the
Company's property.

Accrued  interest is payable at the time of maturity or conversion.  The Company
may,  at its  option,  elect to pay  accrued  interest  in cash or shares of the
Company's  common stock.  If paid in stock,  the  conversion  price shall be the
closing bid price of the common stock on either the date the interest payment is
due or the date on which the  interest  payment is made.  The balance of accrued
interest owed at December 31, 2005 was $111,986.

At any  time,  Highgate  may elect to  convert  principal  amounts  owing on the
Debenture into shares of the Company's  common stock at a conversion price equal
to the lesser of $0.10 per share,  or an amount equal to the lowest  closing bid
price of the  Company's  common stock for the twenty  trading  days  immediately
preceding the conversion  date. The Company has the right to redeem a portion or
the entire  Debenture then  outstanding  by paying 105% of the principal  amount
redeemed plus accrued interest thereon.

Highgate's  right to convert  principal  amounts  into  shares of the  Company's
common stock is limited as follows:

       (i)    Highgate may convert up to $250,000 worth of the principal  amount
              plus accrued  interest of the Debenture in any consecutive  30-day
              period when the market price of the  Company's  stock is $0.10 per
              share or less at the time of conversion;
       (ii)   Highgate may convert up to $500,000 worth of the principal  amount
              plus accrued  interest of the Debenture in any consecutive  30-day
              period when the price of the Company's stock is greater than $0.10
              per  share  at the time of  conversion;  provided,  however,  that
              Highgate  may  convert in excess of the  foregoing  amounts if the
              Company and Highgate mutually agree; and
       (iii)  Upon the  occurrence of an event of default,  Highgate may, in its
              sole  discretion,  accelerate  full  repayment  of all  debentures
              outstanding  and  accrued  interest  thereon  or may  convert  the
              Debentures  and  accrued  interest  thereon  into  shares  of  the
              Company's common stock.

Except in the event of default,  Highgate  may not convert the  Debenture  for a
number of shares  that would  result in  Highgate  owning more than 4.99% of the
Company's outstanding common stock.

As discussed in Note 8, the Company granted Highgate registration rights related
to the issuance of the debenture.

The Company  determined that the features of the Debenture fell under derivative
accounting  treatment.  As of  December  31,  2005  the  carrying  value  of the
Debenture  was $996,252.  The carrying  value will be accreted each quarter over
the life of the  Debenture  until the  carrying  value  equals the face value of
$3,750,000.  The fair value of the derivative  liability as of December 31, 2005
was $3,175,287.

In  connection  with the issuance of the  Debenture,  $2,265,000 of the proceeds
were paid to Cornell to repay promissory  notes.  Fees of $256,433 were withheld
from the proceeds,  were  capitalized,  and are being amortized over the life of
the note. As such, of the total Debenture of $3,750,000, the net proceeds to the


                                      F-22



                      CIRTRAN CORPORATION AND SUBSIDIARIES
                     NOTES CONSOLIDATED FINANCIAL STATEMENTS


Company  were  $1,228,567.  The  proceeds  were used for general  corporate  and
working capital purposes, at the Company's discretion.

Cornell - On December 30,  2005,  the Company  entered  into an  agreement  with
Cornell to sell to Cornell a $1,500,000,  5% Secured Convertible  Debenture (the
"Cornell  Debenture").  The  Cornell  Debenture  is due July 30,  2008 and has a
security interest of all the Company's property, junior to the Highgate security
interest.

Accrued  interest is payable at the time of maturity or conversion.  The Company
may,  at its  option,  elect to pay  accrued  interest  in cash or shares of the
Company's  common stock.  If paid in stock,  the  conversion  price shall be the
closing bid price of the common stock on either the date the interest payment is
due or the date on which the interest payment is made.

At any time, Cornell may elect to convert principal amounts owing on the Cornell
Debenture into shares of the Company's  common stock at a conversion price equal
to an amount equal to the lowest closing bid price of the Company's common stock
for the twenty  trading days  immediately  preceding the  conversion  date.  The
Company has the right to redeem a portion or the entire  Cornell  Debenture then
outstanding  by  paying  105% of the  principal  amount  redeemed  plus  accrued
interest thereon.

Cornell's right to convert principal amounts into shares of the Company's common
stock is limited as follows:

       (i)    Cornell may convert up to $250,000  worth of the principal  amount
              plus accrued interest of the Cornell  Debenture in any consecutive
              30-day  period  when the market  price of the  Company's  stock is
              $0.10 per share or less at the time of conversion;
       (ii)   Cornell may convert up to $500,000  worth of the principal  amount
              plus accrued interest of the Cornell  Debenture in any consecutive
              30-day  period  when the price of the  Company's  stock is greater
              than $0.10 per share at the time of conversion; provided, however,
              that Cornell may convert in excess of the foregoing amounts if the
              Company and Cornell mutually agree; and
       (iii)  Upon  the  occurrence  of an  event of  default,  Cornell  Capital
              Partners,  LP  may,  in  its  sole  discretion,   accelerate  full
              repayment  of  the  debenture  outstanding  and  accrued  interest
              thereon or may convert the Debenture and accrued  interest thereon
              into shares of the Company's common stock.

Except in the event of default,  Cornell  may not convert the Cornell  Debenture
for a number of shares  that would  result in Cornell  owning more than 4.99% of
the Company's outstanding common stock.

The Cornell Debenture was issued with 10,000,000 warrants with an exercise price
of $0.09 per share that vest immediately and have a three year life.

As discussed in Note 8, the Company granted Cornell  registration rights related
to the issuance of the Cornell Debenture and warrants.

The  Company  determined  that the  features on the  Cornell  Debenture  and the
associated warrants fell under derivative accounting  treatment.  As of December
31, 2005 the carrying value of the Cornell  Debenture was $0. The carrying value
will be accreted each quarter over the life of the Cornell  Debenture  until the



                                      F-23



                      CIRTRAN CORPORATION AND SUBSIDIARIES
                     NOTES CONSOLIDATED FINANCIAL STATEMENTS


carrying  value  equals  the face  value of  $1,500,000.  The fair  value of the
derivative liability as of December 31, 2005 was $1,735,016.

In connection with the issuance of the Cornell Debenture,  fees of $130,000 were
withheld from the proceeds,  capitalized, and will be amortized over the life of
the Cornell  Debenture.  As such, of the total Cornell  Debenture of $1,500,000,
the net proceeds to the Company were  $1,370,000.  The proceeds will be used for
general corporate and working capital purposes, at the Company's discretion

NOTE 12 - INCOME TAXES

The  Company  has  paid no  federal  or  state  income  taxes.  The  significant
components of the Company's  deferred tax assets and liabilities at December 31,
2005 and 2004, were as follows:

                                                         2005           2004
--------------------------------------------------------------------------------
Deferred Income Tax Assets:
  Inventory reserve                                  $   280,233    $   266,026
  Bad debt reserve                                       102,903         15,346
  Vacation reserve                                        26,602         26,809
  Research and development credits                        27,285         27,285
  Net operating loss carryforward                      4,676,769      4,597,493
  Depreciation                                                 -          2,668
  Intellectual property                                  101,095        115,581
--------------------------------------------------------------------------------

       Total Deferred Income Tax Assets                5,214,887      5,051,208
  Valuation allowance                                 (5,213,178)    (5,051,208)

  Deferred Income Tax Liability - depreciation            (1,709)             -
--------------------------------------------------------------------------------

  Net Deferred Income Tax Asset                        $       -       $      -
--------------------------------------------------------------------------------

The Company has sufficient  long-term  deferred  income tax assets to offset the
deferred income tax liability  related to depreciation.  The long-term  deferred
income  tax  assets  relate  to the  net  operating  loss  carryforward  and the
intellectual property.

The Company has sustained net operating losses in both periods presented.  There
were no deferred  tax assets or income tax  benefits  recorded in the  financial
statements  for net  deductible  temporary  differences  or net  operating  loss
carryforwards  because the likelihood of realization of the related tax benefits
cannot be established.  Accordingly,  a valuation allowance has been recorded to
reduce the net deferred tax asset to zero and  consequently,  there is no income
tax  provision or benefit  presented  for the years ended  December 31, 2005 and
2004.

As of December 31, 2005,  the Company had net operating loss  carryforwards  for
tax reporting  purposes of approximately  $12,538,254.  These net operating loss
carryforwards,  if unused, begin to expire in 2019. Utilization of approximately
$1,193,685 of the total net operating loss is dependent on the future profitable
operation of Racore Technology  Corporation under the separate return limitation
rules and limitations on the carryforward of net operating losses after a change


                                      F-24



                      CIRTRAN CORPORATION AND SUBSIDIARIES
                     NOTES CONSOLIDATED FINANCIAL STATEMENTS


in ownership.  The  realization  of tax benefits  relating to net operation loss
carryforwards is limited due to the settlement related to amounts previously due
to the IRS discussed in Note 8.

The following is a reconciliation of the amount of tax benefit that would result
from  applying the federal  statutory  rate to pretax loss with the benefit from
income taxes for the years ended December 31, 2005 and 2004:

                                                          2005           2004
--------------------------------------------------------------------------------
Benefit at statuatory rate (34%)                       $(179,421)     $(223,829)
Non-deductible expenses                                   21,399         38,099
Change in valuation allowance                            161,970        207,457
State tax benefit, net of federal tax benefit            (17,416)       (21,727)
Return to provision                                       13,468              -
--------------------------------------------------------------------------------

Net Benefit from Income Taxes                          $       -      $       -
--------------------------------------------------------------------------------

NOTE 13 - STOCKHOLDERS' EQUITY

Common Stock  Issuances -- During the year ended  December 31, 2005, the Company
issued 51,250,000 shares of the Company's restricted common stock for payment of
principal and accrued interest on the note to Abacus. (See Note 7.)

During the year ended December 31, 2005, the Company issued 10,000,000 shares of
the  Company's  restricted  common stock for payment of accrued rent and accrued
interest of $411,402.  Because the rent was owed to a related party,  no gain or
loss on forgiveness of debt was recognized.

During the year ended December 31, 2005, the Company issued  3,000,000 shares of
the Company's  restricted  common stock as partial payment on a note payable for
$92,969. (See Note 8.) As of the date of this report, the registration statement
had not been declared effective.

On March 31, 2005, the Company  acquired a 100% interest in PFE Properties,  LLC
for 20,000,000 shares of the Company's restricted common stock. (See Note 5)

During the year ended  December 31, 2004,  the Company issued 542,495 shares and
1,000,000  shares  of  common  stock in 2004 with a fair  value of  $30,000  and
$25,000, respectively, based on the per share fair value of the Company's common
stock on the dates of  issuance,  as part of a settlement  agreements  for notes
payable. (See Note 9)

During the year ended  December 31, 2004,  the Company  settled a legal claim by
issuing  1,000,000  shares of common which  resulted in a settlement  expense of
$60,000,  which was the fair value of the shares  issued  based on the per share
fair value of the Company's common stock on the date of issuance.

During 2004, the Company issued  45,273,989  shares of the Company's  restricted
common  stock to  officers  of the  Company.  The shares were valued at $543,288
based on the fair  value of the  Company's  stock on the date of  issuance.  The
shares were issued as settlement of accrued  compensation  of $431,770,  accrued
interest of $5,587, and compensation of $105,931.


                                      F-25



                      CIRTRAN CORPORATION AND SUBSIDIARIES
                     NOTES CONSOLIDATED FINANCIAL STATEMENTS


Equity Line of Credit  Agreement - On November 5, 2002, the Company entered into
an Equity Line of Credit  Agreement (the "Equity Line  Agreement") with Cornell.
The Company subsequently  terminated the Equity Line Agreement,  and on April 8,
2003,  the Company  entered into an amended  equity line agreement (the "Amended
Equity Line Agreement")  with Cornell.  Under the Amended Equity Line Agreement,
the  Company  had the right to draw up to  $5,000,000  from  Cornell  against an
equity line of credit (the "Equity  Line"),  and to put to Cornell shares of the
Company's common stock in lieu of repayment of the draw. The number of shares to
be issued  was  determined  by  dividing  the  amount of the draw by the  lowest
closing bid price of the Company's common stock over the five trading days after
the advance  notice was tendered.  Cornell was required under the Amended Equity
Line  Agreement to tender the funds  requested by the Company within two trading
days after the five-trading-day  period used to determine the market price. Upon
the issuance of the Convertible Debenture, the Amended Equity Line Agreement was
terminated.

Standby  Equity  Distribution  Agreement  - The Company  entered  into a Standby
Equity  Distribution  Agreement  dated May 21,  2004,  with  Cornell.  Under the
Agreement, the Company had the right, at its sole discretion,  to draw up to $20
million on the standby equity facility (the "SEDA  Facility") and put to Cornell
shares of its common  stock in lieu of  repayment  of the  draws.  The number of
shares to be issued in connection  with each draw was determined by dividing the
amount of the draw by the lowest volume-weighted  average price of the Company's
common  stock  during the five  consecutive  trading  days after the advance was
sought. The maximum advance amount was $1,000,000 per advance, with a minimum of
seven trading days between advances. Cornell was to retain 5% of each advance as
a fee under the Agreement. The term of the Agreement was to run over a period of
twenty-four  months after a registration  statement related to the Agreement was
declared effective or until the full $20 million had been drawn,  whichever came
first.  The Company had made no draws  against the SEDA  Facility  and issued no
shares in connection with the SEDA Facility.

With  the  issuance  of the  Convertible  Debenture  on May 27,  2005,  the SEDA
Facility and related agreements were terminated. (See Note 12.)

NOTE 14 - STOCK OPTIONS AND WARRANTS

Stock-Based  Compensation  - The Company  accounts for stock  options  issued to
directors,  officers and employees under APB No. 25 and related interpretations.
Under APB 25,  compensation  expense is recognized if an option's exercise price
on the measurement  date is below the fair value of the Company's  common stock.
For options that provide for cashless  exercise or that have been modified,  the
measurement  date is  considered  the date the options are  exercised or expire.
Those options are accounted for as variable options with  compensation  adjusted
each period based on the difference between the market value of the common stock
and the  exercise  price of the  options at the end of the  period.  The Company
accounts  for  options  and  warrants  issued to  non-employees,  including  the
developers mentioned in Note 7, at their fair value in accordance with Statement
of  Financial   Accounting   Standards  No.  123,  "Accounting  for  Stock-Based
Compensation" ("SFAS 123").

Stock Option Plan - During  November  2003,  the Company  adopted the 2003 Stock
Option Plan (the "2003 Plan") with  35,000,000  shares of common stock  reserved
for issuance there under.  Also,  during  December 2004, the Company adopted the
2004 Stock Option Plan (the "2004 Plan") with 40,000,000  shares of common stock
reserved for issuance there under. The Company's Board of Directors  administers
the  plans  and  has  discretion  in  determining   the  employees,   directors,
independent  contractors  and  advisors who receive  awards,  the type of awards
(stock, incentive stock options or non-qualified stock options) granted, and the
term, vesting, and exercise prices.


                                      F-26



                      CIRTRAN CORPORATION AND SUBSIDIARIES
                     NOTES CONSOLIDATED FINANCIAL STATEMENTS


Non-Employee  Options - During the year ended  December  31,  2005,  the Company
granted options to purchase  7,000,000 shares of common stock to counsel for the
Company with an exercise price of $0.0001 per share.  The options were five year
options and vested on the date  granted.  Legal expense of $195,803 was recorded
for the fair value of options  issued.  During 2005,  5,000,000 of these options
and 1,500,000  previously  issued options were exercised by counsel for proceeds
of $650.

During 2004, the Company granted options to purchase  6,500,000 shares of common
stock to  attorneys  for services at exercise  prices of $0.0001 per share.  The
options  were all five year  options  and  vested on the  dates  granted.  Legal
expense of $209,952  was recorded  for the fair value of options  issued  during
2004.  5,000,000 of these  options were  exercised in 2004 for cash  proceeds of
$500. An additional  500,000 of previously issued options were exercised in 2004
for cash proceeds of $50.

Employee  Options - During the year ended December 31, 2005, the Company granted
options to purchase 19,000,000 shares of common stock to directors and employees
of the Company  pursuant to the 2004 Plan.  These  options are five year options
that vested on the date of grant. The related exercise prices ranged from $0.022
to $0.027 per share.  These  options had  intrinsic  value of $12,000  which was
recognized as non-cash  compensation expense. A total of 18,500,000 options were
exercised during the year ended December 31, 2005, for $33,000 in cash, $135,000
in compensation,  $256,500 in accrued compensation,  and $23,000 as payment on a
shareholder  note  payable.   The  $135,000  of  compensation  was  recorded  in
conjunction with the cashless exercise of 3,000,000 of the options.

During 2004, the Company granted options to purchase 24,000,000 shares of common
stock to directors  and  employees of the Company  pursuant to the 2003 and 2004
Plans. These options are five year options that vested on the date of grant. The
related  exercise  prices  range  from  $0.01  to  $0.03  per  share.   Non-cash
compensation  relating to the grant of these options was recognized for $125,000
during  2004,  based upon the  intrinsic  value of  options  on the grant  date.
14,250,000  of these  options were  exercised  during 2004 for $111,500 of cash,
$101,250 of compensation  and $61,000 of accrued  compensation.  The $101,250 of
compensation was recorded in conjunction with the cashless exercise of 4,500,000
of the options.

Developer Options - During the year ended December 31, 2005, the Company granted
options to purchase  1,500,000 shares of common stock to developers as described
in Note 8 at exercise prices of $0.06 per share.  The options were all five-year
options and vested on the dates granted.  Two of the  developers  were employees
and together were issued  1,000,000 of the options.  The exercise  price equaled
the fair value of the  common  shares at the time these  options  were  granted;
therefore,  the options had no intrinsic  value. The fair value of these options
of $42,052 was estimated using the  Black-Scholes  option pricing model with the
following assumptions:  risk free interest rate ranging of 4.00%, dividend yield
of 0.0%,  volatility  of 302%,  and expected  average life of .5 years.  None of
these options were exercised during the year ended December 31, 2005.

The remaining 500,000 developer options were issued to a non-employee  under the
terms described above.  Because the developer was a non-employee,  cost of goods
sold of $21,526 was  recorded  for the fair value of options  issued  during the
year ended December 31, 2005. These options were valued using the  Black-Scholes
option  pricing  model with the following  assumptions:  risk free interest rate
ranging of 4.00%,  dividend  yield of 0.0%,  volatility  of 302%,  and  expected
average life of .5 years.  None of these options were exercised  during the year
ended December 31, 2005.

A total of 12,750,000 employee options and 4,000,500  non-employee  options were
outstanding as of December 31, 2005.


                                      F-27



                      CIRTRAN CORPORATION AND SUBSIDIARIES
                     NOTES CONSOLIDATED FINANCIAL STATEMENTS


A summary of the stock option activity for the years ended December 31, 2004 and
2005, is as follows:
                                                                    Weighted
                                                                    Average
                                                                    Exercise
                                                      Shares         Price
                                                   ------------    ----------
Outstanding at December 31, 2003                     3,850,500      $   0.02
Granted                                             30,500,000      $   0.02
Exercised                                          (19,750,000)     $   0.01
Cancelled                                             (350,000)     $   0.14
                                                   -----------
Outstanding at December 31, 2004                    14,250,500      $   0.02
Granted                                             27,500,000      $   0.02
Exercised                                          (25,000,000)     $   0.02
Cancelled                                                    -      $     -
                                                   -----------
Outstanding at December 31, 2005                    16,750,500      $   0.02
                                                   ===========
Excercisable at December 31, 2005                   16,750,500      $   0.02
                                                   ===========

The fair value of stock  options  was  determined  at the grant  dates using the
Black-Scholes   option-pricing   model  with  the   following   weighted-average
assumptions for the year ended December 31, 2005 and 2004:

                                                      2005             2004
                                                  -------------    -------------
Expected dividend yield                                      -                -
Risk free interest rate                                   4.13%            3.39%
Expected volatility                                        268%             300%
Expected life                                        .12 years        .10 years
Weighted average fair value per share             $       0.02     $       0.02


A summary of stock  option and warrant  grants with  exercise  prices less than,
equal to or greater than the estimated  market value on the date of grant during
the years ended December 31, 2005 and 2004 is as follows:

                                                                      Weighted
                                                           Weighted   Average
                                                           Average      Fair
                                              Options      Exercise   Value of
                                              Granted       Price      Options
                                             ----------   ----------  ---------
Year Ended - December 31, 2005
Grants with exercise prices less
 than the estimated market value
 of the common stock                         13,000,000   $     0.01  $   0.02
Grants with exercise prices equal
 to the estimated market value of
 the common stock                            14,500,000   $     0.03  $   0.01
Grants with exercise prices greater
 than the estimated market value of
 the common stock                                     -   $        -  $      -

Year Ended - December 31, 2004
Grants with exercise prices less than
 the estimated market value of the
 common stock                                12,750,000   $     0.01  $   0.03
Grants with exercise prices equal to
 the estimated market value of the
 common stock                                17,750,000   $     0.02  $   0.01
Grants with exercise prices greater
 than the estimated market value of
 the common stock                                     -   $     -     $      -


                                      F-28



                      CIRTRAN CORPORATION AND SUBSIDIARIES
                     NOTES CONSOLIDATED FINANCIAL STATEMENTS


A summary of the stock options  outstanding and exercisable at December 31, 2005
follows:

                Options Outstanding                      Options Exercisable
-----------------------------------------------------  ----------------------
                                 Weighted-
      Range                       Average    Weighted               Weighted-
       of                        Remaining   Average                Average
    Exercise         Options    Contractual  Exercise    Number     Exercise
     Prices        Outstanding     Life       Price    Exercisable   Price
-----------------  -----------  -----------  --------  -----------  --------

          $0.0001    3,500,500      4.10      $0.0001    3,500,500   $0.0001
$0.0200 - $0.0300   11,750,000      3.82      $0.0251   11,750,000   $0.0251
          $0.0600    1,500,000      0.02      $0.0600    1,500,000   $0.0600


Other  Warrants - In  connection  with the  Cornell  convertible  debenture  the
company issued  10,000,000  warrants to purchase shares of the Company's  common
stock.  The  warrants  had  an  exercise  price  of  $0.09  per  share,   vested
immediately, and have a 3 year life. The registration rights associated with the
warrants  caused  derivative  accounting  treatment  of the  debenture  and  the
warrants. The warrants were measured at their fair value using the Black-Scholes
pricing model with the following assumptions:  risk free interest rate of 4.37%,
dividend yield of 0.0%,  volatility of 163.31%,  and expected  average life of 3
years.  These warrants were recorded as part of the derivative  liability on the
balance sheet and will be  re-measured  at their fair value for every  reporting
period.

NOTE 15 -SEGMENT INFORMATION

Segment  information  has  been  prepared  in  accordance  with  SFAS  No.  131,
"Disclosure  About  Segments  of an  Enterprise  and Related  Information."  The
Company  has  three  reportable   segments:   electronics   assembly,   Ethernet
technology,  and  contract  manufacturing.   The  electronics  assembly  segment
manufactures and assembles circuit boards and electronic  component cables.  The
Ethernet  technology  segment  designs  and  manufactures  Ethernet  cards.  The
contract manufacturing segment manufactures,  either directly or through foreign
subcontractors, certain products under an exclusive manufacturing agreement. 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:



                                      F-29



                      CIRTRAN CORPORATION AND SUBSIDIARIES
                     NOTES CONSOLIDATED FINANCIAL STATEMENTS

                              Electronics   Ethernet     Contract
                                Assembly   Technology  Manufacturing    Total
--------------------------------------------------------------------------------

        December 31, 2005

Sales to external customers     3,002,038    125,451    9,865,023  $ 12,992,512
Intersegment sales                 49,015          -            -        49,015
Segment income (loss)           2,084,254)  (233,394)   1,789,940      (527,708)
Segment assets                  5,609,386    183,231    5,109,280    10,901,897
Depreciation and amortization     223,755      1,843       99,357       324,955

        December 31, 2004

Sales to external customers   $ 3,354,057  $  49,714  $ 5,458,944  $  8,862,715
Intersegment sales                 11,610        167            -        11,777
Segment loss                     (375,864)    74,665     (357,123)     (658,322)
Segment assets                  3,085,208    208,043    1,000,178     4,293,429
Depreciation and amortization     220,940      2,438       26,017       249,395


                                                          December 31,
                                                 -------------------------------
        Sales                                        2005               2004
--------------------------------------------------------------------------------

Total sales for reportable segments              $ 13,041,527      $  8,874,492
Elimination of intersegment sales                     (49,015)          (11,777)
--------------------------------------------------------------------------------

Consolidated net sales                           $ 12,992,512      $  8,862,715
--------------------------------------------------------------------------------

                                                          December 31,
                                                 -------------------------------
     Total Assets                                    2005               2004
--------------------------------------------------------------------------------
Total assets for reportable segments             $ 10,901,897      $  4,293,429
Adjustment for intersegment amounts                         -                 -
--------------------------------------------------------------------------------

Consolidated total assets                        $ 10,901,897      $  4,293,429
--------------------------------------------------------------------------------


NOTE 16 - GEOGRAPHIC INFORMATION

All  revenue-producing  assets are  located  in the United  States of America or
China.  Revenues are attributed to the geographic areas based on the location of
the customers  purchasing  the  products.  The Company's net sales and assets by
geographic area are as follows:


                                      F-30



                      CIRTRAN CORPORATION AND SUBSIDIARIES
                     NOTES CONSOLIDATED FINANCIAL STATEMENTS

                                   Revenues             Revenue-producing assets
--------------------------------------------------------------------------------
                               2005          2004          2005          2004
                           -----------   -----------   -----------   -----------
United States of America   $12,694,817   $ 8,850,775   $   280,490   $   454,610
China                                -             -       663,420       386,183
Other                          297,695        11,940             -             -
--------------------------------------------------------------------------------
                           $12,992,512   $ 8,862,715   $   943,910   $   840,793
--------------------------------------------------------------------------------


NOTE 17 - SUBSEQUENT EVENTS

Accrued Payroll Tax Liabilities - In January 2006, the Utah State Tax Commission
reduced the remaining accrued payroll taxes, penalties and interest due on prior
period payroll taxes and were paid the amount of $98,316.

Settlement of Litigation - On January 26, 2006, a settlement was reached related
to the leased  facilities in Colorado.  The Company  settled the remaining claim
for $200,000 cash.  This amount was recorded in full at December 31, 2005 and is
included in accrued liabilities.

On February 24, 2006 the Company  entered into a settlement  agreement  with the
investment  firm  discussed in Note 8. The Company  issued  4,000,000  shares of
restricted  stock  with a fair value of $0.044  per  share.  Warrants  were also
issued to  purchase  7,000,000  shares of the  Company's  common  stock  with an
exercise price of $0.05 cents per share and a life of 5 years.  The value of the
shares and warrants of $464,186 was accrued in 2005 as an accrued liability.

Convertible  Debenture - In January  2006,  Highgate  converted  $750,000 of its
convertible  debenture into 24,193,548 shares of the Company's common stock at a
conversion rate of $0.031 per share, which was the lower of $0.10 or 100% of the
lowest closing bid price of the Company's commons stock over the 20 trading days
preceding the conversion.

Stock Options - During January 2006, an employee  exercised  options to purchase
1,000,000  shares of common  stock with an  exercise  price of $0.027 per share.
These options were exercised as payment of accrued compensation of $27,000.

On January  27,  2006,  counsel for the  Company  exercised  options to purchase
2,000,000 shares of common stock with an exercise price of $0.0001 per share.

During February 2006, an employee exercised options to purchase 1,000,000 shares
of common stock with an exercise  price of $0.027 per share.  These options were
exercised as payment of accrued compensation of $27,000.

During March 2006, a director  exercised options to purchase 1,000,000 shares of
common  stock with an exercise  price of $0.027 per share.  These  options  were
exercised as payment of accrued compensation of $27,000.







                                      F-31






                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

     The following financial statements of CirTran Corporation and related notes
thereto and auditors'  report  thereon were filed as part of the Company's  Form
10-QSB, filed on:

Item 1.    Condensed Consolidated Financial Statements

           Balance Sheets as of March 31, 2006, (unaudited) and              Q2
           December 31, 2005

           Statements of Operations for the Three Months ended               Q3
           March 31, 2006, (unaudited) and 2005 (unaudited)

           Statements of Cash Flows for the Three Months ended               Q4
           March 31, 2006, (unaudited) and 2005 (unaudited)

           Notes to Condensed Consolidated Financial Statements              Q6
           (unaudited)






















                                      Q-1



                      CIRTRAN CORPORATION AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                  (UNAUDITED)

                                                     March 31,      December 31,
                                                       2006             2005
--------------------------------------------------------------------------------
ASSETS
Current Assets
Cash and cash equivalents                          $    443,637    $  1,427,865
Trade accounts receivable, net of allowance
 for doubtful accounts of $158,374 and
 $158,374, respectively                               3,019,960       3,358,981
Inventory, Net of reserve of $751,296 and
 $751,296, respectively                               2,203,537       2,271,604
Prepaid Deposits                                              -         142,188
Other                                                   108,976         252,941
--------------------------------------------------------------------------------
    Total Current Assets                              5,776,110       7,453,579

Property and Equipment, Net                           2,778,692       2,686,737

Investment in Securities, at Cost                       300,000         300,000

Other Assets, Net                                       691,417         361,581

Deposits                                                129,283         100,000
--------------------------------------------------------------------------------

Total Assets                                       $  9,675,502    $ 10,901,897
--------------------------------------------------------------------------------

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

Current Liabilities
Accounts payable                                   $    528,963    $  1,239,519
Accrued liabilities                                     551,049       1,222,018
Deferred revenue                                         33,625         119,945
Derivative liability                                  3,136,160       4,910,303
Convertible Debenture                                         -         996,252
Current maturities of long-term notes payable         1,225,785          12,610
Notes payable to stockholders                                 -          95,806
--------------------------------------------------------------------------------
    Total Current Liabilities                         5,475,582       8,596,453
--------------------------------------------------------------------------------

Long-Term Notes Payable, Less Current Maturities      1,033,989       1,037,390
--------------------------------------------------------------------------------

Commitments and Contingencies

Stockholders' Equity (Deficit)
Common stock, par value $0.001; authorized
 750,000,000 shares; issued and outstanding
 shares: 616,562,117 and 583,368,569 at March
 31, 2006 and December 31, 2005, respectively           616,558         583,364
Additional paid-in capital                           22,154,684      20,012,000
Accumulated deficit                                 (19,605,311)    (19,327,310)
--------------------------------------------------------------------------------
    Total Stockholders' Equity (Deficit)              3,165,931       1,268,054
--------------------------------------------------------------------------------
Total Liabilities and Stockholders'
 Equity (Deficit)                                  $  9,675,502    $ 10,901,897
--------------------------------------------------------------------------------


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


                                      Q-2



                      CIRTRAN CORPORATION AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)

For the Three Months Ended March 31,                 2006              2005
--------------------------------------------------------------------------------

Net Sales                                        $   1,737,824    $   2,920,465
Cost of Sales                                         (990,370)      (1,949,773)
--------------------------------------------------------------------------------

    Gross Profit                                       747,454          970,692
--------------------------------------------------------------------------------

Operating Expenses
    Selling, general and administrative expenses       837,520          959,891
    Non-cash employee compensation expense                   -           69,000
--------------------------------------------------------------------------------
    Total Operating Expenses                           837,520        1,028,891
--------------------------------------------------------------------------------

      Loss From Operations                             (90,066)         (58,199)
--------------------------------------------------------------------------------

Other Income (Expense)
    Interest                                        (1,086,253)        (143,770)
    Other, net                                               -              241
    Gain on forgiveness of debt                          4,670                -
    Gain on derivative valuation                       893,651                -
--------------------------------------------------------------------------------
    Total Other Expense, Net                          (187,932)        (143,529)
--------------------------------------------------------------------------------

Net Loss                                         $    (277,998)   $    (201,728)
--------------------------------------------------------------------------------

Basic and diluted loss per common share          $       (0.00)   $       (0.00)
--------------------------------------------------------------------------------
Basic and diluted weighted-average
    common shares outstanding                      558,748,729      488,490,792
--------------------------------------------------------------------------------







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


                                      Q-3



                      CIRTRAN CORPORATION AND SUBSIDIARIES
                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)

For the Three Months Ended March 31,                     2006           2005
--------------------------------------------------------------------------------

Cash flows from operating activities
Net loss                                             $  (277,998)   $  (201,728)
Adjustments to reconcile net loss to net
 cash used in operating activities:
  Depreciation and amortization                          114,939         73,660
  Accretion expense                                      965,512              -
  Provision for doubtful accounts                              -            417
  Amortization of loan premium to
   interest expense                                            -         11,057
  Non-cash compensation expense                                -         69,000
  Loan costs and fees in lieu of interest
   on notes payable                                            -         61,500
  Options issued to attorneys and consultants
   for services                                                -         21,526
  Gain on derivative valuation                          (893,651)
  Accrued Interest Expense                                61,586              -
 Changes in assets and liabilities:
    Trade accounts receivable                            366,021       (119,299)
    Prepaid Deposits                                     142,188              -
    Inventories                                           68,067       (148,087)
    Prepaid expenses and other assets                   (255,318)        (1,836)
    Accounts payable                                    (710,556)      (108,800)
    Accrued liabilities                                 (214,368)       (43,111)
    Deferred revenue                                     (86,320)             -
--------------------------------------------------------------------------------

    Total adjustments                                   (441,900)      (183,973)
--------------------------------------------------------------------------------

 Net cash used in operating activities                  (719,898)      (385,701)
--------------------------------------------------------------------------------

Cash flows from investing activities
Cash aquired with PFE acquisition                              -         39,331
Purchase of property and equipment                      (166,730)      (230,771)
--------------------------------------------------------------------------------

 Net cash used in investing activities                  (166,730)      (191,440)
--------------------------------------------------------------------------------

Cash flows from financing activities
Proceeds from notes payable to stockholders                    -          4,414
Payments on notes payable to stockholders                (95,806)             -
Proceeds from notes payable, net of cash
 paid for offering costs                                       -        503,500
Principal payments on notes payable                       (1,994)             -
Proceeds from notes payable to related parties                 -         95,586
Proceeds from exercise of options and warrants
 to purchase common stock                                      -         33,000
Exercise of options issued to attorneys and
 consultants for services                                    200            150
--------------------------------------------------------------------------------

 Net cash provided by financing activities               (97,600)       636,650
--------------------------------------------------------------------------------

Net increase in cash and cash equivalents               (984,228)        59,509

Cash and cash equivalents at beginning of year         1,427,865         81,101
--------------------------------------------------------------------------------

Cash and cash equivalents at end of period           $   443,637    $   140,610
--------------------------------------------------------------------------------


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


                                      Q-4



                      CIRTRAN CORPORATION AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)
                                   (CONTINUED)

For the Three Months Ended March 31,                      2006          2005
--------------------------------------------------------------------------------
Supplemental disclosure of cash flow information

Cash paid during the period for interest               $   22,765    $         -

Noncash investing and financing activities

Acquisition of PFE Properties, LLC for
 stock and assumption of note payable                  $        -    $ 1,868,974
Common stock issued for settlement of
 note payable and accrued interest                              -      2,148,913
Deposit applied to purchase of property
 and equipment                                                  -        100,000
Common stock issued for accrued liabilities               464,187        411,402
Stock options exercised for settlement of
 accrued interest and accrued compensation                 81,000         59,000
Stock options exercised for settlement of
 notes payable to stockholders                                  -         23,000
Common stock issued for partial conversion
 of convertible debenture and derivative liability      1,630,491              -

























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


                                      Q-5



                      CIRTRAN CORPORATION AND SUBSIDIARIES

                     NOTES TO CONDENSED FINANCIAL STATEMENTS

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Condensed   Financial   Statements  --  The  accompanying   unaudited  condensed
consolidated  financial  statements include the accounts of CirTran  Corporation
and its subsidiaries (the "Company").  These financial  statements are condensed
and, therefore,  do not include all disclosures  normally required by accounting
principles generally accepted in the United States of America.  These statements
should be read in conjunction  with the Company's  annual  financial  statements
included in the  Company's  Annual  Report on Form 10-KSB.  In  particular,  the
Company's  significant  accounting  principles  were  presented as Note 1 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 consist of
only normal recurring  adjustments.  The results of operations  presented in the
accompanying  condensed  consolidated  financial statements for the three months
ended March 31, 2006, are not necessarily  indicative of the results that may be
expected for the full year ending December 31, 2006.

Principles of Consolidation -- The consolidated financial statements include the
accounts of CirTran  Corporation,  and it's wholly  owned  subsidiaries,  Racore
Technology Corporation,  CirTran-Asia Inc, CirTran Products, Inc., Diverse Media
Group  Corporation  and  PFE  Properties,   LLC.  All  significant  intercompany
transactions have been eliminated in consolidation.


Stock-Based  Compensation -- Effective  January 1, 2006, the Company adopted the
provisions  of Statement of Accounting  Standards No. 123R,  Share Based Payment
("FAS 123R") for its one stock-based  compensation  plan. The Company previously
accounted  for this plan under the  recognition  and  measurement  principles of
Accounting  Standards No. 25,  Accounting  for Stock Issued to Employees,  ("APB
25") and related interpretations and disclosure requirements established by SFAS
No. 123, Accounting for Stock-Based Compensation ("SFAS 123") as amended by SFAS
No. 148, Accounting for Stock-Based Compensation - Transition and Disclosure.

Under APB 25, no compensation expense was recorded in earnings for the Company's
stock-based  options granted under its compensation plans. The pro forma effects
on net income and  earnings per share for the options and awards  granted  under
the  plans  were  instead  disclosed  in a note  to the  consolidated  financial
statements.  Under SFAS 123R, all  stock-based  compensation  is measured at the
grant date, based on the fair value of the option or award, and is recognized as
an expense in earnings over the  requisite  service  period,  which is typically
through the date the options vest.

The Company adopted SFAS 123R using the modified  prospective method. Under this
method, for all stock-based options and awards, granted prior to January 1, 2006
that remain outstanding as of that date, compensation cost is recognized for the
unvested  portion  over  the  remaining  requisite  service  period,  using  the
grant-date fair value measured under the original provisions of SFAS 123 for pro
forma and disclosure purposes. No such options were outstanding as of January 1,
2006.

The Company utilized the Black-Scholes  model for calculating the fair value pro
forma disclosures  under SFAS 123 and will continue to use this model,  which is
an acceptable valuation approach under SFAS 123R. The following table summarizes


                                      Q-6



the  Black-Scholes   option-pricing   model  assumptions  used  to  compute  the
weighted-average fair value of stock options granted during the periods below:

                                                   Three Months Ended
                                                        March 31,
                                                    2006        2005
                                                  --------    --------
Expected dividend yield                             N/A*             -
Risk free interest rate                             N/A*          3.76%
Expected volatility                                 N/A*           282%
Expected life                                       N/A*      $   0.16
Weighted average fair value per share               N/A*      $   0.02

* Not applicable as there were no options granted during the period

No options  were  granted  for the three  months  ended  March 31,  2006 and all
previously issued options were fully vested prior to January 1, 2006. Therefore,
there were no compensation  costs relating to stock-based  compensation  for the
three months ended March 31, 2006,  including  the effects from adoption of SFAS
123R, which would have previously been presented in a pro forma  disclosure,  as
discussed above.

The following table  illustrates the effect on net income and earnings per share
as if the Company had applied the fair-value  recognition provisions of SFAS 123
to all of its stock-based  compensation  awards for periods prior to adoption of
SFAS 123R:

   Three Months Ended March 31,                                      2005
   -------------------------------------------------------------------------
   Net loss, as reported                                          $(201,728)
   Add:  Stock-based  employee compensation expense
       included in net loss                                          69,000
   Deduct:  Total stock-based employee compensation
       expense determined under fair value based method
       for all awards                                              (138,248)
   -------------------------------------------------------------------------
   Pro forma net loss                                             $(270,976)
   -------------------------------------------------------------------------
   Basic and diluted loss per common share as reported            $   (0.00)
   -------------------------------------------------------------------------
   Basic and diluted loss per common share pro forma              $   (0.00)
   -------------------------------------------------------------------------

Patents -- Legal fees and other  direct costs  incurred in obtaining  patents in
the  United  States  and other  countries  are  capitalized.  Patents  costs are
amortized  over the estimated  useful life of the patent.  During the year ended
December 31,  2005,  the Company  capitalized  $35,799 in patent  related  legal
costs.  Amortization  expense was $1,279 during the three months ended March 31,
2006.

The realization of patents and other long-lived assets is evaluated periodically
when  events or  circumstances  indicate a  possible  inability  to recover  the
carrying amount. An impairment loss is recognized for the excess of the carrying
amount  over the fair value of the asset or the group of  assets.  Fair value is
determined  based on expected  discounted  net future cash flows.  The  analysis
necessarily involves significant management judgment to evaluate the capacity of
an asset to perform within projections. As required, an evaluation of impairment
was made on the patents as of March 31, 2006. No  indicators of impairment  were
noted.


                                      Q-7



NOTE 2 - REALIZATION OF ASSETS

The  accompanying  consolidated  financial  statements  have  been  prepared  in
conformity with accounting principles generally accepted in the United States of
America,  which contemplate  continuation of the Company as a going concern. The
Company  had net loss of $277,998  for the three  months  ended March 31,  2006,
compared to a net loss of $527,708 for the year ended  December 31, 2005.  As of
March 31, 2006, and December 31, 2005, the Company had an accumulated deficit of
$19,605,311 and $19,327,310,  respectively,  and a total stockholders' equity of
$3,165,931 and $1,268,054,  respectively. The Company also had a working capital
(deficit) of $300,528 and  $(1,142,874)  as of March 31, 2006,  and December 31,
2005, respectively. In addition, the Company used, rather than provided, cash in
its  operations in the amounts of $719,698 and  $1,751,744  for the three months
ended March 31, 2006, and the year ended December 31, 2005, respectively.  These
conditions raise  substantial doubt about the Company's ability to continue as a
going concern.

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
financing  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.

NOTE 3 - RELATED PARTY TRANSACTIONS

Notes Payable to Stockholders  -- During December 2005 a stockholder  loaned the
Company  $95,806  which was  recorded as a notes  payable to  stockholders.  The
proceeds of this loan were used to fund on going  operations of the Company.  In
January  2006,  the Company made a payment to the  stockholder  which repaid the
entire balance ($95,806) of the loan.

NOTE 4 - COMMITMENTS AND CONTINGENCIES

Settlement of Litigation -- During January 2002,  the Company  settled a lawsuit
that had alleged a breach of facilities sublease agreement involving  facilities
located in  Colorado.  The  Company's  liability  in this action was  originally
estimated to range up to $2.5  million.  The Company had filed a counter suit in
the same court for an amount exceeding $500,000 for missing equipment.
Effective  January 18, 2002,  the Company  entered  into a settlement  agreement
which  required the Company to pay the  plaintiff  the sum of $250,000.  Of this
amount,  $25,000 was paid upon  execution  of the  settlement,  and the balance,
together  with  interest  at 8% per  annum,  was  payable by July 18,  2002.  As
security for payment of the balance,  the Company  executed and delivered to the
plaintiff a Confession  of Judgment and also issued  3,000,000  shares of common
stock,  which were held in escrow and were treated as treasury stock recorded at
no cost.  The fair  value of the  3,000,000  shares  was less than the  carrying
amount of the note payable.  Because 75 percent of the balance had not been paid
by May 18,  2002,  the  Company  was  required  to  prepare  and  file  with the
Securities & Exchange Commission,  at its own expense, a registration  statement
with respect to the escrowed shares.

As of December 31, 2005, the Company was in default of its obligations under the
settlement  agreement and the total payment due  thereunder had not been made. A
registration statement with respect to the escrowed shares was not filed and the
Company did not replace the escrowed shares with registered, free-trading shares
as per the terms of the agreement.  The plaintiff filed a Confession of Judgment
and proceeded  with  execution  thereon.  The shares in escrow were released and
issued as partial settlement of $92,969 on the note payable outstanding.


                                      Q-8



In  connection  with a separate  sublease  agreement  of these  facilities,  the
Company  received a settlement from the sublessee during May 2002, in the amount
of  $152,500,  which was recorded as other  income.  The Company did not receive
cash from this  settlement,  but certain  obligations  of the Company  were paid
directly.  $109,125  of  the  principal  balance  of  the  note  related  to the
settlement  mentioned  above was paid.  Also,  $7,000 was paid to the  Company's
legal counsel as a retainer for future services.  The remaining $36,375 was paid
to the above mentioned plaintiff as a settlement of rent expense.

During  September 2002, the plaintiff filed a claim that the $109,125 portion of
the payment was to be applied as additional rent expense rather than a principal
payment on the note payable.  The Company  estimated that the probability of the
$109,125 being  considered  additional  rent expense was remote and disputed the
claim.

On January 26, 2006, a settlement was reached  related to the leased  facilities
in Colorado. The Company settled the remaining claim for $200,000 cash.

During 2003 and 2004, an investment firm filed suits in the U.S.  District Court
for the District of Utah seeking  payment of a commission  consisting  of common
stock valued at 1,750,000  for allegedly  introducing  the Company to the Equity
Line  Investor  (See Note 10). The case was  previously  dismissed in a New York
court.

On February 24, 2006, the Company  entered into a settlement  agreement with the
investment  firm. The Company issued 4,000,000 shares of restricted stock with a
fair value of $0.044 per share.  Warrants were also issued to purchase 7,000,000
shares of the Company's  common stock with an exercise  price of $0.05 cents per
share and a life of 5 years.  The warrants  were valued using the  Black-Scholes
pricing model at $288,186.  Total consideration for the settlement was valued at
$464,186.

Litigation - Various  vendors  have  notified the Company that they believe they
have claims  against the Company  totaling  $18,810.  None of these vendors have
filed  lawsuits in relation to these  claims.  The Company has accrued for these
claims, and they are included in accounts payable.

In addition,  various  vendors have  notified the Company that they believe they
have claims against the Company  totaling  $164,802.  The Company has determined
the probability of realizing any loss on these claims is remote. The Company has
made no accrual for these claims and is currently in the process of  negotiating
the dismissal of these claims with the various vendors.

Registration  Rights - In May 2005, in connection with the Company's issuance of
a convertible  debenture (discussed below), the Company granted to the debenture
holder registration rights, pursuant to which the Company agreed to file, within
120  days of the  closing  of the  purchase  of the  debenture,  a  registration
statement  to  register  the  resale  of shares of the  Company's  common  stock
issuable upon  conversion of the  debenture.  The company also agreed to use its
best efforts to have the registration  statement  declared  effective within 270
days after filing the registration statement. The Company agreed to register the
resale of up to  100,000,000  shares,  and to keep such  registration  statement
effective until all of the shares issuable upon conversion of the debenture have
been sold. The Company filed the  registration  statement on September 23, 2005.
As of  March  31,  2006,  the  registration  statement  had  not  been  declared
effective.

In December  2005,  in connection  with the Company's  issuance of a convertible
debenture  (discussed  below),  the  Company  granted  to the  debenture  holder
registration  rights,  pursuant to which the Company agreed to file,  within 120
days of the closing of the purchase of the debenture,  a registration  statement


                                      Q-9



to register the resale of shares of the  Company's  common stock  issuable  upon
conversion of the debenture.  The company also agreed to use its best efforts to
have the registration  statement declared effective within 270 days after filing
the registration  statement.  The Company agreed to register the resale of up to
32,608,696  shares  and  10,000,000  warrants,  and to  keep  such  registration
statement  effective  until all of the shares  issuable  upon  conversion of the
debenture have been sold.

In connection  with the settlement  agreement with the investment firm discussed
above in this Note,  the Company agreed to register the resale by the investment
firm of shares issued or issuable to it in connection with the settlement.

Accrued Payroll Tax Liabilities -- The Utah State Tax Commission entered into an
agreement  to allow the Company to pay the tax  liability  owing to the State of
Utah in equal monthly installments of $4,000. Through December 2005, the Company
had made the required payments.

In January 2006,  the Utah State Tax  Commission  reduced the remaining  accrued
payroll  taxes,  penalties and interest due on prior period payroll taxes to the
amount of $98,316. The balance was paid in full.

Manufacturing  Agreement  -- On June  10,  2004,  the  Company  entered  into an
exclusive  manufacturing  agreement with certain Developers.  Under the terms of
the agreement,  the Company,  through its wholly-owned subsidiary  CirTran-Asia,
has the  exclusive  right  to  manufacture  certain  products  developed  by the
Developers or any of their  affiliates.  The Developers will continue to provide
marketing and consulting  services  related to the products under the agreement.
Should the Developers  terminate the agreement early,  they must pay the Company
$150,000.  Revenue is recognized when products are shipped.  Title passes to the
customer or independent sales representative at the time of shipment.

In  connection  with this  agreement  the  Company  agreed to issue  options  to
purchase 1,500,000 shares common stock to the Developers upon the sale, shipment
and payment for 200,000  units of a fitness  product.  In addition,  the Company
agreed to issue  options  to  purchase  300,000  shares  of common  stock to the
Developers  for each  multiple of 100,000  units of the fitness  product sold in
excess of the initial 200,000 units within  twenty-four  months of the agreement
(June 2004).  The options will be  exercisable  at $0.06 per share,  vest on the
grant date and expire one year after issuance. As of March 31, 2006, the Company
had sold,  shipped  and  received  payment  for,  257,577  units of the  fitness
product.  In January 2005, the Company issued 1,500,000  options under the terms
of the  agreement.  During the three  months  ended  March 31,  2006 the options
expired.

In connection  with the above  manufacturing  agreement,  the Company  agreed to
issue various  options to purchase shares of common stock to the Developers upon
the  sale,  shipment,  and  payment  of  certain  quantities  of the  additional
products.  In  addition,  the  Company  agreed to issue  additional  options  to
purchase  common  stock to the  developers  for each  multiple  of units sold in
excess  of  the  initial  units  within  the  first  twenty-four  months  of the
agreements.  The  schedule of units and  potential  options  that will be issued
follows:


                                      Q-10



                               Options      Each Multiple of   Options for Each
              Initial        for Initial      Units above         Multiple
Product        Units         Units Sold      Initial Units        of Units
--------------------------------------------------------------------------------
   1          500,000          500,000          200,000           200,000
   2           25,000          500,000           15,000           100,000
   3          100,000          500,000           50,000           100,000
   4          300,000        1,000,000          100,000           200,000
   5          200,000          250,000          100,000           100,000
   6          200,000          500,000          100,000           100,000

As of March 31, 2006, the Company had not sold, shipped and received payment for
enough  units to  require  the  issuance  of options  related to the  additional
products  under these  agreements.  Because the  Developers  must provide future
services  for the options to vest,  the  options  are  treated as  unissued  for
accounting  purposes.  The cost of these  options  will be  recognized  when the
options are earned.

NOTE 5 - MORTGAGE NOTE PAYABLE

In conjunction  with the acquisition of PFE, the Company assumed a mortgage note
payable for  $1,050,000,  which is secured by the land and the building that was
acquired as part of the PFE  acquisition.  The note bears  interest at 12.5% per
annum and is  collateralized  by the land and  building.  Interest only payments
were made  through  January  2006.  Starting in  February  2006,  principal  and
interest payments were required based on a twenty-year amortization of the note.
The entire  balance of  principal  and unpaid  interest  will be due in December
2008.

NOTE 6 - CONVERTIBLE DEBENTURES

Highgate - On May 26, 2005, the Company  entered into an agreement with Highgate
to issue to  Highgate  a  $3,750,000,  5%  Secured  Convertible  Debenture  (the
"Debenture").  The  Debenture is due December  2007 and is secured by all of the
Company's property.

Accrued  interest is payable at the time of maturity or conversion.  The Company
may,  at its  option,  elect to pay  accrued  interest  in cash or shares of the
Company's  common stock.  If paid in stock,  the  conversion  price shall be the
closing bid price of the common stock on either the date the interest payment is
due or the date on which the  interest  payment is made.  The balance of accrued
interest  owed at March 31,  2006,  and  December  31,  2005,  was  $152,349 and
$111,986, respectively.

At any  time,  Highgate  may elect to  convert  principal  amounts  owing on the
Debenture into shares of the Company's  common stock at a conversion price equal
to the lesser of $0.10 per share,  or an amount equal to the lowest  closing bid
price of the  Company's  common stock for the twenty  trading  days  immediately
preceding the conversion  date. The Company has the right to redeem a portion or
the entire  Debenture then  outstanding  by paying 105% of the principal  amount
redeemed plus accrued interest thereon.

Highgate's  right to convert  principal  amounts  into  shares of the  Company's
common stock is limited as follows:

         (i)      Highgate  may  convert up to $250,000  worth of the  principal
                  amount  plus  accrued   interest  of  the   Debenture  in  any
                  consecutive  30-day  period  when  the  market  price  of  the


                                      Q-11



                  Company's  stock  is  $0.10  per  share or less at the time of
                  conversion;
         (ii)     Highgate  may  convert up to $500,000  worth of the  principal
                  amount  plus  accrued   interest  of  the   Debenture  in  any
                  consecutive  30-day  period  when the  price of the  Company's
                  stock  is  greater  than  $0.10  per  share  at  the  time  of
                  conversion;  provided,  however,  that Highgate may convert in
                  excess of the  foregoing  amounts if the Company and  Highgate
                  mutually agree; and
         (iii)    Upon the  occurrence of an event of default,  Highgate may, in
                  its  sole   discretion,   accelerate  full  repayment  of  all
                  debentures  outstanding  and accrued  interest  thereon or may
                  convert the  Debentures  and  accrued  interest  thereon  into
                  shares of the Company's common stock.


Except in the event of default,  Highgate  may not convert the  Debenture  for a
number of shares  that would  result in  Highgate  owning more than 4.99% of the
Company's outstanding common stock.

In connection with the issuance of the Highgate  Debenture,  the Company granted
Highgate registration rights related to the issuance of the debenture. (See Note
4.)

The Company  determined that the features of the Debenture fell under derivative
accounting  treatment.  As of March 31, 2006 the carrying value of the Debenture
was  $1,068,604.  The carrying value will be accreted each quarter over the life
of the Debenture until the carrying value equals the  unconverted  face value of
$3,000,000 (see below).  The fair value of the derivative  liability as of March
31, 2006 was $1,767,254.

In  connection  with the issuance of the  Debenture,  $2,265,000 of the proceeds
were paid to Cornell to repay promissory  notes.  Fees of $256,433 were withheld
from the proceeds,  were  capitalized,  and are being amortized over the life of
the note. As such, of the total Debenture of $3,750,000, the net proceeds to the
Company  were  $1,228,567.  The  proceeds  were used for general  corporate  and
working capital purposes, at the Company's discretion.

In January 2006,  Highgate converted $750,000 of its convertible  debenture into
24,193,548  shares of the Company's  common stock at a conversion rate of $0.031
per share,  which was the lower of $0.10 or 100% of the lowest closing bid price
of  the  Company's  commons  stock  over  the  20  trading  days  preceding  the
conversion.

Cornell - On December 30,  2005,  the Company  entered  into an  agreement  with
Cornell Capital Partners, L.P. ("Cornell") to issue to Cornell a $1,500,000,  5%
Secured Convertible Debenture (the "Cornell  Debenture").  The Cornell Debenture
is due July 30, 2008,  and is secured by all the Company's  property,  junior to
the Highgate security interest.

Accrued  interest is payable at the time of maturity or conversion.  The Company
may,  at its  option,  elect to pay  accrued  interest  in cash or shares of the
Company's  common stock.  If paid in stock,  the  conversion  price shall be the
closing bid price of the common stock on either the date the interest payment is
due or the date on which the  interest  payment is made.  The balance of accrued
interest  owed at March 31,  2006 and  December  31,  2005 was $18,082 and zero,
respectively.

At any time, Cornell may elect to convert principal amounts owing on the Cornell
Debenture into shares of the Company's  common stock at a conversion price equal
to an amount equal to the lowest closing bid price of the Company's common stock
for the twenty  trading days  immediately  preceding the  conversion  date.  The
Company has the right to redeem a portion or the entire  Cornell  Debenture then


                                      Q-12



outstanding  by  paying  105% of the  principal  amount  redeemed  plus  accrued
interest thereon.

Cornell's right to convert principal amounts into shares of the Company's common
stock is limited as follows:

         (i)      Cornell  may  convert up to  $250,000  worth of the  principal
                  amount plus accrued  interest of the Cornell  Debenture in any
                  consecutive  30-day  period  when  the  market  price  of  the
                  Company's  stock  is  $0.10  per  share or less at the time of
                  conversion;
         (ii)     Cornell  may  convert up to  $500,000  worth of the  principal
                  amount plus accrued  interest of the Cornell  Debenture in any
                  consecutive  30-day  period  when the  price of the  Company's
                  stock  is  greater  than  $0.10  per  share  at  the  time  of
                  conversion;  provided,  however,  that  Cornell may convert in
                  excess of the  foregoing  amounts if the  Company  and Cornell
                  mutually agree; and
         (iii)    Upon the  occurrence of an event of default,  Cornell  Capital
                  Partners,  LP may,  in its sole  discretion,  accelerate  full
                  repayment of the debenture  outstanding  and accrued  interest
                  thereon or may convert  the  Debenture  and  accrued  interest
                  thereon into shares of the Company's common stock.


Except in the event of default,  Cornell  may not convert the Cornell  Debenture
for a number of shares  that would  result in Cornell  owning more than 4.99% of
the Company's outstanding common stock.

The Cornell Debenture was issued with 10,000,000 warrants with an exercise price
of $0.09 per share that vest immediately and have a three year life.

In connection  with the issuance of the Cornell  Debenture,  the Company granted
Cornell registration rights related to the issuance of the Cornell Debenture and
warrants. (See Note 4.)

The  Company  determined  that the  features on the  Cornell  Debenture  and the
associated warrants fell under derivative accounting treatment.  As of March 31,
2006 the carrying  value of the Cornell  Debenture  was  $143,160.  The carrying
value will be accreted each quarter over the life of the Cornell Debenture until
the carrying  value equals the face value of  $1,500,000.  The fair value of the
derivative liability as of March 31, 2006 was $1,368,906.

In connection with the issuance of the Cornell Debenture,  fees of $130,000 were
withheld from the proceeds,  capitalized, and will be amortized over the life of
the Cornell  Debenture.  As such, of the total Cornell  Debenture of $1,500,000,
the net proceeds to the Company were  $1,370,000.  The proceeds will be used for
general corporate and working capital purposes, at the Company's discretion.

As of March 31, 2006,  Cornell had not  converted  any of the Cornell  Debenture
into shares of the Company's common stock.

NOTE 7 - STOCKHOLDERS' EQUITY

Common Stock  Issuances  -- During the three  months  ended March 31, 2006,  the
Company  issued  4,000,000  shares of common stock as a settlement of litigation
with an investment firm. (See Note 4.)


                                      Q-13



During the three  months ended March 31,  2006,  the Company  issued to Highgate
24,193,548  shares of restricted common stock in connection with a conversion by
Highgate of $750,000  principal amount of the convertible  debenture.  (See Note
6.)

NOTE 8 - STOCK OPTIONS AND WARRANTS

Non-Employee  Options - During the three months ended March 31, 2006,  2,000,000
of previously issued options were exercised by counsel for proceeds of $200.

Employee Options - During the three month period ended March 31, 2006, 3,000,000
options were exercised for accrued compensation and employee advances of $54,000
and $27,000 respectively.

Developer  Options - During  2005,  the  Company  granted  options  to  purchase
1,500,000  shares of common stock to developers at exercise  prices of $0.06 per
share.  The options were all one-year  options and vested on the dates  granted.
Two of the developers  were employees and together were issued  1,000,000 of the
options.  The exercise  price equaled the fair value of the common shares at the
time these options were granted;  therefore, the options had no intrinsic value.
The fair value of these options of $42,052 was estimated using the Black-Scholes
option  pricing  model with the following  assumptions:  risk free interest rate
ranging of 4.00%,  dividend  yield of 0.0%,  volatility  of 302%,  and  expected
average life of .5 years.  These options  expired  during the three months ended
March 31, 2006.

The remaining 500,000 developer options were issued to a non-employee  under the
terms described above.  Because the developer was a non-employee,  cost of goods
sold of $21,526 was  recorded  for the fair value of options  issued  during the
year ended December 31, 2005. These options were valued using the  Black-Scholes
option  pricing  model with the following  assumptions:  risk free interest rate
ranging of 4.00%,  dividend  yield of 0.0%,  volatility  of 302%,  and  expected
average  life of .5 years.  None of these  options were  exercised  during 2005.
These options expired during the three months ended March 31, 2006.

A summary of the stock  option  activity  for the three  months  ended March 31,
2006, is as follows:

                                                          Weighted Average
                                            Shares         Exercise Price
                                          ----------      ----------------
Outstanding at December 31, 2005          16,750,500          $   0.02
Granted                                            -          $      -
Exercised                                 (5,000,000)         $   0.02
Cancelled                                 (1,500,000)         $   0.06
                                          ----------
Outstanding at March 31, 2006             10,250,500          $   0.03
                                          ==========

Excercisable at March 31, 2006            10,250,500          $   0.03
                                          ==========

NOTE 9 -SEGMENT INFORMATION

Segment  information  has  been  prepared  in  accordance  with  SFAS  No.  131,
"Disclosure  About  Segments  of an  Enterprise  and Related  Information."  The
Company  has  three  reportable   segments:   electronics   assembly,   Ethernet
technology,  and  contract  manufacturing.   The  electronics  assembly  segment
manufactures and assembles circuit boards and electronic  component cables.  The
Ethernet  technology  segment  designs  and  manufactures  Ethernet  cards.  The
contract manufacturing segment manufactures,  either directly or through foreign
subcontractors, certain products under an exclusive manufacturing agreement. The
accounting  policies of the segments are consistent  with those described in the
summary of significant accounting policies. The Company evaluates performance of


                                      Q-14



each  segment  based on  earnings  or loss  from  operations.  Selected  segment
information is as follows:



                                Electronics    Ethernet      Contract
                                  Assembly    Technology   Manufacturing     Total
-------------------------------------------------------------------------------------
                                                              
     March 31, 2006

Sales to external customers    $   774,359   $    22,226    $   941,239   $ 1,737,824
Intersegment sales                       -             -              -             -
Segment income (loss)              (30,057)      (58,108)      (189,833)     (277,998)
Segment assets                   4,529,176       192,756      4,953,570     9,675,502
Depreciation and amortization       82,912           210         31,817       114,939

     March 31, 2005

Sales to external customers    $   773,013   $    22,608    $ 2,124,844   $ 2,920,465
Intersegment sales                       -             -              -             -
Segment loss                      (372,197)      (66,739)       237,208      (201,728)
Segment assets                   4,591,074       216,838      1,800,585     6,608,497
Depreciation and amortization       50,399           594         22,667        73,660



                                                              March 31,
                                                     ---------------------------
            Sales                                       2006             2005
--------------------------------------------------------------------------------

Total sales for reportable segments                  $1,737,824       $2,920,465
Elimination of intersegment sales                             -                -
--------------------------------------------------------------------------------

Consolidated net sales                               $1,737,824       $2,920,465
--------------------------------------------------------------------------------

                                                              March 31,
                                                     ---------------------------
         Total Assets                                   2006             2005
--------------------------------------------------------------------------------

Total assets for reportable segments                 $9,675,502       $6,608,497
Adjustment for intersegment amounts                           -                -

Consolidated total assets                            $9,675,502       $6,608,497
--------------------------------------------------------------------------------


NOTE 10 - SUBSEQUENT EVENTS

Stock Options - During April 2006,  counsel for the Company exercised options to
purchase  1,500,000 shares of common stock with an exercise price of $0.0001 per
share.

During May 2006, an employee was granted options to purchase 1,500,000 shares of
the  Company's  common  stock.  These options were five year options that vested
immediately  and had an  exercise  price of $0.03 per share.  The  options  were
immediately  exercised  in  lieu of  amounts  owed in  connection  with  the PFE
Acquisition.

During May 2006, an employee  exercised options to purchase  1,000,000 shares of
common  stock with an exercise  price of $0.027 per share.  These  options  were
exercised as payment of accrued bonus expense of $27,000.


                                      Q-15



Table of Contents

Summary about CirTran Corporation
         and this offering                       3
Risk factors                                    16
Use of proceeds                                 25
Determination of offering price                 25
Description of business                         25
Management's discussion and analysis
or plan of operation                            42
Forward-looking statements                      57
5% Convertible Debenture                        57      CirTran Corporation
Selling Shareholders                            60
Plan of distribution                            62          100,000,000
Regulation M                                    65            SHARES
Legal Proceedings                               65
Directors, executive officers, promoters and               COMMON STOCK
         control persons                        68
Commission's position on indemnification                --------------------
         for Securities Act liabilities         70
Security ownership of certain beneficial                    PROSPECTUS
         owners and management                  71
Description of common stock                     72      -------------------
Certain relationships and related
         Transactions                           74        August 11, 2006
Market for common equity and related
         stockholder matters                    76
Executive compensation                          81
Changes in and disagreements with
         accountants on accounting
         and financial disclosure               87
Index to financial statements                   87
Experts                                         87
Legal matters                                   87

--------------------

Dealer  Prospectus  Delivery   Obligation.   Until
November  8,  2006,   all   dealers   that  effect
transactions in these  securities,  whether or not
participating in this offering, may be required to
deliver a  prospectus.  This is in addition to the
dealers'  obligation to deliver a prospectus  when
acting as  underwriters  and with respect to their
unsold allotments or subscriptions.




                                       88

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