NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

Our unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”), and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). These financial statements and the notes attached hereto should be read in conjunction with the financial statements and notes included in our Form 10-K for the fiscal year ended December 31, 2025. In the opinion of our management, all adjustments, including normal recurring adjustments necessary to present fairly our financial position, as of June 30, 2026, and the results of our operations and cash flows for the six months then ended have been included. The results of operations for the interim period are not necessarily indicative of the results for the full year ending December 31, 2026.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates include the estimated useful lives of property and equipment. Actual results could differ from those estimates.

Principles of Consolidation

The consolidated financial statements include the accounts of the company and our wholly owned subsidiaries: CirTran Products Corp., LBC Products, Inc., and CirTran Asia, Inc. Intercompany accounts and transactions have been eliminated in consolidation.

Concentrations of Credit Risk

We maintain our cash in bank deposit accounts, the balances of which at times may exceed federally insured limits. We continually monitor our banking relationships and consequently have not experienced any losses in our accounts. At times, such deposits may exceed the Federal Deposit Insurance Corporation insurable limit.

As of June 30, 2026 and December 31, 2025, one customer represented 97.7% and 97.4%, respectively, of the Company’s total accounts receivable, resulting in a significant concentration of credit risk.

Operating Segments

Operating segments are components of an entity for which discrete financial information is available and regularly reviewed by the Company’s Chief Operating Decision Maker (“CODM”) in assessing segment performance, allocating resources and making operating decisions. The Company’s CODM is its Chief Executive Officer. The CODM evaluates the Company’s operating segments using financial information that includes revenues, operating expenses and operating results. The Company has identified two reportable operating segments as of June 30, 2026 and December 31, 2025. See Note 12 for additional information regarding the Company’s reportable segments.

Cash Equivalents

We consider all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. There were no cash equivalents as of June 30, 2026 and December 31, 2025.

Revenue Recognition

We follow Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers, for revenue recognition. Adoption of ASC 606 did not have a significant impact on our financial statements. We generate revenue by providing product design services and through the sales of tangible product. We recognize revenue upon transfer of control of promised products or services to customers in an amount that reflects the consideration expected to be received in exchange for those products or services. We determine the transaction price associated with each deliverable based on the unique contract with the customer, which is a stand-alone contract that we retain the right to accept or reject. Revenue is recognized net of allowances for returns and any taxes collected from customers, which are subsequently remitted to governmental authorities.

During the six months ended June 30, 2026 and 2025, we recognized revenue of $39,623 and $38,775, respectively, related to the performance obligations under product development service agreements with customers. We recognize $5,000 per month for administrative services and a 5% markup per agreement.

Additionally, we recognized revenues of $2,293,396 and $590,496 during the six months ended June 30, 2026 and 2025, respectively, related to the delivery of products to our customers. Each delivery is based on the unique contract with the customer, which is a stand-alone contract that we retain the right to accept or reject. Upon acceptance, we oblige delivery of such product to the customer at an agreed-upon place, time, and price. We recognize revenue under the unique contract upon fulfilment of our performance obligations therein, typically limited to the delivery of product. Payment terms depend on customer agreement and length of relationship. It varies between cash in advance to 30-60 days term.

Accounts Receivable

Revenues that have been recognized but not yet received are recorded as accounts receivable. The Company estimates credit losses based on the Current Expected Credit Losses (“CECL”) model in accordance with ASC 326. The allowance for credit losses is based on a variety of factors, including historical loss experience, current conditions, and reasonable and supportable forecasts of future economic conditions.

Upon adoption of ASU 2025-05 in the year ended December 31, 2025, the Company elected the practical expedient to estimate expected credit losses based on actual uncollected accounts. Under this approach, the Company recognizes credit losses as receivables are deemed uncollectible rather than applying more complex forward-looking modeling. The Company applied this guidance prospectively, and the adoption did not have a material impact on the Company’s consolidated financial statements. The election of this practical expedient simplifies the estimation process by reducing the level of judgment and complexity required in applying the CECL model.

As of June 30, 2026 and December 31, 2025, the Company has recorded an allowance for doubtful accounts of $0 and $65,704, respectively.

Investment in Securities

Our cost-method investment consists of an investment in a private digital multi-media technology company that totaled $248,000 and $248,000 at June 30, 2026 and December 31, 2025, respectively. Because we owned less than 20% of that company’s stock as of each date, and no significant influence or control exists, the investment is accounted for using the cost method. Pursuant to ASC 321, the Company also searched for observable transactions in the investee’s stock and found none. We evaluated the investment for impairment and determined that the investment was not impaired as of June 30, 2026.

Inventories

Inventories are stated at the lower of average cost or net realizable value.

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

From time to time, we will place deposits on inventory to be delivered in the future. These deposits are carried as a separate balance sheet component and total $208,210 (non-related-party) and $62 (related-party) as of June 30, 2026 and $281,288 (non-related-party) and $0 (related-party) as of December 31, 2025.

For most of the tobacco related products, the Company pays in advance for Federal Excise Taxes and State Excise Taxes prior to receiving product. The Company accrues those taxes on its balance sheet and expenses them on a per-unit basis as sold.

Inventory balances consisted of the following:

 SCHEDULE OF INVENTORY

Fair Value of Financial Instruments

ASC 820-10-15, Fair Value Measurement-Overall-Scope and Scope Exceptions, defines fair value, thereby eliminating inconsistencies in guidance found in various prior accounting pronouncements, and increases disclosures surrounding fair value calculations. ASC 820-10-15 establishes a three-tiered fair value hierarchy that prioritizes inputs to valuation techniques used in fair value calculations. The three levels of inputs are defined as follows:

Level 1—Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.

Level 2—Level 2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability, such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.

Level 3—Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.

Accounts payable and related-party payables have fair values that approximate the carrying value due to the short-term nature of these instruments. Derivative liabilities are measured using level 3 inputs.

 SCHEDULE OF FINANCIAL ASSETS AND LIABILITIES CARRIED AT FAIR VALUE MEASURED ON RECURRING BASIS

Earnings (Loss) Per Share

Basic earnings (loss) per common share is computed by dividing net income (loss) attributable to common stockholders by the weighted-average number of common shares outstanding during the period. Diluted earnings (loss) per common share is computed by giving effect to all potentially dilutive common shares outstanding during the period, including shares issuable upon the conversion of convertible debt and the exercise of stock options and warrants, using the applicable methods prescribed by ASC 260, Earnings Per Share.

Potential common shares are excluded from the computation of diluted earnings (loss) per share when their effect would be antidilutive. Accordingly, for periods in which the Company reports a net loss, potentially dilutive securities are excluded from diluted loss per share because their inclusion would reduce the reported loss per share.

There were approximately 230,465,258 and 479,283,300 potentially issuable shares from the conversions of convertible debentures outstanding as of June 30, 2026 and 2025, respectively. We do not currently have adequate authorized but unissued shares to satisfy our obligations should all instruments eligible to convert to common stock be exercised. We are not currently contemplating an increase in our authorized shares but may do so in the future. For the six months ended June 30, 2025, the Company incurred net losses; therefore, basic and diluted loss per share are the same because the effect of all potentially dilutive securities was antidilutive. For the six months ended June 30, 2026, the Company reported net income and evaluated its outstanding potentially dilutive securities in determining diluted earnings per share. Securities whose inclusion would have been antidilutive were excluded from the calculation of diluted earnings per share.

Income Taxes

Income taxes are provided for the tax effects of the transactions reported in the financial statements and consist of taxes currently due plus deferred taxes related primarily to tax net operating loss carryforwards. The deferred tax assets and liabilities represent the future tax return consequences of these differences, which will either be taxable or deductible when assets and liabilities are recovered or settled, as well as operating loss carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is established against deferred tax assets when in the judgment of management, it is more likely than not that such deferred tax assets will not become available. Because the judgment about the level of future taxable income is dependent to a great extent on matters that may, at least in part, be beyond our control, it is at least reasonably possible that management’s judgment about the need for a valuation allowance for deferred taxes could change in the near term.

Tax benefits are recognized only for tax positions that are more likely than not to be sustained upon examination by tax authorities. The amount recognized is measured as the largest amount of benefit that is greater than 50% likely to be realized upon settlement. A liability for “unrecognized tax benefits” is recorded for any tax benefits claimed in our tax returns that do not meet these recognition and measurement standards. As of June 30, 2026 and December 31, 2025, no liability for unrecognized tax benefits was required to be reported.

Recently Issued Accounting Pronouncements

The Company continually assesses any new accounting pronouncements to determine their applicability. When it is determined that a new accounting pronouncement affects the Company’s financial reporting, the Company undertakes a study to determine the consequences of the change to its Consolidated Financial Statements and assures that there are proper controls in place to ascertain that the Company’s Consolidated Financial Statements properly reflect the change.