The Top 10 Qualcon Differentiators versus Traditional Electronic Manufacturing Services (EMS) Providers

Flowery Branch, Georgia USA

July 3, 2008

1. Along with the ISO 9001:2000 registration, Qualcon also is registered and independently certified to the standards of ISO 13485:2003 and U.S. FDA cGMP.

Our ISO 13485 and FDA cGMP registrations give Qualcon the unique ability to ship FDA-approved medical devices built by us directly our customer’s customers anywhere in the world, and to serve as the international warranty/repair depot for these customers. Qualcon is one of only fifteen known medical device manufacturers in the U.S. with significant printed circuit board assembly capabilities covered by the FDA cGMP and ISO 13485 registrations.

2. Qualcon’s revolutionary and international award-winning implementation of continuous flow manufacturing in the EMS industry.

The Value Proposition of Continuous Flow Manufacturing ("CFM")

CFM provides many positive benefits to those who employ it and to their customers. Some of those benefits are:

· Reduced Manufacturing Cycles Time

It is not unusual for CFM to reduce cycle time by more than 75% versus batch mode manufacturing (BMM). The manufacturing training tape produced by Hewlett-Packard’s Greeley Division entitled "Stockless Production" ("Push" out the Old / "Pull" in the New…) was produced March 16, 1983 (ã Hewlett-Packard). This groundbreaking work clearly demonstrates a 90.3% reduction in CFM (batch size = 1) cycle time versus BMM.

Reduced cycle time provides lowered inventory carrying costs and significantly faster time to market performance. Time is money.

· Reduced WIP

A CFM shop will have little WIP. Again citing the Hewlett-Packard work, implementation of CFM reduced WIP by an amazing 92.3%. There is a 1-to-1 correlation between WIP and cycle time. WIP is money.

· Reduced Overhead

The Hewlett-Packard illustration shows a 50% reduction in production space required due to the near elimination of WIP and inventory. This how Qualcon can produce more than $60 million of turnkey revenue annually in 25,000 square feet. Overhead is money.

· Unsurpassed Quality

Should any EMS provider operating in BMM place a tough-to-inspect component, such as 0402 package, incorrectly --- they won’t discover the error until test --- which is a couple of weeks downstream. Then comes the expensive and time-consuming rework of the entire "batch". In CFM, the difference between an error and its discovery is minutes. Upon discovery at test or inspection, production is stopped, the process error is identified and containment or resolution is applied. In CFM, rework is limited to only the assemblies on the line "south" of the error point, and not the entire production run. In CFM, problem visibility is dramatically enhanced. The lack of quality is money.

To truly understand the value of CFM, one must understand "Batch Mode Manufacturing" ("BMM)", which is the current state of the EMS industry. A complete contrast of CFM v. BMM is attached in the SMT Magazine article entitled, "CFM Increases First-pass Yield".

In addition to many state and regional awards for our implementation of CFM in the EMS industry, Qualcon was named as the first EMS provider ever to win the prestigious VISION AWARD --- for our pioneering implementation of continuous flow manufacturing in the EMS industry.

3. World-class electrostatic discharge controls, as certified by independent auditor QMI, to the ANSI/ESD-S20.20-1999 standard.

No other EMS provider in the south holds the ANSI/ESD registration for control of electrostatic discharge. Furthermore, no known qualified competitor for FDA-approved medical devices in the U.S. has achieved the ANSI/ESD registration.

The economic value provided to our customers by Qualcon’s complete control of ESD in our factory is huge. To quote Steve Halperin, president of the ESD Association, "Independent consultants and corporate studies have found that ESD losses can be as high as 10% of annual revenues with an average negative impact of 6.5% of revenues". The full text of the one-page interview conducted by Circuits Assembly magazine with Mr. Halperin can be found at:

http://www.circuitsassembly.com/pdf/0306/0306esd.pdf

The dangers of ESD cannot be overemphasized. Poor control of ESD could destroy the reputation and balance sheet of any electronics OEM. Seldom are electronic products "killed" by ESD during the manufacturing process. It’s the "wounded" products that do the damage. Since ESD may affect any one of the billions of transistors etched into silicon of hundreds or thousands of integrated circuit chips handled and placed by an EMS provider, typically the immediate impact of ESD is invisible. Despite the ESD damage, the product passes the cursory electrical and/or functional test provided at the conclusion of the manufacturing process. It’s only later, after hours of operation, that the wounded transistor in the IC is called upon to perform its electrical task --- and it fails. Consequently, the OEM has thousands of products in hundreds of countries that fail to operate, requiring on-site service and/or replacement. ESD damage is typically so subtle, that absent electron microscopy of the actual silicon wafer by IC experts, no one ever knows why the OEM’s product failed.

4. Qualcon’s manufacturing equipment is world-class and offers uniquely valuable benefits to our customers. Equipment highlights superior to that of most competitors are:

· 4 ea. Siemens SiPlace Surface-Mount Placement Machines

Our SiPlace machines are specifically designed for fast change-over from product to product. With Qualcon’s unique investment in feeders and tables, we typically have the next job queued so we can change our lines over in less than 10 minutes. Time is money. Comparable SMT placement equipment from manufacturers such as Fuji may take up to 2 hours for change-over.

Qualcon’s SiPlace machines have features that many other SMT placement machines do not have. CRDL enables our machines to electrically test capacitors, resistors, diodes and inductors for value and polarity at a sample rate of 1-in-10 to ensure these too-small-to-visually-inspect components (i.e. 0402 packages) are the correct values, placed with the correct polarity. Otherwise, incorrect polar placement or value would not be determined until after the assembly process, and without test, not until our customer’s products were in the field.

· Qualcon’s Seho reflow and wave solder machines solder components to printed circuit boards in the inert atmosphere of nitrogen. The biggest degradation in the PCBA process is oxidation. Oxidation occurs at extended temperature (in reflow and wave solder processes). By eliminating oxygen from the reflow and wave solder processes, Qualcon has effectively eliminated oxidation from our no-clean process. We believe we’re the only EMS provider in the South soldering in an inert environment. Look for the 5,000 gallon nitrogen tank…

· Qualcon’s Seho reflow and wave solder machines perform to IPC-A-610 Rev. D Class 3 and J-STD-001 at all times --- even if the customer’s standard is Class 1 or Class 2.

· Qualcon’s two Ultraprint 3000 screen printers are the most capable in the world of electronics manufacturing.

· Qualcon has maintained DIP, axial and radial PTH insertion equipment, despite the industry’s move to SMT. We continue to win business because of our capability to automatically place PTH components. Furthermore, with incandescent light applications moving to LEDs, our radial inserter is in great demand. While some SMT LEDs are available, none yet are as bright as PTH LEDs, and many customer’s applications require the reliability of PTH connection. Few of Qualcon’s competitors have maintained automatic PTH equipment.

· Qualcon’s Nordson conformal coating machine enables Qualcon to assemble high-reliability and harsh environment capable products. Few of Qualcon’s competitors have automatic conformal coating capability.

· Qualcon features a 20-seat automated box-build line. We are not aware of any competitor in the South under $100 million in annual revenue with such volume box-build capability.

· Qualcon offers fully redundant manufacturing capabilities.

· Qualcon owns and utilizes Unicam CIM software, with all CAD and machine translation modules.

5. Qualcon’s business model facilitates the "virtual OEM". We are organized to provide full turnkey services including procurement, inventory management, assembly, ICT, functional test, burn-in, run-in --- and we provide complete logistics services, including shipping our customer’s products directly to their customers and serving as warranty/repair depot. Qualcon test engineering staff demonstrates the experience and competency to enable our customers to entrust us with repair depots services for products that were assembled elsewhere. We perform these services now for Qualcon’s two largest customers. With Qualcon’s services, our customers, traditionally known as "Original Equipment Manufacturers", may now operate substantial enterprises from just a few thousand square feet. In today’s vernacular, "OEM" means "Outsource Everything but Marketing".

6. The IPC (www.ipc.org) provides the internationally-accepted workmanship standards for electronics manufacturing. Qualcon has on-staff a fully certified IPC (www.ipc.org) trainer, registered to IPC-A-610 Rev. D Classes 1, 2, and 3 and the military specifications of J-STD-001. Most of our production associates are certified to these standards.

7. Qualcon provides engineering design services for all of the business segments in the electronics industry through unique relationships with six design engineering contractors. By relying upon contractors who are paid by the job, Qualcon does not have to burden our cost (and our pricing) with staff design engineers. Also by relying upon independent contractors, Qualcon is able to offer fresh and innovative design solutions from our large network of design firms who compete for our work and that of our customers. Qualcon now possesses intellectual property including two patents, a commercial trademark, and copyrighted software.

8. Qualcon provides notable design-for-manufacturing ("DFM") consultation services. The SMTA (www.smta.org) selected Qualcon Vice President of Manufacturing Doug Philbrick to host its "Joint Design Manufacturing" symposium at the Donald Stephens Convention Center in Chicago. In a real-world example of Qualcon’s DFM competency, a large OEM of electronic consumer products was faced with inadequate quality in its products manufactured in China. Qualcon’s identified the root cause of the problem in the manufacturing process and proposed a solution that not only increases quality to the Six Sigma level required --- but also brought the business from China to Qualcon. Qualcon will produce the product at Six Sigma in the United States, less expensively than our customer can purchase inadequate quality in China.

9. Qualcon provides a uniquely valuable logistics programs to the market. Our innovative Qualcon Logistics Services (QLS) offering can reduce any OEM’s COGS material cost by more than 10%.

10. Qualcon offers noteworthy customer service. In competition for the Circuits Assembly Customer Service Excellence Award, we finished #2 in the "value for the price" category, and #5 overall, among worldwide EMS providers under $100 million in annual revenue.