Executive Summary

CirTran Corporation “CTC” provides a mixture of high and medium size volume turnkey manufacturing services using surface mount technology (SMT), ball-grid array (BGA) assembly, pin-through-hole (PTH) and custom injection molded cabling for leading electronics OEMs in the communications, networking, peripherals, gaming, consumer products, telecommunications, automotive, medical, and semiconductor industries. The Company provides a wide variety of pre-manufacturing, manufacturing and post-manufacturing services. CTC's goal is to offer its customers the 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.

In turnkey manufacturing, unlike manufacturing on consignment, the Company is responsible for procuring the components utilized in the manufacturing process. The component procurement responsibility requires the Company to provide significant working capital, materials management, purchasing, receiving inspection and stockroom management. This approach, if not managed efficiently can transfer the economic risks of materials cost fluctuations, excess scrap and inventory obsolescence to the Company. The Company believes that turnkey manufacturing generates higher net revenue than consignment manufacturing due to the generation of revenue from materials as well as labor and manufacturing overhead, but also results in lower gross margins than consignment manufacturing because the Company generally realizes lower gross margins on materials-based revenue than on manufacturing-based revenue.

CirTran Corporation is a continuation of Circuit Technology Inc., which was incorporated in Utah in November 1993. Up to that time a significant core of the management team had worked for an assembly facility owned and operated by Tandy Corp. Most manufacturing was dedicated to Tandy products with additional contract manufacturing for third parties brought in by the management team in order to smooth out workflow. Tandy made a decision to discontinue all manufacturing by selling facilities in Texas and closing the Utah plant. Circuit Technology was launched to pick up the contract manufacturing business that the Tandy Utah facility was abandoning. In 1996 the Company acquired Pro Cable manufacturing, enabling the Company to offer cable, harness, and plastic injection molding manufacturing. In 1997 CTC acquired Racore Computer Products in order to gain design capabilities as well as a proprietary product line of networking products. The Colorado Springs location was opened in 1998.

 

Industry Overview

            CTC is benefiting from increased worldwide market acceptance of, and reliance upon, the use of manufacturing specialists by many electronics OEMs. It is estimated by IPC--Association Connecting Electronics Industries that the U.S. electronics manufacturing services (EMS) industry market increased 25% to $22.5 billion in 1998.  

CTC believes the trend towards outsourcing manufacturing will continue. "Outsourcing continues to grow, whether it's through OEM acquisitions of facilities or an increase in business from new or current customers," says IPC Vice President of Industry Programs Tony Hilvers. IPC forecasts predict the U.S. EMS market will continue to experience more than 20% annual growth, as it has since the late 1980s. In 2001, sales are expected to top $45 billion.[i]

Out of a world market for contract manufacturing services estimated at $67 billion in 1997. By 2004, it is likely that the world market will exceed $300 billion while in the US, assembly services will approach $100 billion in value.[ii] CTC believes the trend towards outsourcing manufacturing will continue. OEMs utilize manufacturing specialists for many reasons including the following:

Reduce Time to Market.  Due to intense competitive pressures in the electronics 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. OEMs can reduce their time to market by using a manufacturing specialist's manufacturing expertise and infrastructure.

Reduce Investment.  As electronic products have become more technologically advanced and are shipped in greater unit volumes, the necessary investment required for internal manufacturing has increased significantly for working capital, capital equipment, labor, systems and infrastructure. Use of manufacturing specialists enables OEMs to gain access to advanced manufacturing capabilities while substantially reducing overall resource requirements.

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

Access Leading Manufacturing Technology.  Electronic 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. OEMs are motivated to work with a manufacturing specialist in order to gain access to the specialist's expertise in interconnect, test and process technologies.

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 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.

News

CirTran Corp. Anticipates Growth
Sep 19 2001 11:58AM ET
CirTran Corp. Announces Significant Progress in Its Growth Strategy
Sep 5 2001 1:24PM ET
CirTran Corp. Clarifies Capital Structure
Aug 13 2001 2:00PM ET
CIRTRAN CORP files Form 8-K/A, Amendment to Current Report
Aug 9 2001 11:52AM ET
CIRTRAN CORP files Form 10QSB, Quarterly Report of Financial Condition
Aug 8 2001 3:49PM ET
WallSt.net Interviews Cirtran, In Store Media, LivePerson, And NetObjects CEO's.
Aug 7 2001 8:33AM ET
CirTran Corp. Corrects Split Date
Aug 6 2001 12:03PM ET
CIRTRAN CORP files Form S-8, Registration Statement of Securities to be Offered to Employees Pursuant to Employee Benefit Plans
Jul 26 2001 3:33PM ET
CirTran Corp. Announces Stock Split
Jul 23 2001 6:04AM ET
CIRTRAN CORP files Form 8-K, Current Report
Jul 20 2001 9:20AM ET

Strategy

CTC's goal is to offer its customers the 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. To achieve this goal CTC's strategy emphasizes the following key elements:

Quality.  CTC believes that product quality is a critical success factor in the electronics manufacturing market. CTC strives for continuous improvement of its processes and has adopted a number of quality improvement and measureable quality standards for design, manufacturing and distribution management systems.

Manufacturing Partnerships.  An important element of CTC's strategy is to establish partnerships with major and emerging OEM leaders in diverse segments across the electronics industry. CTC's customer base consists of leaders in industry segments such as the communications, networking, peripherals, gaming, consumer products, telecommunications, automotive, medical, and semiconductor industries. Due to the costs inherent in supporting customer relationships, CTC focuses its efforts on customers with which the opportunity exists to develop long-term business partnerships. CTC's goal is to provide its customers with total manufacturing solutions for both new and maturer products, as well as across product generations. CTC's manufacturing services range from providing design and new product introduction services, to just-in-time delivery on low to medium volume turnkey and consignment projects and projects that require more value-added services, to servicing OEMs that require price-sensitive, high-volume production.

Turnkey Capabilities.  Another element of CTC's 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. CTC believes 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. A substantial portion of CTC's revenue is from its turnkey business. CTC believes 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, CTC believes 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, resulting in greater stability of CTC's customer base and in closer working relationships. CTC has been successful in establishing sole source positions with many of its customers for certain of their products.

Advanced Manufacturing Process Technology.  CTC intends to continue to offer its customers the most advanced manufacturing process technologies, including surface mount technology (SMT), ball-grid array (BGA) assembly, pin-through-hole (PTH) technology, manufacturing and test engineering support and design for manufacturability, in-circuit and functional test and full-system mechanical assembly. CTC has developed substantial SMT expertise including advanced, vision-based component placement equipment. CTC believes that the cost of SMT assembly facilities and the technical capability required to operate a high-yield SMT operation are significant competitive factors in the market for electronic assembly. CTC also has the capability to manufacture cables, harnesses and plastic injection molding systems.

Diverse Geographic Operations.  An important element of CTC's strategy is to establish production facilities in areas of high customer density or where manufacturing efficiencies can be achieved. CTC currently has 2 operations in Utah and 2 sales offices in Northern California after closing the operation in Colorado Springs. The company is negotiating to acquire a facility in the Silicon Valley area. CTC believes that its facilities in these diverse geographic locations enable CTC to better address its customers' objectives regarding cost, shipping location, frequency of interaction with manufacturing specialists.

 

Manufacturing

CTC's Approach.

                To achieve excellence in manufacturing, CTC combines advanced manufacturing technology, such as computer-aided manufacturing and testing, with manufacturing techniques including just-in-time manufacturing, total quality management, statistical process control and continuous flow manufacturing. Just-in-time manufacturing is a production technique, which minimizes work-in-process inventory and manufacturing cycle time while enabling CTC to deliver products to customers in the quantities and time frame required. Total quality management is a management philosophy which seeks to impart high levels of quality in every operation of CTC and is accomplished by the setting of quality objectives for every operation, tracking performance against those objectives, identifying work flow and policy changes required to achieve higher quality levels and a commitment by executive management to support changes required to deliver higher quality. Statistical process control is a set of analytical and problem-solving techniques based on statistics and process capability measurements through which CTC can track process inputs and resulting quality and determine whether a process is operating within specified limits. The goal is to reduce variability in the process, as well as eliminate aberrations that contribute to quality below the acceptable range of each process performance standard.

                In order to successfully implement these management techniques, CTC has developed the ability to collect and utilize large amounts of data in a timely manner. CTC believes this ability is critical to a successful assembly operation and represents a significant competitive factor, especially in large turnkey projects. To manage this data, CTC uses sophisticated computer systems for material resource planning, shop floor control, work-in-process tracking, statistical process control and activity-based product costing.

 

Electronics Assembly and Other Services

                CTC's electronics assembly activities consist primarily of the placement and attachment of electronic and mechanical components on printed circuit boards and flexible cables. CTC also assembles higher-level sub-systems and systems incorporating printed circuit boards and complex electromechanical components, in some cases manufacturing and packaging products for shipment directly to its customers' distributors. In addition, CTC provides other manufacturing services including refurbishment and remanufacturing. CTC manufactures on a turnkey basis, directly procuring some or all of the components necessary for production and on a consignment basis, where the OEM customer supplies all or some components for assembly.

                In conjunction with its assembly activities, CTC also provides computer-aided testing of printed circuit boards, sub-systems and systems, which contributes significantly to CTC's ability to deliver high quality products on a consistent basis. CTC has developed specific strategies and routines to test board and system level assemblies. In-circuit tests verify that all components have been properly inserted and that the electrical circuits are complete. Functional tests determine if the board or system assembly is performing to customer specifications. CTC both designs and procures test fixtures and develops its own test software or utilizes its customers' existing test fixtures and test software. In addition, CTC provides environmental stress tests of the board or system assembly.

                CTC provides turnkey manufacturing management to meet its customers' requirements, including procurement and materials management and consultation on board design and manufacturability.

 

Sales and Marketing

                Sales and marketing at CTC is an integrated process involving direct salespersons and project managers, as well as CTC's senior executives. CTC's sales resources are directed at multiple management and staff levels within targeted accounts. CTC also uses independent sales representatives in certain geographic areas. CTC receives unsolicited inquiries resulting from advertising and public relations activities, as well as referrals from current customers. These opportunities are evaluated against CTC's customer selection criteria and are assigned to direct salespersons or independent sales representatives, as appropriate. Historically, CTC has had substantial recurring sales from existing customers.

                 

Competition

                The electronic manufacturing services industry is comprised of a large number of companies, several of which have achieved substantial market share. CTC also faces competition from current and prospective customers that evaluate CTC's capabilities against the merits of manufacturing products internally. CTC competes with different companies depending on the type of service or geographic area. Certain of CTC's competitors may have greater manufacturing, financial, research and development and marketing resources than CTC. CTC believes that the primary basis of competition in its targeted markets is manufacturing technology, quality, responsiveness, the provision of value-added services and price. To remain competitive, CTC 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. CTC currently may be at a competitive disadvantage as to price when compared to manufacturers with lower cost structures, particularly with respect to manufacturers with established facilities where labor costs are lower.

 

Operating Results

            The Company's operating results are affected by a number of factors. The primary factors affecting operating results are the level and timing of customer orders, fluctuations in materials costs and the mix of materials costs versus labor and manufacturing overhead costs. The level and timing of orders placed by a customer vary due to the customer's attempts to balance its inventory, design changes, changes in a customer's manufacturing strategy, acquisitions of or consolidations among customers, and variation in demand for a customer's products due to, among other things, product life cycles, competitive conditions and general economic conditions. In the past, changes in orders from customers have had a significant effect on results of operations due to corresponding changes in the level of overhead absorption. Other factors affecting the Company's operating results include price competition, the Company's level of experience in manufacturing a particular product, the degree of automation used in the assembly process, the efficiencies achieved by the Company in managing inventories and fixed assets, the timing of expenditures in anticipation of increased sales, customer product delivery requirements and shortages of components or labor.

            The level of capacity utilization of manufacturing facilities, indirect labor and selling, general and administrative expenses also affect operating results. Accordingly, gross margins and operating income margins have generally improved during periods of high volume and high capacity utilization. During periods of lower-volume production, CTC generally has idle capacity and reduced operating margins.

 

Subsidiaries

Racore Technology, Inc.

Racore was founded in 1983 and reorganized as Racore Technology Corporation in 1997. As a pioneer in the LAN arena in the 1980s, Racore helped define Token-Ring as a member of the IEEE 802.5/802.2 committees. The company was one of the first to deliver Token Ring adapters conforming to this new standard, while offering significantly better performance and more economical prices than IBM or other suppliers of compatible products. Today, Racore Technology designs, develops, manufactures, and markets high performance Local Area Network products with emphasis on Fiber Optics, Token-Ring and 10/100 Ethernet technologies. Over the past fifteen years, Racore has developed extensive technology to provide high performance copper and fiber connectivity solutions linking LAN backbones to the desktop.

Racore's corporate headquarters is located at 1127 West 2320 South, Suite A, Salt Lake City, Utah 841119. Its telephone number is (801) 973-9779 and its Internet address is www.racore.com

 

Associates

                As of December 31, 2000, CTC employed 101 associates worldwide.

Customers and Distributor Channel

Racore's products serve major industrial, financial and telecommunications companies, worldwide. Racore markets its products through an international network of distributors, value-added resellers, and systems integrators who sell, install, and support the full product range.

Additionally, Racore has established key business alliances with major multinational companies in the computing and data communications industries for which Racore produces private label; custom designed networking products and technologies on an OEM basis.

Racore maintains the highest standards of quality. The standard lifetime warranty is a statement of the company's achieved levels of reliability. Racore's customers and resellers are supported by a fully staffed and trained professional service organization.