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Wednesday, 02/28/2007 9:02:36 AM

Wednesday, February 28, 2007 9:02:36 AM

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Qualmark Corporation Reports Fourth Quarter and Fiscal Year 2006 Financial Results
Wednesday February 28, 7:50 am ET


DENVER--(BUSINESS WIRE)--Qualmark Corporation (OTCBB: QMRK - News) a world leader in designing, manufacturing and marketing HALT (Highly Accelerated Life Testing), HASS (Highly Accelerated Stress Screening) and electrodynamic systems, today reported operating results for the fourth quarter and year ended December 31, 2006.
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For the year (twelve months ended December 31, 2006):

Revenue-

The Company reported total revenue for the year of $16,427,000 versus total revenue of $14,845,000 from 2005. Charles Johnston, Qualmark's President & CEO, stated, "Qualmark achieved record revenue in 2006 that was well balanced across our geographies, product services, customer and new business segments. Our Electrodynamic business unit (Ling Electronics) experienced 37% revenue growth for the year. The consolidated results illustrate the value of our products and the leverage in our business model. The strength of our products was demonstrated as we expanded our business in several markets, including: the international automotive markets (specifically the key Japanese and European auto makers), consumer electronics, power supplies, aerospace, communications, wireless and flat panel displays. We continue to gain market share with new customers, especially in the consumer product manufacturing and government sectors and we expanded into 35 countries."

Income-

The Company reported net income of $1,151,000, which included an additional $114,000 expense related to the fair value of stock options and a deferred tax benefit of $135,000, versus net income of $2,088,000, which included a deferred tax benefit of $780,000, for 2005. Throughout 2006, the Company recorded non-cash expenses related to the fair value of stock options for the first time. These changes from 2005 reflect the Company's adoption of SFAS 123R in 2006. "Through the focused expansion in our sales, marketing and customer support infrastructure, we continue to ensure that our customers meet the critical and growing challenges they face. We believe our worldwide investments in the Electrodynamic business unit (Ling Electronics,) which experienced a 37% growth rate, will provide long term shareholder value," concluded Mr. Johnston.

Earnings per share-

The Company reported diluted income per share for the year of $0.11, which included an additional $114,000 expense related to the fair value of stock options and a deferred tax benefit of $135,000, as compared to diluted income per share of $0.25, which included a deferred tax benefit of $780,000, for 2005. The Company does not anticipate any additional dilution at this time. However, the Company may enter into financial transactions to assist with financing additional acquisitions or provide capital for future growth, which may further impact dilution.

Balance sheet-

During 2006, the Company executed initiatives to continue to strengthen its balance sheet.

Throughout 2006, the Company has increased its cash position through close management of its working capital.

During the third quarter of 2006, the primary holder of the Company's preferred stock elected to convert all of the outstanding preferred shares into common shares. This conversion resulted in a more transparent equity structure and eliminated the continuous preferred stock dilution, dividend cost and debt overhang. This also elevates the Company's stockholders' equity to a level that meets the listing requirements of a major stock exchange.

On February 20, 2007, the Company entered into a three-year; interest only, convertible subordinated debt agreement totaling $500,000. The subordinated debt agreement was used to pay down a portion of the outstanding commercial bank debt, which will allow the Company to refinance its commercial bank debt and significantly lower its monthly cash payments and increase revolving line of credit flexibility.

For the quarter (three months ended December 31, 2006):

Revenue-

The Company reported total revenue for the three months ended December 31, 2006 of $4,302,000 versus total revenue of $3,909,000 from the comparable period in 2005.

Income-

For the three months ended December 31, 2006, the Company reported net income of $451,000, which included a deferred tax benefit of $113,000, versus net income of $1,104,000, which included a deferred tax benefit of $780,000, for the comparable period in 2005.

Earnings per share-

For the three months ended December 31, 2006, the Company reported diluted income per share of $0.05, as compared to diluted income per share of $0.12 for the three months ended 2005.

A Conference call to further discuss 2006 results will be held today, February 28 at 11:00 a.m. Eastern Time. To participate via conference call dial 888-318-6430 no later than 10:50 a.m. EST. The security code to access this earnings call is QUALMARK.

Quarter Ended Year Ended
December 31 December 31
2006 2005 2006 2005
-----------------------------------------------------
HALT/HASS
segment revenue $3,481,000 $3,354,000 $13,366,000 $12,613,000
Electro-dynamic
segment revenue 821,000 555,000 3,061,000 2,232,000
-----------------------------------------------------
Total revenue 4,302,000 3,909,000 16,427,000 14,845,000
-----------------------------------------------------
Gross profit 1,862,000 1,819,000 6,958,000 6,701,000
Gross profit
margin 43.3% 46.5% 42.4% 45.1%
-----------------------------------------------------
Income from
operations 393,000 366,000 1,379,000 1,477,000
Pretax income 308,000 327,000 1,060,000 1,337,000
=====================================================
Net income (1)429,000 (2)1,104,000 (1)1,151,000 (2)2,088,000
=====================================================
(1) Includes $135,000 for a deferred tax benefit
(2) Includes $780,000 for a deferred tax benefit

Earnings Per
Share:
Basic:
Net income 429,000 1,104,000 1,151,000 2,088,000
Preferred stock
dividends -- (59,000) (156,000) (230,000)
Accretion of
redeemable
preferred stock -- (37,000) (183,000) (264,000)
-----------------------------------------------------
Net income
available to
common
shareholders 429,000 1,008,000 812,000 1,594,000
=====================================================

Basic earnings
per share $0.05 $0.23 $0.14 $0.37
=====================================================
Basic weighted
average shares
outstanding 8,776,000 4,417,000 5,981,000 4,266,000
=====================================================

Diluted:
Net income 429,000 1,104,000 1,151,000 2,088,000
Interest expense
from
convertible
debt 14,000 20,000 75,000 80,000
-----------------------------------------------------
Net income
available to
common
shareholders -
Diluted 443,000 1,124,000 1,226,000 2,168,000
=====================================================

Diluted earnings
per share $0.05 $0.12 $0.11 $0.25
=====================================================
Diluted weighted
average shares
outstanding 9,427,000 9,178,000 10,758,000 8,851,000
=====================================================

Qualmark Corporation, headquartered in Denver, Colorado, is the leader in designing, marketing, and manufacturing accelerated life-testing systems (HALT and HASS) providing the world's largest corporations with solutions that improve product reliability and allow them to get to market faster. The Company has installed more than 600 of its proprietary testing systems in 35 countries. The Company operates and partners with ten testing facilities worldwide.

The Company also offers electrodynamic vibration solutions through its subsidiary, Ling Electronics.

Ling Electronics, headquartered in West Haven, Connecticut, is the leader in supplying electrodynamic systems, components, and service to the worldwide vibration test equipment market.