Qualmark Cp (QMRK) - Description of business
QualMark Corporation ("QualMark" or "the Company") designs, manufactures, and markets proprietary equipment that rapidly and efficiently expose product design and manufacturing-related defects for the purpose of improving product quality and reliability. The Company's high performance physical stress equipment supports significant improvements in the process of Design Verification Testing ("DVT") and Environmental Stress Screening ("ESS"). DVT is the process by which electronic product manufacturers ensure their products perform within the previously determined operating ranges (commonly known as "specifications"). ESS is the testing process used by these same manufacturers to expose production-related defects.
The Company's equipment allows manufacturers to determine the true operating limits of their products. This gives manufacturers the necessary information to reduce design costs, improve product reliability, shorten time to market, reduce warranty costs, and extend warranty periods. The Company's equipment is used by manufacturers in a wide range of industries to perform highly accelerated stress testing on products such as circuit boards, personal computers, monitors, flight navigation systems, cellular telephones, LAN/WAN equipment and consumer electronics.
The Company evolved from a business manufacturing and marketing its proprietary OVS (Omni-axial Vibration System) or Typhoon ("Typhoon") equipment to a full service organization offering HALT (Highly Accelerated Life Test) and HASS (Highly Accelerated Stress Screen) test services as well. The Company operates a network of test centers, known as Accelerated Reliability Test Centers ("ARTC"), which provide comprehensive HALT and HASS test and support services to industry. These services include accelerated reliability improvement test services (HALT and HASS) using QualMark's OVS physical stress equipment performed either in the ARTC test centers or at the customer's site.
QualMark currently operates four test centers located in the metropolitan areas of Denver, Colorado, Huntington Beach, California, Santa Clara, California, and Boston, Massachusetts. The Company also utilizes three domestic strategic agreements with large testing companies in Detroit, Michigan, Hillboro, Oregon, and Huntsville, Alabama. In addition, the Company has established strategic agreements with IMQ Instituto Del Marchia Di Qualita, Institutet For Verkstadsteknisk Forskning, and the Swedish Institute of Production Engineering to operate testing centers in Enschede, Netherlands, Milan, Italy, and Molndal, Sweden. As domestic or international demand for its products and services grows, the Company may further expand its domestic and international presence by expanding strategic arrangements with other test lab organizations.
QualMark Corporation was organized in July 1991 as a Colorado limited liability company and was later incorporated in March 1992 in Colorado. The Company completed its initial public offering in April 1996.
On November 15, 2004, QualMark Corporation completed the asset acquisition of Connecticut based ACG Dynamics Inc.("ACG") an electro-dynamic shaker service company. ACG is headquartered in West Haven, Connecticut and is a leader in supplying electrodynamic systems, components, and service to the worldwide vibration test equipment market. QualMark formed a separate wholly-owned C-corporation subsidiary, QualMark ACG Corporation ("QualMark ACG"), to assume all acquired assets and assumed liabilities of ACG. The newly formed QualMark ACG provides turn-key vibration testing systems consisting of factory rebuilt/upgraded electrodynamic systems, new QualMark ACG built solid state power amplifiers and new digital vibration controllers.
ACG was founded in June of 1972, as ACG Incorporated, a consultant engineering firm specializing in electro-mechanical design, development and prototype buildup. The ongoing need for restoring existing vibration test systems coupled with the expertise in this field gained by the original founder, Andrew C. Grimaldi (as a vibration test engineer, electro-mechanical design engineer, vibration isolator designer and vibration test equipment designer), caused the company to eventually turn its attention fully toward the rebuilding and upgrading of vibration test equipment.
Initially, ACG developed a capability to rebuild armatures for vibration exciters, to supply replacement field coils and to supply replacement parts for exciters (shakers), amplifiers and controls. Over the years, ACG has built its expertise in this field, with specialized personnel and facilities dedicated to the restoration, upgrading, service / maintenance, trouble shooting and repairing of vibration test equipment. In the past twenty-eight years ACG has become the largest independent source in the world for armature rebuilding, replacement field coils and replacement parts for all makes of vibration test equipment. ACG's factory services complimented by its expert field engineering services provide customers with prompt, professional assistance to resolve any vibration test equipment problem in the most cost effective way.
In the past thirteen years, ACG has expanded it's capability into system integrations, which includes supplying complete vibration test systems consisting of pre-owned factory rebuilt and upgraded shakers coupled with new ACG built solid state power amplifiers and a variety of new computer based controllers. ACG frequently provides turnkey systems to its clients, consisting of factory refurbished horizontal slip tables, new combination air-isolated bases, head plates / head expanders, various instrumentation and field engineering support to install / demonstrate systems. ACG also provides new solid state power amplifiers, special switching networks, special field supplies and matching transformers to mate with any existing shaker, along with shaker refurbishing and upgrades to a 2" stroke, to achieve state-of-the-art-performance.
On December 13, 2005, QualMark Corporation entered into an asset purchase agreement with SatCon Power Systems, Inc. ("SatCon") of Boston, Massachusetts to purchase certain of the assets and assume certain of the liabilities of SatCon related to its Ling Electronics ("Ling") Shaker and Amplifier business operations. SatCon is a division of SatCon Technology Corporation, which was founded in 1986. Ling is one of the nation's most experienced manufacturers of vibration, shock and high intensity sound environmental test systems and fixtures. QualMark formed a separate wholly-owned C-corporation subsidiary, QualMark Ling Corporation ("QualMark Ling"), to assume all acquired assets and assumed liabilities of Ling. Immediately following the acquisition, the Company moved all purchased assets from Massachusetts to its Connecticut facility and began operations. The Company intends to combine ACG and Ling into one reporting business unit and provide a full complement of new and refurbished electrodynamic systems, parts and service.
Ling was founded in 1947 by James Ling. Throughout the years, Ling went through a series of mergers or acquisitions, including a merger in 1959 with acoustical based Altec (Altec-Lansing). In 1999, SatCon purchased Ling from Mechanical Technology Inc. Ling is one of the nation's most experienced manufactures of vibration and shock environmental test systems and fixtures. Ling offers a full complement of new turnkey vibration systems that include the shaker, slip table, fixture and amplifier. To date, over 6,000 electrodynamic shaker systems have been sold and supplied by Ling. Ling has been a leading manufacturer of vibration and acoustic testing systems for over 50 years and serves an international cross-section of governmental, industrial and scientific markets. Through participation in both commercial and government contracts, Ling has designed and manufactured sophisticated systems to perform complex vibration, high intensity sound and shock tests on all types of components, assemblies and aerospace vehicles.
PRODUCTS AND SERVICES
THE TYPHOON COMBINED STRESS SYSTEM
The Company's Typhoon Combined Stress Systems for HALT and HASS are comprised of two main subassemblies: the LF Vibration Assembly, which applies vibrational stresses, and the UltraRate Thermal Chamber Assembly, which applies thermal stresses and houses the vibration assembly.
The LF Vibration Assembly
The LF (low frequency) Vibration Assembly is a new generation vibration system, which the Company introduced in 1999. This system has increased low frequency compared to the Omniaxial vibration system previously produced and sold by the Company. The LF system is a multi-axis vibration system comprised of a table,
actuators and unique attachment system and is the heart of the Company's technology. The vibration table moves simultaneously in three linear axes and three angular rotations. Each axis has broad-band random vibration, with all frequencies present, all of the time. While the traditional frequency range used for Design Verification Testing (DVT) and Environmental Stress Screening (ESS) is from 2Hz to 2,000 Hz, the Company's system creates vibrational forces between 2Hz and 10,000 Hz. The new LF table has significantly increased low frequency energy available resulting in more effective testing and screening for larger sub-systems. It also provides extremely complex motion across a broad frequency range, which is desirable for many current electronic technologies. Thus, the system creates virtually any vibration that could occur naturally during product use. This is important in testing and screening applications to expose most flaws, whether it is design or process related, before the product is placed into service.
The LF Vibration System consists of two major components:
The patented table is constructed out of a top plate, thermal insulation layer and supporting under structure. This new design is significantly lighter and stiffer than the previous design, resulting in higher low frequency energy and improved energy distribution over the active frequency range. This table has proved particularly effective in the testing of assemblies with larger components. The Company while continuing to supply a range of standard table sizes has also produced custom sizes to meet customer requirements. The Company uses an outside source to produce its vibration tables, however the Company is not dependent on a single source of supply and controls all design and documentation.
ASX and LF2 Actuators
Attached to the bottom surface of the under structure are a set of pneumatic piston driven actuators. The method of attachment is also the subject of a patent application, as the unique method shapes the frequency distribution. There are two types of actuator used, the patent pending ASX and the licensed LF2. The ASX actuator is an evolution of the patented Autosmear actuator. The Company is the sole licensee of the LF2 actuator from Storage Technology Corporation. The combination of actuators provides excitation in both the low and high frequency areas of the energy spectrum. Compressed air is used to drive the pistons in the actuators to impact the top of the actuators, translating the energy through the attachment system to vibration energy in the table.
The unique design of these actuators when used in conjunction with the new table generates an even distribution of vibratory energy in the frequency spectrum. This provides for more effective fault detection and screening. The Company has released this technology in all the OVS system sizes.
The UltraRate Thermal Chamber Assembly
The UltraRate Thermal Chamber, which houses the OmniAxial Vibration Assembly, changes temperature at rates up to 600 degrees Centigrade per minute as measured on the product being tested. This high rate of change results in highly effective design verification during HALT and extremely short production screens during HASS, requiring less equipment and personnel to perform a given series of thermal cycles. The Company believes that its UltraRate Thermal Chambers, comprised of patented and patent pending features, have one of the highest rate of thermal change available in the environmental stress screening industry. This capability significantly reduces test time, with resulting cost reductions in equipment and personnel.
In spite of rapid temperature change and complex vibration spectra, the system is extremely quiet, allowing it to be used in standard lab and manufacturing environments without the necessity of building costly special stress screening rooms.
The Typhoon technology represents the newest development in UltraRate Thermal technology. The technology lowers operating costs by reducing thermal mass of the chamber and optimizing the efficiency of the air flow system, which consequently reduces operating costs.
The Company's Typhoon Combined Stress Systems for HALT and HASS are presently available in six sizes, including a vibration only tabletop model (OVTT). The number after the "Typhoon" in the Company's product models represents the linear footage of the vibration table as explained below. Therefore, an Typhoon-1.5 contains a one and one half foot by one and one half foot table, an Typhoon-2.5 contains a two and a half foot by two and a half foot table, and so on. In addition to these standard systems, the Company has also designed and manufactured custom systems to meet unique customer requirements. Through this product spectrum, the Company provides systems capable of meeting virtually every accelerated design ruggedization and production-screening requirement. The variety of chamber sizes allows customers to purchase equipment that meets their requirements and to consume only the energy necessary to meet their requirements. The Typhoon system has a unique patented feature which allows the user to raise the shaker table, thus decreasing the internal volume of the chambers to the minimum size required. By cooling and heating a smaller volume, the customer can save considerably on power and liquid nitrogen requirements.
The Typhoon-1.5 is the smallest version of the Typhoon product line. The Typhoon -1.5 is a truly portable, multi-axis vibration and high performance thermal chamber. Equipped with all the same operating features of the larger Typhoon systems, including a PC controller, the Typhoon -1.5 is primarily used by manufacturers of small products (such as "palm size" circuit boards, modem cards for notebook computers, disk drives, etc.) and usually in the product development (HALT) area. The Typhoon -1.5 can generate random vibration forces of 40 Grms (2Hz-10,000 Hz) on the 18"x18" vibration table and up to 600 degrees Centigrade per minute change on the product under test within the 18"x17"x13" internal dimension (ID) thermal chamber.
The Typhoon-2.0 is the second smallest version of the Typhoon product line. The Typhoon -2.0, like the 1.5, is a truly portable, multi-axis vibration and high performance thermal chamber that allows for additional testing area for smaller components. Equipped with all the same operating features of the larger Typhoon systems, including a PC controller, the Typhoon -2.0 is primarily used by manufacturers of small products (such as "palm size" circuit boards, modem cards for notebook computers, disk drives, etc.) and usually in the product development (HALT) area. The Typhoon -2.0 can generate random vibration forces of 40 Grms (2Hz-10,000 Hz) on the 24"x24" vibration table and up to 600 degrees Centigrade per minute change on the product under test within the 18"x17"x13" internal dimension (ID) thermal chamber.
The Typhoon-2.5 is, historically, the most popular system in the Typhoon product line. A mid-size system, the PC-controlled Typhoon-2.5 is equipped with four actuators mounted to the vibration table. The Typhoon-2.5 LF vibration system can generate 50 Grms from 2Hz to 10,000 Hz. The vibration table is 30"x30", and is enclosed within a thermal chamber that is 36"x36"x37" (ID). The thermal chamber is capable of up to 600 degrees Centigrade per minute change on the product under test. Typical uses of the Typhoon-2.5 include mid-size product HALT applications (disk drives, small computers, power supplies, monitors, etc.) and small volume HASS applications (multiple disk drives, multiple modem cards for notebook computers, etc.)
The Typhoon-3.0 has begun to generate the most attention in the Typhoon product line. A mid-size system, the PC-controlled Typhoon-3.0 is equipped with four actuators mounted to the vibration table. The Typhoon-3.0 contains the same capabilities as the Typhoon-2.5, but allows for additional testing area. The additional testing
area allows the user to utilize the chamber for either HALT (engineering based tests) or HASS (production line tests). The Typhoon-3.0 LF vibration system can generate 50 Grms from 2Hz to 10,000 Hz. The vibration table is 36"x36", and is enclosed within a thermal chamber that is 36"x36"x37" (ID). The thermal chamber is capable of up to 600 degrees Centigrade per minute change on the product under test. Typical uses of the Typhoon-3.0 include mid-size product HALT applications (disk drives, small computers, power supplies, monitors, etc.) and small volume HASS applications (multiple disk drives, multiple modem cards for notebook computers, etc.)
The most common application for the Typhoon-4.0 is large volume production screening (HASS) on computers, monitors, communications systems, etc. The PC-controlled Typhoon-4.0 is equipped with a 48"x48" vibration table housed within a 55"x54"x54" (ID) (table in lower position) thermal chamber capable of producing temperature changes of up to 700 degrees Centigrade per minute on the product under test. The Typhoon vibration system is equipped with twelve actuators that produce up to 50 Grms random vibration force.
Omni Vibration Table Top (OVTT)
The OVTT (Omni Vibration Table Top) system enables users to quickly and conveniently perform evaluations for field returns, spot audits and pre- and post- release product design verifications. The OVTT system uses the Company's patented Six Degrees of Freedom vibration technology, which includes the same specification as the OVS-1.5 vibration table, and was designed with low air requirements and low noise levels, making it efficient and inexpensive to use. The OVTT has the flexibility of a table top vibration system, which allows companies to mount the OVTT into most environmental chambers.
A one year limited warranty is included with each Typhoon system sold. Various options and accessories are available for each OVS model, including oxygen monitors, vacuum hold down apparatus (for product fixturing requirements), extended warranties, and on-site applications assistance.
QUALMARK ENGINEERING SERVICES ("QES")
The Company offers a range of engineering services tailored to help solve test process problems. The services that are offered under QES are:
- HALT and HASS testing procedure development
- Precision production fixturing solutions
- Automated electronic functional test equipment design and development
- Test and process data warehousing
- Remote viewing and analysis of test data through Internet linking
The Company reviews each project with experts in the various fields and compiles a proposal, which typically includes investigation, specification, and execution. After the system or process is installed, the Company continues to work with the client's staff to monitor and support the product and process. This approach gives customers access to experts in varying fields at a time when internal resources are often overburdened. The result is a better product delivered to the marketplace, faster.
ACCELERATED RELIABILITY TEST CENTERS
The Company has a network of ARTC test centers at various locations in the United States and Europe, which provide test services and on-site applications support services. The Company is uniquely positioned to offer comprehensive HALT/HASS test services to manufacturers. The QualMark test service business includes accelerated reliability test services performed in the Company's test centers and on-site applications support
services. These services allow a broad range of customers convenient access to the Company's technology while also serving as valuable sales tools for gaining system orders. Each test center is equipped with a Typhoon-2.5, Typhoon-3.0, or Typhoon-4.0, at least one applications engineer and ancillary testing equipment.
The Company's strategic agreements with test centers in the U.S. and throughout Europe consist of the Company contributing one Typhoon-2.5 or Typhoon-3.0 system and the partner providing the lab facility, personnel and sales management. In return for its contribution of these systems to these agreements, the Company receives a percentage of the revenues generated by the Typhoon systems.
The test center is a valuable tool for the Company's sales organization to stimulate system sales from those clients who are not willing to commit capital without being able to experience a demonstration of the benefits using their own product. Of strategic importance to the Company, the testing service business provides for more consistent revenues.
The Company may open additional test centers domestically or internationally, principally in metropolitan areas with a heavy concentration of potential client companies and in which the Company has a factory sales representative responsible for the target metro area.
Based on client demand, the Company offers on-site applications support services, principally through its ARTC network, to its clients as well as competitors' customers. Specifically, the Company advises customers how to apply HALT and HASS techniques to their products.
QUALMARK ACG CORPORATION (ACG)
ACG manufacturing services include complete factory rebuilt vibration test systems and shakers. ACG offers new solid-state amplifiers to help drive existing shakers of all models, as well as be utilized in conjunction with older restored systems. ACG will rebuild all makes and models of exciters (shakers) and upgrade exciters to produce longer stroke, as well as rebuilding armatures or the moving elements on all makes and models. Replacement field coils can be rebuilt for most makes and models of exciters; field-degaussing coils can also be repaired or reconditioned. ACG has improved the suspension systems for higher reliability and ease of maintenance. Fully bonded replacement of moving elements is also provided. ACG has the capabilities to design and fabricate high-tech low-weight, high frequency armatures as well as custom dynamic testing equipment. Special transformers and electric coils can also be designed and built or rebuilt if necessary.
ACG field engineering services include onsite complete diagnostic testing, troubleshooting and repair of all makes and models of vibration systems. ACG has the capability to rebuild or upgrade systems onsite, as well as the replace solid-state electronics. ACG provides technical expertise on all makes and models of exciters, amplifiers and vibration controllers. Individual instruction on system installation, maintenance, calibration and operation of all systems can also be provided onsite.
QUALMARK LING CORPORATION (LING)
Ling offers a full complement of new turnkey vibration and shock environmental test systems that include the shaker, slip table, fixture and amplifier that range from 5lbs of sine force to over 40,000 lbs of sine force. These test systems are ideal for modal testing, research and development, product qualification, vibration screening and testing.
The Ling product line contains three primary size categories High Force Vibration Systems, Medium Force Vibration Systems and Low Force Vibration Systems.
High Force Vibration Systems (HFVS):
High Force Vibration Systems consist of shaker models that displace between 18,000 lbs to 45,000 lbs of sine force or 13,000 lbs to 36,000 lbs of random force. The HFVS can support a static load of up to 3,000 lbs are water cooled and are powered by a max kVA ranging between 142 and 415.
Medium Force Vibration Systems (MFVS):
Medium Force Vibration Systems consist of shaker models that displace between 2,800 lbs to 12,000 lbs of sine force or 2,000 lbs to 10,000 lbs of random force. The MFVS can support a static load of up to 1,500 lbs are air cooled and are powered by a max kVA ranging between 28 and 123.
Low Force Vibration Systems (LFVS):
Low Force Vibration Systems consist of shaker models that displace between 6 lbs to 600 lbs of sine force. The LFVS can support a static load of up to 50lbs are air cooled and are powered by a max approximate kVA of one.
During 2005, the Company continued its strategic marketing and sales program that is designed to leverage QualMark's market knowledge to be identified as the "Knowledge Leader" in the Vibration Testing industry. The Company has achieved this through education of customers through Webinars (web based seminars) and other forums that expand the knowledge base in the overall reliability process. The Ling acquisition further represents continued penetration into the electrodynamic vibration test market. Entering this portion of the market expands the Company's total available market to approximately $175 million, up from approximately $25 million for the accelerated testing (HALT/HASS) market. Ling Electronics is a highly recognized trade name in the electrodynamic shaker market. Ling offers a complete line of electrodnamic shakers from 6 lbs of force to 40,000 lbs of force. These electrodynamic shakers conform to a military specification, which is a required test for almost all electronic systems used in military and aerospace applications. The Company has consolidated Ling into the ACG facility, located in Connecticut, to eliminate a dual infrastructure and overhead and also to take advantage of the skill sets already in place at ACG.
The following was achieved during 2005:
1. The Company realized strong vertical and horizontal sales penetration in the core market segments.
2. The Company realized an even distribution of geographic sales in the United States, Europe and Asia Pacific.
3. The Company hired a marketing communications manager to support operations and redefine the positioning statement as the Knowledge Leader and began a branding process of its wholly-owned subsidiaries, QualMark ACG and QualMark Ling.
4. The Company continued to acquire several strategic customers who have adopted a QualMark testing chamber as the configuration for corporate and supply vendor testing.
5. The Company expanded its HASS presence by converting HALT customers to production oriented HASS testing. The average conversion rate from HALT to HASS is approximately four to one, which implies that for every HALT chamber a customer has in place they would need approximately four chambers to commence HASS.
6. The Company expanded its presence into over 30 countries.
QualMark utilizes twenty-nine independent domestic and international sales representatives including representatives from the European, Mexican, Middle Eastern, Australian, and Asian sectors to sell and distribute its equipment and test services. QualMark also employs four sales managers who oversee the independent sales representatives and are responsible for customer relationships and business development.
The Company continues to market and sell its systems to the leading corporations of the world in the Consumer Electronics, Avionics, Automotive, and Defense industries. QualMark is uniquely positioned to support the Reliability Testing requirements of our Global Customers through our Global Sales and Service Network. From the Company's inception, more that 600 test systems have been sold worldwide to more than 450 customers. The Company was not dependent on any single industry segment for its revenues.
The Company's customer bases continue to be varied and are as follows:
AEROSPACE AND DEFENSE
Aviation electronics Display switches Flight navigation systems Marine navigation systems
COMPUTER RELATED PRODUCTS
Circuit boards Disk drives Modems Monitors Power supplies Printers Tape backup drives
Automotive circuitry Electronic oil and gas flow meters Global positioning systems Power supplies of all types
Automated teller machines Air conditioning electronics Cellular telephones Fax machines Switching systems
Electronic thermometers Glucose monitors Infusion pumps IV pumps
Refrigerators Televisions Video Recorders LED flat screens Plasma flat screens Garage door electronics
RESEARCH AND PRODUCT DEVELOPMENT
Research and product development expenditures for the fiscal years ending December 31, 2005 and 2004 were $752,000 and $735,000, respectively. During 2005 the Company continued to implement design and testing improvements on its pneumatic hammers. The Company developed and released 2 new vibration tables to fit expanded customer needs. The Company also developed and released special fixture devices that are used to attach product to the Company's Typhoon chambers. During 2004 the Company completed design and testing of a long life pneumatic hammer. The Company developed and released 2 new table and chamber models to fit expanded customer needs, the Typhoon 2.0 and the Typhoon 3.0. New control system and software with advanced features was released to production. Features include the ability to run an auto-tuning routine for vibration and thermal control and allow monitoring of the chamber remotely through the Internet.
Research is ongoing into the vibration technology used in the Typhoon chamber. Improving low frequency energy and creating the technology to better serve the changing market place is core to the QualMark mission.
Other product offerings and options are being aggressively pursued, such as more auxiliary thermocouples standard on every Typhoon chamber with the option of adding more. Also, the control system is being updated to create a touchscreen environment to improve how the user interfaces to the product being designed and tested.
The Company is maintaining the ability to quickly respond to customer requests for customization. Special Typhoon chamber features and custom fixturing designs are strong offerings of QualMark's engineering department.
The Company has maintained the practice, where possible, to pursue patent protection on its products. The Company has been issued 12 United States patents (the "Patents") and numerous foreign patents issued in six countries. These patents protect certain features of the OmniAxial and LF Vibration Assemblies of the Company's OVS Combined Stress Systems or certain design features of the pneumatic, piston-driven actuators (vibrators) that help create random motion of the vibration table. Two patent applications have been submitted for table control in a pneumatic vibration apparatus and for reducing sound emitted by a pneumatic vibration apparatus.
The Patents provide barriers to competition in the equipment sales portion of its business. The loss of some or all of the protection of the Patents would make it easier for other companies to enter the Company's market, and to compete, by eroding the Company's ability to differentiate itself on the basis of technical superiority.
The Company has received three copyrights (the "Copyrights") from the Register of Copyrights of the United States of America. The Copyrights include; all seminar material and related text, graphics, graphs, illustrations, tables, and slides, QualMark Corporation Omni-Vibration System (OVS) Manager 4.0 software and related object and source code, and QualMark Corporation Q-Link 4.0 software and related object and source code.
In addition to the Patents and Copyrights, the Company tries to protect its proprietary technology and know-how through established security practices and confidentiality agreements with each of its employees, consultants, suppliers and technical advisors. There can be no assurance, however, that these agreements or procedures will provide meaningful protection for the Company's trade secrets in the event of unauthorized use or disclosure of such information.
While the Company believes the protection afforded by the Patents and Copyrights is strong, there can be no assurance that other companies will not be able to design and build competing vibration tables in a manner that does not infringe the Patents.
The Company has the following registered mark with the United States Patent and Trademark Office: QUALMARK. The Company plans to make additional trademark, service mark, and certification mark applications as appropriate. The Company also has received Certificate Europa (CE) approval on its Typhoon chambers, which is required for sale in the European Community.
The Company's Patents, Copyrights, and Trademarks range in duration from between two and fifteen years.
As the marketplace has gained more acceptance of Accelerated Test Techniques, the competitors that have survived the downturn have become increasingly aggressive in price and "demonstration" programs. The capital equipment purchasing downturn during 2000-2003 promoted aggressive pricing and unusual terms among our competitors. The Company has been aggressively refocusing our customers on the "Value Added" of QualMark Equipment, Service, and Company. The Company strives to retain its position as the market leader, and through this, promotes its superior products and testing "knowledge" to combat any pricing pressures that competitors may demonstrate.
The following represents a listing of competitors known to the Company within the served industries:
1. Thermotron Industries, Michigan
2. Envirotronics, Michigan
3. Screening Systems, Inc., California
4. HALT/HASS, Inc., Colorado
5. Hanse Industries, Colorado
6. ACS, Italy
ARTC and Applications Support Services:
Throughout 2005 sales at QualMark Testing Centers activity remained relatively constant from quarter to quarter. With the recent economic downturn, some companies owning test equipment (Typhoon) for their own use
have been attempting to leverage the equipment by selling any time not utilized by the company. This has increased the competition arena for the ARTC test center market, as well as placed additional pricing pressures. The Company attempts to maintain a dominant presence in the test center market. The test center facilities are utilized as both a sales and marketing tool and profit center, therefore, they contribute to the Company's lead generation for equipment and related sales. In order to mitigate the competitive risks, the Company implemented a new strategic direction during 2003, which continued through 2005. The strategic direction included an increase in sales through streamlined business processes, marketing synergies with the core Typhoon product, and the leveraging of the "Knowledge" of the more than 4,000 tests performed in the testing centers. The Company is also continuing to examine the strategic agreement test center model, in which additional agreements may be entered into to minimize both variable and fixed test center costs, while benefiting in a revenue share. The Company has changed its strategic focus on the test center line of business to maximize volume and utilization in the current operating environment. These changes include operational consolidations, sales personnel redeployment, and the expansion of domestic/international strategic agreements.
The following represents a listing of competitors known to the Company within the served industries:
1. Thermotron Industries, Michigan
2. Reliant Labs, California
3. Screening Systems, Inc., California
4. Sypris Test and Measurement, Massachusetts
5. Environ Laboratories, Minnesota
6. Trace Laboratories, Illinois
QualMark ACG Corporation:
Initially, ACG developed a capability to rebuild armatures for vibration exciters, to supply replacement field coils and to supply replacement parts for exciters (shakers), amplifiers and controls. Over the years, ACG has built its expertise in this field, with specialized personnel and facilities dedicated to the restoration, upgrading, service / maintenance, trouble shooting and repairing of vibration test equipment. In the past twenty-eight years ACG has become the largest independent source in the world for armature rebuilding, replacement field coils and replacement parts for all makes of vibration test equipment. ACG's factory services complimented by its expert field engineering services provide customers with prompt, professional assistance to resolve any vibration test equipment problem in the most cost effective way. The competitive environment for ACG consists of three primary competitors providing similar products and services to companies requiring replacement, upgrade, or repair services to existing electrodynamic based systems. ACG distinguishes itself within the industry as the superior quality provider of electrodynamic related equipment and service.
The following represents a listing of competitors known to the Company within the served industries:
1. Derritron Vibration Products, California
2. Dynamic Solutions, California
3. CVMS, United Kingdom
QualMark Ling Corporation:
The competitive environment for Ling consists of four primary competitors providing similar products and services to companies requiring new electrodynamic based systems. Ling distinguishes itself within the industry as the superior quality provider of electrodynamic related systems. The Company has determined that it will aggressively leverage the "Ling Electronics" name to market and sell the Ling products, as it was (at one time) the
most recognized electrodynamic company in the industry. The Company will also combine the new products offered by Ling with the parts, service and refurbish capabilities of ACG to provide customers with a full range of electrodynamic vibration solutions.
The following represents a listing of competitors known to the Company within the served industries:
1. Unholtz Dickie, Connecticut
2. LDS, United Kingdom
3. TIRA, Germany
4. MB Electronics, Ohio
The Company's primary manufacturing facility is located in Denver, Colorado. QualMark's assembly of the Typhoon systems follow a manufacturing line approach, in which drawings of all subassemblies used by the Company are maintained using computer aided design (CAD). The assembly of the Company's products is organized around three major elements that include vibration systems, chamber systems and control systems.
To ensure that all subassemblies meet specifications when received, key suppliers remain actively involved throughout product design. Key suppliers perform source inspection at the point of manufacture. Most key suppliers are local companies. The Company intends to further develop local suppliers, with back-up suppliers as required. To date, the components and assemblies from these suppliers have met or exceeded all specifications. The Company has developed relationships with what it considers critical vendors that manufacture three components of its Typhoon system. The Company has also established relationships with alternative suppliers for its three key components. Thus, if a primary supplier was unable to deliver materials as required by the Company, it would take as many as 60 days to begin taking delivery of these components from its secondary suppliers. The Company is dependent on the availability of steel as its primary raw materials component. The Company believes that it will have access to adequate amounts of the raw material component and that no shortages will exist.
While the Company maintains a small inventory of Typhoon systems in finished goods, the Company primarily uses a rolling-quarter sales forecast in determining the number of Typhoon-1.5, Typhoon-2.0, Typhoon-2.5, Typhoon-3.0, Typhoon-4.0 and OVTT systems to build during the quarter. The Company also produces certain common subassemblies that are integrated into the final systems when orders are booked. This helps provide a more even manufacturing flow and minimizes the "peaks and valleys" associated with small volume manufacturing.
The Company has implemented Material Requirements Planning, a computer software driven inventory management process, to maximize the effectiveness in which an order can be filled while minimizing required inventory. Management uses fully-costed Bills of Materials (BOM) which ensure that all parts of a Typhoon system are identified and ordered in a timely manner.
QualMark ACG Corporation and QualMark Ling Corporation (Ling/ACG)
Ling /ACG's primary manufacturing facility is located in West Haven, Connecticut. Ling/ACG manufactures a variety of products for the vibration test industry: new electrodynamic exciters, reconditioned exciters, amplifiers, controllers, and integrated exciter test systems, reconditioned exciter systems per customer order and specification, reconditioned exciter armature assemblies, reconditioned exciter field coils, and other components and assemblies for the exciter industry. Ling/ACG also sells new amplifiers and controllers to the exciter industry. Ling/ACG also manufactures many replacement components for exciters and vibration systems to support its global field service business.
Ling/ACG uses a flexible manufacturing cell approach as well as a just-in-time (JIT) inventory control and vendor supply system. Ling/ACG's major manufacturing capabilities include: primary and secondary machine shop operations, welding and metal fabrication, armature winding and reconditioning, coil winding and reconditioning, electro-mechanical assembly, electronics testing, and system integration and testing. Ling/ACG maintains its own inventory of reconditioned exciters, armatures, field coils, as well as builds exciters and systems to customer order.
Ling/ACG has an excellent base of local vendors and suppliers to subcontract non-essential manufacturing and to off-load production during peak demands. This vendor base is integrated into Ling/ACG's just-in-time manufacturing strategy. Ling/ACG does both source inspections at key suppliers as well as 100% quality inspection on all purchased components. Ling/ACG has developed relationships with what it considers critical vendors that manufacture key components of its rebuilt shaker systems. The Company has also established relationships with alternative suppliers for its key components. Thus, if a primary supplier was unable to deliver materials as required by the Company, it would take as many as 90 days to begin taking delivery of these components from its secondary suppliers. The Company is dependent on the availability of steel and amplifiers as its primary raw material components. The Company believes that it will have access to adequate amounts of the raw material component and that no shortages will exist.
Ling/ACG uses proprietary manufacturing processes to produce armatures and field coils which are recognized by the industry as being superior to its competition, as well as being superior to many exciter original equipment manufacturer (OEM) specifications.
Ling/ACG is in the process of integrating a material requirements planning (MRP), a computer software driven inventory management process, to maximize the effectiveness in which an order can be filled while minimizing required inventory.
PRODUCT WARRANTIES AND SERVICE
In 2005 and 2004, the Company offered a limited one-year parts and labor warranty on all new Typhoon and electrodynamic factory rebuilt systems, respectively. Typhoon customers can purchase extended warranties on their Typhoon systems, which may include up to two preventive maintenance visits during the year by a qualified Company representative. In addition, the Company offers for sale a comprehensive spare parts kit for each Typhoon system, which further minimizes Typhoon system down time. Because of the efficient design of Typhoon systems, most problems can be diagnosed over the phone and, if necessary, replacement parts are sent to the customer via overnight mail. The Company occasionally sends its technicians into the field for warranty repairs. Based on the purchase agreement between QualMark and SatCon, QualMark assumed existing outstanding warranties for Ling electrodynamic systems. These warranties contain a duration of one to eighteen months, in which the Company will provide parts and labor (if required). During 2006, the Company will continue to offer a standard, one-year parts and 90 days labor warranty on all new Typhoon, Ling electrodynamic systems and ACG refurbished systems.
Periodically, the Company receives inquiries from regulatory agencies regarding its compliance with laws and regulations. To its knowledge, the Company believes it complies with all international, federal, state and local regulations, including environmental regulations. However, there is no assurance that the Company will continue to remain in compliance with all such regulations.
As of December 31, 2005, the Company had fifty employees, of which forty-eight are full-time. Twenty-eight of the Company's employees are employed at its principal offices and headquarters in Denver, Colorado, sixteen are employed in West Haven, CT, two are employed at testing facilities in Huntington Beach, CA, one in Marlborough, MA, one in Navarre, FL, one in Annapolis, MD, and one in Huntsville, AL. No employees are represented by labor organizations and there are no collective bargaining agreements. Employee relations are believed to be good.
Our internet website is www.qualmark.com. We make available our annual reports on Form 10-KSB, quarterly reports on Form 10-QSB, current reports on Form 8-K, and any amendments to those reports as soon as reasonably practicable after we electronically file or furnish such materials to the SEC.