<PAGE>



                     U.S. SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                                   FORM 10-KSB

[X]     ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
        OF 1934

                  For the fiscal year ended: DECEMBER 31, 2002

[ ]     TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
        ACT OF 1934

          For the transition period from _______________ to __________________

          Commission file number:  0-28484

                              QUALMARK CORPORATION
                 (Name of small business issuer in its charter)


            COLORADO                                   84-1232688
(State or other jurisdiction of             (IRS Employer Identification No.)
 incorporation or organization)


                 1329 WEST 121ST AVENUE, DENVER, COLORADO 80234
          (Address of principal executive offices, including zip code)

                                 (303) 254-8800
              (Registrant's Telephone Number, including area code)

    SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE EXCHANGE ACT: None
      SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE EXCHANGE ACT:

                           COMMON STOCK (NO PAR VALUE)
                                (Title of Class)

    Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. Yes
[X] No [ ]

    Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B contained in this form, and no disclosure will be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]

    Issuer's revenues for its most recent fiscal year. $8,067,000

    The aggregate market value of the voting stock held by nonaffiliates
computed by reference to the average bid and asked prices of such stock as of
March 25, 2003 was $2,166,055.

    The number of shares outstanding of the issuer's Common Stock as of March
25, 2003 was 3,610,092.

                       DOCUMENTS INCORPORATED BY REFERENCE

    Registrant's definitive Proxy Statement to be filed pursuant to Regulation
14A under the Securities Exchange Act of 1934 is incorporated by reference in
Part III of this report.

    Transitional Small Business Disclosure Format
                                      (Check One):  Yes [  ]  No [X]


                                       1


<PAGE>


                                     PART I

ITEM 1.  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) 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 one domestic
strategic alliance with a large testing company in Detroit, Michigan. In
addition, the Company has established strategic alliances with Anecto Ltd.,
Maser Engineering, IMQ Instituto Del Marchia Di Qualita, Institutet For
Verkstadsteknisk Forskning/The Swedish Institute of Production Engineering, to
operate testing centers in Galway, Ireland, Enschede, the Netherlands, Milan,
Italy, Molndal, Sweden and Paris, France. As international demand for its
products and services grows, the Company may further expand its domestic and
international presence by expanding strategic alliance arrangements with other
test lab organizations.

    The Company 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.

PRODUCTS AND SERVICES

    THE OVS COMBINED STRESS SYSTEM

    The Company's OVS 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. During 2000, the Company released
the newest advancement in the OVS Combined Stress System, the Typhoon
("Typhoon"). The Typhoon technology optimizes the operating efficiencies of the
standard OVS test chambers. Lower costs are made possible by a unique design
that significantly reduces both the consumption of liquid nitrogen used to cool
the chambers and the amount of electricity used to heat the chambers.

    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


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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:

    Vibration Table

        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 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.

TYPHOON TECHNOLOGY:

    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 OVS Combined Stress System Product Line

    The Company's OVS Combined Stress Systems for HALT and HASS are presently
available in three sizes. The number after the "OVS" in the Company's product
models represents the linear footage of the vibration table as explained below.
Therefore, an OVS-1.5 contains a one and one half foot by one and one half foot
table, an OVS-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


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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.

    OVS-1.5:

        The OVS-1.5 is the smallest version of the OVS product line. The OVS-1.5
    is a truly portable, multi-axis vibration and high performance thermal
    chamber. Equipped with all the same operating features of the larger OVS
    systems, including PC controller, the OVS-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 OVS-1.5 can generate random vibration forces of
    40 Grms (2Hz-10,000 Hz) on the 18"x18" vibration table and up to 600
    Centigrade per minute change on the product under test within the
    18"x17"x13" internal dimension (ID) thermal chamber. The domestic price of
    the OVS-1.5 is approximately $77,900.

    OVS-2.5:

        The OVS-2.5 is the most popular system in the OVS product line. A
    mid-size system, the PC-controlled OVS-2.5 is equipped with four actuators
    mounted to the vibration table. The OVS-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"x36x37" (ID). The thermal
    chamber is capable of up to 600 Centigrade per minute change on the product
    under test. Typical uses of the OVS-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 domestic price for a standard
    OVS-2.5 is approximately $128,500.

    Typhoon:

        The Typhoon chamber compares in size with the OVS-4. The most common
    application for the Typhoon is large volume production screening (HASS) on
    computers, monitors, communications systems, etc. The PC-controlled Typhoon
    is equipped with a 48"x48" vibration table housed within a 55"x54"x54"
    (internal dimension) (table in lower position) thermal chamber capable of
    producing temperature changes of up to 700 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. The domestic
    price for a standard Typhoon is approximately $185,000.

        A one year limited warranty is included with each OVS system sold in
    2002. 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.

    Omni Vibration Table Top (OVTT)

        On September 25, 2002 the Company formally introduced a major new
    product the OVTT (Omni Vibration Table Top) system that 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.


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:

        o   HALT and HASS testing procedure development

        o   Precision production fixturing solutions


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        o   Automated electronic functional test equipment design and
            development

        o   Software validation testing and life cycle analysis

        o   Test and process data warehousing

        o   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 the
United States, 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 the OVS-2.5, at least one applications engineer and ancillary testing
equipment.

    The Company opened its first ARTC facility in Denver in October 1993 and
subsequently opened additional facilities in Marlborough (Boston), Massachusetts
and Santa Clara, California in July 1994 and May 1995, respectively. Since
opening these facilities, many test service clients have placed orders to
purchase systems as a result of the data gathered and analyzed at the Company.
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
should help insulate the Company from external economic factors that affect
capital spending and provide for more consistent revenues.

    In addition to its Boston, Denver and Santa Clara test centers, during 1996,
the Company opened test centers in the metropolitan areas of Minneapolis-Saint
Paul, Minnesota, Detroit, Michigan, and Raleigh, North Carolina. In 1997, the
Company opened its seventh and eighth test centers in Huntington Beach,
California and Orlando, Florida. During 1999, 2000, and 2001 the Company
reevaluated its domestic test center market and closed the Minneapolis-Saint
Paul, Minnesota, Raleigh, North Carolina, and Winter Park, Florida labs. During
2001, the Company reevaluated its test centers and strategically established a
partnership with a large national testing lab in Detroit, Michigan. This
domestic partnership provides lower revenue than the traditional Company owned
test centers, however, with the substantial decrease in test center operating
expenses, higher margins are generally realized. The Company will continue to
examine the potential for similar relationships and the potential to expand into
additional domestic markets.

    The Company established its first test center presence outside the U.S. via
a strategic alliance with TUV Product Service Ltd. in Fareham, England. This lab
began operations in February 1998. The second international alliance was
established in Galway, Ireland with Anecto, Ltd. This lab commenced operations
in August 1998. The Company established a third international alliance in
Mannheim, Germany with TUV Product Service Ltd. as the partner. The Mannheim lab
commenced operations in November 1998. In 1999 the Company further expanded its
international network with its fourth additional alliance with Maser Engineering
in Enschede, The Netherlands. This lab commenced operations in May of 1999.
During 1999, agreements were put into place for the Company's fifth, sixth and
seventh international strategic alliances. These alliances are with IMQ
Institudo Italiano del Marchio di Qualita, located in Milan, Italy, Institutet
for Verkstadsteknisk Forskning/the Swedish Institute of Production Engineering
Research, located in Molndal, Sweden and with Emitech, located in Paris, France.
During 2001, the completion of the agreement with TUV Product Services Ltd. in
Germany and England resulted in the sale of the Company's OVS 2.5 systems
located in each lab to TUV Product Services Ltd. During 2002, the completion of
the agreement with Emitech in France resulted in the sale of the Company's OVS
2.5 system located at the Emitech lab to Emitech, France. TUV and Emitech will
subsequently be operating independently of QualMark. Under all of these
alliances, except for Maser Engineering, the Company contributed one OVS 2.5
system and the strategic partner provided the lab facility, personnel and sales
management. Under the agreement with Maser Engineering, the Company contributed
one OVS 1.5 system. In return for its contribution of these systems to these
alliances, the Company receives a percentage of the revenues generated by the
OVS systems.


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    The Company may open additional test centers 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. Management believes demand for its test services will continue to grow,
allowing for controlled expansion into additional metro areas. Finally, the
Company may expand its international presence via strategic alliance
arrangements with other test lab organizations.

    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.

MARKETING

    For 2002, the Company placed into action a strategic marketing and sales
program that identified specific customer opportunities in both the national and
international market place. The Company also expanded its efforts in the area of
education whereas sixteen (16) seminars were presented with more than three
hundred (300) participants representing more than two hundred (200) major
corporations in attendance. Seminars were also available and accessible through
Web cast via the Internet. The Company will continue with educational seminars
during 2003.

The following was achieved during 2002:

    1. The Company introduced the industry's first Omni-Directional Table Top
       Vibration system (OVTT).

    2. The Company embellished upon its marketing programs to include expanded
       use of the Internet and electronic media as a venue to promote awareness,
       education and provide for business lead generation.

    3. The Company began a cost reduction program for its OVS chamber product
       line in order to better position itself for the aggressive competitive
       nature in the world economies.

    The Company continued its exclusive sales and marketing agreement for the
United States and Canada with Weiss Technik GmbH ("Weiss Technik"). Weiss
Technik is a world leader in the manufacturing and sales of environmental
climatic test chambers. This agreement allowed the Company to aggressively
compete in the market of environmental temperature testing in the industrial and
automotive markets.


SALES STRATEGY

    Throughout 2002, the Company continued to contract with and utilize
exclusive independent manufacturer's representatives throughout the United
States, Canada and within the European and Asian markets. New representatives
were added in Mexico, Turkey and within the United States and further expansion
is scheduled for South America, the Philippines, Viet Nam and India in 2003. The
sales representatives chosen bring extensive industry knowledge with energy and
visions to assist the Company fulfill its corporate top line goals as well as
penetrate markets previously not explored.


CUSTOMERS

    The Company continues to market and sell its systems to the leading
corporations of the world. Most of these customers within the United States are
within the Fortune 200 companies with global presence and strong market
recognition. From the Company's inception, more that 400 test systems have been
sold world wide to more than 200 customers. During 2002, one customer comprised
approximately 15% of the Company's revenue. The Company was not dependent on any
single industry segment for its revenues.


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The Company's customer bases continues to be varied and are as follows:

<Table>
<Caption>
                   AEROSPACE AND DEFENSE          COMPUTER RELATED PRODUCTS                  OTHER
               -----------------------------     ---------------------------   ----------------------------------
<S>                                              <C>                          <C>
               Aviation electronics               Circuit boards               Automotive circuitry
               Display switches                   Disk drives                  Electronic oil and gas flow meters
               Flight navigation systems          Modems                       Global positioning systems
               Marine navigation systems          Monitors
                                                  Power supplies
                                                  Printers
                                                  Tape backup drives


                     TELECOMMUNICATIONS              MEDICAL ELECTRONICS        CONSUMER ELECTRONICS
               -----------------------------      --------------------------   ----------------------------------
               Automated teller machines          Electronic thermometers      Refrigerators
               Air conditioning electronics       Glucose monitors             Televisions
               Cellular telephones                Infusion pumps               Video Recorders
               Fax machines                       IV pumps
</Table>



RESEARCH AND PRODUCT DEVELOPMENT

    Research and development expenditures for the fiscal years ending December
31, 2002 and 2001 were $732,000 and $802,000, respectively. During 2002, the
Company has been creating the basis for new designs for its existing product
base, which are expected to be released in 2003. Also during 2002, the Company
released the OVTT (Omni Vibration Table Top) system that 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.

    Research is ongoing into the vibration technology used in the OVS 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 OVS 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 is being designed
and tested.

    The Company is maintaining the ability to quickly respond to customer
request for customization. Special OVS chamber features and custom fixturing
designs are strong offerings of QualMark's engineering department.

INTELLECTUAL PROPERTY

    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. The Company was issued U.S. Patent No. 5,365,788 on
November 22, 1994, for certain design features of pneumatic, piston driven
actuators that create motion for a vibration table. The Company was issued U.S.
Patent No. 5,412,991 on May 9, 1995, for certain design features of the
Company's vibration table. The Company was issued U.S. Patent No. 5,517,857 on
May 21, 1996, for certain design features related to positioning of a vibration
table within a stress screening chamber. The Company was issued U.S. Patent No.
5,540,109 on July 30,


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1996, and U.S. Patent No. 5,675,098 on October 7, 1997, for certain design
features related to use of multiple stress screening chambers. The Company was
issued U.S. Patent No. 5,589,637 on December 31, 1996, for certain design
features of mountings of actuators to a vibration table. The Company was issued
U.S. Patent No. 5,744,724 on April 28, 1998 for certain design features related
to honeycomb vibration table structures. The Company was issued Patent No.
5,836,202 on November 17, 1998 for claims directed at the angle of attachment of
the actuators to the vibration table. The Company was issued Patent No.
5,813,541 on September 29, 1998 for the configuration of the control system
attachment to the chamber. The Company was issued Patent No. 6,062,086 on May
16, 2000 relating to interposer devices for adjusting and controlling the shock
response of a shaker table assembly. The Company was issued Patent No. 6,105,433
on August 22, 2000 for low frequency shaker table technology. The Company was
issued Patent No. 6,112,596 on September 5, 2000 for shaker table technology
combined with the test chamber. The remaining duration of each of the Patents is
between ten and twenty years. The Company is currently in the process of
pursuing two additional patents in random vibration technology.

    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.

    In addition to the Patents, 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 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 marks with the United States Patent
and Trademark Office: QUALMARK, ARTC, and AUTOSMEAR. The Company plans to make
additional trademark, service mark, and certification mark applications as
appropriate. The Company also has CE approval and markings for many of its
products required for sale in the European Community.

COMPETITION

    Equipment

    As the marketplace is becoming more driven toward accepting the HALT and
HASS test techniques, the competitive complexion is also becoming more demanding
and aggressive. The economic weakness during 2002 caused concern within the
competitive market as each competitor became more aggressive in regards to
pricing and market share. The Company is confident however, that it will
maintain its leadership position in the market due to its technological
advantages and expanded product offerings. Further, the Company has formed a
strategic alliance with a national company that provides piping and liquid
nitrogen tanks for use with our test chambers. This allows the customer to be
provided with a single source of sales and technical support and differentiates
the Company from the competitors.

The following represents a listing of known competitors to the Company within
the served industries:

    1. Thermotron Industries Holland, Michigan

    2. Envirotronics Grand Rapid, Michigan

    3.  Screening Systems, Inc. Aliso Viejo, California

    ARTC and Applications Support Services

    Throughout 2002 utilization of the Company's ARTC labs declined by
approximately 37%, primarily due to economic conditions (refer to Item 6,
Management's Discussion and Analysis). The Company consolidated its Farmington
Hills, Michigan ARTC lab with a large third party strategic testing center thus
reducing overhead while maintaining a presence in the territory. With a
dedicated sales force in place, the Company anticipates steady revenues for this
facility in 2003. During 2003 the Company will continue to evaluate options in
reorganizing other labs in an attempt to maximize profitability. The ARTC labs
will continue to be utilized as a marketing and fundamental sales tool in
promoting the purchases of the Companies testing systems.


                                       8
<PAGE>


MANUFACTURING

    The Company's manufacturing facility is located in Denver, Colorado.
QualMark's assembly of the OVS 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 is not dependent
on any one or a few major suppliers for any of the key parts or components of
its systems. However, the Company has developed relationships with what it
considers critical vendors that manufacture three components of its OVS system.
While the Company is not dependent on these suppliers, it would take as much as
120 days to locate, qualify and begin taking delivery of these components from
new suppliers.

    While the Company maintains a small inventory of OVS systems in finished
goods, the Company primarily uses a rolling-quarter sales forecast in
determining the number of OVS-1.5, OVS 2.5, Typhoon 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 an OVS
system are identified and ordered in a timely manner.

PRODUCT WARRANTIES AND SERVICE

    In 2002 and 2001, the Company offered a limited one-year parts and labor
warranty on all new OVS systems, respectively. OVS customers can purchase
extended warranties on their OVS systems, which may include 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
OVS system, which further minimizes OVS system down time. Because of the
efficient design of OVS systems, the Company occasionally sends its technicians
into the field for warranty repairs. Most problems can be diagnosed over the
phone and, if necessary, replacement parts are sent to the customer via
overnight mail. During 2003, the Company will continue to offer a standard,
one-year parts and labor warranty on all new OVS systems.

GOVERNMENT REGULATION

    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.

EMPLOYEES

    As of December 31, 2002, the Company had thirty-two employees, of which
twenty-nine are full-time. Twenty-three of the Company's employees are employed
at its principal offices and headquarters in Denver, Colorado, two are employed
at its facilities in Santa Clara, CA, two in Huntington Beach, CA, one in
Farmington Hills, MI, two in Marlborough, MA, one in Winter Park, FL, 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.

AVAILABLE INFORMATION

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.

ITEM 2. DESCRIPTION OF PROPERTY.

    The Company operates out of leased facilities located at 1329 West 121st
Avenue, Denver, Colorado. The three-year lease for the property expires on May
31, 2003. The leased property consists of approximately 20,656 square feet. The
lease calls for monthly payments over the term of the lease of $14,890. In
addition to the lease, the Company is responsible for certain expenses,
including property taxes, insurance and maintenance. The Company's
manufacturing, sales, administrative operations and regional ARTC services are
conducted at this facility.


                                       9
<PAGE>


    The suburban Boston ARTC facility is located at 98 South Street, Hopkinton,
Massachusetts. The six-year lease expires April 30, 2005. The leased property
consists of approximately 5,000 square feet. The lease calls for average monthly
payments over the term of the lease of $3,252. In addition, The Company is
responsible for certain expenses, including property taxes, insurance and
maintenance. The Company's regional ARTC service business is conducted at this
facility.

    The Silicon Valley ARTC facility is located at 990 Richard Avenue, Suite
101, Santa Clara, California. The five-year lease expires on June 30, 2006. The
leased property consists of approximately 3,389 square feet. The lease calls for
average monthly payments of $7,911. In addition, the Company is responsible for
certain expenses, including property taxes, insurance and maintenance. The
Company's regional ARTC service business is conducted at this facility.

    The southern California ARTC facility is located at 15661 Producer Lane,
Unit H, Huntington Beach, California. The five-year lease expired on December
31, 2002. The leased property consists of 3,132 square feet. The Company has
renegotiated a month-to-month lease starting in January 2003 in this facility.
The monthly lease payments will be $3,078, until cancelled. In addition, the
Company is responsible for certain expenses, including property taxes, insurance
and maintenance. The Company's regional ARTC service business is conducted at
this facility.

    On December 31, 2002, the Company entered into an operating lease agreement
with Catellus Development Corporation for a new corporate facility located at
4580 Florence Street, Denver, Colorado. The lease has a term for seven years,
calls for average monthly payments of $12,294, and commences on April 1, 2003.
The leased property consists of approximately 16,616 square feet. In addition,
the Company is responsible for certain expense, including property taxes,
insurance and maintenance.

    The Company believes that its facilities are adequate for its current needs
and that suitable additional space can be acquired if needed. All of the
premises are of recent construction, are in good condition, are neat in their
appearance and are located in business complexes with business of similar
quality.


ITEM 3. LEGAL PROCEEDINGS

    On May 30, 2001, the Company was served with an arbitration demand from
Gregg K. Hobbs ("Hobbs"), a former employee and officer. The arbitration demand
alleges that the Company breached provisions in the original September 30, 1995
separation agreement, executed between Hobbs and the Company. The parties
selected a single arbitrator with the Judicial Arbiter Group in Denver, Colorado
and a hearing in the arbitration was set for April 29, 2002, but was rescheduled
to August 19, 2002, and subsequently rescheduled to April 21, 2003. The Company
believes it did not breach the September 30, 1995 agreement or cause damages to
entitle Hobbs to recovery, and it will actively defend its position; however, no
guarantee can be given on the ultimate outcome or on the ultimate amount of
damages, if any.

    In December 2002, the Company was served with a complaint from Hobbs
Engineering Corporation ("HEC"), a company controlled by Hobbs, seeking
injunctive relief and an unspecified amount of damages against the Company and
five current and former employees of or consultants of the Company. In this
action in District Court in Boulder, Colorado, HEC alleges that the Company and
the current and former employees and consultants, acting as "agents" for the
Company, violated the Colorado Unfair Trade Practices Act (Colorado Revised
Statutes, Sec. 6-2-105(1)(a)) by offering potential customers seminars on the
use of HALT and HASS in competition with HEC at less than the cost to the
Company to produce the seminars. The Company offers these seminars at no cost as
a means to promote sales of chambers. HEC further alleges that it has been
damaged by the Company's free seminars to potential customers and that HEC is
entitled to recover damages. The Company filed its response to the HEC Complaint
on January 7, 2003. The Company asserts that it is entitled to offer seminars
for free or at reduced prices to potential customers, that its seminars do not
compete with seminars offered by HEC, that the Company's activities are not in
violation of the Colorado Unfair Trade Practices Act, and that HEC is not
entitled to the relief it seeks. The Company intends to contest the case
vigorously; however, no guarantee can be given on the ultimate outcome or the
ultimate amount of the damages, if any.

On March 10, 2003, the Company, a former employee, and ASQ Quality Press were
served with a complaint in U.S. District Court in Denver, Colorado from Hobbs
alleging (i) infringement of copyrights purportedly owned by Hobbs, in violation
of the Copyright Act, 17 U.S.C. Sec. 101, (ii) false designation of origin and
false or misleading representation in commerce under Sec. 43(a) of the Lanham
Act, 15 U.S.C. Sec 1125(a), and (iii) common law unfair competition. The Company
is evaluating this complaint with its counsel and will file a response within 20
days from the date of service of the complaint. The Company intends to contest
the case vigorously; however, no guarantee can be given on the ultimate outcome
or the ultimate amount of the damages, if any.


                                       10
<PAGE>


ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

    There were no matters submitted to a vote of shareholders during the last
quarter of the fiscal year ended December 31, 2002.

                                     PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

    As of May 10, 2002, the common stock of the Company was traded on the OTCBB
(Over The Counter Bulletin Board). The Company was traded on the NASDAQ
(National Association of Securities Dealers Automated Quotations) Small-Cap
Market from April of 1996 until May 9, 2002 (refer to Item 5, Nasdaq Market
Listing). The following table sets forth the range of high and low closing bid
prices of the Company's common stock as reported by the NASDAQ (from January 1,
2001 through May 9, 2002) and OTCBB (from May 10, 2002 through December 31,
2002) during fiscal years 2002 and 2001:

<Table>
<Caption>

                                    FISCAL YEAR ENDED DECEMBER 31, 2002
                                    -----------------------------------
                                       HIGH CLOSE          LOW CLOSE
                                      ------------       ------------
<S>                                   <C>                <C>
      First Fiscal Quarter            $    1.150         $    0.900
      Second Fiscal Quarter                1.730              0.900
      Third Fiscal Quarter                 1.100              0.530
      Fourth Fiscal Quarter                0.700              0.280

                                    FISCAL YEAR ENDED DECEMBER 31, 2001
                                    -----------------------------------
                                       HIGH CLOSE          LOW CLOSE
                                      ------------       ------------
      First Fiscal Quarter            $    2.630         $    1.130
      Second Fiscal Quarter                1.900              1.030
      Third Fiscal Quarter                 1.590              0.960
      Fourth Fiscal Quarter                1.650              1.050
</Table>

    The foregoing quotations represent quotations between dealers without
adjustment for retail markups, markdowns or commissions and may not represent
actual transactions.

    The number of record holders of our common stock as of December 31, 2002 was
33 according to our transfer agent. This figure excludes an indeterminate number
of shareholders whose shares are held in "street" or "nominee" name. The Company
has never paid a cash dividend and does not intend to do so in the future. The
Company anticipates a dividend payment on outstanding preferred stock, in kind,
of additional preferred stock in future quarters (Refer to Note 8 of the
Financial Statements).

Nasdaq Market Listing

    In order for the common stock of the Company to continue to be traded on
Nasdaq, the Company needed to maintain net tangible assets of at least $2.0
million through October of 2002 and $2.5 million of net shareholder equity
thereafter. The Company was not able to maintain these levels of net tangible
assets or net shareholder equity, but developed a plan to increase its
shareholder equity to meet these requirements. On February 21, 2002 the Company
presented the plan to a Nasdaq listings panel.

    On March 20, 2002 the Company received notification from the Nasdaq Listing
Qualification Panel that the Panel was of the opinion that QualMark Corporation
presented a definitive plan that would enable it to comply with all requirements
for continued listing on The Nasdaq SmallCap Market. The Company's common stock
was conditionally listed on The Nasdaq SmallCap Market pursuant to certain
exceptions. These exceptions required the Company to file a proxy statement with
the Securities and Exchange Commission and Nasdaq by March 26, 2002 and to file
certain financial statements with its Form 10-QSB for the quarter ending March
31, 2002. In order to comply with the terms of the exceptions, QualMark had to
demonstrate compliance with all requirements for continued listing on The Nasdaq
SmallCap Market. Satisfaction of these required the Company's shareholders to
approve various matters contained in the proxy.

    On March 27, 2002 the Company, in reliance upon this notification, completed
a $1 million preferred stock financing transaction with The Roser Partnership
III, SBIC LP (refer to Note 8 of the Financial Statements) which provided that
if shareholder approval was not obtained for the stock issuance, the preferred
stock would convert on a different basis than if shareholder approval was
obtained.

    It is anticipated that the OTC Electronic Bulletin Board (OTCBB) will be
replaced at some time during 2004 by the Bulletin Board Exchange (BBX). The
listing qualifications for the BBX have not yet been finalized. The Company
will be investigating the feasibility of listing its securities on the BBX when
it receives more definitive information regarding this exchange.


                                       11
<PAGE>


Although the Company complied with the undertakings established by Nasdaq, on
May 9, 2002 the Nasdaq Stock Market notified the Company that this transaction,
which was initially approved by Nasdaq, did not meet the requirements of a staff
interpretation of the shareholder approval requirements. According to IM-4350-2,
first published March 7, 2002, if the terms of a transaction can change based
upon the outcome of a shareholder vote, no shares may be issued prior to
shareholder approval. As a result, effective May 10, 2002, the Company became
actively listed on the OTC Electronic Bulletin Board under the symbol QMRK.


ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS

    The following table sets forth for the fiscal periods indicated the
percentage of total revenues, unless otherwise indicated, represented by certain
items reflected in the Company's consolidated statement of operations:

<Table>
<Caption>
                                                                   FISCAL YEAR ENDED
                                                         -------------------------------------
                                                         DECEMBER 31, 2002   DECEMBER 31, 2001
                                                         -----------------   -----------------
<S>                                                           <C>                 <C>
    Statement of Operations Data:
    Revenues........................................           100.0%              100.0%
    Cost of Revenues................................            56.6                62.7
                                                              ------              ------
    Gross Profit....................................            43.4                37.3
    Selling, general and administrative expenses....            36.4                44.3
    Research and development expenses...............             9.1                 9.9
    Loss from operations............................            (2.1)              (16.9)
    Other expense...................................            (2.2)               (2.3)
                                                              ------              ------
    Loss before income taxes........................            (4.3)              (19.2)
    Income tax benefit (expense)....................            (0.0)              (14.7)
                                                              ------              ------
    Net loss........................................            (4.3)%             (33.9)%
                                                              ======              ======
</Table>

FORWARD-LOOKING STATEMENTS

    The statements contained in this report which are not historical facts are
forward-looking statements that are subject to risks and uncertainties that
could cause actual results to differ materially from those set forth or implied
by forward-looking statements, including but not limited to variability in order
flow and operating results, the ability of the Company to find and retain
qualified personnel, and the risk that the demand for the Company's systems will
not continue.

RESULTS OF OPERATIONS

    The Company's annual and quarterly operating results are subject to
fluctuations for a variety of reasons. The Company operates with a small backlog
relative to its revenue; thus most of its sales in each quarter result from
orders received in the current or prior quarter. In addition, because prices for
the Company's products are relatively substantial, a significant portion of net
sales for each quarter is attributable to a relatively small number of units.
Further, the fact of shipping or not shipping a product in a quarter can result
in the difference between a profitable quarter or an unprofitable one, given the
significant sales price of the Company's product and the related margin.

Comparison of Years Ended December 31, 2002 and 2001

REVENUE

    Revenue decreased $78,000 or 1 % to $8,067,000 in the year ended December
31, 2002 from $8,145,000 in the year ended December 31, 2001.

    OVS system revenue increased $791,000 or 13.6% from $5,815,000 in the year
ended December 31, 2001 to $6,606,000 in the year ending December 31, 2002.
Forty-two OVS units were sold in the year 2002 compared with thirty-eight OVS
units sold in the year 2001. Of the total units sold, international system sales
increased from fourteen units in 2001 to twenty-two in 2002. For the year ended
December 31, 2001, the international OVS systems sales of $1,852,000 represented
31.8% of system sales compared with the year ended December 31, 2002 in which
international sales of $2,851,000 represented 43.2% of system sales. The Company
attributes the increase in OVS sales to the Company's aggressive pursuit of
international sales and increased demand for used OVS equipment during the
prevalent conservative domestic economic atmosphere in the high technology
industry, which pressures a decrease in demand for capital equipment purchases.
The Company continues to be cautiously optimistic in regards to domestic
equipment sales,


                                       12
<PAGE>


as the equipment line of business trends capital spending. Because of the
lagging domestic economy, QualMark has increased its focus on the used/refurbish
equipment line of business. The increased demand for used equipment has enabled
the Company to help stimulate its domestic sales. Of the total OVS units sold,
eight represented used or refurbished units for the year ended December 31, 2002
and four represented used or refurbished units for the year ended December 31,
2001. The Company utilizes two methods to supply its used and refurbished
equipment line. The Company actively purchases used QualMark equipment from the
marketplace, refurbishes and sells the updated equipment, or sells its used "as
is" equipment from its test center labs. Both methods could result in lower per
chamber average revenue, but will generally yield higher margins for the
Company, as minimal labor and material is required to prepare them for resale.
Currently QualMark utilizes fifteen independent international sales
representatives including representatives from the European, Mexican, Middle
Eastern, and Asian sectors. QualMark has established business relationships with
Hielkema Test Equipment B.V. in the Netherland, Beatronic in Denmark, Emitech in
France, Weiss in Germany, AB-AD Technology and Engineering Ltd. In Israel,
Sumitomo in Japan, Namil Environ Company in Korea, SEM Ltd. in Turkey, Amirto Oy
in Finland, Aicom Group in Italy, Vision Trade International in Mexico,
Centiforce in Singapore, AXEB-AB in Sweden, Chroma ATE Inc. in Taiwan, and
Alphatech Limited in the UK. The Company is continuing to expand its customer
base in 2003 by initiating contact with potential distributors in China, India,
South Africa, Australia, Vietnam, and South America. The Company is encouraged
with its steady increase in international equipment sales and is anticipating
its recently released product the OVTT (refer to Management Discussion and
Analysis, Research & Development paragraph) to also assist in stimulating the
domestic equipment market. The Company can not give any assurance on the
continued demand of its used/refurbished equipment sales success or the
continued increase in international equipment sales.

    On September 7, 2001 the Company announced an exclusive strategic
partnership with Weiss Umwelttechnik GmbH, the world leader in environmental
test chambers. Based in Reiskirchen-Lindenstruth, Germany, Weiss Technik is the
world's largest maker of environmental test chambers with annual revenue of US
$150 million, and is a member of the Schunk Group with annual revenue of US $700
million. Under terms of the agreement, QualMark becomes Weiss Technik's
exclusive marketing partner in the United States and Canada. For the period
ending December 31, 2002 the Company sold four standard Weiss environmental
units and one special order unit, in which the Company received and reported a
commission. Total Weiss revenue represented 1.1% of the Company's equipment
revenue for 2002. The Company attributes the slow Weiss domestic sales trend to
noncompetitive pricing in the domestic environmental test chamber market. The
Company is continuing to analyze the existing pricing model and is examining its
relationship with Weiss.

Test center revenue decreased $869,000 or 37.3% from $2,330,000 in the year
ended December 31, 2001 to $1,461,000 in the year ending December 31, 2002. As
of December 31, 2002, the Company operated four domestic test centers,
maintained one strategic domestic partnership, and maintained four strategic
partnership test center operations in Europe (refer to Item 1, Accelerated
Reliability Test Centers), versus six test centers in the U.S. and five
strategic partnerships in Europe during the same period in 2001. In the
beginning of 2002, QualMark took steps to optimize the domestic ARTC Lab segment
by closing the lab located in Orlando, Florida. The Company primarily attributes
the decrease in test center revenue to a conservative economic atmosphere in the
high technology industry as well as an increase in competition. Due to the
existing economic trends, companies that would not normally compete in the test
center industry are doing so to generate additional revenue. This additional
competition has resulted in increased pricing and demand pressures for the
Company. During the second quarter of 2002, the Company suffered a loss of one
direct sales personnel in a key test center market. Also during 2002, the
Company strategically changed the existing sales structure from a direct field
sales organization to independent sales representatives to reduce sales related
expenses. The independent sales representatives have taken longer than expected
to learn the sales process associated with the Company's markets. The Company is
continually training the independent sales representatives and assisting in
customer sales calls. In 2003, the Company will place one direct sales manager
in charge of all test center independent sales representatives. This direct
sales person will also be in charge of test center marketing. The Company will
continue to adapt to the changing test center market, however no assurance can
be given on the ultimate outcome of test center revenue. The Company is also
continuing to examine the Detroit, Michigan partnership test center model, in
which additional partnerships may be entered into to minimize both variable and
fixed test center costs, while benefiting in a revenue share. This model may
result in decreased test center revenue, but should produce higher gross
profits, although no assurance can be given.

GROSS MARGIN

The gross margin for the year ended December 31, 2001 was 37.3%. This compares
to a gross margin of 43.4% for the year ended December 31, 2002. The increase in
gross margin for the year ended December 31, 2002 is primarily due to the demand
for used and refurbished equipment, changes in product sales mix, in which a
larger number of higher dollar equipment components and services were sold
yielding higher margins, a decrease in average sales discounts given on new
equipment sales, the closure of the Florida test center during the first quarter
of 2002, which reduced test center cost of sales, and the test center
partnership instituted in Detroit,


                                       13
<PAGE>


Michigan with a large national testing lab. For the year ended December 31,
2002, the Company recognized an increased demand for its used/refurbished
chambers, in which eight chambers were sold. In 2001, the low gross margin was
primarily due to the review and direct write off to cost of goods sold of
$93,000 in obsolete raw inventory, $35,000 in additional costs charged to cost
of sales incurred to relocate the Santa Clara test center, an unfavorable shift
in product mix to lower yielding equipment parts, and the diminished demand for
capital goods in the existed economic environment. The Company will continue to
focus on its used/refurbished equipment line of business, place emphasis on
improving product mix, manufacturing utilization, overhead management, and
examine other existing domestic test center facilities for strategic
relationships similar to the Detroit, Michigan partnered test center.

OPERATING EXPENSE

    Total operating expenses decreased $740,000 or 16.8% from $4,412,000 in the
year ended December 31, 2001 to $3,672,000 for the year ended December 31, 2002.

    Selling, general and administrative expenses declined $670,000 or 18.6% from
$3,610,000 for the year ended December 31, 2001 to $2,940,000 for the year ended
December 31, 2002. Expenses for the year ended 2002 decreased primarily due to
the significant reduction in department personnel, in response to the economic
down turn during 2001 continuing through 2002. Included in the selling, general,
and administrative costs was $321,000 in charges for arbitration related
expenses (refer to Note 12 of the Financial Statements) and professional fees.
If the Company had not incurred the additional $321,000 in arbitration related
expenses and professional fees, the decrease in the year ended December 31, 2002
selling, general, and administrative would have been $991,000 or 27.5 %. A large
component of selling, general, and administrative expenses are sales and
marketing expenses, which decreased 31.0% for the year ended December 31, 2002
as compared to the year ended December 31, 2001. The decrease is attributed to
the Company's reorganization of international sales and "right sizing" its
infrastructure beginning at the end of 2000 and continuing through 2002. Also,
the Company has strategically changed the existing sales structure from a direct
field sales organization to independent sales representatives to minimize all
related sales expenses, and to ensure that additional sales costs are relative
to sales demand. If the Company determines the recently implemented sales
structure is not effective, direct field sales personnel may be added, which
would increase selling, general, and administrative expense. QualMark continues
to monitor and identify ways to reduce operating expenditures. Currently, the
Company's infrastructure and systems have been set up and redesigned to prepare
for an increase in sales demand with a minimal increase in selling, general, and
administrative costs.

Research and development costs decreased $70,000 or 8.7% from $802,000 for the
year ended December 31, 2001 to $732,000 for the year ended December 31, 2002.
The decrease is primarily attributed to a reduction of research and development
staff. The Company continually strives to sustain its commitment to product
improvements and research and development. As a result, research and development
expenditures fluctuate from quarter to quarter, and may increase in future
quarters. On September 25, 2002 the Company formally introduced a major new
product the OVTT (Omni Vibration Table Top) system that 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 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. As of December 31,
2002, the Company has not actively solicited orders or provided quotations for
the OVTT, but expects to begin quoting and accepting orders during 2003.

INTEREST EXPENSE

    Interest expense decreased $22,000 or 11% from $200,000 for the year ended
December 31, 2001 to $178,000 for the year ended December 31, 2002. The decrease
of $22,000 in expense was due to the pay down of bank debt during the year of
$625,000.

INCOME TAXES

    Income tax expense decreased from $1,768,000 for the year ended December 31,
2001 to zero for the year ended December 31, 2002. The 2001 expense relates
primarily to an increase in the valuation allowance. The valuation allowance was
provided in 2001 to reduce the deferred tax assets, based on management's
estimate of the assets realizibility. No income tax expense was recorded in 2002
as the Company incurred operating losses and has fully reserved its deferred tax
assets in 2001.

    Net operating loss carryforwards of approximately $6,150,000 as of
December 31, 2002 are available to offset future taxable income, if any, through
2022.

NET LOSS


                                       14
<PAGE>


    Net loss decreased $2,418,000 from $2,761,000 for the year ended December
31, 2001 to $343,000 for the year ended December 31, 2002. The decrease of
$2,418,000 is explained by the increase in gross profit of $469,000, the
decrease in income tax expense of $1,194,000, the decrease in operating expenses
of $740,000, and the decrease in other income (expense) of $15,000 during the
year ended December 31, 2002.

NET LOSS PER SHARE

    Net loss per basic and diluted common share decreased $0.48 per share from
$0.80 per share for the year ended December 31, 2002. The decrease is explained
primarily by the decrease in net loss of $2,418,000 for the year ended December
31, 2002. The calculation of net loss per share (Refer to Note 1 of the
Financial Statements) includes the accretion of redeemable preferred stock,
preferred stock dividends, and beneficial conversion features recorded on the
Company's preferred stock.

LIQUIDITY AND CAPITAL RESOURCES

    During 2001, the Company experienced significant operating losses due to the
sudden and dramatic decrease in orders for its products, primarily attributed to
general economic uncertainty and significant reductions in the orders for
capital equipment and related products in technology-related industries, such as
those served by the Company. The Company took certain actions in 2001 to address
this, including cost reductions and changes to its marketing and distribution
strategy. Subsequently, on March 27, 2002, the Company closed on a transaction
whereby it received $1 million of proceeds from the sale of preferred stock
(refer to Note 8 of the Financial Statements). During 2002, the Company has
experienced a "leveling" out of business, in which sales and demand remained
steady for its capital equipment products. This activity met the Company's
internal projections for capital equipment demand and financial performance for
2002. If the economic uncertainty continues during 2003, the Company will
continue to take action to address this; including cost reduction and changes to
its marketing and distribution strategy, however, the Company cannot give any
assurance on the continued demand for its products and/or services. On January
23, 2003, the Company and its bank modified the terms of its revolving line of
credit and term note to provide for payments of approximately $700,000 in 2003
and a due date for this facility of March 15, 2004.

    While there is no guarantee that the Company will be able to meet the
operational and financial requirements of its 2003 budget and limit the use of
cash and cash equivalents, the Company's operating plan and execution thereof is
focused on growing revenue, controlling costs and conserving cash. The Company
can not predict with certainty the expected revenues, gross profit margin, net
profit or loss and provision or usage of cash and cash equivalents for 2003.
However, the Company's management believes that the Company's cash and cash
equivalents and working capital, augmented by the proceeds of the sale of the
March 27, 2002 $1 million of preferred stock, provide adequate capital resources
to fund its operations, 2003 debt repayments and working capital needs through
at least the end of 2003, and into the first quarter of 2004. The Company's
inability to modify or replace its debt when it comes due on March 15, 2004, or
to obtain required capital when needed could have a material adverse effect on
its business, results of operations and financial condition, and the Company
could be required to reduce its level of operations, delay product development
or other actions to diminish the amount of cash used in its business. While
there can be no guarantee, the Company's management believes that it will be
able to extend the due date of its credit facility with the bank, or replace
such facility with other borrowings.

    During 2002, the Company generated $809,000 of cash from operating
activities (primarily due to sale of inventories), invested $273,000 for
equipment and $90,000 for restricted cash for leasehold improvements, repaid
$625,000 of commercial bank borrowings, and issued 1,000 shares of preferred
stock for net proceeds of $967,000. These activities resulted in a cash increase
of $788,000, for a year-end balance of $1,288,000 at December 31, 2002. During
2001, the Company generated $717,000 of cash from operating activities
(primarily due to collections of accounts receivable), invested $192,000 for
equipment, invested $5,000 for patents, borrowed $745,000 from banks, repaid
$1,671,000 of bank borrowings, and made payments on capital leases of $35,000.
In addition, employees exercised options to purchase 2,400 shares of common
stock for proceeds of $5,000. Together, these activities resulted in a cash
decrease of $436,000, for a year-end balance of $500,000 at December 31, 2001.

    The Company's commercial bank borrowings consist of a term loan and a
revolving line of credit, (the "Credit Agreement"), (Refer to Note 5 of the
Financial Statements).

    On January 31, 2002, the Company renegotiated its Credit Agreement with the
commercial bank. Among other changes, this amendment to the Credit Agreement
extended the maturity date to March 15, 2003, increased the monthly principal
payments from $45,000 to $50,000, and changed the interest to the Prime Rate
plus 3.0%, commencing on February 28, 2002.


                                       15
<PAGE>


    On January 23, 2003, the Company renegotiated its Credit Agreement with the
commercial bank. Among other changes, the principal amount of the revolving line
of credit was reduced to $500,000 and the principal amount of the term loan was
increased to $1,110,000, the monthly principal payments will increase on July 1,
2003 from $55,000 to $65,000, and the maturity date was extended to March 15,
2004.

    The average interest rate for the twelve-month period ending December 31,
2002 for the term loan and revolving credit line was 7.50%. Both the revolving
credit line and term loan under the Credit Agreement are collateralized by
substantially all the assets of the Company. Borrowings under the line of credit
are subject to borrowing base limits. As of December 31, 2002, there was no
additional availability on the line of credit.

    The Company must maintain certain financial and other covenants in order to
draw amounts available under the line of credit. As of December 31, 2002, the
Company was in default of certain financial covenants contained in the Credit
Agreement. The Company has, however, received a waiver from its lender regarding
such noncompliance.

    As required by the renegotiated Credit Agreement, the Company will make
monthly principal payments, beginning July 1, 2003, of $65,000 on the term loan.
The Company had also determined that, during 2003, quarterly payments to the
revolving line of credit would be made based on cash flows generated from
operations. At the close of each quarter, the Company has made arrangements to
meet and review results of the Company with the commercial bank and the Company
believes its relations with its commercial bank to be good. At the end of 2003,
the Company expects to negotiate with the commercial bank for an extension to
the Credit Agreement, although there can be no assurance that such
renegotiations will be successful.

    The following represents future amounts payable at December 31, 2002 (in
thousands).

<Table>
<Caption>
          Year ended December 31,
<S>               <C>                   <C>
                  2003                  $    720
                  2004                       890
                                        --------
                                        $  1,610
                                        ========
</Table>
Contractual Obligations

    For more information on the Company's contractual obligations on operating
leases, refer to Note 6 of Financial Statements. At December 31, 2002, the
Company's commitments under these obligations were as follows (in thousands):

<Table>
<Caption>
                                               OPERATING
                                                LEASES
                                               ---------
            Year ended December 31,
<S>                    <C>                    <C>
                        2003                   $   315
                        2004                       277
                        2005                       257
                        2006                       201
                        2007                       148
                        2008-2010                  379
                                               -------
                                               $ 1,577
                                               =======
</Table>


Recently Issued Accounting Pronouncements

    In January 2003, the Financial Accounting Standards Board ("FASB") issued
SFAS Interpretation No. 46, Consolidation of Variable Interest Entities ("FIN
46"), which changes the criteria by which one company includes another entity in
its consolidated financial statements. FIN 46 requires a variable interest
entity ("VIE") to be consolidated by a company if that company is subject to a
majority of the risk of loss from the variable interest entity's activities or
entitled to receive a majority of the entity's residual returns or both. The
consolidation requirements of FIN 46 apply immediately to VIE's created after
January 31, 2003, and apply in the first fiscal period beginning after June 15,
2003, for VIE's created prior to February 1, 2003. As the Company does not
currently have an interest in a VIE, management does not expect that the
adoption of FIN 46 will have a significant immediate impact on the financial
condition or results of operations of the Company.

    In December 2002, FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation Transition and Disclosure. This statement amends SFAS No. 123
Accounting for Stock-Based Compensation and establishes two alternative methods
of transition from the intrinsic value method to the fair value method of
accounting for stock-based employee compensation. In addition, SFAS No.


                                       16
<PAGE>


148 requires prominent disclosure about the effects on reported net income and
requires disclosure for these effects in interim financial information. The
provisions for the alternative transition methods are effective for fiscal years
ending after December 15, 2002 and the amended disclosure requirements are
effective for interim periods beginning after December 15, 2002. The Company
plans to continue accounting for stock-based compensation under Accounting
Principles Board Opinion No. 25, Accounting for Stock issued to Employees (APB
25). Therefore, this pronouncement is not expected to impact the Company's
financial position or results of operations.

    In November 2002, the FASB issued SFAS Interpretation No. 45 ("FIN 45"),
Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees and Indebtedness of Others. FIN 45 elaborates on the
disclosures to be made by the guarantor in its interim and annual financial
statements about its obligations under certain guarantees that it has issued. It
also requires that a guarantor recognize, at the inception of a guarantee, a
liability for the fair value of the obligation undertaken in issuing the
guarantee. The initial recognition and measurement provisions of this
interpretation are applicable on a prospective basis to guarantees issued or
modified after December 31, 2002, while the provisions of the disclosure
requirements are effective for financial statements of interim or annual reports
ending after December 15, 2002. The Company is currently evaluating the
recognition provisions of FIN 45, but does not expect that the adoption of FIN
45 will have a significant immediate impact on the financial condition or
results of operations of the Company, as the Company currently has made no
guarantees.

    In June 2002,  FASB issued SFAS No. 146,  Accounting  for Costs  Associated
with Exit or Disposal Activities. SFAS No. 146 addresses financial accounting
and reporting for costs associated with exit or disposal activities. This
statement supersedes Emerging Issues Task Force Issue No. 94-3, Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity. The Company does not expect that the adoption of SFAS No. 146 will
have a significant immediate impact on the financial condition or results of
operations of the Company.

    In July 2001, the FASB issued SFAS No. 141, Business Combinations, and SFAS
No. 142, Goodwill and Other Intangible Assets. SFAS No. 141 requires that the
purchase method of accounting be used for all business combinations initiated
after June 30, 2001. Use of the pooling-of-interests method is prohibited on a
prospective basis. SFAS No 142 addresses financial accounting and reporting for
acquired goodwill and other intangible assets. It changes the accounting for
goodwill and other intangible assets with indefinite lives from an amortization
method to an impairment-only approach and requires intangible assets with finite
lives to be amortized over their useful lives. SFAS No. 142 is effective for
fiscal years beginning after December 15, 2001. The adoption of SFAS No. 141 and
No. 142 did not have an impact on the Company's financial condition or results
of operations, as the Company did not enter into any business combinations
during the year and has no recorded goodwill or indefinite life intangibles.

    In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment
or Disposal of Long-Lived Assets, which addresses accounting and financial
reporting for the impairment or disposal of long-lived assets. This statement is
effective for fiscal years beginning after December 15, 2001. The Company does
not expect that the adoption of SFAS No. 144 will have a significant immediate
impact on the financial condition or results of operations of the Company.

    In 2001, the Company adopted SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. This statement, as amended, establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging activities.
This statement had no impact on the Company's financial statements, as the
Company does not hold and has not engaged in derivative transactions through
December 31, 2002.

Critical Accounting Policies and Estimates

    The Company's discussion and analysis of its financial condition and results
of operations are based upon its consolidated financial statements, which have
been prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements requires the
Company to make estimates and judgments that affect the reported amounts of
assets, liabilities, revenues and expenses, and related disclosure of contingent
assets and liabilities. On an on-going basis, the Company evaluates its
estimates, including those related to bad debts, inventories, long-lived assets,
income taxes, and contingencies and litigation. The Company bases its estimates
on historical experience and on various other assumptions that are believed to
be reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.

    The Company believes the following critical accounting policies affect its
more significant judgments and estimates used in the preparation of its
consolidated financial statements.


                                       17
<PAGE>


    The Company maintains allowances for doubtful accounts for estimated losses
resulting from the inability of its customers to make required payments. If the
financial condition of the Company's customers were to deteriorate, resulting in
an impairment of their ability to make payments, additional allowances may be
required.

    The Company provides for the estimated cost of product warranties at the
time revenue is recognized. While the Company engages in extensive product
quality programs and processes, including actively monitoring and evaluating the
quality of its component suppliers, the Company's warranty obligation is based
upon historical experience and is also affected by product failure rates and
material usage incurred in correcting a product failure. Should actual product
failure rates or material usage costs differ from the Company's estimates,
revisions to the estimated warranty liability would be required (Refer to Note 4
of the Financial Statements).

    The Company reduces inventory for estimated obsolescence or unmarketable
inventory equal to the difference between the cost of inventory and the
estimated market value based upon assumptions about future demand and market
conditions. If actual market conditions are less favorable than those projected
by management, additional inventory write-downs may be required (Refer to Note 2
of the Financial Statements).

    The Company records a valuation allowance to reduce its deferred tax assets
to the amount that is more likely than not to be realized. While the Company has
considered future taxable income and ongoing prudent and feasible tax planning
strategies in assessing the need for the valuation allowance, in the event the
Company were to determine that it would be able to realize its deferred tax
assets in the future in excess of its net recorded amount, an adjustment to the
deferred tax asset would increase income in the period such determination was
made. Likewise, should the Company determine that it would not be able to
realize all or part of its net deferred tax asset in the future, an adjustment
to the deferred tax asset could be charged to income in the period such
determination was made. At December 31, 2002, all deferred tax assets are fully
reserved for. (Refer to Note 7 of the Financial Statements).

Government Regulation

    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.

Legal Proceedings

    On May 30, 2001, the Company was served with an arbitration demand from
Gregg K. Hobbs ("Hobbs"), a former employee and officer. The arbitration demand
alleges that the Company breached provisions in the original September 30, 1995
separation agreement, executed between Hobbs and the Company. The parties
selected a single arbitrator with the Judicial Arbiter Group in Denver, Colorado
and a hearing in the arbitration was set for April 29, 2002, but was rescheduled
to August 19, 2002, and subsequently rescheduled to April 21, 2003. The Company
believes it did not breach the September 30, 1995 agreement or cause damages to
entitle Hobbs to recovery, and it will actively defend its position; however, no
guarantee can be given on the ultimate outcome or on the ultimate amount of
damages, if any.

    In December 2002, the Company was served with a complaint from Hobbs
Engineering Corporation ("HEC"), a company controlled by Hobbs, seeking
injunctive relief and an unspecified amount of damages against the Company and
five current and former employees of or consultants of the Company. In this
action in District Court in Boulder, Colorado, HEC alleges that the Company and
the current and former employees and consultants, acting as "agents" for the
Company, violated the Colorado Unfair Trade Practices Act (Colorado Revised
Statutes, Sec. 6-2-105(1)(a)) by offering potential customers seminars on the
use of HALT and HASS in competition with HEC at less than the cost to the
Company to produce the seminars. The Company offers these seminars at no cost as
a means to promote sales of chambers. HEC further alleges that it has been
damaged by the Company's free seminars to potential customers and that HEC is
entitled to recover damages. The Company filed its response to the HEC Complaint
on January 7, 2003. The Company asserts that it is entitled to offer seminars
for free or at reduced prices to potential customers, that its seminars do not
compete with seminars offered by HEC, that the Company's activities are not in
violation of the Colorado Unfair Trade Practices Act, and that HEC is not
entitled to the relief it seeks. The Company intends to contest the case
vigorously; however, no guarantee can be given on the ultimate outcome or the
ultimate amount of the damages, if any.

On March 10, 2003, the Company, a former employee, and ASQ Quality Press were
served with a complaint in U.S. District Court in Denver, Colorado from Hobbs
alleging (i) infringement of copyrights purportedly owned by Hobbs, in violation
of the Copyright Act, 17 U.S.C. Sec. 101, (ii) false designation of origin and
false or misleading representation in commerce under Sec. 43(a) of the Lanham


                                       18
<PAGE>


Act, 15 U.S.C. Sec 1125(a), and (iii) common law unfair competition. The Company
is evaluating this complaint with its counsel and will file within 20 days from
the date of service of the complaint. The Company intends to contest the case
vigorously; however, no guarantee can be given on the ultimate outcome or the
ultimate amount of the damages, if any.

Business Environment

If we are unable to compete effectively, our business would be harmed. Our
products compete on the basis of the following key characteristics:

         Performance
         Functionality
         Reliability
         Pricing
         Quality
         Time-to-market delivery
         Compliance with industry standards

If we fail to address our competitive challenges, there could be a material
adverse effect on our business, financial conditions and results of operations.

The prevalent conservative economic business environment has unfavorably
effected both the equipment and ARTC (test center) lines of business. Because of
the economic trends, a surplus of used OVS equipment has become available on the
domestic equipment market, thus limiting the demand for new OVS equipment and
lowering the barrier to entry into the test center market. The Company believes
its polices to actively purchase, refurbish and sell the surplus of used
QualMark OVS equipment from the domestic equipment market, and enter into
revenue share test center partnerships will assist in providing a competitive
edge. However, the inability to favorably purchase and resell a majority of used
QualMark OVS equipment from the domestic market or successfully compete in the
changing test center market could result in a decrease in demand for its new OVS
equipment, an excess of inventory held, and a continual loss of test center
market share. These situations could have a material adverse effect on our
business, financial conditions and results of operations.

We have experienced, and may continue to experience, fluctuations in sales and
operating results from quarter to quarter. Our quarterly results fluctuate due
to a number of factors, including: variations in the timing, cancellation, or
rescheduling of customer orders and shipments; variations in manufacturing
costs, capacities and efficiencies; capacity and production constraints,
including constraints associated with single-source part suppliers; product
failures; competitive factors, including pricing, availability and demand for
competing products; cancellations or reductions of customer orders and shipments
due to economic slowdowns in the customers' operating regions; cancellations or
rescheduling of customer orders and shipments due to changes in demand; warranty
expenses; the availability and cost of parts; the timing, availability and sale
of new products by us or our competitors; changes in the mix of products having
differing gross margins; changes in average sales prices; long sales cycles
associated with our products; variations in product development and other
operating expenses; discounts given to certain customers for large volume
purchases; and high fixed expenses that increase operating expenses, especially
during a quarter with test center sales shortfalls. Our sales to customers are
usually made under purchase orders with short delivery requirements. Order
deferrals and cancellations by our customers, declining average sales prices,
changes in the mix of products sold, delays in the introduction of new products
and longer than anticipated sales cycles for our products have, in the past,
adversely affected our quarterly results of operations. We cannot guarantee that
our quarterly results of operations will not be similarly adversely affected in
the future.

Suppliers

A limited number of critical parts used in our products are available from only
one or a limited number of outside suppliers due to unique part designs as well
as certain quality and performance requirements. Because of the nature of our
business we are not able to purchase with any significant volume for individual
parts or volume discounts. We have experienced, and may continue to experience,
shortages of single-sourced parts. Shortages could compel us to adjust our
product designs and production schedules. If single-sourced parts become
unavailable in sufficient quantities, are discontinued or are available only on
unsatisfactory terms, we would be required to purchase comparable parts from
other sources and "retune" our products to function with the replacement parts,
or we may be required to redesign our products to use other parts, either of
which could delay production and delivery of our products. In addition, our
reliance on certain single-sourced parts exposes us to quality control issues if
such suppliers experience a failure in their production process. A failure in a
single-sourced part could force us to repair or replace a product utilizing
replacement parts. Such a requirement could have a material adverse effect on
our business, results of operations and financial condition. In addition, if



                                       19
<PAGE>


we cannot obtain comparable replacements or effectively retune or redesign our
products, there could be a material adverse effect on our business, results of
operations and financial condition.

International Operations

There are many risks associated with international operations, including the
following: compliance with multiple and potentially conflicting regulations,
including export requirements, tariffs, import duties and other barriers, as
well as health and safety requirements; differences in intellectual property
protections; longer accounts receivable collection cycles; currency
fluctuations; terrorists attacks on American companies; economic instability,
including inflation and interest rate fluctuations; competition from foreign
competitors; and political or civil turmoil. The results of these factors may
have a material adverse effect on our business, financial condition and results
of operations.

Intellectual Property

We rely upon trade secrets and patents to protect our intellectual property. We
execute confidentiality and non-disclosure agreements with our employees and
suppliers and limit access to and distribution of our proprietary information.
We have a program to identify and file applications for both U.S. and
international patents for various aspects of our technology. All of these
efforts, along with the knowledge and experience of our management and technical
personnel, strengthen our ability to market our existing products and to develop
new products. The departure of any of our management and technical personnel,
the breach of their confidentiality and non-disclosure obligations to us, or the
failure to achieve our intellectual property objectives may have a material
adverse effect on our business, financial condition and results of operations.
We do not have non-compete agreements with our employees who are employed on an
"at-will" basis. Therefore, employees may leave us and go to work for a
competitor. While we believe that we have adequately protected our proprietary
technology, and we believe that we have taken all legal measures to protect it,
we may not be successful in prohibiting the unauthorized use of our proprietary
technology or the use of our processes by a competitor. Any such unauthorized
use of our proprietary technology could have a material adverse effect on our
business, financial condition and results of operations.


QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

    The Company's exposure to interest rate changes are primarily related to its
variable rate debt issued under its $1,610,000 Credit Agreement (Refer to Note 5
of the Financial Statements). Because the interest rates on these facilities are
variable, based upon the bank's prime rate, the Company's interest expense and
net income are affected by interest rate fluctuations. If interest rates were to
increase or decrease by 100 basis points, the result, based upon the existing
outstanding debt as of December 31, 2002 would be an annual increase or decrease
of approximately $16,000 in interest expense for a twelve-month period.

    During 2002, revenue generated from foreign sales are primarily payable in
United States dollars. Certain foreign sales are denominated in Euros, however
the foreign exchange rate risk is not material. The strategic sales agreement
executed with Weiss Technik in 2001 (Refer to Item 1 - Marketing), may result in
payments of Euros that are considered significant in future years. These future
Weiss Technik transactions could result in foreign exchange rate risk.

ITEM 7.    FINANCIAL STATEMENTS.

    Index to Financial Statements:

<Table>
<Caption>
                                                 PAGE NUMBER
                                                 -----------
<S>                                                    <C>
      Independent Auditors' Report                   F-1
      Report of Independent Public Accountants       F-2
      Statements of Operations                       F-3
      Balance Sheets                                 F-4
      Statements of Shareholders' Equity             F-5
      Statements of Cash Flows                       F-6
      Notes to Financial Statements                  F-7
</Table>

    All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable, and therefore have been omitted.


                                      F-1
<PAGE>


ITEM 8.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
           FINANCIAL DISCLOSURE.

    On July 9, 2002, the Company dismissed Arthur Andersen LLP and engaged
Gelfond Hochstadt Pangburn, P.C. to serve as its new independent accountants.
The Company's audit committee and Board of Directors approved the decision to
change independent accountants. The report of Arthur Andersen LLP on the
financial statements for the year ended December 31, 2001 contained no adverse
opinion or disclaimer of opinion and was not qualified or modified as to
uncertainty, audit scope or accounting principle. There were no disagreements
with Arthur Andersen LLP on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure, which, if not
resolved to the satisfaction of Arthur Andersen LLP would have caused them to
make reference thereto in their report.

    On May 1, 2001, the Company dismissed Pricewaterhouse Coopers LLP and
engaged Arthur Andersen LLP to serve as its new independent accountants. The
Company's audit committee and Board of Directors approved the decision to change
independent accountants. The report of Pricewaterhouse Coopers LLP on the
financial statements for the year ended December 31, 2000 contained no adverse
opinion or disclaimer of opinion and was not qualified or modified as to
uncertainty, audit scope or accounting principle. There were no disagreements
with Pricewaterhouse Coopers LLP on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure,
which, if not resolved to the satisfaction of Pricewaterhouse Coopers LLP would
have caused them to make reference thereto in their report.




                                    PART III

ITEM 9.    DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
           COMPLIANCE  WITH SECTION 16(a) OF THE EXCHANGE ACT.

    The Company's definitive Proxy Statement to be filed pursuant to Schedule
14A under the Securities Exchange Act of 1934 is incorporated herein by
reference.

ITEM 10.   EXECUTIVE COMPENSATION.

    The Company's definitive Proxy Statement to be filed pursuant to Schedule
14A under the Securities Exchange Act of 1934 is incorporated herein by
reference.

ITEM 11.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

    The Company's definitive Proxy Statement to be filed pursuant to Schedule
14A under the Securities Exchange Act of 1934 is incorporated herein by
reference.

ITEM 12.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

    The Company's definitive Proxy Statement to be filed pursuant to Schedule
14A under the Securities Exchange Act of 1934 is incorporated herein by
reference.

ITEM 13.   EXHIBITS AND REPORTS ON FORM 8-K.

(a) Exhibits -- See Index to Exhibits

(b) Reports on Form 8-K during the last quarter of the Company's fiscal year
ended December 31, 2002. - None

ITEM 14.   CONTROLS AND PROCEDURES.

(a) Evaluation of Disclosure Controls and Procedures:


                                       21
<PAGE>


Disclosure controls and procedures are designed to ensure that information
required to be disclosed in the reports filed or submitted under the Exchange
Act is recorded, processed, summarized and reported, within the time periods
specified in the SEC's rules and forms. Disclosure controls and procedures
include, without limitation, controls and procedures designed to ensure that
information required to be disclosed in the reports filed under the Exchange Act
is accumulated and communicated to management, including the President and Chief
Executive Officer and the Chief Financial Officer, as appropriate, to allow
timely decisions regarding required disclosure. Within the 90 days prior to the
filing of this report, the Company carried out an evaluation, under the
supervision and with the participation of the Company's management, including
the Company's President and Chief Executive Officer and its Chief Financial
Officer, of the effectiveness of the design and operation of the Company's
disclosure controls and procedures. Based upon and as of the date of that
evaluation, the President and Chief Executive Officer and the Chief Financial
Officer concluded that the Company's disclosure controls and procedures are
effective to ensure that information required to be disclosed in the reports the
Company files and submits under the Exchange Act is recorded, processed,
summarized and reported as and when required.

(b) Changes in Internal Controls:


There were no changes in the Company's internal controls or in other factors
that could have significantly affected those controls subsequent to the date of
the Company's most recent evaluation.




                                       22
<PAGE>



                                   SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this Report to be signed on its behalf by the undersigned, thereunto duly
authorized.


Dated: March 27, 2003                       QUALMARK CORPORATION

                                            By: /s/ CHARLES D. JOHNSTON
                                              ----------------------------------
                                              Charles D. Johnston, President and
                                              Chief Executive Officer


In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.

<Table>
<Caption>
            SIGNATURE                                         TITLE                                DATE
            ---------                                         -----                                ----
<S>                                             <C>                                         <C>
     /s/ Charles D. Johnston                     President, Chief Executive Officer          March 27, 2003
----------------------------------
         Charles D. Johnston                     and Director


     /s/ Anthony A. Scalese                      Chief Financial Officer                     March 27, 2003
----------------------------------
         Anthony A. Scalese                      and Principal Accounting Officer


     /s/ H. Robert Gill                          Director                                    March 27, 2003
----------------------------------
         H. Robert Gill


     /s/ James L.D. Roser                        Director                                    March 27, 2003
----------------------------------
         James L.D. Roser


     /s/ William J. Sanko                        Director                                    March 27, 2003
----------------------------------
         William J. Sanko


     /s/ Alan T. Valenti                         Director                                    March 27, 2003
----------------------------------
         Alan T. Valenti
</Table>



                                       23
<PAGE>


                        CERTIFICATION OF PERIODIC REPORT


I, Charles D. Johnston, certify that:

   1.    I have reviewed this annual report on Form 10-KSB of QualMark
         Corporation (the "Registrant");

   2.    Based on my knowledge, this annual report does not contain any untrue
         statement of a material fact or omit to state a material fact necessary
         to make the statements made, in light of the circumstances under which
         such statements were made, not misleading with respect to the period
         covered by this annual report;

   3.    Based on my knowledge, the financial statements, and other financial
         information included in this annual report, fairly present in all
         material respects the financial condition, results of operations and
         cash flows of the Registrant as of, and for, the periods presented in
         this annual report;

   4.    The Registrant's other certifying officer and I are responsible for
         establishing and maintaining disclosure controls and procedures (as
         defined in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and
         we have:

         a) designed such disclosure controls and procedures to ensure that
         material information relating to the Registrant, including its
         consolidated subsidiaries, is made known to us by others within those
         entities, particularly during the period in which this annual report is
         being prepared;

         b) evaluated the effectiveness of the Registrant's disclosure controls
         and procedures as of a date within 90 days prior to the filing date of
         this annual report (the "Evaluation Date"); and

         c) presented in this annual report our conclusions about the
         effectiveness of the disclosure controls and procedures based on our
         evaluation as of the Evaluation Date;

   5.    The Registrant's other certifying officer and I have disclosed,
         based on our most recent evaluation, to the Registrant's auditors and
         the audit committee of Registrant's board of directors (or persons
         performing the equivalent function):

         a) all significant deficiencies in the design or operation of internal
         controls which could adversely affect the Registrant's ability to
         record, process, summarize and report financial data and have
         identified for the Registrant's auditors any material weaknesses in
         internal controls; and

         b) any fraud, whether or not material, that involves management or
         other employees who have a significant role in the Registrant's
         internal controls; and

   6.    The Registrant's other certifying officer and I have indicated in this
         annual report whether or not there were significant changes in
         internal controls or in other factors that could significantly affect
         internal controls subsequent to the date of our most recent
         evaluation, including any corrective actions with regard to
         significant deficiencies and material weaknesses.


Date:  March 27, 2003


                                            /s/ Charles D. Johnston
                                            ------------------------------------
                                             Charles D. Johnston
                                             President & Chief Executive Officer




<PAGE>



                        CERTIFICATION OF PERIODIC REPORT

I, Anthony A. Scalese, certify that:

   1.    I have reviewed this annual report on Form 10-KSB of QualMark
         Corporation (the "Registrant");

   2.    Based on my knowledge, this annual report does not contain any untrue
         statement of a material fact or omit to state a material fact necessary
         to make the statements made, in light of the circumstances under which
         such statements were made, not misleading with respect to the period
         covered by this annual report;

   3.    Based on my knowledge, the financial statements, and other financial
         information included in this annual report, fairly present in all
         material respects the financial condition, results of operations and
         cash flows of the Registrant as of, and for, the periods presented in
         this annual report;

   4.    The Registrant's other certifying officer and I are responsible for
         establishing and maintaining disclosure controls and procedures (as
         defined in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and
         we have:

         a) designed such disclosure controls and procedures to ensure that
         material information relating to the Registrant, including its
         consolidated subsidiaries, is made known to us by others within those
         entities, particularly during the period in which this annual report is
         being prepared;

         b) evaluated the effectiveness of the Registrant's disclosure controls
         and procedures as of a date within 90 days prior to the filing date of
         this annual report (the "Evaluation Date"); and

         c) presented in this annual report our conclusions about the
         effectiveness of the disclosure controls and procedures based on our
         evaluation as of the Evaluation Date;

   5.    The Registrant's other certifying officer and I have disclosed, based
         on our most recent evaluation, to the Registrant's auditors and the
         audit committee of Registrant's board of directors (or persons
         performing the equivalent function):

         a) all significant deficiencies in the design or operation of internal
         controls which could adversely affect the Registrant's ability to
         record, process, summarize and report financial data and have
         identified for the Registrant's auditors any material weaknesses in
         internal controls; and

         b) any fraud, whether or not material, that involves management or
         other employees who have a significant role in the Registrant's
         internal controls; and

   6.    The Registrant's other certifying officer and I have indicated in this
         annual report whether or not there were significant changes in
         internal controls or in other factors that could significantly affect
         internal controls subsequent to the date of our most recent
         evaluation, including any corrective actions with regard to
         significant deficiencies and material weaknesses.


Date:  March 27, 2003


                                           /s/  Anthony A. Scalese
                                           ------------------------------------
                                                Anthony A. Scalese
                                                Chief Financial Officer &
                                                Principal Accounting Officer




<PAGE>


                          INDEPENDENT AUDITORS' REPORT


Board of Directors
QualMark Corporation
Denver, Colorado

We have audited the accompanying balance sheet of QualMark Corporation (the
"Company") as of December 31, 2002, and the related statements of operations,
shareholders' equity and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit. The financial statements of QualMark Corporation as of and for the
year ended December 31, 2001, were audited by Arthur Andersen LLP who has ceased
operations and whose report dated April 1, 2002, expressed an unqualified
opinion on those financial statements.

We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of QualMark Corporation as of
December 31, 2002, and the results of its operations and its cash flows for the
year then ended in conformity with accounting principles generally accepted in
the United States of America.


GELFOND HOCHSTADT PANGBURN, P.C.




Denver, Colorado
February 14, 2003



                                      F-1
<PAGE>



THIS IS A COPY OF THE AUDIT REPORT PREVIOUSLY ISSUED BY ARTHUR ANDERSEN LLP IN
CONNECTION WITH QUALMARK CORPORATION'S ANNUAL REPORT ON FORM 10-KSB AS OF AND
FOR THE YEAR ENDED DECEMBER 31, 2001. ARTHUR ANDERSEN LLP HAS NOT REISSUED THIS
AUDIT REPORT IN CONNECTION WITH THIS FILING ON FORM 10-KSB.

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To QualMark Corporation:

We have audited the accompanying balance sheet of Qualmark Corporation (a
Colorado corporation) as of December 31, 2001, and the related statements of
operations, shareholders' equity and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Qualmark Corporation as of
December 31, 2001, and the results of its operations and its cash flows for the
year then ended in conformity with accounting principles generally accepted in
the United States.


Arthur Andersen LLP


Denver, Colorado
April 1, 2002


                                      F-2
<PAGE>



QUALMARK CORPORATION

STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<Table>
<Caption>
                                                                       YEARS ENDED DECEMBER 31,
                                                                     --------------------------
                                                                       2002              2001
                                                                     --------          --------
<S>                                                                 <C>               <C>
   Revenues                                                          $  8,067          $  8,145
   Cost of revenues                                                     4,562             5,109
                                                                     --------          --------
           Gross profit                                                 3,505             3,036

   Selling, general and administrative expenses                         2,940             3,610
   Research and development expenses                                      732               802
                                                                     --------          --------
           Total operating expenses                                     3,672             4,412
                                                                     --------          --------
           Loss from operations                                          (167)           (1,376)
   Other income (expense):
      Interest expense                                                   (178)             (200)
      Interest income                                                       5                 1
      Other income, net                                                    (3)                8
                                                                     ---------         --------
   Loss before income taxes                                              (343)           (1,567)
   Income tax expense                                                      --            (1,194)
                                                                     --------          --------
   Net loss                                                          $   (343)         $ (2,761)
                                                                     ========          ========
   Net loss per basic and diluted common share (Note 1)              $  (0.32)         $  (0.80)
                                                                     ========          ========
   Weighted average shares outstanding                                  3,610             3,610
                                                                     ========          ========
</Table>

                     The accompanying notes are an integral
                       part of these financial statements.


                                      F-3
<PAGE>


QUALMARK CORPORATION

BALANCE SHEETS
(IN THOUSANDS, EXCEPT FOR NUMBER OF SHARES)

<Table>
<Caption>
                                                                                    DECEMBER 31,
                                                                               ---------------------
                                                                                  2002        2001
                                                                               ---------   ---------
       ASSETS
<S>                                                                            <C>         <C>
       Current assets:
          Cash and cash equivalents                                            $   1,288   $     500
          Trade accounts receivable, net of allowance for doubtful
           accounts of $52 and $46, respectively                                   1,468       1,406
          Inventories, net                                                           612       1,458
          Other current assets                                                        27          26
                                                                               ---------   ---------
               Total current assets                                                3,395       3,390
       Property and equipment, net                                                   710         845
       Restricted cash                                                                90          --
       Other assets                                                                   70         104
                                                                               ---------   ---------
                                                                               $   4,265   $   4,339
                                                                               =========   =========
       LIABILITIES AND SHAREHOLDERS' EQUITY
       Current liabilities:
          Accounts payable                                                     $     487   $     709
          Accrued expenses                                                           339         228
          Deferred revenue                                                            40          --
          Current portion of long-term debt                                          720         595
                                                                               ---------   ---------
               Total current liabilities                                           1,586       1,532
          Long-term debt                                                             890       1,640
          Deferred tax liability                                                      --          17
                                                                               ---------   ---------
               Total liabilities                                                   2,476       3,189
                                                                               ---------   ---------

       Commitments and contingencies

       Convertible redeemable preferred stock (Note 8);
          no par value; 2,000,000 shares authorized:

          692,951 designated as Series A, no shares (2002) 538,327 shares
          Issued and outstanding (2001), liquidation preference
           of $1,204 (2001);                                                          --       1,125

          692,951 designated as Series B, 606,866  shares issued
          and outstanding (2002) and no shares (2001),
          liquidation preference of $1,305 (2002);                                 1,243          --

          2,000 designated as Series C, 1,062 shares issued
          and outstanding (2002) and no shares (2001),
          liquidation preference of $1,062 (2002);                                   215          --

       Shareholders' equity:
          Common stock; no par value; 15,000,000 shares authorized;
          3,610,092 shares (2002) and 3,645,638 shares (2001) issued
          and outstanding                                                          7,829       7,303
          Treasury stock, at cost, no shares (2002) and 35,546 shares (2001)          --        (123)
          Accumulated deficit                                                     (7,498)     (7,155)
                                                                               ---------   ---------
               Total shareholders' equity                                            331          25
                                                                               ---------   ---------
                                                                               $   4,265   $   4,339
                                                                               =========   =========
</Table>


                     The accompanying notes are an integral
                       part of these financial statements.


                                      F-4
<PAGE>


QUALMARK CORPORATION

STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDING DECEMBER 31, 2002 AND 2001
(IN THOUSANDS, EXCEPT FOR NUMBER OF SHARES)

<Table>
<Caption>

                                                     COMMON STOCK            TREASURY STOCK              ACCUMULATED
                                                  ------------------     --------------------      -----------------------
                                                    SHARES     AMOUNT      SHARES      AMOUNT        DEFICIT         TOTAL
                                                  ---------   -------    --------    --------      ---------      --------
<S>                                              <C>         <C>          <C>       <C>           <C>            <C>
Balance January 1, 2001                           3,643,238   $ 7,403      35,546    $   (123)     $  (4,394)     $  2,886
Exercise of options for common stock                  2,400         5          --          --             --             5
Compensation related to issuance of
  options for services                                   --         4          --          --             --             4
Accretion of redeemable preferred stock                  --       (17)         --          --             --           (17)
Preferred stock dividends                                --       (92)         --          --             --           (92)
Net loss                                                 --        --          --          --         (2,761)       (2,761)
                                                  ---------   -------    --------    --------      ---------      --------
Balance December 31, 2001                         3,645,638   $ 7,303      35,546    $   (123)     $  (7,155)     $     25
                                                  ---------   -------    --------    --------      ---------      --------
Compensation related to issuance of
  options for services                                   --        15          --          --             --            15
Accretion of redeemable preferred stock                  --      (170)         --          --             --          (170)
Preferred stock dividends                                --      (163)         --          --             --          (163)
Beneficial conversion feature on issuance
  of redeemable preferred stock                          --       741          --          --             --           741
Warrants issued in connection with
  redeemable preferred stock                             --       259          --          --             --           259
Offering costs in connection with
  redeemable preferred stock                             --       (33)         --          --             --           (33)
Retirement of treasury stock                        (35,546)     (123)    (35,546)        123             --            --
Net loss                                                 --        --          --          --           (343)         (343)
                                                  ---------   -------    --------    --------      ---------      --------
Balance December 31, 2002                         3,610,092   $ 7,829          --    $     --      $  (7,498)     $    364
                                                  =========   =======    ========    ========      =========      ========
</Table>


                     The accompanying notes are an integral
                       part of these financial statements.


                                       F-5
<PAGE>


QUALMARK CORPORATION

STATEMENTS OF CASH FLOWS
(IN THOUSANDS)


<Table>
<Caption>
                                                                                        YEARS ENDED DECEMBER 31,
                                                                                      ----------------------------
                                                                                         2002              2001
                                                                                      ----------        ----------
<S>                                                                                   <C>               <C>
             CASH FLOWS FROM OPERATING ACTIVITIES
             Net loss                                                                 $   (343)         $ (2,761)
             Adjustments to reconcile net loss to net cash provided by
              operating activities:
                Provision for inventory obsolescence                                         9                93
                Provision (recovery) for bad debts                                           6              (141)
                Loss on disposal of equipment                                                3                 1
                Depreciation and amortization                                              420               546
                Warrant and stock option expense                                            15                 4
                Deferred income tax provision                                               --             1,194
             Changes in assets and liabilities:
                   Trade accounts receivable                                               (68)            2,703
                   Inventories                                                             852              (136)
                   Other assets                                                              3               101
                   Accounts payable                                                       (222)             (323)
                   Accrued expenses                                                         94              (482)
                   Deferred revenue                                                         40               (82)
                                                                                      --------          --------
                     Net cash provided by operating activities                             809               717
                                                                                      --------          --------
             CASH FLOWS FROM INVESTING ACTIVITIES
             Acquisition of property and equipment                                        (273)             (192)
             Restricted cash - leasehold improvements                                      (90)               --
             Investment in patents                                                          --                (5)
                                                                                      --------          --------
                     Net cash used in investing activities                                (363)             (197)
                                                                                      --------          --------
             CASH FLOWS FROM FINANCING ACTIVITIES
             Proceeds from borrowings                                                       --               745
             Repayments of borrowings                                                     (625)           (1,671)
             Proceeds from issuance of preferred stock and warrants, net                   967                --
             Proceeds from issuance of common stock, net                                    --                 5
             Payments on capital lease obligations                                          --               (35)
                                                                                      --------          --------
                     Net cash provided by (used in) financing activities                   342              (956)
                                                                                      --------          --------
             Net increase (decrease) in cash and cash equivalents                          788              (436)
             Cash and cash equivalents at beginning of year                                500               936
                                                                                      --------          --------
             Cash and cash equivalents at end of year                                 $  1,288          $    500
                                                                                      ========          ========

             SUPPLEMENTAL DISCLOSURE
             Interest paid                                                            $    178           $   192
                                                                                      ========          ========
             NON-CASH INVESTING AND FINANCING ACTIVITIES
             Transfer of equipment to inventory held for resale                       $     15           $   118
                                                                                      ========          ========
             Deemed preferred stock dividend resulting from conversion
                of Series A preferred shares to Series B preferred shares             $    489           $    --
                                                                                      ========          ========
             Redeemable stock dividends declared                                      $    163           $    92
                                                                                      ========          ========
             Accretion of preferred stock                                             $    170           $    17
                                                                                      ========          ========


</Table>

                     The accompanying notes are an integral
                       part of these financial statements.



                                      F-6
<PAGE>



QUALMARK CORPORATION

NOTES TO FINANCIAL STATEMENTS

1.  ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

    ORGANIZATION

        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) 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 one
    domestic strategic alliance with a large testing company in Detroit,
    Michigan. In addition, the Company has established strategic alliances with
    Anecto Ltd., Maser Engineering, IMQ Instituto del marchia di Qualita,
    Institutet For Verkstadsteknisk Forskning/The Swedish Institute of
    Production Engineering, to operate testing centers in Galway, Ireland,
    Enschede, the Netherlands, Milan, Italy, and Molndal, Sweden. As
    international demand for its products and services grows, the Company may
    further expand its domestic and international presence by expanding
    strategic alliance arrangements with other test lab organizations.

    LIQUIDITY

        During 2001, the Company experienced significant operating losses due
    to the sudden and dramatic decrease in orders for its products, primarily
    attributed to general economic uncertainty and significant reductions in the
    orders for capital equipment and related products in technology-related
    industries, such as those served by the Company. On March 27, 2002, the
    Company closed on a transaction whereby it received $1 million of proceeds
    from the sale of preferred stock (refer to Note 8 of the Financial
    Statements). During 2002, the Company has experienced a "leveling" out of
    business, in which sales and demand remained steady for its capital
    equipment products. This activity met the Company's internal projections for
    capital equipment demand and financial performance for 2002. On January 23,
    2003, the Company and its bank modified the terms of its revolving line of
    credit and term note to provide for payments of approximately $700,000 in
    2003 and a due date for this facility of March 15, 2004.

        While there is no guarantee that the Company will be able to meet the
    operational and financial requirements of its 2003 budget and limit the use
    of cash and cash equivalents, the Company's operating plan and execution
    thereof is focused on growing revenue, controlling costs and conserving
    cash. The Company can not predict with certainty the expected revenues,
    gross profit margin, net loss and usage of cash and cash equivalents for
    2003. However, the Company's management believes that the Company's cash and
    cash equivalents and working capital, augmented by the proceeds of the sale
    of the March 27, 2002 $1 million of preferred stock, provide adequate
    capital resources to fund its operations, 2003 debt repayments and working
    capital needs through at least the end of 2003, and into the first quarter
    of 2004. The Company's inability to modify or replace its debt when it comes
    due on March 15, 2004, or to obtain required capital when needed could have
    a material adverse effect on its business, results of operations and
    financial condition, and the Company could be required to reduce its level
    of operations, delay product




                                       F-7
<PAGE>


    development or other actions to diminish the amount of cash used in its
    business. While there can be no guarantee, the Company's management believes
    that it will be able to extend the due date of its credit facility with the
    bank, or replace such facility with other borrowings.

    CASH AND CASH EQUIVALENTS

        Cash on hand and in banks, together with marketable securities having
    original maturities of three months or less, are classified as cash and cash
    equivalents by the Company.

    CONCENTRATION OF CREDIT RISK

        Financial instruments that potentially subject the Company to
    concentrations of credit risk consist primarily of trade accounts
    receivable. Receivables arising from sales to customers are not
    collateralized and, as a result, management continually monitors the
    financial condition of its customers to reduce the risk of loss. The Company
    is not exposed to a concentration of credit risk as it relates to specific
    industries, as its customers are not heavily concentrated in any specific
    industry. During 2002, one customer comprised approximately 15% of the
    Company's revenue. The Company was not dependent on any single industry
    segment for its revenues.

    INVENTORIES

        Inventories are stated at the lower of cost or market with cost being
    determined using the first-in, first-out method. The cost of inventories
    includes materials, direct labor and manufacturing overheads.

    PROPERTY AND EQUIPMENT

        Property and equipment are recorded at cost. Depreciation is recorded
    using the straight-line method over estimated useful lives of three to ten
    years. Amortization of leasehold improvements and equipment under capital
    leases is provided over the shorter of the asset's useful life or the lease
    term and is included in depreciation expense. Maintenance and repairs are
    expensed as incurred and improvements are capitalized. Upon sale or
    retirement of assets, the cost and related accumulated depreciation or
    amortization are eliminated from the respective accounts and any resulting
    gains or losses are reflected in operations.

    REVENUE RECOGNITION

        Revenues from product sales are recognized when persuasive evidence of
    an arrangement exists, delivery has occurred, the sales price is fixed or
    determinable and collectibility is probable. Generally, the criteria are met
    upon shipment of products on an F.O.B shipping point basis and transfer of
    title to customers. In certain instances, the Company will recognize revenue
    prior to shipment when the customer requests in writing that the transaction
    be on a bill and hold basis, the risk of ownership has passed to the
    customer, the manufactured equipment is segregated, complete and ready for
    shipment, and there is a fixed schedule for delivery of the equipment and no
    specific performance obligations exist. Revenue from services is recognized
    when the services are performed and billable. Revenue from equipment service
    contracts is recognized ratably over the term of the contract.

    RESEARCH AND DEVELOPMENT

    The Company expenses costs for research and development as incurred.

    ADVERTISING EXPENSE

        The Company charges advertising, including production costs, to expense
    on the first date of the advertising period. Advertising expense for 2002
    and 2001 was $18,000 and $38,000, respectively.


                                      F-8
<PAGE>


    PREOPENING COSTS

        The Company charges to selling, general and administrative expense the
    preopening costs of new service centers as incurred. These costs are
    primarily labor, supplies, preopening marketing and advertising and other
    expendable items.

    INCOME TAXES

        The current provision for income taxes represents actual or estimated
    amounts payable on tax return filings each year. Deferred tax assets and
    liabilities are recorded for the estimated future tax effects of temporary
    differences between the tax basis of assets and liabilities and amounts
    reported in the accompanying balance sheets, and for operating loss and tax
    credit carry forwards. The change in deferred tax assets and liabilities for
    the period measures the deferred tax provision or benefit for the period.
    Effects of changes in enacted tax laws on deferred tax assets and
    liabilities are reflected as adjustments to the tax provision or benefit in
    the period of enactment. The Company's deferred tax assets have been
    completely reduced by a valuation allowance because management does not
    believe realization of the deferred tax assets is sufficiently assured at
    the balance sheet date.

    PRODUCT WARRANTIES

        Provision for anticipated warranty costs is recorded at the time the
    sale is recognized. In 2002 and 2001, the Company offered a one-year parts
    and limited labor warranty on all new chambers, and sells an equipment
    service contract for an additional one-year extended service warranty.

    FINANCIAL INSTRUMENTS

        The carrying amounts of cash and cash equivalents, accounts receivable,
    accounts payable, and customer deposits approximate their fair values. The
    carrying amount of long-term debt approximates its fair value due to
    variable rates.

        The fair value of a letter of credit issued in conjunction with the new
    lease agreement (Note 6) approximates the fees paid to obtain it.

    EARNINGS (LOSS) PER SHARE

        Statement of Financial Accounting Standards ("SFAS") No. 128, Earnings
    Per Share, requires dual presentation of basic and diluted earnings or loss
    per share ("EPS") with a reconciliation of the numerator and denominator of
    the basic EPS computation to the numerator and denominator of the diluted
    EPS computation. Basic EPS excludes dilution. Diluted EPS reflects the
    potential dilution that could occur if securities or other contracts to
    issue common stock were exercised or converted into common stock or resulted
    in the issuance of common stock that then shared in the earnings of the
    entity.

        Earnings (loss) per basic share of common stock is based on the weighted
    average number of shares of common stock outstanding during each respective
    period. Using the treasury-stock method, earnings (loss) per diluted share
    of common stock adds to basic weighted shares the weighted average number of
    shares issuable under convertible securities stock options and warrants
    outstanding during each respective period, using the treasury-stock method.
    In a period in which a loss is incurred, only the weighted average number of
    common shares is used to compute the diluted loss per share as the inclusion
    of potential common shares would be antidilutive, and therefore, basic and
    diluted earnings per share are the same.

    The calculation of basic and diluted earnings per share is as follows (in
    thousands, except per-share amounts):



                                      F-9
<PAGE>

<Table>
<Caption>
                                                                           DECEMBER 31,

                                                                         2002       2001
                                                                       -------     -------
<S>                                                                   <C>          <C>
Net loss                                                               ($  343)    ($2,761)
Accretion of redeemable preferred stock,
preferred stock dividends, and beneficial
conversion feature                                                        (333)       (109)

Deemed preferred stock dividend resulting from
conversion of Series A preferred shares to Series
B preferred shares                                                        (489)         --
                                                                       -------     -------

Net loss applicable to common shareholders                              (1,165)    ($2,870)
                                                                       =======     =======

Weighted  average  shares  outstanding - basic                           3,610       3,610
                                                                       =======     =======

Net loss per share - basic                                             ($ 0.32)    ($ 0.80)
                                                                       =======     =======

Weighted  average  shares  outstanding - basic                           3,610       3,610

Dilutive stock options and warrants                                         --          --
                                                                       -------     -------

Weighted  average  shares  outstanding - diluted                         3,610       3,610
                                                                       =======     =======

Net loss per share  - diluted                                          ($ 0.32)    ($ 0.80)
                                                                       =======     =======

</Table>

    Options and warrants to purchase 1,878,063 and 1,386,535 shares of common
stock and 607,929 (3,188,526 if converted to common shares, refer to Note 8) and
538,327 (538,327 if converted to common shares, refer to Note 8) preferred
shares were excluded from dilutive stock option calculations for the year ended
December 31, 2002 and 2001, respectively, as their inclusion would be
antidilutive.

USE OF ESTIMATES

    The preparation of the financial statements in conformity with accounting
principles generally accepted in the United States 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. Actual results could differ from those estimates.

SHIPPING AND HANDLING FEES AND COSTS

    The Company records shipping and handling fees billed to customers as
revenue, and shipping and handling costs incurred as cost of sales.

COMPREHENSIVE INCOME

    For the years ended December 31, 2002 and 2001, comprehensive loss equaled
net loss.

STOCK-BASED COMPENSATION

    Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for
Stock- Based Compensation, allows companies to choose whether to account for
employee stock-based compensation on a fair value method, or to continue
accounting for such compensation under the intrinsic value method prescribed in
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees (APB 25). The Company has chosen to continue to account for employee
stock-based compensation using APB 25.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

    In January 2003, the Financial Accounting Standards Board ("FASB") issued
SFAS Interpretation No. 46, Consolidation of Variable Interest Entities ("FIN
46"), which changes the criteria by which one company includes another entity in
its consolidated financial statements. FIN 46 requires a variable interest
entity ("VIE") to be consolidated by a company if that company is subject to a
majority of the risk of loss from the variable interest entity's activities or
entitled to receive a majority of the entity's residual returns or both. The
consolidation requirements of FIN 46 apply immediately to VIE's created after
January 31, 2003, and apply in the first fiscal period beginning after June 15,
2003, for VIE's created prior to February 1, 2003. As the Company does not
currently have an interest in a VIE, management does not expect that the
adoption of FIN 46 will have a significant immediate impact on the financial
condition or results of operations of the Company.

    In December 2002, FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation Transition and Disclosure. This statement amends SFAS No. 123
Accounting for Stock-Based Compensation and establishes two alternative methods
of transition from the intrinsic value method to the fair value method of
accounting for stock-based employee compensation. In addition, SFAS No. 148
requires prominent disclosure about the effects on reported net income and
requires disclosure for these effects in interim financial information. The
provisions for the alternative transition methods are effective for fiscal years
ending after December 15,

                                      F-10
<PAGE>


2002 and the amended disclosure requirements are effective for interim periods
beginning after December 15, 2002. The Company plans to continue accounting for
stock-based compensation under APB 25. Therefore, this pronouncement is not
expected to impact the Company's financial position or results of operations.

    In November 2002, the FASB issued SFAS Interpretation No. 45 ("FIN 45"),
Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees and Indebtedness of Others. FIN 45 elaborates on the
disclosures to be made by the guarantor in its interim and annual financial
statements about its obligations under certain guarantees that it has issued. It
also requires that a guarantor recognize, at the inception of a guarantee, a
liability for the fair value of the obligation undertaken in issuing the
guarantee. The initial recognition and measurement provisions of this
interpretation are applicable on a prospective basis to guarantees issued or
modified after December 31, 2002, while the provisions of the disclosure
requirements are effective for financial statements of interim or annual reports
ending after December 15, 2002. The Company is currently evaluating the
recognition provisions of FIN 45, but does not expect that the adoption of FIN
45 will have a significant immediate impact on the financial condition or
results of operations of the Company, as the Company has made no guarantees.

    In June 2002, FASB issued SFAS No. 146,  Accounting for Costs  Associated
with Exit or Disposal Activities. SFAS No. 146 addresses financial accounting
and reporting for costs associated with exit or disposal activities. This
statement supersedes Emerging Issues Task Force Issue No. 94-3, Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity. The Company does not expect that the adoption of SFAS No. 146 will
have a significant immediate impact on the financial condition or results of
operations of the Company.

    In July 2001, the FASB issued SFAS No. 141, Business Combinations, and
SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 141 requires that
the purchase method of accounting be used for all business combinations
initiated after June 30, 2001. Use of the pooling-of-interests method is
prohibited on a prospective basis. SFAS No 142 addresses financial accounting
and reporting for acquired goodwill and other intangible assets. It changes the
accounting for goodwill and other intangible assets with indefinite lives from
an amortization method to an impairment-only approach and requires intangible
assets with finite lives to be amortized over their useful lives. SFAS No. 142
is effective for fiscal years beginning after December 15, 2001. The adoption of
SFAS No. 141 and No. 142 did not have an impact on the Company's financial
condition or results of operations, as the Company did not enter into any
business combinations during the year and has no recorded goodwill or indefinite
life intangibles.

    In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment
or Disposal of Long-Lived Assets, which addresses accounting and financial
reporting for the impairment or disposal of long-lived assets. This statement is
effective for fiscal years beginning after December 15, 2001. The Company does
not expect that the adoption of SFAS No. 144 will have a significant immediate
impact on the financial condition or results of operations of the Company.

    In 2001, the Company adopted SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. This statement, as amended, establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging activities.
This statement had no impact on the Company's financial statements, as the
Company does not hold and has not engaged in derivative transactions through
December 31, 2002.

2.  INVENTORIES

    Inventories consist of the following (in thousands):

<Table>
<Caption>
                                                        DECEMBER 31,
                                                    -------------------
                                                      2002       2001
                                                    --------   --------
<S>                                                 <C>        <C>
           Raw materials                            $    501   $    913
           Work in process                               107         19
           Finished goods                                 63        576
           Less: Allowance for obsolescence              (59)       (50)
                                                    --------   --------
                                                    $    612   $  1,458
                                                    ========   ========
</Table>

    The Company monitors inventory for turnover and obsolescence, and records
reserves for excess and obsolete inventory as appropriate. During the year ended
December 31, 2001, $93,000 is included in cost of sales as a write down of
obsolete raw materials.

3.  PROPERTY AND EQUIPMENT



                                      F-11
<PAGE>


    Property and equipment consist of the following (in thousands):

<Table>
<Caption>
                                                                  DECEMBER 31,
                                                             ---------------------
                                                                2002        2001
                                                             ---------   ---------
<S>                                                          <C>         <C>
    Machinery and equipment                                  $   2,633   $   2,652
    Furniture and fixtures                                         194         190
    Leasehold improvements                                         542         548
    Software                                                       265         235
                                                             ---------   ---------
                                                                 3,634       3,625
    Less: Accumulated depreciation and amortization             (2,924)     (2,780)
                                                             ---------   ---------
                                                             $     710   $     845
                                                             =========   =========
</Table>

    Depreciation expense was $390,000 and $518,000 for the years ended December
31, 2002 and 2001, respectively.

4.  ACCRUED EXPENSES

    Accrued expenses consist of the following (in thousands):

<Table>
<Caption>
                                                     DECEMBER 31,
                                                   ----------------
                                                    2002      2001
                                                   ------    ------
<S>                                                <C>       <C>
              Accrued warranty                     $   96    $   88
              Accrued employee related                122       111
              Accrued bonus                            55        --
              Other                                    66        29
                                                   ------    ------
                                                   $  339    $  228
                                                   ======    ======
</Table>

5.  INDEBTEDNESS

    The Company's commercial bank borrowings consist of a term loan and a
revolving line of credit, (the "Credit Agreement").

    During 2002, there were various renegotiations of the Credit Agreement.
Among other changes, the interest rate was increased to Prime Rate plus 3.0%,
with required monthly payments of $55,000, and the maturity date was extended to
March 15, 2003. On January 23, 2003, the Company renegotiated its Credit
Agreement with the commercial bank. Among other changes, the principal amount of
the revolving line of credit was reduced to $500,000 and the principal amount of
the term loan was increased to $1,110,000, the monthly principal payments will
increase on July 1, 2003 from $55,000 to $65,000, and the maturity date was
extended to March 15, 2004.

    The average interest rate for the twelve-month periods ending December 31,
2002 and 2001 was 7.5% and 7.35% for the term loan and 7.5% and 7.25% for the
revolving credit line, respectively. Both the revolving credit line and term
loan under the Credit Agreement are collateralized by substantially all the
assets of the Company. Borrowings under the line of credit are subject to
borrowing base limits. Based on the provisions of the Credit Agreement as of
December 31, 2001, there was no additional availability on the line of credit.

    As of December 31, 2002, the balances of the revolving credit and term loan
are $645,000 and $965,000, respectively.

    The Company must maintain certain financial and other covenants in order to
draw amounts available under the revolving line of credit. As of December 31,
2002, the Company was in default of certain financial covenants contained in the
Credit Agreement. The Company has, however, received a waiver from its lender
regarding such noncompliance.

    As required by the renegotiated Credit Agreement on January 23, 2003, the
Company will make monthly principal payments, beginning July 1, 2003, of $65,000
on the term loan. The Company had also determined that, during 2003, quarterly
payments to the revolving line of credit would be made, based on cash flows
generated from operations. At the close of each quarter, the Company has made
arrangements to meet and review results of the Company with the commercial bank
and the Company believes its relations with its commercial bank to be good. At
the end of 2003, the Company expects to negotiate with the commercial bank for
an extension to the Credit Agreement, although there can be no assurance that
such renegotiations will be successful



                                      F-12
<PAGE>



    The following represents future amounts payable at December 31, 2002 (in
thousands).

<Table>
<Caption>
           Year ended December 31,
<S>                <C>                        <C>
                    2002                       $    720
                    2003                            890
                                               --------
                                               $  1,610
                                               ========
</Table>

    On August 31, 1999, the Company entered into a settlement agreement with
Screening Systems, Inc. ("SSI") (See Note 13). Under the terms of the
settlement, the Company issued a $925,000 note payable, which accrued interest
at 9% per annum. On April 1, 2001 the Company made the final payment of $275,000
on this note payable.

6.  LEASE COMMITMENTS

    The Company leases office space, and operating facilities under operating
lease arrangements. Future minimum lease payments consist of the following at
December 31, 2002 (in thousands):

<Table>
<Caption>
                                             OPERATING
                                              LEASES
          Year ended December 31,           ----------
<S>                  <C>                   <C>
                      2003                  $    315
                      2004                       277
                      2005                       257
                      2006                       201
                      2007                       148
                      2008-2010                  379
                                            --------
                                            $  1,577
                                            ========
</Table>
    Rent expense for the years ended December 31, 2002 and 2001 was $450,000
and $566,000, respectively.

    The future minimum lease payments above include a seven year lease entered
into by the Company on December 31, 2002 with a third party for a new corporate
facility in Denver, Colorado. The lease will commence on April 1, 2003. In
connection with this lease the Company has $90,000 in restricted cash used to
secure an irrevocable standby letter of credit (the "LOC") with the lessor. The
LOC is to be used for completion of certain tenant improvements to this
facility. The LOC has an expiration date of July 31, 2003, but can be extended
on a yearly basis through July 31, 2009.

7.  INCOME TAXES

    Income tax expense (benefit) consists of the following (in thousands):

<Table>
<Caption>
                                                YEARS ENDED DECEMBER 31,
                                               --------------------------
                                                 2002              2001
                                               --------          --------
<S>                                           <C>               <C>
     Current tax expense (benefit)
        Federal                                $     --          $     --
        State                                        --                --
                                               --------          --------
                                                     --                --
     Deferred tax expense (benefit)
        Federal                                     (93)             (512)
        State                                       (13)              (62)
                                               --------          --------
                                                   (106)             (574)
                                               --------          --------
     Increase in valuation allowance                106             1,768
                                               --------          --------
                                               $     --          $  1,194
                                               ========          ========
</Table>



                                      F-13
<PAGE>



    A reconciliation of the statutory Federal income tax rate to the income tax
benefit is as follows (in thousands):

<Table>
<Caption>
                                                      YEARS ENDED DECEMBER 31,
                                             -----------------------------------------
                                                     2002                    2001
                                             -----------------       -----------------
                                              AMOUNT        %         AMOUNT       %
                                             --------   ------       --------   ------
<S>                                         <C>         <C>         <C>         <C>
   Computed "expected" tax                   $   (117)   (34.0)%     $   (533)   (34.0)%
   State income taxes, net of Federal
     income tax effect                            (17)    (5.0)%          (77)    (4.9)%
   Increase in valuation allowance                106     30.9%         1,768    112.8%
   Nondeductible expenses and
   other                                           28      8.1%            36      2.3%
                                             --------   ------       --------   ------
                                             $     --       --%      $  1,194     76.2%
                                             ========   ======       ========   ======
</Table>

    Deferred tax assets and liabilities represent the future impact of temporary
differences between the financial statement and tax bases of assets and
liabilities and are as follows (in thousands):

<Table>
<Caption>
                                                        DECEMBER 31,
                                                   ---------------------
                                                      2002        2001
                                                   ---------   ---------
<S>                                               <C>         <C>
      Deferred tax assets:
         Net operating loss carry forwards         $   2,399   $   2,335
         Accrued liabilities                              73          62
         Allowance for doubtful accounts                  18          16
         Inventory reserves                               23          20
         Depreciation and amortization                   124          85
         Other                                             8           2
         Valuation allowance                          (2,586)     (2,480)
                                                   ---------   ---------
      Total deferred tax assets                           59          40
                                                   ---------   ---------
      Deferred tax liabilities:
         Amortization of patents                          59          57
                                                   ---------   ---------
      Total deferred tax liabilities                      59          57
                                                   ---------   ---------
      Net deferred tax liability                   $      --   $     (17)
                                                   =========   =========
    Recorded as follows:
         Deferred tax assets                       $      --   $      --
         Non-current deferred tax liabilities             --         (17)
                                                   ---------   ---------
      Net deferred tax liability                   $      --   $     (17)
                                                   =========   =========
</Table>

    As of December 31, 2002, the Company had a net operating loss ("NOL")
carryforward of approximately $6,150,000 which is available to offset future
taxable income, if any through 2022. The ultimate realizations of these assets
are dependent upon the generation of future taxable income sufficient to offset
the related deductions and loss carryforwards within the applicable carryforward
period.

    The Company experienced a downturn it its business during 2001, which
resulted in significant operating losses. The Company attributes the downturn
primarily to the current uncertain general economic environment, and the
volatile economic environment faced by the Company's customers. Because of this
situation, management reassessed the realization of its recorded net deferred
tax assets. Based on this reassessment, management concluded, based on its
assessment of appropriately weighted available evidence as prescribed in the
Statement of Financial Accounting Standards 109 ("SFAS 109"), that it was more
likely than not that existing deferred tax assets would not be realizable and
determined a valuation allowance was required for recorded deferred tax assets.
Accordingly, the Company's valuation allowance was increased by $1,768,000 in
2001, which resulted in an increase to the provision for income taxes of
$1,194,000.

8.  PREFERRED STOCK

    Preferred Stock Series A-

    In 1999, the Company authorized the issuance of 502,326 shares of Series A,
convertible, redeemable, cumulative, participating, no par preferred stock
("Series A preferred stock"). On April 20, 2001 the Company's Board of Directors
resolved and filed a



                                      F-14
<PAGE>


Certificate of Amendment of Series A Convertible Preferred Stock with the State
of Colorado, in authorized accordance with the provisions of its Articles of
Incorporation to increase the authorized number of Series A preferred stock to
692,951 shares.

    During 1999, an existing common shareholder purchased 465,116 shares of
Series A preferred stock and warrants to purchase 139,535 shares of common stock
at $2.50 per share, with a five-year term, in exchange for $1,000,000. The net
proceeds to the Company were $974,000. The warrants were valued at $87,000 using
the Black Scholes option pricing model, and have been recorded as a discount to
the Series A preferred stock. This discount is being accreted over the five-year
term of the Series A preferred stock.

Preferred Stock - Series A and Series B

On March 27, 2002 an existing common stock investor (the "Investor") exchanged
its 571,013 outstanding shares of Series A preferred stock, for an equal number
of shares of Series B preferred stock of the Company. The Series B preferred
stock has the same preferences, limitations and relative rights as the Series A
preferred stock, except that the conversion rate will be $0.922 per share
instead of $2.15 per share. These rights include voting rights equal to the
number of shares of common stock into which each share of preferred stock would
be convertible, dividends at the rate of 8.0% per annum paid quarterly either in
cash or in kind, priority over common stock to distributions upon liquidation or
dissolution and redemption rights on any date after September 1, 2004. The
preferred stock exchange resulted in a beneficial conversion feature of
$489,000. This beneficial conversion feature would normally have resulted in a
credit to common stock and a charge to retained earnings. As the Company has an
accumulated deficit, both the credit and charge are reflected in common stock in
the accompanying 2002 financial statements. This beneficial conversion feature
was recorded as a charge to loss applicable to common shareholders for the
quarter ended March 31, 2002. In addition, the accretion recorded under the
mandatory redemption feature, including the impact of the beneficial stock
discount, was $17,000 for the years ended 2001 and 2002.

The reason for the exchange of the Series A shares for the Series B shares is to
provide the Investor with a conversion rate that reflects current market prices.

    The holder of the Series B preferred stock has various rights and
    preferences as follows:

    Conversion -- The Series B preferred stock may, at the option of the holder,
    be converted at any time into shares of common stock at $0.922 per share.

    Anti-Dilution Protection -- The Series B preferred stock conversion ratio is
    subject to adjustment, calculated in accordance with the Company's article
    of incorporation, if the Company issues securities at a price per share that
    is less than the current conversion ratio of the Series B preferred stock.

    Voting -- The Series B preferred stock shares are voted equally with the
    shares of common stock of the Company, on an as-if converted to common stock
    basis.

    Dividends -- The Series B preferred stock accrue dividends at 8% per annum.
    Dividends may be paid in cash or additional preferred shares, in kind, at
    the option of the Company. In addition, in the event the Company declares,
    pays or sets apart a common stockholder dividend, each holder of shares of
    the Series B preferred stock shall be entitled to receive a per share
    dividend equal to the number of shares of common equity on which such common
    dividend is declared into which each share of Series B preferred stock is
    convertible on the record date, multiplied by the amount of cash or property
    paid, or by the number of shares of capital stock issued. As of December 31,
    2001, prior to the conversion to Series B, the Series A preferred shares had
    accumulated dividends in arrears of $47,000. Of the dividends in arrears at
    December 31, 2001, the Company made a dividend payment of 21,895 in
    preferred shares at the conversion price of $2.15 per share, subsequently in
    March of 2002. As of December 31, 2002, the Series B preferred shares have
    zero accumulated dividends in arrears.

    Liquidation -- The Series B preferred stock ranks senior to common stock and
    has a liquidation preference of $2.15 per share plus all declared and unpaid
    dividends, which totals $1,305,000 at December 31, 2002.



                                      F-15
<PAGE>



    Mandatory Redemption -- The Series B preferred stock is redeemable at any
    time after September 1, 2004 at the option of the holders of the Series B
    preferred stock. The redemption price is equal to $2.15 per share to the
    extent the Company has funds legally available for such payment. If the
    Company does not have funds available, at the option of the holders of the
    Series B preferred stock, the Series B preferred stock can be converted into
    a debt obligation of the Company in a form acceptable to the holders of the
    Series B preferred stock.

    Optional Redemption -- The Company maintains a one-time option to repurchase
    the Series B preferred stock or require the holder to convert their
    preferred stock, under the following terms. At any time following a 45-day
    consecutive trading period during which the average closing price per share
    of the Company's common stock is at least $5.00 per share, the Company may
    give notice of its intention to repurchase all of the outstanding Series B
    preferred shares. The holder of the Series B preferred stock shall have 30
    days from receipt of the Company's repurchase notice to elect to convert
    their Series B preferred shares to common stock. In the event that the
    holder of the Series B preferred stock does not elect to convert all of
    their Series B preferred stock, the Company may repurchase all, but not less
    than all, of the remaining Series B preferred stock at the price of $4.00
    per share, or 90% of the fair market value of the common stock, whichever is
    greater, plus any accumulated dividends, by notice to the holder of the
    Series B preferred stock and tendering of funds within five business days of
    the expiration of the Series B preferred stockholder's conversion option.
    The fair market value of the common stock shall be determined by the average
    closing price of the common stock for the five trading days prior to the
    date on which the Series B preferred stockholder's option to convert
    expires.

Preferred Stock - Series C

On March 27, 2002, the Company authorized the issuance of 1,000 shares of Series
C, convertible, redeemable, cumulative, participating, no par preferred stock
("Series C preferred stock").

On March 27, 2002, the Investor purchased 1,000 shares of Series C preferred
stock and warrants to purchase shares of common stock, in exchange for
$1,000,000. The net proceeds to the Company were $967,000. The warrants were
valued and recorded at $259,000. Due to the conversion feature of the Series C
preferred stock transaction, a beneficial conversion feature of $741,000 existed
at the execution of the agreement. The Company is accreting the beneficial
conversion feature of the Series C preferred stock to the earliest date the
Series C preferred stock holders can elect the option to redeem the Series C
preferred stock. The accretion recorded for the twelve month period ending
December 31, 2002 was $153,000. The beneficial conversion feature was recorded
as an increase to common stock and a decrease to Series C preferred stock.

The holder of the Series C preferred stock have various rights and preferences
as follows:

    Conversion --The Investor may now convert its Series C preferred stock into
    shares of the Company's common stock at any time. In the event that the
    Investor elects to convert, the conversion price per share of the Series C
    preferred stock will be $0.5993 per share. The applicable conversion terms
    result in a beneficial conversion feature of approximately $741,000, which
    was recorded in the first quarter of 2002, and is being accreted to the
    earliest date the Series C preferred stockholder can elect the option to
    redeem the Series C preferred stock.

    Anti-Dilution Protection -- The Series C preferred stock conversion ratio is
    subject to adjustment, calculated in accordance with the Company's articles
    of incorporation, if the Company issues securities at a price per share that
    is less than the current conversion ratio of the Series C preferred stock.
    This feature could result in additional charges being recorded against net
    income (loss) applicable to common shareholders.

    Voting -- The Series C preferred stock shares are voted equally with the
    shares of common stock of the Company, on an as-if converted to common stock
    basis.

    Dividends -- The Series C preferred stock accrue dividends at 8% per annum.
    Dividends may be paid in cash or additional preferred shares, in kind, at
    the option of the Company. In the event that the Company pays dividends in
    kind, the Company will record additional charges against net income (loss)
    applicable to common shareholders. In addition, in the event the Company
    declares, pays or sets apart a common stockholder dividend, each holder of
    shares of the Series A preferred stock shall be entitled to receive a per
    share dividend equal to the number of shares of common equity on which such
    common dividend is declared into which each share of Series A preferred
    stock is convertible on the record date, multiplied by the amount of cash or
    property paid,



                                      F-16
<PAGE>


    or by the number of shares of capital stock issued. As of December 31, 2002,
    the Series C preferred shares accumulated zero dividends in arrears.

    Liquidation -- The Series C preferred stock ranks senior to common stock and
    has a liquidation preference of $1,000 per share plus all declared and
    unpaid dividends which totals $1,062,000 at December 31, 2002.

    Mandatory Redemption -- The Series C preferred stock is redeemable at any
    time after April 1, 2007 at the option of the holders of the Series C
    preferred stock. The redemption price is equal to $1,000 per share to the
    extent the Company has funds legally available for such payment. If the
    Company does not have funds available, at the option of the holders of the
    Series C preferred stock, the Series C preferred stock can be converted into
    a debt obligation of the Company in a form acceptable to the holders of the
    Series C preferred stock.


9.  STOCK WARRANTS AND OPTIONS

    WARRANTS

    In connection with the Series C preferred stock transaction on March 27,
2002, the Investor received warrants to purchase 417,153 shares of the Company's
common stock. The exercise price of the warrants is $1.265, and the warrants
have a term of five years during which they can be exercised. The value of the
warrants issued was estimated to be $259,000. The fair value the warrant grant
is estimated using the Black-Scholes option-pricing model with the following
weighted-average assumptions: dividend yield of zero; expected volatility of
100%; risk-free interest rate of 3.00%; and an expected term of five years.

    The warrants have been recorded as an increase to common stock, and are
being accreted to the earliest date the Series C preferred stockholder can elect
the option to redeem the Series C preferred stock.

    Stock warrant transactions during 2002 and 2001 are summarized below:

<Table>
<Caption>
                                                                 WEIGHTED AVERAGE
                                                  SHARES          EXERCISE PRICE
                                                ----------       ----------------
<S>                                               <C>                  <C>
      Outstanding at December 31, 2000             847,428              4.43
      Granted                                           --                --
      Exercised                                         --                --
      Forfeited                                    (87,893)             4.50
                                                ----------
      Outstanding at December 31, 2001             759,535              4.42
                                                ==========
      Granted                                      417,153              1.27
      Exercised                                         --                --
      Forfeited                                         --                --
                                                ----------
      Outstanding at December 31, 2002           1,176,688              3.30
                                                ==========
</Table>


    STOCK OPTIONS

    The Company has two stock option plans, an incentive stock option plan (the
    "1993 Plan") and the 1996 Stock Option Plan (the "1996 Plan") (collectively,
    the "Plans"). The 1993 Plan provides employees and officers with an
    opportunity to purchase an aggregate of 159,746 shares of the Company's
    common stock. The 1993 Plan requires that incentive stock options be issued
    at exercise prices which are at least 100% of the fair value of the stock at
    the date of the grant. Options issued under the 1993 Plan vest at a rate of
    25% per year over four years and generally expire up to ten years from the
    date of grant. Under the 1996 Plan, grants of both incentive stock options
    and non-qualified options are permitted. Incentive stock options may only be
    granted to employees of the Company, including officers and directors who
    are also employees. Non-qualified options may be issued to officers,
    directors, employees or consultants of the Company. The exercise price of
    incentive stock options granted under the 1996 Plan must be at least 100% of
    the fair market value of the Company's stock at the grant date, while the
    exercise price of non-qualified options is at the discretion of the Board of
    Directors, but is ordinarily priced at 100% of the fair market value at the
    grant date. Aggregate common shares of 722,000 are reserved for issuance
    under the 1996  Plan, as amended. Shares forfeited can be reissued under the
    1996 Plan. Options issued under the 1996 Plan vest at a rate that is at the
    discretion of the Board of Directors,


                                      F-17
<PAGE>


    but is generally at a rate of 25% per year over four years for employees and
    33% per year over three years for directors and generally expire up to ten
    years from the date of grant.

    Stock option transactions of the Plans during 2002 and 2001 are summarized
    below:

<Table>
<Caption>
                                                                   WEIGHTED AVERAGE
                                                   SHARES           EXERCISE PRICE
                                                 ----------        ----------------
<S>                                                <C>                  <C>
       Outstanding at December 31, 2000             645,536              3.43
       Granted                                      234,750              1.27
       Exercised                                     (2,400)             2.03
       Forfeited                                   (250,886)             3.67
                                                 ----------
       Outstanding at December 31, 2001             627,000              2.53
                                                 ==========
       Granted                                      138,000              1.11
       Exercised                                         --                --
       Forfeited                                    (63,625)             2.44
                                                 ----------
       Outstanding at December 31, 2002             701,375              2.25
                                                 ==========
</Table>

    At December 31, 2002 and 2001, options were exercisable with respect to
493,975 and 307,800 shares, respectively, with exercise prices ranging from
$0.55 to $6.44 and a weighted average exercise price of $2.49 and $3.21,
respectively. As of December 31, 2002 the weighted average contractual life was
4.04 years.

    The following table sets forth the exercise price range, number of shares,
weighted average exercise price, and remaining contractual lives by groups of
options:

<Table>
<Caption>
                                                                                               WEIGHTED AVERAGE
                                               NUMBER OF SHARES                              REMAINING CONTRACTUAL
                EXERCISE PRICE RANGE              OUTSTANDING         EXERCISE PRICE                 LIFE
            ---------------------------     ----------------------  ------------------  --------------------------
<S>                 <C>                            <C>                   <C>                        <C>
                    $0.55 - $1.50                   339,000               $ 1.18                     5.72
                    $2.03 - $2.94                   227,000               $ 2.63                     3.92
                    $3.25 - $4.56                    88,425               $ 3.41                     2.02
                    $5.69 - $6.44                    46,950               $ 6.03                     2.26
                                                   --------               ------                     ----
                                                    701,375               $ 2.49                     4.04
                                                   ========               ======                     ====
</Table>


    In October 2001, 30,000 options were granted to a non-employee consultant of
the Company for services provided. These options vest at a rate of 4.17% per
month, over a two-year period, and are exercisable based on completed vesting.
Compensation expense of $15,000 and $4,000 was recorded during 2002 and 2001,
respectively.

FAIR VALUE

    The Company applies Accounting Principles Board Opinion No. 25 and related
Interpretations in accounting for its stock option plans. Accordingly, no
compensation expense has been recognized for options granted at fair market
value. Had compensation cost for the Company's stock option plans been
determined based on the fair values at the grant dates for awards under the
plans consistent with the fair-value based method of accounting prescribed by
Statement of Financial Accounting Standard No. 123, the Company's results would
have been changed to the pro forma amounts indicated below (in thousands):

<Table>
<Caption>
                                                               YEARS ENDED DECEMBER 31,
                                                              --------------------------
                                                                 2002               2001
                                                              --------          --------
<S>                                                           <C>               <C>
      Net loss applicable to common shareholders:
         As reported                                          $ (1,165)         $ (2,870)
         Pro forma                                            $ (1,678)         $ (3,117)
      Basic and diluted loss per share:
         As reported                                          $  (0.32)         $  (0.80)
         Pro forma                                            $  (0.46)         $  (0.86)
</Table>

    The fair value of options granted in 2002 and 2001 were $139,000 and
$295,000 respectively. The fair value of each option and grant is estimated on
the date of grant using the Black-Scholes option-pricing model with the
following weighted-average assumptions used for grants in the years ended
December 31, 2002 and 2001: dividend yield of zero; expected volatility ranging
from 106% to 115% ; risk-free interest rates ranging from 3.73% to 5.21%; and an
expected term of seven to ten years.


                                      F-18
<PAGE>


10.  PROFIT SHARING PLAN

        The Company maintains an employee profit sharing plan under Section
    401(k) of the Internal Revenue Code (the "Plan") covering personnel who have
    been employed at least three months. Employees may contribute up to the
    federal limit of their compensation to the Plan each year. During 2001 the
    Company implemented a formal contribution plan. Beginning on April 1, 2001
    the Company's contribution plan allowed for company matching contributions
    of $0.25 for every $1.00 invested by the employee in the program, limited to
    the first 50% of the employee's maximum contribution (capped at $5,250.00
    per year). Participants vest in employer contributions at a rate of 20% per
    year over five years. During 2002 and 2001, zero and $19,000 were
    contributed to the Plan, respectively. Effective January 1, 2002, the
    Company's board of directors temporarily discontinued Company contributions
    to the Plan.

11.  SEGMENT INFORMATION

        The Company operates in two business segments, testing equipment and
    Accelerated Reliability Test Centers ("ARTC"). The equipment segment is
    engaged in the manufacture and sale of vibration and thermal chambers for
    quality control testing of various electronic devices. The ARTC segment
    operates service centers where vibration and thermal chambers are available
    to customers for daily rental.

        The accounting policies for these segments are the same as those
    described in Note 1 and there are no intersegment transactions. The Company
    evaluates the performance of its segments and allocates resources to them
    based primarily on gross profit. All operating revenues and expenses are
    allocated to business segments in determining their gross profit. All other
    expenses are not utilized in determining the allocation of resources on a
    segment basis.



                                      F-19
<PAGE>



    The table below summarizes information about reported segments (in
thousands):

<Table>
<Caption>
                                                          EQUIPMENT    ARTC   CORPORATE    TOTAL
                                                          ---------   ------  ---------   ------
<S>                                                         <C>       <C>        <C>     <C>
YEAR ENDED DECEMBER 31, 2002
Sales                                                       $6,606    $1,461      --      $8,067
Gross profit                                                 3,286       219      --       3,505
Property and equipment, net                                    174       536      --         710
Capital expenditures                                            77       196      --         273
Depreciation and amortization                                  105       315      --         420
Interest expense                                                --        --     178         178
Interest income                                                 --        --       5           5
Income tax expense                                              --        --      --          --

OTHER SIGNIFICANT NON-CASH ITEMS:
Transfer of equipment to inventory held
   for resale                                                   15        --      --          15
Deemed preferred stock dividend
   resulting from conversion of Series A
   preferred shares to Series B preferred
   shares                                                       --        --     489         489
Redeemable preferred stock dividends
   declared                                                     --        --     163         163
Accretion of preferred stock                                    --        --     170         170

YEAR ENDED DECEMBER 31, 2001
Sales                                                       $5,815    $2,330      --      $8,145
Gross profit                                                 2,445       591      --       3,036
Property and equipment, net                                    176       669      --         845
Capital expenditures                                            83       109      --         192
Depreciation and amortization                                  115       431      --         546
Interest expense                                                --        --     200         200
Interest income                                                 --        --       1           1
Income tax expense                                              --        --   1,194       1,194

OTHER SIGNIFICANT NON-CASH ITEMS:
Transfer of equipment to inventory held
   for resale                                                  118        --      --         118
Deemed preferred stock dividend
   resulting from conversion of Series A
   preferred shares to Series B preferred
   shares                                                       --        --      --          --
Redeemable preferred stock dividends
   declared                                                     --        --      92          92
Accretion of preferred stock                                    --        --      17          17
</Table>

     The following information is by geographic area (in thousands):

<Table>
<Caption>
                                                    UNITED  STATES          EUROPE      ASIA PACIFIC     MIDDLE EAST        TOTAL
                                                    --------------          ------      ------------     -----------      --------
<S>                                                   <C>                    <C>           <C>              <C>            <C>
       YEAR ENDED DECEMBER 31, 2002
       Sales                                           $5,212                $ 64          $2,721           $ 70           $8,067
       Property and equipment, net                        582                 128              --             --              710

       YEAR ENDED DECEMBER 31, 2001
       Sales                                           $6,213                $976          $  825           $131           $8,145
       Property and equipment, net                        717                 128              --             --              845
</Table>



                                      F-20
<PAGE>

    International sales are based on where the products were shipped and where
ARTC services were rendered.



12.  LEGAL MATTERS

    On May 30, 2001, the Company was served with an arbitration demand from
Gregg K. Hobbs ("Hobbs"), a former employee and officer. The arbitration demand
alleges that the Company breached provisions in the original September 30, 1995
separation agreement, executed between Hobbs and the Company. The parties
selected a single arbitrator with the Judicial Arbiter Group in Denver, Colorado
and a hearing in the arbitration was set for April 29, 2002, but was rescheduled
to August 19, 2002, and subsequently rescheduled to April 21, 2003. The Company
believes it did not breach the September 30, 1995 agreement or cause damages to
entitle Hobbs to recovery, and it will actively defend its position; however, no
guarantee can be given on the ultimate outcome or on the ultimate amount of
damages, if any.

    In December 2002, the Company was served with a complaint from Hobbs
Engineering Corporation ("HEC"), a company controlled by Hobbs, seeking
injunctive relief and an unspecified amount of damages against the Company and
five current and former employees of or consultants of the Company. In this
action in District Court in Boulder, Colorado, HEC alleges that the Company and
the current and former employees and consultants, acting as "agents" for the
Company, violated the Colorado Unfair Trade Practices Act (Colorado Revised
Statutes, Sec. 6-2-105(1)(a)) by offering potential customers seminars on the
use of HALT and HASS in competition with HEC at less than the cost to the
Company to produce the seminars. The Company offers these seminars at no cost as
a means to promote sales of chambers. HEC further alleges that it has been
damaged by the Company's free seminars to potential customers and that HEC is
entitled to recover damages. The Company filed its response to the HEC Complaint
on January 7, 2003. The Company asserts that it is entitled to offer seminars
for free or at reduced prices to potential customers, that its seminars do not
compete with seminars offered by HEC, that the Company's activities are not in
violation of the Colorado Unfair Trade Practices Act, and that HEC is not
entitled to the relief it seeks. The Company intends to contest the case
vigorously; however, no guarantee can be given to the ultimate outcome or the
ultimate amount of the damages, if any.

    On March 10, 2003, the Company, a former employee, and ASQ Quality Press
were served with a complaint in U.S. District Court in Denver, Colorado from
Hobbs alleging (i) infringement of copyrights purportedly owned by Hobbs, in
violation of the Copyright Act, 17 U.S.C. Sec. 101, (ii) false designation of
origin and false or misleading representation in commerce under Sec. 43(a) of
the Lanham Act, 15 U.S.C. Sec 1125(a), and (iii) common law unfair competition.
The Company is evaluating this complaint with its counsel and will file within
20 days from the date of service of the complaint. The Company intends to
contest the case vigorously; however, no guarantee can be given to the ultimate
outcome or the ultimate amount of the damages, if any.



                                      F-21
<PAGE>



                                INDEX TO EXHIBITS

<Table>
<Caption>

                     EXHIBIT
                     NUMBER                           DESCRIPTION
                 ---------------    -------------------------------------------------
<S>                                <C>
                       3.1          Amended and Restated Articles of Incorporation of
                                    the Company.(1)

                       3.2          Amended and Restated Bylaws of the Company.(1)

                       3.3          Certificate of Designation for Series A Preferred
                                    Stock.(5)

                       3.4          Amended Certificate of Designation for Series A
                                    Preferred Stock.(5)

                       3.5          Statement of Change of Registered Agent.(5)

                       4.1          Form of Certificate for Shares of Common Stock.(1)

                       4.6          Form of Warrant issued to holders of 10% secured
                                    promissory notes.(1)

                      10.1          QualMark Corporation 1993 Incentive Stock Option
                                    Plan.(1)

                      10.2          QualMark Corporation 1996 Stock Option Plan.(3)

                      10.3          Employment Agreement dated March 1, 1993 by and
                                    between the Company and W. Preston Wilson.(1)

                      10.4          Employment Agreement dated August 15, 1994 by and
                                    between the Company and J. Wayne Farlow.(1)

                      10.5          Agreement dated September 30, 1995 by and between
                                    the Company and Gregg K. Hobbs.(1)

                      10.8          Addendum to Agreement dated as of December 21,
                                    1995 by and between the Company and
                                    Gregg K. Hobbs.(1)

                     10.11          Loan and Security Agreement dated April 30, 1996, by
                                    and between QualMark Corporation and Silicon Valley
                                    Bank, as amended by Amendment to Loan and Security
                                    Agreement dated August 18, 1997.(2)

                     10.12          Loan and Security Agreement dated December 22, 1998,
                                    by and between QualMark Corporation and U.S. Bank
                                    National Association.(4)

                     10.13          Waiver and Amendment to Loan Agreement dated March
                                    15, 1999 by and between QualMark and U.S. Bank
                                    National Association.(4)

                     10.14          Second Amendment to Loan Agreement dated August 23,
                                    1999 by and between QualMark and U.S. Bank National
                                    Association.(5)

                     10.15          Settlement Agreement dated August 30, 1999 by and
                                    among QualMark Corporation and Screening Systems,
                                    Inc.(5)

                     10.16          Preferred Stock Purchase Agreement dated September
                                    1, 1999, including Warrant to Purchase 139,535
                                    Shares of Common Stock.(5)

                     10.17          Third Amendment to Loan Agreement dated March 31,
                                    2000 by and between QualMark and U.S. Bank National
                                    Association.(6)

                     10.18          Employment Agreement dated July 17, 2000 by and
                                    between the Company and Charles D. Johnston.(7)
</Table>



<PAGE>



<Table>
<Caption>
                     EXHIBIT
                     NUMBER                               DESCRIPTION
                 --------------     ---------------------------------------------------------

<S>                                <C>
                     10.19          Second Amendment to Promissory Notes and Fifth
                                    Amendment to Loan Agreement dated February 1, 2001
                                    by and between QualMark and U.S. Bank National
                                    Association.(8)

                     10.20          Third Amendment to Promissory Notes and Sixth
                                    Amendment to Loan Agreement dated June 29, 2001 by
                                    and between QualMark and U.S. Bank National
                                    Association.(9)

                     10.21          Fourth Amendment to Promissory Notes and Seventh
                                    Amendment to Loan Agreement dated January 31,
                                    2002 by and between QualMark and U.S. Bank National
                                    Association. (10)

                     10.22          Series C Preferred Stock Purchase Agreement dated
                                    March 27, 2002 (11)

                     10.23          Series C Preferred Stock Certificate of Designations (11)

                     10.24          Series B Preferred Stock Certificate of Designations (11)

                     10.25          Fifth  Amendment to  Promissory  Notes and Eighth
                                    Amendment to Loan Agreement dated January 23, 2003 by
                                    and  between QualMark and U.S. Bank National Association.
                     10.26          Irrevocable Letter of Credit issued to Catellus Development
                                    Corporation

                     23.1           Consent of Gelfond Hochstadt Pangburn, P.C.

                     99.9           Certifications of Section 906 of the Sarbanes-Oxley Act of
                                    2002
</Table>

-----------------

(1)  Incorporated by reference from the Company's Registration Statement No.
     333-1454-D on Form SB-2.

(2)  Incorporated by reference from the Company's Quarterly Report on Form 10-
     QSB for the quarter ended September 30, 1997.

(3)  Incorporated by reference from the Company's Proxy Statement for the 1996
     Annual Meeting of Shareholders.

(4)  Incorporated by reference from the Company's Annual Report of Form 10-KSB
     for the year ended December 31, 1998.

(5)  Incorporated by reference from the Company's Quarterly Report on Form 10-
     QSB for the quarter ended September 30, 1999.

(6)  Incorporated by reference from the Company's Quarterly Report on Form 10-
     QSB for the quarter ended June 30, 2000.

(7)  Incorporated by reference from the Company's Quarterly Report on Form 10-
     QSB for the quarter ended September 30, 2000.

(8)  Incorporated by reference from the Company's Annual Report on Form 10-KSB
     for the year ended December 31, 2000.

(9)  Incorporated by reference from the Company's Quarterly Report on Form 10-
     QSB for the quarter ended June 30, 2001.

(10) Incorporated by reference from the Company's Annual Report on Form 10-KSB
     for the year ended December 31, 2001.

(11) Incorporated by reference from the Company's Quarterly Report on Form
     10-QSB for the quarter ended March 31, 2002.