<PAGE>   1
                     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, 1999

[ ] 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)

<TABLE>

<S>                                                                   <C>
                         COLORADO                                               84-1232688
(State or other jurisdiction of incorporation or organization)        (IRS Employer Identification No.)
</TABLE>

                 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. [  ]

     Issuer's revenues for its most recent fiscal year. $12,559,000

     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 21, 2000 was $14,468,270.

     The number of shares outstanding of the issuer's Common Stock as of March
21, 2000 was 3,560,982.

                       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
                                                                   ---       ---

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                                     PART I


ITEM 1. DESCRIPTION OF BUSINESS.


     QualMark Corporation ("QualMark" or "the Company") designs, manufactures,
and markets proprietary systems 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 systems
support 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 systems allow 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 systems are 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 systems performed either in the ARTC
test centers or at the customer's site.

     QualMark currently has seven test centers located in the metropolitan areas
of Denver, Colorado, Huntington Beach, California, Santa Clara, California,
Boston, Massachusetts, Detroit, Michigan, Raleigh, North Carolina and Orlando,
Florida. The Company also has two strategic alliances with testing companies in
the U.S. These strategic alliances are with Trialon Corporation, located in
Burton, Michigan and Professional Testing, Incorporated, located in Round Rock,
Texas. In addition, the Company has established strategic alliances with TUV
Product Service Ltd. and Anecto Ltd., Maser Engineering, IMQ Instituto del
marchia di Qualita, Institutet For Verkstadsteknisk Forskning/The Swedish
Institute of Production Engineering, and Emitech, to operate testing centers in
London, England, Galway, Ireland, Mannheim, Germany, Enschede, the Netherlands,
Milan, Italy, Molndal, Sweden and Paris, France. Though these strategic alliance
agreements were entered into in 1999, the installations in Michigan, Texas,
Italy, Sweden and France were not yet operational as of December 31, 1999. 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 Colorado in March 1992. 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.

     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


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Hz, the Company's system creates vibrational forces between 2 Hz and 10,000 Hz.
The new LF table has significantly increased low frequency energy available
resulting in more effective testing and screening for larger sub-systems. It
also provides extremely complex motion across a broad frequency range, which is
desirable for many current electronic technologies. Thus, the system creates
virtually any vibration that could occur naturally during product use. This is
important in testing and screening applications to expose most flaws, whether it
is design or process related, before the product is placed into service.

THE LF VIBRATION SYSTEM CONSISTS OF TWO MAJOR COMPONENTS:

VIBRATION TABLE

     The new patent pending 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 FL2 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 60 degrees Centigrade per minute as
measured on the product being tested. This high rate of change results in highly
effective design verification during HALT and extremely short production screens
during HASS, requiring less equipment and personnel to perform a given series of
thermal cycles. The Company believes that its UltraRate Thermal Chambers,
comprised of patented and patent pending features, have one of the highest rate
of thermal change available in the environmental stress screening industry. This
capability significantly reduces test time, with resulting cost reductions in
equipment and personnel.

     In spite of rapid temperature change and complex vibration spectra, the
system is extremely quiet, allowing it to be used in standard lab and
manufacturing environments without the necessity of building costly special
stress screening rooms.

The OVS Combined Stress System Product Line

     The Company's OVS Combined Stress Systems for HALT and HASS are presently
available in four 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 OVS-3 and OVS-4 systems have 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.



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     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 in excess of 90 Grms
     (2 Hz-10,000 Hz) on the 18"x18" vibration table and up to 60 degrees
     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 $74,500.

     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 2 Hz 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 60 degrees 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 $125,500.

     OVS-3:

          The OVS-3 is commonly used for production screening (HASS)
     applications, or for HALT on system-level products (such as work stations
     and other large computers). The PC-controlled OVS-3 contains a 36"x36"
     vibration table equipped with nine large vibrators that generate at least
     60 Grms random vibration force (2 Hz-10,000 Hz). The thermal chamber is
     43"x42"x54" (ID) (table in lower position) and can produce temperature
     changes on the product under test of up to 60 degrees Centigrade per
     minute. The OVS-3 sells for approximately $137,000.

     OVS-4:

          The OVS-4 is the largest system in the OVS product line. By far, the
     most common application for the OVS-4 is for large volume production
     screening (HASS) on computers, monitors, communications systems, etc. The
     PC-controlled OVS-4 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 60 degrees
     Centigrade per minute on the product under test. The OVS-4 LF vibration
     system is equipped with eight actuators that produce up to 50 Grms random
     vibration force. The standard OVS-4 sells for approximately $179,500.

          A two year limited warranty is included with each OVS system sold in
     1999. 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.

ACCELERATED RELIABILITY TEST CENTERS

     The Company has a network of ARTC test centers throughout 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. Offering these services as an ISO-registered accelerated test lab
significantly differentiates the Company from its equipment and lab competition.

     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 sales people 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.




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     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. 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 operations had not yet commenced in 1999 but are expected to be
operating within the first few months of 2000. 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.
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. Also in 1999, the
Company added to its domestic capacity by entering into strategic alliances with
two testing companies. The first is Trialon Corporation, located in Burton,
Michigan. The second is Professional Testing, Incorporated, located in Round
Rock, Texas. These domestic strategic alliance partnerships were not yet
operational as of December 31, 1999 but are expected to be operating within the
first few months of 2000.

     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. The Company also incorporates
applications support services into equipment quotations.

MARKETING

     The Company increased its market exposure in 1999 by continuing to conduct
a number of "open houses" at each of its nationwide ARTC's. Prospects for these
open houses are usually found in various electronic manufacturers databases.
In-house and field sales personnel use these tools to identify and invite key
engineering and reliability decision makers to find out how they can
dramatically increase their product reliability. Attendees are qualified to
determine which companies are high probability prospects to use the ARTC and/or
to begin in-house accelerated testing. Through the open houses, the Company
identifies many new customers for its products and services, while rapidly
expanding the market acceptance of HALT and HASS as premier accelerated testing
techniques.

     In addition, the Company's marketing plan for the next twelve months
includes the following:

1)   The Company will continue to encourage individuals and companies in the
     electronic and reliability engineering market segments to publish articles
     concerning accelerated reliability techniques and their successes
     associated with using the techniques.

2)   The Company will selectively advertise in periodicals that have significant
     exposure with design engineers and reliability/ESS engineers.

3)   The Company intends to attend approximately fifteen trade shows in 2000 in
     the U.S. and internationally.

4)   Management intends to have its marketing staff continue to effectively
     orchestrate activities in the areas of public relations, advertising, trade
     show attendance, point of sale materials development and telemarketing.

5)   The Company may make additions to its existing field sales staff in the
     U.S. and abroad.


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     Sales Strategy

     The Company's sales strategy combines telemarketing with regional vice
presidents who are primarily responsible for OVS system sales and regional
account executives who are responsible for ARTC service sales. At year end 1999,
the Company had three regional vice presidents and eight regional account
executives. In addition, the Company uses independent sales/service agents in
Europe, the Middle East and the Far East. During the next twelve months, the
Company intends to add to its international sales/service agent network and may
add additional regional account representatives in the United States.

     The regional vice presidents, each of whom have multiple ARTC facilities
within their geographic areas of responsibility, direct the efforts of the
regional account executives in selling ARTC services. When customers express
interest to the regional account executive in buying an OVS system rather than
using an ARTC, the regional vice president assumes responsibility for the
customer to close the OVS sale.

     Telemarketing resources are located at corporate headquarters to provide
follow-up phone calls on local mailings, advertisement inquiries and other leads
that are generated within each sales region. Telemarketing also handles
geographical areas not covered by regional offices, international areas and any
corporate campaigns that are developed by the Chief Executive Officer. The
telemarketing staff also encourages prospective customers to attend local ARTC
open houses and to follow up on leads from geographical areas around the world
that have no Company representation.

CUSTOMERS

     The Company's systems are used by manufacturers in a wide variety of
industries. From inception of the Company, through December 31, 1999, the
Company has sold 314 systems to 135 different customers, in the following
industries: Telecommunications and Computer, Defense and Aerospace, Medical
Electronics, and others. The QualMark customer list includes major corporations
such as Allied Signal (Honeywell), AT&T, Cessna, Dupont, Cummins Engine,
Hewlett-Packard, Hughes (Raytheon) , Intel, Lucent Technologies, Johnson &
Johnson, Medtronic, Motorola, National Semiconductor, Magnavox, Nortel (formerly
Northern Telecom), Sequent Computers (IBM), Tektronix, 3Com and United
Technologies. During 1999, there were no customers that comprised 10% or more of
the Company's revenue and the Company was not dependent on any single industry
segment for its revenues.

     The following table sets forth some of the major industries and a number of
products that have undergone HALT or HASS testing protocol using the Company's
systems as part of the manufacturer's testing procedures.

<TABLE>
<S>                                     <C>                                  <C>
AEROSPACE AND DEFENSE                   COMPUTER RELATED PRODUCTS            OTHER
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
Automated teller machines               Electronic thermometers
Air conditioning electronics            Glucose monitors
Cordless telephones                     Infusion pumps
Fax machines                            IV pumps
                                        Laboratory centrifuges
                                        Medical imaging systems
                                        Patient monitors
</TABLE>





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RESEARCH AND PRODUCT DEVELOPMENT

     Research and development expenditures for the fiscal years ending December
31, 1999 and 1998 were $690,000 and $684,000, respectively. During the fourth
quarter of 1998, the announced the Company availability of its new OVS PC-based
controller, which features a number of improvements over the previous controller
and is also CE (Certified for Europe) compliant. In 1999, the Company devoted
considerable effort in the development of the specifications for its next
generation OVS product line. The Company will continue these efforts in 2000 and
expects its research and development expenditures to increase slightly over
those expenditure levels experienced in 1999. This research and development
effort is expected to be funded by cash flows from operations. In 1997, the
Company refined the OVS product line by discontinuing the OVS-1 and OVS-2 and
adding the OVS-1.5. However, the OVS-1 may be reintroduced in an abbreviated
version to accommodate that part of the market that desires a lower cost version
of the OVS combined stress technology.

     Of great benefit to the Company is that its technology is extremely
flexible in regard to the physical size of its OVS systems; consequently,
product line extension opportunities normally do not require sizable
expenditures on product development.

     The Company intends to continue taking advantage of design refinement
opportunities specific to its OVS combined stress technology. As discussed in
the following "Intellectual Property" section, the Company currently holds
domestic and foreign patents on its products and continues to seek patent
protection of current and new products. The Company is optimistic that the
flexibility and scalability of its fundamental OVS combined stress technology
will allow the Company to add to its product line as new opportunities develop.

     Through its association with the University of Maryland's CALCE EPRC
(Computer Aided Life Cycle Enhancement, Electronic Packaging Research Center)
research program, the Company has aligned itself with one of the premier
electronic packaging research centers in the world. As a CALCE EPRC affiliate,
the Company has ongoing access to leading-edge technology development in the
areas of highly accelerated test methods and virtual verification. As the demand
and viability of these new test methods and technologies are verified, the
Company intends to add them to its ARTC service offering.

     The association with the University of Maryland allows the Company to
better manage its investment in research and development, while enjoying the
benefit of having an OVS system on site at CALCE EPRC for visiting prospective
client representatives to observe its operation.

INTELLECTUAL PROPERTY

     The Company has maintained the practice, where possible, to pursue patent
protection on its products. The Company has been issued nine United States
patents (the "Patents") and one foreign patent 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, 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 configuation of the
control system attachment to the chamber. The remaining duration of each of the
Patents is between eleven and seventeen years.

     The Company has five United States patent applications and three foreign
patent applications pending relating to its OVS Combined Stress Systems. The
Company plans to make additional patent applications as appropriate.

     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 compete
against the Company by eroding the Company's ability to differentiate itself on
the basis of technical superiority.



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<PAGE>   8

     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, ACCELERATE THE FUTURE, ACCELERATED
RELIABILITY TEST CENTER, ARTC, AUTOSMEAR and QHT. The Company has eleven U.S.
trademarks pending and five foreign mark applications pending. The Company plans
to make additional trademark, service mark, and certification mark applications
as appropriate.


COMPETITION

     Equipment

     There are many companies that could be considered competitors of QualMark.
These companies provide either electrodynamic shaker tables or
temperature/humidity chambers. Companies will occasionally team to provide a
shaker table within a separate temperature/humidity chamber. However, the
Company believes that there are only three companies that can be considered
major direct equipment competitors that offer a six-axis vibration table
integrated into a thermal chamber which can be used for HALT/HASS applications.

     Screening Systems, Inc. ("SSI") (Laguna Hills, California) has been in the
ESS and DVT business since the early 1980's. They operated for many of those
years with technology licensed from Hughes Electronic ("Hughes"). On March 22,
1996, Screening Systems, Inc. filed a patent infringement suit against the
Company in federal district court in Santa Ana, CA. This litigation was settled
on August 30, 1999. See Item 3 - Legal Proceedings.

     Chart Industries - Applied Technologies Division (Burns, MN) is a company
that began assembly and sales in 1993 of combined stress systems under the name
of Hanse Environmental, Inc. Hanse Environmental was purchased by MVE (Minnesota
Valley Engineering) in May 1998. MVE was purchased by Chart Industries in April
1999.

     Thermotron Industries (Holland, MI) announced their offering of a
competitive product to the Company's OVS system in the first quarter of 1998.
Thermotron is a broad line environmental chamber manufacturer and has also begun
manufacturing and selling a chamber with an integrated vibration system that
directly competes with QualMark's OVS product offering.

     Several traditional ESS equipment manufacturing companies, such as Tobai
Espec and Weiss, enjoy annual revenues in excess of $50 million dollars,
according to the Thomas Register, which is an industrial products directory.
These firms manufacture thermal chambers and single/multiple axes vibration
systems that support traditional screening methods.

     The equipment manufactured by traditional ESS equipment manufacturers is
well accepted in the market, since ESS supports traditional "pass-fail"
specification test protocols that have been in use for several decades. The
Company's technology supports new accelerated test protocols that relate to
improving product design and manufacturing processes rather than the "pass-fail"
test processes. As such, the Company is attempting to expand a new market
segment and plans to allocate considerable resources to an effort to convince
prospective customers to adopt accelerated test protocols in addition to, or in
replacement of, traditional methods.

     ARTC and Applications Support Services

     As emerging test methods, HALT and HASS acceptance in industry remains at
the introduction stage. The Company is unaware of any multi-site national
commercial testing laboratory similar to its ARTC's offering of HALT/HASS
accelerated testing services using the Company's or Screening Systems Inc.
equipment or providing on-site applications support services. However, the
Company knows of at least three independent environmental test labs using SSI
equipment. The terms of these



                                       8
<PAGE>   9

arrangements are not known by the Company. Since several hundred commercial
testing laboratories exist in the U.S., the Company anticipates that new
competitors will aggressively enter the accelerated testing market.

MANUFACTURING

     The Company's manufacturing facility is located in Denver, Colorado.
QualMark's assembly of the OVS systems evolved from a "job shop" approach into 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
60 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, OVS-3, OVS-4 systems to build during
the quarter. Special order systems are still treated as
non-recurring-engineering ("NRE") orders. Because of increased sales volume, the
Company is producing 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 1998 and 1999, the Company offered a limited, two-year parts and labor
warranty on all new OVS systems. 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. Starting in 2000,
the Company will offer a standard, one-year parts and labor warranty on all new
OVS systems, and a limited, two-year parts and labor warranty on specific
negotiated contracts.

GOVERNMENT REGULATION

     To its knowledge, the Company complies with all international, federal,
state, and local regulations, including environmental regulations, governing the
conduct of its business and the costs of such compliance are minimal. The
Company has no significant environmental issues or impact in its manufacturing
or service delivery and there are no significant costs or compliance issues with
any government agencies or laws in this area.

EMPLOYEES

     As of December 31, 1999, the Company had 54 employees, fifty of which are
full-time. Thirty three of the Company's employees are employed at its principal
offices and headquarters in Denver, Colorado, three are employed at its
facilities in Santa Clara, CA, three in Huntington Beach, CA , two in Farmington
Hills, MI, four in Marlborough, MA, three in Morrisville, NC , one in Winter
Park, FL, one in Chicago, IL, one in Dallas TX, one in Huntsville, AL, one in
Seattle, WA and one in Tallahassee, FL. No employees are represented by labor
organizations and there are no collective bargaining agreements. Employee
relations are believed to be good.


                                       9
<PAGE>   10

ITEM 2. DESCRIPTION OF PROPERTY.

     The Company operates out of leased facilities located at 1321, 1329, 1331,
1343 and 1351 West 121st Avenue, Denver, Colorado. The three-year lease for the
properties expires on May 31, 2000. The leased properties consists of
approximately 18,093 square feet. The lease calls for monthly payments over the
term of the lease of $14,007. The Company also leases 2,400 square feet in a
space in the same building, 1313 West 121st Avenue. This space has a separate
lease agreement that expires on November 30, 2001. The lease calls for monthly
payments over the term of the lease of $2,018. The Company also leases
additional space in the same building, located at 1305 West 121st Avenue,
Denver, Colorado. This space has a separate lease agreement and expires on in
August 31, 2000. In addition to all three of these leases, 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.

     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 2225 Martin Avenue, Suite K,
Santa Clara, California. The three-year lease expires on February 28, 2001. The
leased property consists of approximately 4,660 square feet. The lease calls for
average monthly payments of $7,222. 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 suburban Minneapolis ARTC facility is located at Rush Lake Business
Park, 1775 Old Highway 8, Suite 110, New Brighton, Minnesota. The Company ceased
operations at this facility in April of 1999 but continues to lease the facility
until a suitable sub-lessor can be located. The present value of the remaining
lease cost was expensed during 1999. The five-year lease expires in February
2001. The leased property consists of 2,783 square feet. The lease calls for
average monthly payments of $2,748. In addition, the Company is responsible for
certain expenses, including property taxes, insurance and maintenance. The
Company's regional ARTC service business was conducted at this facility.


     The suburban Raleigh ARTC facility is located at 215 Southport Drive, Suite
300, Morrisville, North Carolina. The five-year lease expires in July 2001. The
leased property consists of approximately 4,692 square feet. The lease calls for
average monthly payments of $3,175. 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 suburban Detroit ARTC facility is located at 39255 Country Club Drive,
Suite B-8, Farmington Hills, Michigan. The five-year lease expires in September
2001. The leased property consists of approximately 4,491 square feet. The lease
calls for average monthly payments of $5,427. 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 expires in December
2002. The leased property consists of 3,420 square feet. The lease calls for
average monthly payments of $2,154. 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 suburban Orlando facility is located at Crossroads Business Center,
Suite 212, 931 Semoran Boulevard, Winter Park, Florida. The five-year lease
expires April 30, 2002. The lease calls for average monthly payments of $2,969.
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 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 March 22, 1996, the Company was served with a summons and complaint in
the U.S. District Court in the Central District of California from Screening
Systems, Inc. ("SSI"), a competitor. The complaint, as amended, alleged that the


                                       10
<PAGE>   11

Company's vibration system infringed three patents owned by Hughes Electronics
("Hughes") and licensed to SSI, and sought injunctive relief, monetary damages
and costs of litigation.

     The Company had been aware of the patents in question since the Company
commenced its operations and, with advice from patent counsel, designed its
vibration system, components of which are also patented, so as to not infringe
on the patents. The Company's vibration system has been used continuously in its
products since 1991.

     On August 30, 1999, the Company entered into a settlement agreement ("The
Agreement") with SSI. Both the Company and SSI denied any wrongdoing or
liability in any of the claims asserted. The Company agreed to pay SSI $925,000
to settle the litigation. Of that amount, the Company agreed to pay $300,000 at
the execution of the settlement agreement and to pay the remaining amounts by
April 1, 2001. The Company also agreed to issue SSI warrants to purchase 620,000
shares of common stock of QualMark Corporation. The exercise price of these
warrants is $4.85 per share and the warrants expire on August 30, 2004. Based on
the fully diluted shares used in the Company's earnings per share calculation
for the year ended December 31, 1999, if SSI exercised this warrant at a cost of
$3,007,000, it would own 16.7% of the Company's common stock. According to the
terms of The Agreement, as long as SSI family members own more than 5% of
QualMark Corporation common stock, their shares shall be non-voting. Both
parties agreed to a Mutual Release of Claims and to a Mutual Covenant not to sue
each other over any claim of patent infringement or alleged patent infringement
with regard to the making, having made, selling, offering for sale, importing or
using any products or services sold by either party in the ordinary course of
business prior to August 1, 1999.

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, 1999.


                                     PART II

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

     The common stock of the Company is traded on the NASDAQ (National
Association of Securities Dealers Automated Quotations) Small-Cap Market. The
following table sets forth the range of high and low closing bid prices of the
Company's common stock as reported by NASDAQ during fiscal years 1999 and 1998:

<TABLE>
<CAPTION>
                             Fiscal Year Ended December 31, 1999
                             High Close                Low Close
<S>                           <C>                      <C>
First Fiscal Quarter          $5.438                   $4.000
Second Fiscal Quarter          4.875                    2.250
Third Fiscal Quarter           3.375                    2.250
Fourth Fiscal Quarter          3.000                    2.000
</TABLE>


<TABLE>
<CAPTION>
                             Fiscal Year Ended December 31, 1998
                             High Close                Low Close
<S>                          <C>                       <C>
First Fiscal Quarter         $7.750                    $6.250
Second Fiscal Quarter         8.500                     6.875
Third Fiscal Quarter          7.875                     3.500
Fourth Fiscal Quarter         6.250                     3.625
</TABLE>

     The foregoing quotations represent quotations between dealers without
adjustment for retail markups, markdowns or



                                       11
<PAGE>   12

commissions and may not represent actual transactions.

     At December 31, 1999, the Company had approximately 1,065 beneficial
shareholders and 46 shareholders of record. The Company has never paid a
dividend, and does not anticipate the payment of dividends in the foreseeable
future.

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, 1999         December 31, 1998
<S>                                                 <C>                       <C>
Statement of Operations Data:
Revenues................................               100.0%                    100.0%
Cost of Revenues........................                60.3                      55.7
                                                       -----                     -----
Gross Profit............................                39.7                      44.3
Selling, general and administrative
  expenses..............................                54.2                      32.5
Research and development expenses.......                 5.5                       5.0
                                                       -----                     -----
Income (loss) from operations...........               (20.0)                      6.8
Other income (expense)..................                (1.4)                      (.4)
                                                       -----                     -----
Income (loss) before income taxes.......               (21.4)                      6.4
Income tax benefit......................                 2.6                       6.1
                                                       -----                     -----
Net income (loss).......................               (18.8)%                    12.5%
                                                       =====                     =====
</TABLE>


RESULTS OF OPERATIONS

     The Company's annual and quarterly operating results could be 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.

Comparison of Years Ended December 31, 1999 and 1998

REVENUE

     Total revenue in the year ended December 31, 1999 decreased $1,183,000
(8.6%) as compared with the year ended December 31, 1998.

     System revenue decreased $1,347,000 (13.3%) in 1999 from $10,151,000 to
$8,804,000 as compared to 1998. Unit shipments decreased from 70 to 60 for 1998
and 1999, respectively. Management believes the decrease in system revenue was
partly due to temporary softness in the test chamber market due to Year 2000
concerns. Management knows of no reason for continued softness in this sector
and expects the sales trend to turn positive in the year 2000.

     Test center revenue for 1999 increased $164,000 (4.5%) from $3,591,000 to
$3,755,000 over 1998. At December 31, 1999, the Company operated seven test
centers containing eleven systems. This compares to December 31, 1998 when the
Company operated eight test centers containing ten systems. During 1998, the
Company initiated its international ARTC expansion program by creating strategic
alliances with two companies operating test labs in three different countries:
TUV Product Service in the U.K. and Germany and Anecto, ltd. in Ireland. During
1999, the Company continued this international expansion program by creating
strategic alliances with four additional companies in four additional countries.
None of these strategic alliances added in 1999 produced revenue for the Company
during 1999 and are expected to begin revenue generating test services early in
2000. The strategic alliances added are: Maser Engineering in the Netherlands,
IMQ



                                       12
<PAGE>   13

Institudo Italiano del Marchio di Qualita located in Italy, Institutet for
Verkstadsteknick Forskning/the Swedish Institute of Production Engineering
located in Sweden, and Emitech located in France. During 1999, the Company also
created two strategic alliances in the United States that are expected to begin
generating revenue in 2000: Trialon Corporation located in Michigan and with
Professional Testing, Inc. located in Texas. Under the strategic alliance
agreements, QualMark provides an OVS 2.5 to each lab location, except Maser
Engineering in the Netherlands which has an OVS 1.5, and the strategic partner
provides the facility, labor, and sales management. QualMark receives a
percentage of the revenue that the OVS system generates. During 1999 and 1998,
the revenue from these strategic alliances totaled $224,000 and $137,000,
respectively.

GROSS MARGIN

     The gross margin in 1999 was 39.7% compared to 44.3% for 1998. The decrease
in gross margin is partly attributable to inefficiencies from decreased
throughput in the OVS businesses. It is also attributable to an inability to
raise prices for the systems due to increased competition in the marketplace for
accelerated test equipment. Pursuant to a royalty agreement with the Company's
founder, a royalty expense of 2% and 3% on all revenue was charged to cost of
sales in 1999 and 1998 respectively. The Company's royalty expense was $251,000
in 1999 and $412,000 in 1998 under this agreement. The agreement expired at the
end of 1999.

OPERATING EXPENSE

     General and administrative expenses increased in 1999 to $3,928,000 from
$2,113,000 in 1998. The increase reflects substantial legal costs incurred from
the Company's involvement in the patent litigation matter with SSI described in
"Item 3. Legal Proceedings" above. The Company incurred $2,114,000 in legal fees
and settlement costs in 1999 compared to $131,000 in 1998. In 1999 management
determined that continuing litigation would result in substantially higher costs
to the Company, therefore, this matter was settled on August 30, 1999.
Management believes all charges associated with this matter have been provided
for in the financial statements for the year ending December 31, 1999.

     Sales and Marketing expenses increased $167,000, from $2,355,000 in 1998 to
$2,522,000 in 1999. This increase was primarily due to increased sales and
marketing efforts over the comparable period in 1998.

     Research and development costs increased from $684,000 in 1998, to $690,000
in 1999. This increase is due to product development efforts in the Company's
research and development department. It is the intent of the Company in 2000 to
devote considerable effort to the development of new technologies and product
offerings and expects its research and development expenditures to increase to
over $800,000 in the next year.


     Net interest expense in 1999 was $167,000 compared with a net interest
expense of $73,000 in 1998. The increase in interest expense was due to an
increase in borrowings.

INCOME TAX BENEFIT

     During the fourth quarter of 1998, management considered a variety of
factors, such as 1997 profitability excluding litigation expenses, 1998
profitability and projected future taxable income, in evaluating the need for a
valuation allowance against deferred tax assets. Based on that evaluation,
management concluded that it was more likely than not that all recorded deferred
tax assets would be realized. Accordingly, the Company recognized an income tax
benefit of $842,000 in 1998 primarily as a result of releasing a previously
recorded valuation allowance. During the third quarter of 1999, due to an
unexpected downturn in its business, which resulted in ongoing operating losses,
management concluded that it was more likely than not that some portion of the
deferred tax assets would not be realizable and determined that a valuation
allowance was required for a portion of the deferred tax assets. Accordingly, in
the third and fourth quarters of 1999 a valuation allowance was established,
which totaled $616,000 as of December 31, 1999, for those deferred tax assets
that did not meet the more likely than not requirement for realization.

LIQUIDITY AND CAPITAL RESOURCES

     During 1999, the Company devoted $839,000 of cash to operating activities,
invested $769,000 for equipment, invested $72,000 for patents, made $2,000 in
capital lease payments, borrowed $1,050,000 from banks and repaid $600,000 of
those borrowings. Employees and investors exercised options and warrants to
purchase 54,000 shares of common stock for proceeds of $115,000. In addition,
the Company issued 465,116 Shares of preferred stock for net proceeds of
$974,000. Together, these activities resulted in a cash decrease of $143,000,
for the year, to a balance of $525,000 at December 31, 1999. These




                                       13
<PAGE>   14

amounts compare to 1998, when the Company devoted $551,000 to operating
activities, invested $567,000 for equipment, received $112,000 as proceeds from
disposal of property and equipment, made $11,000 in capital lease payments,
borrowed $2,836,000 from banks and repaid $1,609,000 of those borrowings. Also
in 1998, the Company loaned its president and CEO $104,000 and employees and
investors exercised options and warrants to purchase 97,881 shares of common
stock for proceeds of $103,000. Together, these 1998 activities resulted in a
cash increase of $209,000, for the year, to a balance of $668,000 at December
31, 1998.

     The Company has a line of credit arrangement with a commercial bank that
provides for draws of up to $3,411,000, including term loan and revolving credit
line portions. The total amounts of funds available to the Company under both of
the agreements is limited to the sum of 85% of the Company's eligible accounts
receivable, 30% of eligible inventory and 50% of equipment located in the United
States. As of December 31, 1999, the eligible amount available under both
portions of the credit facility was approximately $950,000.

     The term loan portion may not exceed $1,411,000 and bears interest at a
variable rate equal to either the LIBOR rate plus applicable margin or the prime
rate plus applicable margin. Under the LIBOR option, the applicable margin
ranges between 2.25% and 3.75%, depending on the financial condition of the
Company. Under the prime rate option, the applicable margin ranges between 0%
and 1.25%, depending on the financial condition of the Company. As of December
31, 1999, the Company had utilized $1,111,000 of the available term loan amount
and had chosen the LIBOR option.

     The revolving credit portion may not exceed $2,000,000 and bears interest
at a variable rate equal to either the LIBOR rate plus applicable margin or the
prime rate plus applicable margin. Under the LIBOR option, the applicable margin
ranges between 2.00% and 3.55%, depending on the financial condition of the
Company. Under the prime rate option, the applicable margin ranges between
(0.25)% and 1%, depending on the financial condition of the Company. As of
December 31, 1999, the Company had borrowed $ 1,050,000 under the revolving
credit portion of the agreement and had chosen the LIBOR option.

     Both portions of the credit facility are secured by substantially all of
the assets of the Company. The Company must maintain certain financial and other
covenants in order to draw amounts available under the line of credit. At times
during 1999, the Company was in violation of the terms and conditions of the
loan agreement. The Bank issued waivers for these covenant violations for all
periods during 1999. The Company expects to be in compliance with the terms of
the agreement during 2000.

     The Company expects to meet long term liquidity requirements through cash
flows generated by operations, existing cash balances and its line of credit.
The Company is dependent, however, on its ability to maintain and grow its
systems and test center businesses in order to generate adequate operating cash
flows.


YEAR 2000 ISSUE

     During the year ended December 31, 1998, management initiated a program to
prepare the Company's financial, manufacturing, service and other critical
systems and applications for the Year 2000. The program involved the Company's
upper management as well as project leaders from each department. The focus of
the program was to identify affected software and hardware, develop a plan to
correct that software or hardware in the most effective manner and implement and
monitor that plan. The program also included communications with the Company's
significant suppliers and customers to determine the extent to which the Company
was vulnerable to any of their Year 2000 issues. The Company had all
modifications and replacements in place by September 30, 1999 and as of March
24, 2000 there have been no reported problems associated with the Year 2000
issue.

     OVS Systems

     The Company's OVS products include embedded controllers that have been
tested and have been determined to be Year 2000 compliant. There have been no
problems and the Company expects that there will be no Year 2000 issues in
regards to its products.

     The Company's proprietary OVS operating system software that controls all
of the products in the OVS product line was upgraded in 1999 year as part of an
overall product improvement program. Part of that program ensured that the
software control system be made Year 2000 compliant. Management believes that
this has been achieved. There were no material




                                       14
<PAGE>   15
added costs for this compliance. Previous versions of the control system were
upgraded for compliance issues. The findings did not indicate compliance
problems for operating system version 5.0 and later. Upgrade packages for
versions prior to 5.0 were made and continue to be available.

     Internal Hardware and Software

     Each department reviewed all of the software and hardware that could have
affected its operations. With the exception of the OVS operating system
software, all software products in use were purchased from Microsoft or other
major software publishing companies. Costs for Year 2000 compliance for these
software package upgrades, considered to be part of the Company's normal ongoing
business plan, approximated $23,000 for software upgrades in 1999.

     A vast majority of the employees of the Company utilize personal computers
in their work. One of the risks identified was that these personal computers
would not function or function properly due to the internal embedded controllers
not being Year 2000 compliant. The same problem may have existed in the
Company's local network server, wide-area network server equipment and the
Company's internal telephone system. Management believed the potential for
problems primarily involved older equipment. Most of the personal computers and
network server equipment were purchased in the two-years prior to December 31,
1999 and were believed to be at lower risk than the smaller population of older
computer equipment in use around the Company. The internal telephone system was
purchased from and is supported by a leading manufacturer of that type of
equipment. Software to diagnose Year 2000 compliance for the personal computers
and network servers was procured. The cost for this software was less than
$1,000. It is unknown how much of this equipment was subject to the Year 2000
problem, however no unexpected costs were incurred and no problems found during
the first three months of the year 2000.

     The Company incurred internal staff costs as well as consulting fees and
other expenses related to the Year 2000 project. The Company purchased and
installed new accounting and manufacturing control software that is Year 2000
compliant. The cost to do this was less than $10,000. This upgrade was done in
response to the Year 2000 issue, however this and many other upgrades were part
of the Company's normal business plan.

     External Factors

     The Company uses outside service providers for all of its human resource
administration functions. This includes payroll and employee benefits
management. It had been confirmed that the service provider was Year 2000
compliant in regard to the services it provides the Company and no problems have
been experienced.

     An area that has been identified as bringing potential problems in Year
2000 compliance involved key suppliers of inventory materials. The Company
utilizes three key vendors as suppliers in the manufacture of its OVS systems.
The Company could not guarantee that the systems of these suppliers, or other
companies on which the Company relies, would be Year 2000 compliant. Other than
those three vendors, the Company's inventory suppliers are commodity or
off-the-shelf parts distributors that can be replaced with little or no notice.
It was believed that the three critical key-component suppliers could have been
replaced in the event that one or all were determined to be subject to critical
shipment delays due to Year 2000 issues. Due to the lead times associated with
bringing new suppliers on-line, early determination of vendor Year 2000
compliance was necessary. No extraordinary costs or problems were incurred with
the arrival of the year 2000 and the first three months of operations in
relation to any vendors.

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 to staff its manufacturing and marketing operations and
existing and anticipated test centers, and the risk that the demand for the
Company's systems will not continue to grow.

ITEM 7. FINANCIAL STATEMENTS.

     Index to Financial Statements:
<TABLE>
<CAPTION>
                                                              Page Number
                                                              -----------
<S>                                                           <C>
Report of Independent Accountants                                 F-1
Statement of Operations                                           F-2
Balance Sheet                                                     F-3
Statement of Shareholders' Equity                                 F-4
Statement of Cash Flows                                           F-5
Notes to Financial Statements                                     F-6
</TABLE>



                                       15
<PAGE>   16

     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.

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

     None.


                                    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, 1999. - None

                                   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.

<TABLE>
<S>                                <C>
Dated: March 30, 2000              QUALMARK CORPORATION


                                   By: /s/ W. PRESTON WILSON
                                       ------------------------
                                       W. Preston Wilson, President and Chief Executive Officer
</TABLE>

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.


                                       16
<PAGE>   17

<TABLE>
<CAPTION>
Signature                        Title                                              Date
---------                        -----                                              ----
<S>                              <C>                                                <C>
/s/ W. PRESTON WILSON            President, Chief Executive Officer                 March 30, 2000
---------------------------      and Director
W. Preston Wilson


/s/ VERNON W. SETTLE             Vice President, Finance and Administration         March 30, 2000
---------------------------      Principal Accounting Officer
Vernon W. Settle


/s/ H. ROBERT GILL               Director                                           March 30, 2000
---------------------------
H. Robert Gill


/s/ PHILIP A. GORDON             Director                                           March 30, 2000
---------------------------
Philip A. Gordon


/s/ JAMES L.D. ROSER             Director                                           March 30, 2000
---------------------------
James L.D. Roser


/s/ WILLIAM J. SANKO             Director                                           March 30, 2000
---------------------------
William J. Sanko
</TABLE>





                                       17
<PAGE>   18

REPORT OF INDEPENDENT ACCOUNTANTS


To the Board of Directors and
Shareholders of QualMark Corporation

In our opinion, the accompanying balance sheet and the related statements of
operations, of shareholders' equity and of cash flows present fairly, in all
material respects, the financial position of QualMark Corporation at December
31, 1999 and 1998, and the results of its operations and its cash flows for the
years then ended in conformity with accounting principles generally accepted in
the United States. 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 audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States, which require that we plan and perform the audits 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.



PricewaterhouseCoopers LLP

Denver, Colorado
February 14, 2000

                                     F - 1

<PAGE>   19

QUALMARK CORPORATION

STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                   YEARS ENDED DECEMBER 31,
                                                                   1999                1998
<S>                                                          <C>                <C>
Revenues                                                     $        12,559    $        13,742
Cost of revenues                                                       7,570              7,659
                                                             ---------------    ---------------
        Gross profit                                                   4,989              6,083

Selling, general and administrative expenses                           6,809              4,467
Research and development expenses                                        690                684
                                                             ---------------    ---------------
        Total operating expenses                                       7,499              5,151

        Income (loss) from operations                                 (2,510)               932

Other income (expense):
   Interest expense                                                     (200)               (73)
   Interest income                                                        33                  2
   Other income (expense), net                                            (9)                12
                                                             ---------------    ---------------
Income (loss) before income taxes                                     (2,686)               873

Income tax benefit                                                       322                842
                                                             ---------------    ---------------
Net income (loss)                                            $        (2,364)   $         1,715
                                                             ===============    ===============
Net income (loss) per basic share of common stock            $         (0.67)   $          0.50
                                                             ===============    ===============
Net income (loss) per diluted share of common stock          $         (0.67)    $         0.45
                                                             ===============    ===============
Weighted average shares outstanding - basic                            3,532              3,450
                                                             ===============    ===============
Weighted average shares outstanding- diluted                           3,532              3,806
                                                             ===============    ===============
</TABLE>

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

                                     F - 2
<PAGE>   20

QUALMARK CORPORATION

BALANCE SHEET
(IN THOUSANDS, EXCEPT FOR NUMBER OF SHARES)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                           DECEMBER 31,
                                                                                     1999                1998
<S>                                                                             <C>                <C>
ASSETS
Current assets:
   Cash and cash equivalents                                                    $         525      $         668
   Trade accounts receivable, net of allowance for doubtful
    accounts of $192 and $164, respectively                                             4,089              3,916
   Inventories, net                                                                     1,725              1,363
   Deferred tax asset                                                                   1,089                882
   Other current assets                                                                   125                132
                                                                                -------------      -------------
        Total current assets                                                            7,553              6,961
Property and equipment, net                                                             1,508              1,315
Note receivable from officer                                                              104                104
Deferred tax asset                                                                         88                 --
Other assets                                                                              155                141
                                                                                -------------      -------------
                                                                                $       9,408      $       8,521
                                                                                =============      =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
   Accounts payable                                                             $       1,179      $         869
   Accrued expenses                                                                     1,299              1,411
   Customer deposits and deferred revenue                                                  58                 63
   Current portion of long-term debt                                                    1,700                436
   Current portion of capital lease obligations                                             3                  5
                                                                                -------------      -------------
        Total current liabilities                                                       4,239              2,784
Long-term debt                                                                          1,086                975
Deferred tax liability                                                                     --                 21
                                                                                -------------      -------------
           Total liabilities                                                            5,325              3,780
Commitments and contingencies (Notes 6 and 12)
Shareholders' equity:
   Convertible preferred stock; no par value; 2,000,000 shares authorized;
      490,929 designated as Series A, 456,116 and zero shares issued and
      outstanding at December 31, 1999 and 1998, respectively; cumulative
      dividends at 8% per annum; 99,619 designated as Series B, none
      outstanding at December 31, 1999 and 1998, respectively                             834                 --
   Common stock; no par value; 15,000,000 shares authorized;
      3,539,015 and 3,485,015 shares issued and outstanding at
      December 31, 1999 and 1998, respectively                                          7,295              6,396
   Accumulated deficit                                                                 (4,046)            (1,655)
                                                                                -------------      -------------
        Total shareholders' equity                                                      4,083              4,741
                                                                                -------------      -------------
                                                                                $       9,408      $       8,521
                                                                                =============      =============
</TABLE>

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

                                      F - 3

<PAGE>   21

QUALMARK CORPORATION

STATEMENT OF SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT FOR NUMBER OF SHARES)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                    COMMON STOCK             PREFERRED STOCK          ACCUMULATED
                                                  SHARES     AMOUNT        SHARES        AMOUNT         DEFICIT      TOTAL
                                                 ---------   -------       -------       -------        -------      -------
<S>                                              <C>         <C>           <C>           <C>            <C>          <C>
Balance December 31, 1997                        3,387,134   $ 6,270          --         $   --         $(3,370)     $ 2,900

Exercise of options for common stock                63,824        51                                                      51

Exercise of warrants for common stock               34,057        52                                                      52

Amortization of deferred compensation
 related to issuance of warrants and options                      23                                                      23

Net income                                                                                                1,715        1,715
                                                 ---------   -------       -------       -------        -------      -------
Balance December 31, 1998                        3,485,015     6,396            --            --         (1,655)       4,741

Exercise of warrants for common stock               54,000       115                                                     115

Amortization of deferred compensation
 related to issuance of warrants and options                      23                                                      23

Issuance of preferred stock and common
  stock warrants                                                 140       465,116           834                         974

Warrants issued for common stock in
 litigation settlement                                           621                                                     621

Preferred dividends                                                                                         (27)         (27)

Net loss                                                                                                 (2,364)      (2,364)
                                                 ---------   -------       -------       -------        -------      -------
Balance December 31, 1999                        3,539,015   $ 7,295       465,116       $   834        $(4,046)     $ 4,083
                                                 =========   =======       =======       =======        =======      =======
</TABLE>


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


                                      F - 4
<PAGE>   22

QUALMARK CORPORATION

STATEMENT OF CASH FLOWS
(IN THOUSANDS)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                     YEARS ENDED DECEMBER 31,
                                                                                     1999                1998
<S>                                                                             <C>                <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)                                                               $      (2,364)     $       1,715
Adjustments to reconcile net income (loss) to net cash from
 operating activities:
   (Gain) loss on disposal of equipment                                                    32                (45)
   Depreciation and amortization                                                          550                629
   Warrant and stock option expense                                                        23                 23
   Deferred income tax benefit                                                           (316)              (861)
   Issuance of warrants and note payable to settle litigation                           1,546                 --
Changes in assets and liabilities:
      Accounts receivable, net                                                           (173)              (816)
      Inventories, net                                                                   (362)              (755)
      Other assets                                                                         59               (186)
      Accounts payable                                                                    310                223
      Accrued expenses                                                                   (139)              (482)
      Customer deposits and deferred revenue                                               (5)                 4
                                                                                -------------      -------------
        Net cash used in operating activities                                            (839)              (551)
                                                                                -------------      -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment                                                    (769)              (567)
Proceeds from disposal of property and equipment                                           --                112
Investment in patents                                                                     (72)                --
Note receivable from officer                                                               --               (104)
                                                                                -------------      --------------
        Net cash used in investing activities                                            (841)              (559)
                                                                                -------------      --------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings                                                                1,050              2,836
Repayments of borrowings                                                                 (600)            (1,609)
Proceeds from issuance of common stock, net                                               115                103
Proceeds from issuance of preferred stock and warrants, net                               974                 --
Principal payments on capital lease obligations                                            (2)               (11)
                                                                                -------------      -------------
        Net cash provided by financing activities                                       1,537              1,319
                                                                                -------------      -------------
Net increase (decrease) in cash and cash equivalents                                     (143)               209
Cash and cash equivalents at beginning of year                                            668                459
                                                                                -------------      -------------
Cash and cash equivalents at end of year                                        $         525      $         668
                                                                                =============      =============
SUPPLEMENTAL DISCLOSURE
Interest paid                                                                   $         170      $          73
                                                                                =============      =============
Taxes paid                                                                      $          --      $          25

NON-CASH FINANCING ACTIVITIES
Issuance of note payable to settle litigation                                   $         925      $          --
Issuance of warrants to settle litigation                                                 621                 --
                                                                                =============      =============
</TABLE>

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

                                      F - 5
<PAGE>   23

QUALMARK CORPORATION

NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

      ORGANIZATION

          QualMark Corporation (the "Company") was incorporated on March 11,
     1992 in the State of Colorado. Its principal business activity is the
     manufacture and sale of vibration and thermal chambers for quality control
     testing of various electronic devices. The Company's sole manufacturing
     facility is located in Denver, Colorado. The Company also operates service
     centers, called Accelerated Reliability Test Centers ("ARTC"), where
     vibration and thermal chambers are available to customers for daily rental
     which are located at the Company's Denver, Colorado facility, in Boston,
     Massachusetts, Santa Clara, California, Huntington Beach, California,
     Detroit, Michigan, Orlando, Florida and Raleigh, North Carolina. During
     1999, the Company formed alliances for service centers in Burton, Michigan,
     Round Rock, Texas, London, England, Galway, Ireland, Mannheim, Germany,
     Enschede, the Netherlands, Milan, Italy, Molndal, Sweden and Paris, France.

      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.

      INVENTORIES

          Inventories are stated at the lower of cost or market with cost
     determined by the first-in, first-out (FIFO) method.

      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 assets useful lives or the lives
     of the leases 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.

      ACCRUED LEGAL EXPENSE

          Legal fees relating to litigation in which the Company is a defendant
     are accrued when the liability is probable and the amount is reasonably
     estimable.

      REVENUE RECOGNITION

          Revenues are recognized upon the shipment of product or the
     performance of services. Prepayments and progress billings are deferred
     until shipment occurs or services rendered.

      ADVERTISING EXPENSE

          The Company charges advertising, including production costs, to
     expense on the first date of the advertising period. Advertising and
     marketing expense for 1999 and 1998 was $65,000 and $135,000, respectively.

      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.


                                      F - 6

<PAGE>   24

QUALMARK CORPORATION

NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

      INCOME TAXES

          Deferred tax liabilities and assets are recognized for the expected
     future tax consequences of temporary differences between the carrying
     amounts for financial reporting purposes and the tax basis of individual
     assets and liabilities.

      PRODUCT WARRANTIES

          A provision has been recorded for expected costs to be incurred as a
     result of product warranties at the time the sale is recognized. In 1999
     and 1998, the Company offered a limited, two-year parts and labor warranty
     on all new OVS systems. Starting in 2000, the Company will offer a
     standard, one-year parts and labor warranty on all new OVS systems, and a
     limited, two-year parts and labor warranty on specific negotiated
     contracts.

      FINANCIAL INSTRUMENTS

          The carrying amounts of cash and cash equivalents, accounts
     receivable, accounts payable, accrued expenses, customer deposits and long
     term debt approximate fair value.

      NET INCOME (LOSS) PER SHARE

          Net income (loss) per basic share of common stock is based on the
     weighted average number of shares of common stock outstanding during each
     respective period. Net income (loss) per diluted share of common stock adds
     to basic weighted shares the weighted average number of shares of potential
     common shares (diluted stock options and warrants) outstanding during each
     respective period. Proceeds from the exercise of the potential common
     shares are assumed to be used to repurchase outstanding shares of the
     Company's common stock at the average fair market value during the period.
     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. The calculation
     of basic and diluted earnings per share is as follows (in thousands, except
     per-share amounts):

<TABLE>
<CAPTION>
                                                                                         DECEMBER 31,
                                                                                     1999            1998
<S>                                                                             <C>              <C>
        Basic earnings per share computation
           Net income (loss)                                                    $      (2,364)   $       1,715
                                                                                =============    =============

           Weighted average shares outstanding - basic                                  3,532            3,450
                                                                                =============    =============

           Basic earnings (loss) per share                                      $      (0.67)    $        0.50
                                                                                =============    =============

        Diluted earnings per share computation
           Net income (loss)                                                    $     (2,364)    $       1,715
                                                                                =============    =============

           Weighted average shares outstanding - basic                                 3,532             3,450
           Dilutive stock options and warrants                                            --               356
                                                                                ------------     -------------
                                                                                       3,532             3,806
                                                                                ============     =============
           Diluted earnings (loss) per share                                    $      (0.67)    $        0.45
                                                                                ============     =============
</TABLE>

     Options and warrants to purchase 1,729,991 shares were not included in the
computation of earnings per share assuming dilution at December 31, 1999,
because including the options would result in an antidilutive effect on earnings
per share.

     Options to purchase 55,500 shares of common stock were excluded from
dilutive stock option calculations for 1998, because their exercise prices were
greater than the average fair market value of the Company's stock for the
period, and as such they would be antidilutive.

                                      F - 7
<PAGE>   25

QUALMARK CORPORATION

NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

     USE OF ESTIMATES

          The preparation of the financial statements in conformity with
     generally accepted accounting principles 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.

      RECLASSIFICATIONS

          Certain prior year amounts have been reclassified to conform to the
     current year's presentation.

      NEW ACCOUNTING PRONOUNCEMENTS

          In June 1998, the Financial Accounting Standards Board ("FASB") issued
     Statement of Financial Accounting Standards ("FAS") No. 133, "Accounting
     for Derivative Instruments and Hedging Activities." This statement
     establishes accounting and reporting standards for derivative instruments
     and for hedging activities. It requires the recognition of all derivatives
     as either assets or liabilities in the statement of financial position at
     fair value. In June 1999, the FASB issued FAS No. 137, which defers the
     effective date of FAS No. 133 to fiscal years beginning after June 15,
     2000. Currently, the Company does not engage in such activities and the
     adoption of this standard is not expected to have an effect on the
     Company's financial position or results of operations.

2.   INVENTORIES

     Inventories consist of the following at (in thousands):

<TABLE>
<CAPTION>
                                                                          DECEMBER 31,
                                                                        1999                1998

<S>                                                              <C>                <C>
        Raw materials                                            $           905    $           708
        Work in process                                                      213                198
        Finished goods                                                       657                457
        Less: Allowance for obsolescence                                     (50)                --
                                                                 ---------------    ---------------
                                                                 $         1,725    $         1,363
                                                                 ===============    ===============
</TABLE>

3.   PROPERTY AND EQUIPMENT

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

<TABLE>
<CAPTION>
                                                                              DECEMBER 31,
                                                                        1999                1998
<S>                                                              <C>                <C>
        Machinery and equipment                                  $         2,426    $         2,130
        Furniture and fixtures                                               189                167
        Leasehold improvements                                               458                421
        Capitalized software                                                 128                 --
        Construction in process                                               87                 --
        Less: Accumulated depreciation and amortization                   (1,780)           (1,403)
                                                                 ---------------    ---------------
                                                                 $         1,508    $         1,315
                                                                 ===============    ===============
</TABLE>

     Depreciation expense was $544,000 and $613,000 for the years ended December
31, 1999 and 1998, respectively.


                                      F - 8


<PAGE>   26

QUALMARK CORPORATION

NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------


     The Company leases certain office and service center equipment under
     capital leases. Property and equipment above include the following amounts
     for leases that have been capitalized at (in thousands):

<TABLE>
<CAPTION>
                                                                                         DECEMBER 31,
                                                                                   1999                1998
<S>                                                                           <C>                <C>
        Machinery and equipment                                               $            76    $            76
        Less: Accumulated amortization                                                    (55)               (52)
                                                                              ---------------    ---------------
                                                                              $            21    $            24
                                                                              ===============    ===============
</TABLE>

4.   ACCRUED EXPENSES

     Accrued expenses consist of the following at (in thousands):

<TABLE>
<CAPTION>
                                                                                         DECEMBER 31,
                                                                                   1999                1998
<S>                                                                           <C>                <C>
        Accrued warranty                                                      $           661    $           444
        Accrued legal expense                                                              --                390
        Accrued employee related                                                          226                231
        Accrued royalties payable                                                          78                207
        Other                                                                             344                139
                                                                              ---------------    ---------------
                                                                              $         1,299    $         1,411
                                                                              ===============    ===============
</TABLE>


5.   INDEBTEDNESS

          In May 1996, the Company entered into a line of credit arrangement
     with a bank. The credit line, as amended August 1997, provided for draws up
     to $1,300,000, bore interest at prime plus 1.5%, matured August 2000 and
     was secured by substantially all the assets of the Company. The Company
     maintained certain financial and other covenants in order to draw amounts
     available under the line of credit. During September 1998, the Company drew
     $750,000 from the line of credit. Additionally, during September 1998, the
     Company borrowed additional amounts from a bank to purchase equipment, for
     a total equipment loan outstanding of $675,000. Interest on the loan
     accrued at a rate equal to the prime rate plus 1.5%. The loan was secured
     by substantially all equipment of the Company and was payable in equal
     installments over three years.

          During December 1998, the Company terminated the above equipment loan
     and line of credit and entered into a new line of credit arrangement and
     term loan agreement with a commercial bank. The credit line provides for
     draws up to $3,000,000, bears interest at the reserve adjusted LIBOR rate
     plus the applicable margin (as defined), and matures December 2001. The
     Company must maintain certain financial and other covenants in order to
     draw amounts available under the line of credit. The term loan provides for
     two draws up to $2,000,000, bears interest at the reserve adjusted LIBOR
     rate plus the applicable margin (as defined), and matures December 2001.
     Both the line of credit arrangement and term loan agreement are secured by
     substantially all the assets of the Company.

          During 1999, the Company renegotiated its Revolving credit and Term
     Loan Agreement ("Credit Agreement") with the commercial bank. Among other
     changes, this amendment to the existing Credit Agreement reduced the amount
     the Company may borrow on its revolving credit from $3,000,000 to
     $2,000,000. In addition, the Company will make no further borrowings on the
     term loan portion of the Credit Agreement. The revolving loan reflects
     three draws against it, with interest rates ranging from 9.56% to 9.65%,
     and a maturity date of December 22, 2001. As of December 31, 1999, the
     balance of the revolving credit is $1,050,000, and is classified as a
     current liability.

          The term loan agreement may not exceed $1,411,000, bears interest at
     the reserve adjusted LIBOR rate plus the applicable margin (as defined),
     which was 9.65% at December 31, 1999 and 7.41% at December 31, 1998. The
     term loan matures December 2001 and is secured by substantially all the
     assets of the Company. The Company must maintain certain financial and
     other covenants in order to draw amounts available under the line of
     credit. Although the Company is not now, nor has it ever been in arrears on
     any payment pursuant




                                     F - 9
<PAGE>   27

QUALMARK CORPORATION

NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

     to the Credit Agreement, as of December 31, 1999, the Company is in default
     of certain financial covenants contained in the Credit Agreement. The
     Company attributes this default condition primarily to expenses incurred to
     contest and settle litigation (See Note 12), and to fluctuations in
     customer demand. The Company has, however, received waivers from its
     lenders regarding such noncompliance.

     Through December 31, 1999, the Company had an outstanding balance of
     $1,111,000 under the term loan agreement. The following represents future
     amounts payable at December 31, 1999 (in thousands).

<TABLE>
<CAPTION>
        Year ended December 31,
<S>                                                                           <C>
           2000                                                               $           300
           2001                                                                           811
                                                                              ---------------
                                                                              $         1,111
                                                                              ===============
</TABLE>

          Also, on August 31, 1999, the Company entered into a settlement
     agreement with Screening Systems, Inc. ("SSI"). Under the terms of the
     settlement, the Company issued a $925,000 note payable, which accrues
     interest at 9% per annum. The note payable matures in April 2001, (See Note
     12). As of December 31, 1999 the note had an outstanding balance of
     $625,000. The following represents future amounts payable at December 31,
     1999 (in thousands).

<TABLE>
<CAPTION>
        Year ended December 31,
<S>                                                                           <C>
           2000                                                               $           350
           2001                                                                           275
                                                                              ---------------
                                                                              $           625
                                                                              ===============
</TABLE>

6.    LEASE COMMITMENTS

          The Company leases equipment, office space, and operating facilities
     under capital and operating lease arrangements. Future minimum lease
     payments consist of the following at December 31, 1999 (in thousands):

<TABLE>
<CAPTION>
                                                               CAPITAL           OPERATING
                                                               LEASES             LEASES              TOTAL
        Year ended December 31,
<S>                                                        <C>                <C>               <C>
                    2000                                   $             3    $           381   $            384
                    2001                                                --                178                178
                    2002                                                --                 41                 41
                                                           ---------------    ---------------   ----------------
                                                                         3    $           600   $            603
                                                                              ===============   ================
        Current portion                                                 (3)
                                                           ---------------
        Long-term portion                                  $            --
                                                           ===============
</TABLE>


     Rent expense for the years ended December 31, 1999 and 1998 was $560,000
     and $489,000, respectively. The Company sublets some of the office space
     under an agreement, which was terminated in 1998. Sublease income for the
     year ended December 31, 1998 was $23,000.







                                     F - 10
<PAGE>   28

QUALMARK CORPORATION

NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------


7.    INCOME TAXES

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

<TABLE>
<CAPTION>
                                                                                   YEARS ENDED DECEMBER 31,
                                                                                   1999                1998
<S>                                                                           <C>                <C>
        Current tax expense (benefit)
           Federal                                                            $            (9)   $            14
           State                                                                            3                  5
                                                                              ---------------    ---------------
                                                                                           (6)                19
        Deferred tax expense (benefit)
           Federal                                                                       (271)              (743)
           State                                                                          (45)              (118)
                                                                              ---------------    ---------------
                                                                                         (316)              (861)
                                                                              ---------------    ---------------
                                                                              $          (322)   $          (842)
                                                                              ===============    ===============
</TABLE>

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

<TABLE>
<CAPTION>
                                                                               YEARS ENDED DECEMBER 31,
                                                                     1999                                        1998
                                                         AMOUNT                  %                 AMOUNT                   %

<S>                                                   <C>                   <C>                  <C>                   <C>
     Computed "expected" tax                          $     (913)                (34.0)%         $      297                  34.0%
     State income taxes, net of Federal
      income tax effect                                     (127)                 (4.8)                  54                   6.1
     Utilization of NOL                                       --                    --                 (323)                (37.0)
     Change in valuation allowance                           616                  23.0                 (914)               (104.7)
     Other                                                   102                   3.8                   44                   5.1
                                                      ----------            ----------           ----------            ----------

                                                      $     (322)                (12.0)%         $     (842)                (96.5)%
                                                      ==========            ==========           ==========            ==========
</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,
                                                               1999                  1998
<S>                                                        <C>                    <C>
     Deferred tax assets:
        NOL carryforwards                                  $      1,331           $        419
        Accrued liabilities                                         278                    383
        Allowance for doubtful accounts                              76                     65
        Inventory                                                    20                     --
        Depreciation and amortization                                88                      5
        Other                                                         5                     15
        Valuation allowance                                        (616)                    --
                                                           ------------           ------------
     Total deferred tax assets                                    1,182                    887
                                                           ------------           ------------

     Deferred tax liabilities:
        Unicap                                                        5                     --
        Depreciation                                                 --                     26
                                                           ------------           ------------
     Total deferred tax liabilities                                   5                     26
                                                           ------------           ------------
     Net deferred tax asset                                $      1,177           $        861
                                                           ============           ============
     Financial Statements:
        Current deferred tax assets                        $      1,089           $        882
        Non-current deferred tax assets                              88                     --
        Non-current deferred tax liabilities                         --                    (21)
                                                           ------------           ------------
     Net deferred tax asset                                $      1,177           $        861
                                                           ============           ============
</TABLE>





                                     F - 11
<PAGE>   29

QUALMARK CORPORATION

NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------



          As of December 31, 1999 and 1998, the Company had net operating loss
     ("NOL") carryforwards of approximately $3,372,000 and $1,063,000,
     respectively, which are available to offset future taxable income. 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.

          During the third quarter of 1999, due to an unexpected downturn in its
     business, which resulted in on going operating losses, management concluded
     that it was more likely than not that some portion of the deferred tax
     assets would not be realizable and determined that a valuation allowance
     was required for a portion of the deferred tax assets. Accordingly, in the
     third and fourth quarters of 1999 a valuation allowance was established,
     which totaled $616,000 as of December 31, 1999, for those deferred tax
     assets that did not meet the more likely than not requirement for
     realization. The release of the valuation allowance in 1998 was based on
     management's conclusion that sufficient positive evidence regarding
     realization of certain tax carryforward items did exist at that time.

8.   CAPITAL STOCK, STOCK OPTIONS AND WARRANTS

     PREFERRED STOCK

          The Company sold, to an existing common shareholder, 465,116 shares of
     preferred stock and warrants to purchase 139,535 shares of common stock for
     $1,000,000 on September 1, 1999, for proceeds of $974,000, net of
     transaction costs. The preferred shares accrue dividends at 8% per annum,
     and dividends for the first twelve months may be paid in additional
     preferred shares, which would allow the holder to accumulate additional
     37,210 preferred shares. The preferred shares are convertible to common
     shares at $2.15 per share.

     STOCK WARRANTS

          In 1995, warrants to purchase 72,000 shares of common stock at an
     exercise price of $2.13 per share were issued to a principal shareholder,
     in connection with the Company's sale of Hobbs Engineering Corporation
     ("Hobbs") to the shareholder (Note 11). The warrants vest and are
     exercisable in 25% increments on December 31, 1996, 1997, 1998 and 1999.
     All warrants expire five years from the grant date. Compensation expense
     relative to these warrants of $92,000 will be charged to expense over the
     four-year vesting period which began January 1, 1996. During 1999, Hobbs
     exercised 54,000 warrants to purchase 54,000 shares of common stock.

          Also in 1995, warrants to purchase 50,009 shares of common stock at an
     exercise price of $3.375 per share were issued in connection with the
     issuance of $500,000 of 10% secured notes. During 1999, no warrants were
     exercised. During 1998, 15,002 of these warrants were exercised to purchase
     15,002 shares of common stock.

          During 1996, the Company offered its stock for sale to the public. In
     connection therewith, the Company issued to the underwriter a five-year
     warrant to purchase up to 132,170 shares of common stock at $4.50 per
     share. During 1999, no warrants were exercised. During 1998, 44,277 of
     these warrants were used to purchase 19,055 shares of common stock.

          During 1999, warrants to purchase 139,535 shares of common stock at an
     exercise price of $2.15 per share were issued in connection with the
     issuance of 465,116 shares of cumulative preferred stock, as noted above.
     These warrants had a fair market value of $140,000 at issuance.





                                     F - 12
<PAGE>   30

QUALMARK CORPORATION

NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

          Also in 1999, the Company issued warrants to purchase 620,000 shares
     of common stock at an exercise price of $4.85 per share in connection with
     the settlement of patent litigation with SSI. These warrants had a fair
     market value of $621,000 at issuance. (See Note 12).

     STOCK OPTIONS

          In 1993, the Company adopted an incentive stock option plan (the "1993
     Plan") which 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 vests at a rate of 25% per
     year over four years and expire up to ten years from the date of grant at
     the discretion of the Board of Directors.


     Stock option transactions of the 1993 Plan are summarized below:

<TABLE>
<CAPTION>
                                                                          WEIGHTED AVERAGE
                                                       SHARES              EXERCISE PRICE

<S>                                                 <C>                     <C>
     Outstanding at December 31, 1997                    102,746            $       2.10
     Exercised                                            (1,874)                   2.13
     Forfeited                                              (375)                   2.13
                                                    ------------            ------------
     Outstanding at December 31, 1998                    100,497                    2.10

     Forfeited                                            (3,000)                   2.13
                                                    ------------            ------------

     Outstanding at December 31, 1999                     97,497            $       2.09
                                                    ============            ============
</TABLE>

          At December 31, 1999 and 1998, options were exercisable with respect
     to 97,497 and 86,709 shares, respectively, with exercise prices ranging
     from $2.00 to $2.13 and a weighted average exercise price of $2.09 for both
     year ends.

          During 1998, compensation expense of $7,000 was recorded in connection
     with a November 1995 grant of 31,895 options to three employees of the
     Company. There is no unamortized deferred remaining.

          An additional 175,788 nonqualified stock options have been issued to
     the Company's president outside of the plan described above. During 1998,
     nonqualified options of 59,700 shares of common stock were exercised at an
     exercise price of $.67 per share. At December 31, 1999 and 1998,
     nonqualified options to purchase 116,088 shares at a price of $2.00 per
     share are exercisable.

          In 1995, the Company adopted the 1996 Stock Option Plan (the "1996
     Plan"). 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%
     (or 110% in the case of a holder of 10% or more of the voting power of all
     classes of stock of the Company) 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. 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 of 25% per year over four years and expire up to
     ten years from the date of grant at the discretion of the Board of
     Directors.








                                     F - 13
<PAGE>   31


QUALMARK CORPORATION

NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------


     Stock option transactions of the 1996 Plan are summarized below:

<TABLE>
<CAPTION>
                                                                          WEIGHTED AVERAGE
                                                       SHARES              EXERCISE PRICE

<S>                                                 <C>                     <C>
     Outstanding at December 31, 1997                    388,000            $       4.25
     Granted                                              76,250                    6.56
     Exercised                                            (2,250)                   3.41
     Forfeited                                           (31,000)                   4.38
                                                    ------------            ------------
     Outstanding at December 31, 1998                    431,000                    4.63

     Granted                                             302,750                    2.95
     Forfeited                                          (138,000)                   3.95
                                                    ------------            ------------

     Outstanding at December 31, 1999                    595,750            $       3.94
                                                    ============            ============
</TABLE>

          At December 31, 1999 and 1998, options were exercisable with respect
     to 186,562 and 123,375 shares, respectively, with exercise prices ranging
     from $3.25 to $7.00 and a weighted average exercise price of $4.37 and
     $4.06, respectively.

     FAIR 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 method of accounting prescribed by SFAS 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,
                                                               1999                     1998
<S>                                                       <C>                      <C>
     Net income (loss):
        As reported                                       $     (2,364)            $      1,715
        Pro forma                                         $     (2,603)            $      1,596

     Basic income (loss) per share:
        As reported                                       $      (0.67)            $       0.50
        Pro forma                                         $      (0.74)            $       0.46

     Fully diluted income (loss) per share:
        As reported                                       $      (0.67)            $       0.45
        Pro forma                                         $      (0.74)            $       0.42
</TABLE>


          The fair value of each option and warrant 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, 1999 and 1998: dividend yield of zero; expected volatility of
     79% and 46%, respectively; risk-free interest rates of 5.95% and 4.54%,
     respectively, and an expected term of six years. The risk-free interest
     rate used in the calculation is the yield on the grant date of a U.S.
     Treasury Strip with a maturity equal to the expected term of the option.
     The pro forma effect on net income for 1999 and 1998 is not representative
     of the pro forma effect on operations in future years because it does not
     take into consideration pro forma compensation expense related to grants
     made prior to 1995.










                                     F - 14
<PAGE>   32

QUALMARK CORPORATION

NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------


9.   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. The Company
     may make discretionary contributions, as determined by the Board of
     Directors each year, to employee participants who have more than one year
     of service. Participants vest in employer contributions at a rate of 20%
     per year over five years. During 1999, no employer contributions were made.
     The Company contributed $20,000 to the Plan during 1998.

10.  SEGMENT INFORMATION

          The Company operates in two business segments, equipment and
     Accelerated Reliability Test Centers ("ARTC"). The equipment segment
     ("Equipment") 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 performances 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.

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

<TABLE>
<CAPTION>
                                                              EQUIPMENT            ARTC               TOTAL

<S>                                                        <C>                <C>               <C>
                    YEAR ENDED DECEMBER 31, 1999

                    Sales                                  $         8,804    $         3,755   $         12,559
                    Gross profit                                     3,330              1,659              4,989
                    Property and equipment, net                        385              1,123              1,508


                    YEAR ENDED DECEMBER 31, 1998

                    Sales                                  $        10,151    $         3,591   $         13,742
                    Gross profit                                     4,609              1,474              6,083
                    Property and equipment, net                        303              1,012              1,315
</TABLE>




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

<TABLE>
<CAPTION>
                                                                                   YEARS ENDED DECEMBER 31,
                                                                                   1999               1998

<S>                                                                           <C>               <C>
                    United States                                             $        10,592   $         12,820
                    International                                                       1,967                922
                                                                              ---------------   ----------------

                    Total                                                     $        12,559    $        13,742
                                                                              ===============    ===============
</TABLE>

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





                                     F - 15
<PAGE>   33

QUALMARK CORPORATION

NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------



11.  RELATED PARTY TRANSACTIONS

          In 1995, the Company sold the assets of Hobbs Engineering Corporation
     (HEC), excluding any patents or other intellectual property, to Dr. Hobbs,
     a principal shareholder of the Company. In connection with the sale, the
     Company agreed to make quarterly royalty payments to Dr. Hobbs equal to two
     percent of the Company's total revenues, increasing to a maximum of three
     percent if certain revenue levels are achieved, for the period January 1,
     1996 through December 31, 1999, in exchange for Dr. Hobbs being available
     to actively promote the Company's products and services. Royalties in
     excess of the 2% base royalty are calculated as .5% and 1% of total
     revenues if the following revenue levels are achieved:

<TABLE>
<CAPTION>
                             ADDITIONAL 0.5% ROYALTY            ADDITIONAL 1.0% ROYALTY
              YEAR             IF REVENUES EXCEED:                IF REVENUES EXCEED:

<S>                              <C>                                <C>
              1998               $   11,000,000                     $   12,000,000
              1999                   13,000,000                         14,000,000
</TABLE>

          During 1999 and 1998, royalties of $251,000 and $412,000,
     respectively, were expensed relating to this agreement. As of December 31,
     1999, the Company had fulfilled the agreement with Dr. Hobbs and,
     therefore, no future royalties are payable on sales.

          During 1998, the Company lent $104,000 to the Company's president
     pursuant to a note secured by his primary residence, with interest accruing
     at a rate equal to the 10% annually. The note is payable over five years,
     with 5% of the principal due at each anniversary date and the remaining
     balance due to the end of the term. On January 13, 2000, the Company had
     repurchased 4,016 common shares at the fair market value of $4.06, on that
     date, per share from its president in lieu of the 1999 cash payment for
     principal, interest and penalties totaling $16,000. As of January 13, 2000,
     the outstanding note payable balance totaled $98,000.

12.  LEGAL MATTERS

          On March 22, 1996, the Company was served with a summons and complaint
     from Screening Systems, Inc., a competitor. The complaint, as amended,
     alleges the Company's vibration system infringes three patents owned by
     Hughes Electronics ("Hughes") and licensed to SSI, and seeks injunctive
     relief, monetary damages and costs of litigation.

          The Company has been aware of the patent in question since the Company
     commenced its operations and, with advice from patent counsel, designed its
     vibration system, components of which are also patented, so as to not
     infringe the patents. The Company's vibration system has been used
     continuously in its products since 1991.

          Although the Company continues to maintain it engaged in no wrongful
     conduct, on August 31, 1999, it entered into a settlement agreement with
     SSI. Under the terms of the settlement, the Company will pay $925,000 to
     SSI in three unequal payments upon signing the agreement, July 2000, and
     April 2001. Interest will accrue at 9% per annum and is payable quarterly,
     on the settlement amount. In addition, the Company issued warrants to SSI
     for the purchase of 620,000 shares of its non-voting common stock. The
     warrants have a five-year term at an exercise price of $4.85 per share, and
     a fair market value of $621,000.

          Management believes that all expenses relating to this litigation have
     been provided for in the financial statements for the year ending December
     31, 1999.






                                     F - 16
<PAGE>   34

                                INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NUMBER          DESCRIPTION                                                                      SEQUENTIAL PAGE NO.
--------------          -----------                                                                      -------------------
<S>                     <C>                                                                              <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)

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)

27.1                    Financial Data Schedule
</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)  Filed as an Exhibit to the Company's Proxy Statement for the 1996 Annual
     Meeting of Shareholders.

(4)  Filed as an Exhibit to 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.