<PAGE>
                     U.S. SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                                   FORM 10-KSB

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

                  For the fiscal year ended: DECEMBER 31, 2001

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

         For the transition period from                    to
                                        ------------------    ----------------

         Commission file number:  0-28484

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

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


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

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

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

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


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

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

         Issuer's revenues for its most recent fiscal year. $8,145,000

         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 14, 2002 was $3,249,083.

         The number of shares outstanding of the issuer's Common Stock as of
March 14, 2002 was 3,610,092.

                       DOCUMENTS INCORPORATED BY REFERENCE

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

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


<PAGE>

                                     PART I


ITEM 1.  DESCRIPTION OF BUSINESS.

     QualMark Corporation ("QualMark" or "the Company") designs, manufactures,
and markets proprietary equipment that rapidly and efficiently expose product
design and manufacturing-related defects for the purpose of improving product
quality and reliability. The Company's high performance physical stress
equipment supports significant improvements in the process of Design
Verification Testing ("DVT") and Environmental Stress Screening ("ESS"). DVT is
the process by which electronic product manufacturers ensure their products
perform within the previously determined operating ranges (commonly known as
"specifications"). ESS is the testing process used by these same manufacturers
to expose production-related defects.

     The Company's equipment allows manufacturers to determine the true
operating limits of their products. This gives manufacturers the necessary
information to reduce design costs, improve product reliability, shorten time to
market, reduce warranty costs, and extend warranty periods. The Company's
equipment is used by manufacturers in a wide range of industries to perform
highly accelerated stress testing on products such as circuit boards, personal
computers, monitors, flight navigation systems, cellular telephones, LAN/WAN
equipment and consumer electronics.

     The Company evolved from a business manufacturing and marketing its
proprietary OVS (Omni-axial Vibration System) equipment to a full service
organization offering HALT (Highly Accelerated Life Test) and HASS (Highly
Accelerated Stress Screen) test services as well. The Company operates a network
of test centers, known as Accelerated Reliability Test Centers ("ARTC"), which
provide comprehensive HALT and HASS test and support services to industry. These
services include accelerated reliability improvement test services (HALT and
HASS) using QualMark's OVS physical stress equipment performed either in the
ARTC test centers or at the customer's site.

     QualMark currently operates four test centers located in the metropolitan
areas of Denver, Colorado, Huntington Beach, California, Santa Clara,
California, and Boston, Massachusetts. The Company also utilizes one domestic
strategic alliance with a large testing company in Detroit, Michigan. In
addition, the Company has established strategic alliances with Anecto Ltd.,
Maser Engineering, IMQ Instituto del marchia di Qualita, Institutet For
Verkstadsteknisk Forskning/The Swedish Institute of Production Engineering, and
Emitech, to operate testing centers in Galway, Ireland, Enschede, the
Netherlands, Milan, Italy, Molndal, Sweden and Paris, France. As international
demand for its products and services grows, the Company may further expand its
domestic and international presence by expanding strategic alliance arrangements
with other test lab organizations.

     The Company was organized in July 1991 as a Colorado limited liability
company and was later incorporated in March 1992 in Colorado. The Company
completed its initial public offering in April 1996.

PRODUCTS AND SERVICES

     THE OVS COMBINED STRESS SYSTEM

     The Company's OVS Combined Stress Systems for HALT and HASS are comprised
of two main subassemblies: the LF Vibration Assembly, which applies vibrational
stresses, and the UltraRate Thermal Chamber Assembly, which applies thermal
stresses and houses the vibration assembly. During 2000, the Company released
the newest advancement in the OVS Combined Stress System, the Typhoon
("Typhoon"). The Typhoon technology optimizes the operating efficiencies of the
standard OVS test chambers. Lower costs are made possible by a unique design
that significantly reduces both the consumption of liquid nitrogen used to cool
the chambers and the amount of electricity used to heat the chambers.

     The LF Vibration Assembly

     The LF (low frequency) Vibration Assembly is a new generation vibration
system, which the Company introduced in 1999. This system has increased low
frequency compared to the Omniaxial vibration system previously produced and
sold by the Company. The LF system is a multi-axis vibration system comprised of
a table, actuators and unique attachment system and is the heart of the
Company's technology. The vibration table moves simultaneously in three linear
axes and three angular rotations. Each axis has broad-band random vibration,
with all frequencies present, all of the time. While the traditional frequency
range used for Design Verification Testing (DVT) and Environmental Stress
Screening (ESS) is from


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

The LF Vibration System consists of two major components:

     Vibration Table

          The patented table is constructed out of a top plate, thermal
     insulation layer and supporting under structure. This new design is
     significantly lighter and stiffer than the previous design, resulting in
     higher low frequency energy and improved energy distribution over the
     active frequency range. This table has proved particularly effective in the
     testing of assemblies with larger components. The Company while continuing
     to supply a range of standard table sizes has also produced custom sizes to
     meet customer requirements. The Company uses an outside source to produce
     its vibration tables, however the Company is not dependent on a single
     source of supply and controls all design and documentation.

     ASX and LF2 Actuators

          Attached to the bottom surface of the under structure are a set of
     pneumatic piston driven actuators. The method of attachment is also the
     subject of a patent application, as the unique method shapes the frequency
     distribution. There are two types of actuator used, the patent pending ASX
     and the licensed LF2. The ASX actuator is an evolution of the patented
     Autosmear actuator. The Company is the sole licensee of the LF2 actuator
     from Storage Technology Corporation. The combination of actuators provides
     excitation in both the low and high frequency areas of the energy spectrum.
     Compressed air is used to drive the pistons in the actuators to impact the
     top of the actuators, translating the energy through the attachment system
     to vibration energy in the table.

     The unique design of these actuators when used in conjunction with the new
table generates an even distribution of vibratory energy in the frequency
spectrum. This provides for more effective fault detection and screening. The
Company has released this technology in all the OVS system sizes.

     The UltraRate Thermal Chamber Assembly

     The UltraRate Thermal Chamber, which houses the OmniAxial Vibration
Assembly, changes temperature at rates up to 600 Centigrade per minute as
measured on the product being tested. This high rate of change results in highly
effective design verification during HALT and extremely short production screens
during HASS, requiring less equipment and personnel to perform a given series of
thermal cycles. The Company believes that its UltraRate Thermal Chambers,
comprised of patented and patent pending features, have one of the highest rate
of thermal change available in the environmental stress screening industry. This
capability significantly reduces test time, with resulting cost reductions in
equipment and personnel.

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

TYPHOON TECHNOLOGY:

     The Typhoon technology represents the newest development in UltraRate
Thermal technology. The technology lowers operating costs by reducing thermal
mass of the chamber and optimizing the efficiency of the air flow system, which
consequently reduces operating costs.

The OVS Combined Stress System Product Line

     The Company's OVS Combined Stress Systems for HALT and HASS are presently
available in 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


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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-4 and Typhoon 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.


     OVS-1.5:

          The OVS-1.5 is the smallest version of the OVS product line. The
     OVS-1.5 is a truly portable, multi-axis vibration and high performance
     thermal chamber. Equipped with all the same operating features of the
     larger OVS systems, including PC controller, the OVS-1.5 is primarily used
     by manufacturers of small products (such as "palm size" circuit boards,
     modem cards for notebook computers, disk drives, etc.) and usually in the
     product development (HALT) area. The OVS-1.5 can generate random vibration
     forces of 40 Grms (2Hz-10,000 Hz) on the 18"x18" vibration table and up to
     600 Centigrade per minute change on the product under test within the
     18"x17"x13" internal dimension (ID) thermal chamber. The domestic price of
     the OVS-1.5 is approximately $77,900.

     OVS-2.5:

          The OVS-2.5 is the most popular system in the OVS product line. A
     mid-size system, the PC-controlled OVS-2.5 is equipped with four actuators
     mounted to the vibration table. The OVS-2.5 LF vibration system can
     generate 50 Grms from 2Hz to 10,000 Hz. The vibration table is 30"x30", and
     is enclosed within a thermal chamber that is 36"x36x37" (ID). The thermal
     chamber is capable of up to 600 Centigrade per minute change on the product
     under test. Typical uses of the OVS-2.5 include mid-size product HALT
     applications (disk drives, small computers, power supplies, monitors, etc.)
     and small volume HASS applications (multiple disk drives, multiple modem
     cards for notebook computers, etc.) The domestic price for a standard
     OVS-2.5 is approximately $128,500.

     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 600 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 domestic price for a standard OVS-4.0 is approximately $182,500.

     Typhoon:

          The Typhoon chamber compares in size with the OVS-4. The most common
     application for the Typhoon is large volume production screening (HASS) on
     computers, monitors, communications systems, etc. The PC-controlled Typhoon
     is equipped with a 48"x48" vibration table housed within a 55"x54"x54"
     (internal dimension) (table in lower position) thermal chamber capable of
     producing temperature changes of up to 700 Centigrade per minute on the
     product under test. The Typhoon vibration system is equipped with twelve
     actuators that produce up to 50 Grms random vibration force. The domestic
     price for a standard Typhoon is approximately $185,000.

          A one year limited warranty is included with each OVS system sold in
     2001. Various options and accessories are available for each OVS model,
     including oxygen monitors, vacuum hold down apparatus (for product
     fixturing requirements), extended warranties, and on-site applications
     assistance.

QUALMARK ENGINEERING SERVICES ("QES")

     The Company offers a range of engineering services tailored to help solve
test process problems. The services that are offered under QES are:

          o    HALT and HASS testing procedure development

          o    Precision production fixturing solutions

          o    Automated electronic functional test equipment design and
               development

          o    Software validation testing and life cycle analysis

          o    Test and process data warehousing

          o    Remote viewing and analysis of test data through Internet linking


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The Company reviews each project with experts in the various fields and compiles
a proposal, which typically includes investigation, specification, and
execution. After the system or process is installed, the Company continues to
work with the client's staff to monitor and support the product and process.
This approach gives customers access to experts in varying fields at a time when
internal resources are often overburdened. The result is a better product
delivered to the marketplace, faster.

ACCELERATED RELIABILITY TEST CENTERS

     The Company has a network of ARTC test centers at various locations the
United States, which provide test services and on-site applications support
services. The Company is uniquely positioned to offer comprehensive HALT/HASS
test services to manufacturers. The QualMark test service business includes
accelerated reliability test services performed in the Company's test centers
and on-site applications support services. These services allow a broad range of
customers convenient access to the Company's technology while also serving as
valuable sales tools for gaining system orders. Each test center is equipped
with the OVS-2.5, at least one applications engineer and ancillary testing
equipment. 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.

     In addition to its Boston, Denver and Santa Clara test centers, during
1996, the Company opened test centers in the metropolitan areas of
Minneapolis-Saint Paul, Minnesota, Detroit, Michigan, and Raleigh, North
Carolina. In 1997, the Company opened its seventh and eighth test centers in
Huntington Beach, California and Orlando, Florida. During 1999 and 2000, the
Company reevaluated its domestic test center market and closed the
Minneapolis-Saint Paul, Minnesota and Raleigh, North Carolina labs. During 2001,
the Company reevaluated its test centers and strategically established a
partnership with a large national testing lab in Detroit, Michigan.

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

     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.


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     Based on client demand, the Company offers on-site applications support
services, principally through its ARTC network, to its clients as well as
competitors' customers. Specifically, the Company advises customers how to apply
HALT and HASS techniques to their products.

MARKETING

     During 2001, the Company put into place a targeted marketing program that
supported its market positions for new customer development. The Company also
expanded its efforts in the area of education, offering a range of informative
HALT and HASS seminars around the country and internationally. Many seminars
were available and accessible through the Internet. The Company will continue
with educational seminars during 2002.

The following was achieved during 2001:

     1.   The Company had all marketing collateral materials redesigned as a
          part of overall brand building campaign.

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

     3.   The Company developed and implemented programs and product offerings
          for our existing chamber customer owners which included service level
          agreements, custom fixturing products and chamber upgrades and
          enhancements.

     The Company signed an exclusive sales and marketing agreement for the
United States and Canada with Weiss Technik GmbH ("Weiss Technik"). Weiss
Technik is a world leader in the manufacturing and sales of environmental
climatic test chambers. This agreement allows the Company to now enter into the
larger market of environmental temperature testing thus enhancing market
opportunities and realizing an increased revenue stream.

     Sales Strategy

     During 2001, the Company completed its shift from operating a direct field
sales organization to operating with exclusive independent manufacturer's
representative throughout the United States and Canada. This shift is part of a
strategic sales and marketing plan to focus on customer development for both the
Company and its new international partner, Weiss Technik GmbH. The sales
representative chosen bring extensive industry knowledge with energy and visions
to assist the Company fulfill its corporate top line goals. The strategy of
utilizing manufacturer's representatives will continue into 2002 as the Company
expands into new market regions as Mexico, South America and other European
countries where the Company is not currently represented. During 2000, the
Company utilized Chart Industries Inc. ("Chart") domestically for the sale and
distribution of the QualMark products. During 2001, the Company reevaluated its
sales and distribution agreement with Chart and determined that the relationship
did not fit into the Company's revised strategic sales and marketing plan and
thus, severed the agreement.

CUSTOMERS

     The Company continues to market and sell its systems to the leading
corporations of the world. Most of these customers are within the Fortune 200
companies with global presence and strong market recognition. From the Companies
inception, more that 400 test systems have been sold world wide to more than 150
customers. During 2001, Chart comprised 10% or more of the Company's revenue.
The Company was not dependent on any single industry segment for its revenues.


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

<Table>
<Caption>
Aerospace and Defense                   Computer Related Products            Other
---------------------                   -------------------------            -----
<S>                                     <C>                                  <C>
Aviation electronics                    Circuit boards                       Automotive circuitry
Display switches                        Disk drives                          Electronic oil and gas flow meters
Flight navigation systems               Modems                               Global positioning systems
Marine navigation systems               Monitors
                                        Power supplies
                                        Printers
                                        Tape backup drives
<Caption>
Telecommunications                      Medical Electronics
------------------                      -------------------
<S>                                     <C>
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>


RESEARCH AND PRODUCT DEVELOPMENT

     Research and development expenditures for the fiscal years ending December
31, 2001 and 2000 were $802,000 and $836,000, respectively. In 2001 the Company
has been creating the basis for new designs which are expected to be released in
2002. QualMark will be transferring the technology used in the Typhoon into the
smaller OVS chambers, which will allow for faster ramps and more efficient use
of LN2 in all the chambers offered.

     Research is ongoing into the vibration technology used in the OVS chamber.
Improving low frequency energy and creating the technology to better serve the
changing market place is core to the QualMark mission.

     Other product offerings and options are being aggressively pursued, such as
more auxiliary thermocouples standard on every OVS chamber with the option of
adding more. Also, the control system is being updated to create a touhscreen
environment to improve how the user interfaces to the product is being designed
and tested.

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

INTELLECTUAL PROPERTY

     The Company has maintained the practice, where possible, to pursue patent
protection on its products. The Company has been issued 12 United States patents
(the "Patents") and numerous foreign patents issued in six countries. These
patents protect certain features of the OmniAxial and LF Vibration Assemblies of
the Company's OVS Combined Stress Systems or certain design features of the
pneumatic, piston-driven actuators (vibrators) that help create random motion of
the vibration table. The Company was issued U.S. Patent No. 5,365,788 on
November 22, 1994, for certain design features of pneumatic, piston driven
actuators that create motion for a vibration table. The Company was issued U.S.
Patent No. 5,412,991 on May 9, 1995, for certain design features of the
Company's vibration table. The Company was issued U.S. Patent No. 5,517,857 on
May 21, 1996, for certain design features related to positioning of a vibration
table within a stress screening chamber. The Company was issued U.S. Patent No.
5,540,109 on July 30, 1996, and U.S. Patent No. 5,675,098 on October 7, 1997,
for certain design features related to use of multiple stress screening
chambers. The Company was issued U.S. Patent No. 5,589,637 on December 31, 1996,
for certain design features of mountings of actuators to a vibration table. The
Company was issued U.S. Patent No. 5,744,724 on April 28, 1998 for certain
design features related to honeycomb vibration table structures. The Company was
issued Patent No. 5,836,202 on November 17, 1998 for claims directed at the
angle of attachment of the actuators to the vibration table. The Company was
issued Patent No. 5,813,541 on September 29, 1998 for the configuration of the
control system attachment to the chamber. The Company was issued Patent No.
6,062,086 on May 16, 2000 relating to interposer devices for adjusting and
controlling the shock response of a shaker table assembly. The Company was
issued Patent No. 6,105,433 on August 22, 2000 for low frequency shaker table
technology. The Company was issued Patent No. 6,112,596 on September 5, 2000 for
shaker table technology combined with the test chamber. The remaining duration
of each of the Patents is between ten and twenty years.


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

     In addition to the Patents, the Company tries to protect its proprietary
technology and know-how through established security practices and
confidentiality agreements with each of its employees, consultants, suppliers
and technical advisors. There can be no assurance, however, that these
agreements or procedures will provide meaningful protection for the Company's
trade secrets in the event of unauthorized use or disclosure of such
information.

     While the Company believes the protection afforded by the Patents is
strong, there can be no assurance that other companies will not be able to
design and build competing vibration tables in a manner that does not infringe
the Patents.

     The Company has the following registered marks with the United States
Patent and Trademark Office: QUALMARK, 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

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

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

     1.   Thermotron Industries Holland, Michigan

     2.   Envirotronics Grand Rapid, Michigan

     3.   Screening Systems, Inc. Aliso Viejo, California Screening Systems 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


     ARTC and Applications Support Services

     Throughout 2001 utilization of the Company's ARTC labs remained constant.
The Company consolidated its Farmington Hills, Michigan ARTC lab with a large
strategic testing center thus reducing overhead while maintaining a presence in
the territory. With a dedicated sales force in place, the Company anticipates
increased revenues for this facility in 2002. During 2002 the Company will
continue to evaluate options in consolidating other labs in an attempt to
maximize profitability. The ARTC labs will continue to be utilized as a
marketing and fundamental sales tool in promoting the purchases of the Companies
testing systems.

MANUFACTURING

     The Company's manufacturing facility is located in Denver, Colorado.
QualMark's assembly of the OVS systems follow a manufacturing line approach, in
which drawings of all subassemblies used by the Company are maintained using
computer aided design (CAD). The assembly of the Company's products is organized
around three major elements that include vibration systems, chamber systems and
control systems.


                                       8
<PAGE>


     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-4, Typhoon systems to build
during the quarter. The Company also produces certain common subassemblies that
are integrated into the final systems when orders are booked. This helps provide
a more even manufacturing flow and minimizes the "peaks and valleys" associated
with small volume manufacturing.

     The Company has implemented Material Requirements Planning, a computer
software driven inventory management process, to maximize the effectiveness in
which an order can be filled while minimizing required inventory. Management
uses fully-costed Bills of Materials (BOM) which ensure that all parts of an OVS
system are identified and ordered in a timely manner.

PRODUCT WARRANTIES AND SERVICE

     In 2000 and 2001, the Company offered a limited one-year parts and labor
warranty on all new OVS systems, respectively. OVS customers can purchase
extended warranties on their OVS systems, which may include two preventive
maintenance visits during the year by a qualified Company representative. In
addition, the Company offers for sale a comprehensive spare parts kit for each
OVS system, which further minimizes OVS system down time. Because of the
efficient design of OVS systems, the Company occasionally sends its technicians
into the field for warranty repairs. Most problems can be diagnosed over the
phone and, if necessary, replacement parts are sent to the customer via
overnight mail. During 2002, the Company will continue to 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

     Periodically, the Company receives inquiries from regulatory agencies
regarding its compliance with laws and regulations. To its knowledge, the
Company believes it complies with all international, federal, state and local
regulations, including environmental regulations. However, there is no assurance
that the Company will continue to remain in compliance with all such
regulations.

EMPLOYEES

     As of December 31, 2001, the Company had thirty-nine employees, of which
thirty-four are full-time. Twenty-six of the Company's employees are employed at
its principal offices and headquarters in Denver, Colorado, four are employed at
its facilities in Santa Clara, CA, three in Huntington Beach, CA, one in
Farmington Hills, MI, three in Marlborough, MA, one in Winter Park, FL, and one
in Huntsville, AL. No employees are represented by labor organizations and there
are no collective bargaining agreements. Employee relations are believed to be
good.

ITEM 2. DESCRIPTION OF PROPERTY.

     The Company operates out of leased facilities located at 1329West 121st
Avenue, Denver, Colorado. The three-year lease for the property expires on May
31, 2003. The leased property consists of approximately 18,093 square feet. The
lease calls for monthly payments over the term of the lease of $14,890. In
addition to the two 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.


                                       9
<PAGE>


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

     The Silicon Valley ARTC facility is located at 990 Richard Avenue, Suite
101, Santa Clara, California. The five-year lease expires on June 30, 2006. The
leased property consists of approximately 3,389 square feet. The lease calls for
average monthly payments of $7,795. 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
31, 2002. The leased property consists of 3,132 square feet. The lease calls for
average monthly payments of $2,736. 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 $3,206.
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
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.

     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 for the year ended December 31, 2001, if SSI exercised
this warrant at a cost of $3,007,000, it would own approximately 14.7% 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.

     On May 30, 2001, the Company was served with an arbitration demand from
Gregg K. Hobbs, a former employee. The arbitration demand alleges that the
Company breached provisions in the original September 30, 1995 separation
agreement, executed between Gregg K. Hobbs and the Company. An arbitration date
of April 29, 2002 has been scheduled to resolve this matter. Although the
Company believes it did not breach the September 30, 1995 agreement, and will
actively defend its position, no guarantee can be given on the ultimate outcome.
Management does not believe the results of this arbitration will have a material
impact on the Company's financial position or results of operations.

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, 2001.


                                       10
<PAGE>

                                     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 2001 and 2000:




<Table>
<Caption>
                     Fiscal Year Ended December 31, 2001
                     -----------------------------------
                           High Close   Low Close
                           ----------   ---------
<S>                        <C>          <C>
First Fiscal Quarter       $    2.630   $   1.130
Second Fiscal Quarter           1.900       1.030
Third Fiscal Quarter            1.590       0.960
Fourth Fiscal Quarter           1.650       1.050
</Table>


<Table>
<Caption>
                     Fiscal Year Ended December 31, 2000
                     -----------------------------------
                           High Close   Low Close
                           ----------   ---------
<S>                        <C>          <C>
First Fiscal Quarter       $    4.875   $   3.125
Second Fiscal Quarter           4.125       2.750
Third Fiscal Quarter            3.375       2.313
Fourth Fiscal Quarter           2.938       1.000
</Table>

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

     At December 31, 2001, the Company had approximately 1,048 beneficial
shareholders and 31 shareholders of record. The Company has never paid a cash
dividend and does not intend to do so in the future. The Company anticipates a
dividend payment on the outstanding preferred stock, in kind, of additional
preferred stock in future quarters (Refer to Note 8 of the Financial
Statements).

Nasdaq Market Listing

     As of March 14, 2002, QualMark was below the net shareholder equity
requirement for Nasdaq listing. In order for the common stock of the Company to
continue to be traded on Nasdaq, the Company needs to maintain net tangible
assets of at least $2.0 million through October of 2002 and $2.5 million of net
shareholder equity thereafter. The Company has developed a plan to increase its
shareholder equity to meet these requirements. On February 21, 2002 the Company
presented the plan to a Nasdaq listings panel.

     On March 20, 2002 the Company received notification from the Nasdaq Listing
Qualification Panel that the Panel was of the opinion that QualMark Corporation
presented a definitive plan that will enable it to comply with all requirements
for continued listing on The Nasdaq SmallCap Market (refer to Note 15 of the
Financial Statements).

     The Company's common stock will be conditionally listed on The Nasdaq
SmallCap Market pursuant to certain exceptions. These exceptions require the
Company to file a proxy statement with the Securities and Exchange Commission



                                       11
<PAGE>


and Nasdaq by March 26, 2002 and to file certain financial statements with its
Form 10-QSB for the quarter ending March 31, 2002. In order to comply with the
terms of the exceptions, QualMark must be able to demonstrate compliance with
all requirements for continued listing on The Nasdaq SmallCap Market.
Satisfaction of these requirements will require that the Company's shareholders
approve various matters contained in the proxy. The Company believes that it can
meet these requirements; however, there can be no assurance that it will do so.

     Companies operating under exception are to be identified by a fifth
character "C" appended to the Company's trading symbol changing the symbol from
"QMRK" to "QMRKC". The "C" will be removed from the symbol when the Nasdaq Panel
has confirmed compliance with the terms of the exception and all other criteria
necessary for continued listing. If at some future date the Company's securities
should cease to be listed on The Nasdaq SmallCap Market, the securities may
continue to be listed on the OTC-Bulletin Board.

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, 2001   December 31, 2000
                                                   -----------------   -----------------
<S>                                                <C>                  <C>
Statement of Operations Data:
Revenues ........................................      100.0%                100.0%
Cost of Revenues ................................       62.7                  60.3
                                                       -----                 -----
Gross Profit ....................................       37.3                  39.7
Selling, general and administrative expenses ....       44.3                  31.5
Research and development expenses ...............        9.9                   6.7
Severance Charges ...............................         --                   2.2
                                                       -----                 -----
Loss from operations ............................      (16.9)                 (0.7)
Other expense ...................................       (2.3)                 (2.4)
                                                       -----                 -----
Loss before income taxes ........................      (19.2)                 (3.1)
Income tax benefit (expense) ....................      (14.7)                  0.1
                                                       -----                 -----
Net loss ........................................      (33.9)%                (3.0)%
                                                       =====                 =====
</Table>


FORWARD-LOOKING STATEMENTS

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

RESULTS OF OPERATIONS

     The Company's annual and quarterly operating results are subject to
fluctuations for a variety of reasons. The Company operates with a small backlog
relative to its revenue; thus most of its sales in each quarter result from
orders received in the


                                       12
<PAGE>


current or prior quarter. In addition, because prices for the Company's products
are relatively substantial, a significant portion of net sales for each quarter
is attributable to a relatively small number of units. Further, the fact of
shipping or not shipping a product in a quarter can result in the difference
between a profitable quarter or an unprofitable one, given the significant sales
price of the Company's product and the related margin.

Comparison of Years Ended December 31, 2001 and 2000

REVENUE

     Revenue decreased $4,360,000 or 34.9% to $8,145,000 in the year ended
December 31, 2001 from $12,505,000 in the year ended December 31, 2000.

     OVS system revenue decreased $3,398,000 or 36.9% from $9,213,000 in the
year ended December 31, 2000 to $5,815,000 in the year ending December 31, 2001.
Sixty-three OVS units were sold in the year 2000 compared with thirty-eight OVS
units sold in the year 2001. The Company attributes the decrease in OVS sales to
the prevalent volatile and uncertain economic atmosphere in the high technology
industry, which resulted in a sharp decrease in demand for capital equipment. In
the fourth quarter of 2001 the Company executed contacts with six additional
independent manufacturer sales representatives, which we believe will benefit
Qualmark in 2002 with an expanded domestic OVS sales territory. International
system sales decreased from nineteen units in 2000 to fourteen in 2001. For the
year ended December 31, 2000, the international OVS systems sales of $2,739,000
represented 29.7% of system sales compared with the year ended December 31, 2001
international sales of $1,852,000 represented 31.8% of system sales. Although
the Company experienced a decrease in the number of international units sold,
the percentage of international sales increased. The increase in percentage of
overall OVS sales is due to the Company continuing its commitment to develop an
already strong presence in the international market place. Currently QualMark
utilizes ten European international sales representatives and six Asian
international sales representatives. QualMark has established business
relationships with Hielkema Test Equipment B.V. in the Netherland, Beatronic in
Denmark, Emitech in France, Weiss in Germany, AB-AD Technology and Engineering
Ltd. In Israel, Sumitomo in Japan, Namil Environ Company in Korea, Centiforce in
Sinapore, Kendro Laboratory Products AB in Sweden, Chroma ATE Inc. in Taiwan,
and Alphatech Limited in the UK. The Company is continuing to expand its
customer base in 2002 by initiating contact with potential distributors in
China, India, South Africa, Australia, Mexico, and South America. With the
forecasted positive economic outlook, Qualmark Corporation is anticipating an
increase in the number of units sold both domestically and internationally.
QualMark is committed to focusing on domestic sales staff to build relationships
with potential key customers and establishing new sales partnerships to expand
the Company's customer base.

     Test center revenue decreased $962,000 or 29.2% from $3,292,000 the year
ended December 31, 2000 to $2,330,000 in the year ending December 31, 2001. As
of December 31, 2001, the Company had one strategic test center partnership in
Detroit, MI and operated four domestic test centers in the following locations:
Denver, CO, Boston, MA, Orlando, FL, Santa Clara, CA, and Huntington Beach, CA
(Refer to Item 1 - Accelerated Reliability Test Centers). The Company primarily
attributes the decrease in ARTC lab revenue to a volatile and uncertain economic
atmosphere in the high technology industry. During 2000 and 2001, QualMark took
steps to optimize the ARTC Lab segment by closing one lab in Morrisville, NC and
establishing a strategic test center in Detroit, MI. The Company has begun to
see these changes result in increased margins and lab utilization. During 1998
and continuing into 2001, the Company initiated its international ARTC expansion
program and is continuing to maintain its strategic alliances with operating
test labs in three different countries: Anecto, ltd. in Ireland, IMQ in Italy,
and Maser in the Netherlands. 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. Revenue for these alliances decreased
$215,000 or 72.9% from $295,000 in the year ended December 31, 2000 to $80,000
for year ended December 31,2001. International ARTC revenue declined due to the
closing of the TUV Germany and TUV U.K. labs, which completed the existing
agreement (Refer to Item 1 - Accelerated Reliability Test Centers).
Subsequently, both TUV labs purchased the existing OVS systems from QualMark and
will continue to operate test centers independently. The Company is actively
looking to establish other strategic partnerships and to open additional labs in
Europe to regain the loss in revenue due to the TUV labs closing.

     On September 7, 2001 the Company announced an exclusive strategic
partnership with Weiss Umwelttechnik GmbH, the world leader in environmental
test chambers. The partnership is expected to significantly enhance QualMark's
revenue stream while establishing the Company as a truly full-line provider of
test products and services. Based in Reiskirchen-Lindenstruth, Germany, Weiss
Technik is the world's largest maker of environmental test chambers with annual
revenue of US $150 million, and is a member of the Schunk Group with annual
revenue of US $700 million. Under terms of the


                                       13
<PAGE>


agreement, QualMark becomes Weiss Technik's exclusive marketing partner in the
United States and Canada and Weiss Technik becomes QualMark's exclusive
representative for Germany and Austria. Weiss Technik will provide sales and
marketing support.

GROSS MARGIN

     The gross margin for the year ended December 31, 2001 was 37.3%. This
compares to a gross margin of 39.7% for the year ended December 31, 2000. Gross
margins were down due to additional discounts offered to customers to remain
competitive during current market conditions. In addition, the Company reviewed
and wrote off of $93,000 in obsolete raw inventory, incurred $35,000 in
additional costs to relocate the Santa Clara, CA test center, and executed a
shift in product mix to lower margin items. Management expects margins to
increase during future quarters as emphasis is placed continually on
manufacturing utilization and overhead management. The Company further believes
that additional opportunities exist to improve margins through further
enhancements of relationships with its key vendors. Also, the Company will
continue streamlining its inventory process in which it will attempt to maintain
minimal levels of raw materials and finished goods inventory.

OPERATING EXPENSE

     Total operating expenses decreased $638,000 or 12.6% from $5,050,000 in the
year ended December 31, 2000 to $4,412,000 for the year ended December 31, 2001.

     Selling, general and administrative expenses declined $332,000 or 8.4% from
$3,942,000 for the year ended December 31, 2000 to $3,610,000 for the year ended
December 31, 2001. The decrease is attributed to the Company's "right sizing"
its infrastructure beginning at the end of 2000 and continuing through 2001.
Also, with the Company's strategic move to change the existing sales structure
from a direct field sales organization to independent sales representatives, in
which all related sales expenses are minimized and will continue to be relative
to sales demand. QualMark continues to monitor and identify ways to reduce
operating expenditures. Currently, the Company's infrastructure and systems have
been set up and redesigned to prepare for an increase in sales demand with a
minimal increase in selling, general, and administrative costs.

     Research and development costs decreased $34,000 or 4.1% from $836,000 for
the year ended December 31, 2000 to $802,000 for the year ended December 31,
2001. The decrease is attributed to the completion of the prior year development
project, the Typhoon chamber. The Typhoon enables the users of combined stress
and thermal-only test chambers to cut their consumable cost by up to 50%, (Refer
to Item 1 - Description of Business). The Company will be transferring the
technology used in the Typhoon into the smaller OVS chambers, allowing for
faster ramps and more efficient use of LN2 in all chamber products. Also,
research is ongoing into the vibration technology used in the OVS chamber, by
improving low frequency energy and creating the technology to better serve the
changing market place. Expanding into other product areas will be a focus for
the year 2002. The Company in 2002 intends to continue its commitment and effort
to the development of new technologies, product offerings, and current product
line improvements.

INCOME TAXES

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

SEVERANCE CHARGES

     In the three months ended June 30, 2000 the Company incurred costs of
$272,000 due to an organizational restructure. The organizational restructure
focused on personnel reductions throughout several departments within the
Company, which included costs associated with the termination of the former
president. The Company does not expect to incur any additional costs related to
the organizational restructure. All such costs were paid in May 2001 and there
are no remaining unpaid costs at December 31, 2001.


                                       14
<PAGE>


LIQUIDITY AND CAPITAL RESOURCES

     During 2001, the Company experienced operating losses due to the sudden and
dramatic decrease in orders for its products which occurred in the second half
of 2001, primarily attributed to general economic uncertainty and significant
reductions in the orders for capital equipment and related products in
technology-related industries such as those served by the Company. The Company
took certain actions in 2001 to address this, including cost reductions and
changes to its marketing and distribution strategy. The Company's management
believes that this strategy is resulting in new customers, expanded distribution
and will lead to increased revenue in the future, although there can be no
guarantee thereof. On January 31, 2002, the Company and its bank modified the
terms of its revolving line of credit and term note to provide for payments of
approximately $600,000 in 2002 and a due date for this facility of March 15,
2003. On March 27, 2002, the Company closed on a transaction whereby it received
$1 million of proceeds from the sale of preferred stock.

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

     During 2001, the Company generated $717,000 of cash from operating
activities (primarily due to collections of Accounts Receivable), invested
$192,000 for equipment, invested $5,000 for patents, borrowed $745,000 from
banks and repaid $1,671,000 of bank borrowings. Employees exercised options to
purchase 2,400 shares of common stock for proceeds of $5,000. Together, these
activities resulted in a cash decrease of $436,000, for a year-end balance of
$500,000 at December 31, 2001. During 2000, the Company generated $188,000 of
cash from operating activities, invested $371,000 for equipment, sold equipment
for $15,000, invested $28,000 for patents, made $3,000 in capital lease
payments, borrowed $950,000 from banks and repaid $575,000 of those borrowings.
Employees and investors exercised options and warrants to purchase 104,223
shares of common stock for proceeds of $235,000. Together, these activities
resulted in a cash increase of $411,000, for the year, for a balance of $936,000
at December 31, 2000.

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

     On February 1, 2001, the Company renegotiated its Credit Agreement with the
commercial bank. Among other changes, this amendment to the Credit Agreement
reduced the revolving credit line to $1,000,000. In addition, the term loan
available was increased to $2,000,000.

     On June 29, 2001, the Company renegotiated its Credit Agreement with the
commercial bank. Among other changes, this amendment to the Credit Agreement
increased the monthly principal payments from $35,000 to $45,000 and will
changed the interest the Prime Rate plus 1.0%, both commencing on July 1, 2001.

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

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


                                       15
<PAGE>


     The Company must maintain certain financial and other covenants in order to
draw amounts available under the line of credit. As of December 31, 2001, the
Company was in default of certain financial covenants contained in the Credit
Agreement. The Company has, however, received a waiver from its lender regarding
such noncompliance.

     As required by the renegotiated Credit Agreement on January 31, 2002, the
Company will make monthly principal payments, beginning February 28, 2002, of
$50,000 on the term loan. The Company had also determined that, during 2002,
quarterly payments to the revolving line of credit would be made, based on cash
flows generated from operations. At the close of each quarter, the Company has
made arrangements to meet and review results of the Company with the commercial
bank and the Company believes its relations with its commercial bank to be good.
At the end of 2002, the Company expects to negotiate with the commercial bank
for an extension to the Credit Agreement, although there can be no assurance
that such renegotiations will be successful.

     The following represents future amounts payable at December 31, 2001 (in
thousands).

<Table>
        Year ended December 31,
<S>                                      <C>
           2002                          $   595
           2003                            1,640
                                         -------
                                         $ 2,235
                                         =======
</Table>


Critical Accounting Policies and Estimates

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

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

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

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

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

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


                                       16
<PAGE>


charged to income in the period such determination was made. At December 31,
2001, all deferred tax assets are fully reserved for. (Refer to Note 7 of the
Financial Statements).

Contractual Obligations

     For more information on the Company's contractual obligations on operating
leases, refer to Note 6 of Financial Statements. At December 31, 2001, the
Company's commitments under these obligations were as follows (in thousands):

<Table>
<Caption>
                                              OPERATING
                                                LEASES
                                              ---------
<S>                                           <C>
        Year ended December 31,
                    2002                        $358
                    2003                         211
                    2004                         140
                    2005                         117
                    2006                          53
                                                ----
                                                $879
                                                ====
</Table>


Government Regulation

     Periodically, the Company receives inquiries from regulatory agencies
regarding its compliance with laws and regulations. To its knowledge, the
Company believes it complies with all international, federal, state and local
regulations, including environmental regulations. However, there is no assurance
that the Company will continue to remain in compliance with all such
regulations.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     The Company's exposure to interest rate changes are primarily related to
its variable rate debt issued under its $2,235,000 Credit Agreement (Refer to
Note 3 of the Financial Statements). Because the interest rates on these
facilities are variable, based upon the bank's prime rate, the Company's
interest expense and net income are affected by interest rate fluctuations. If
interest rates were to increase or decrease by 100 basis points, the result,
based upon the existing outstanding debt as of December 31, 2001 would be an
annual increase or decrease of approximately $22,000 in interest expense for a
twelve-month period.

     During 2001, revenue generated from foreign sales are payable in United
States dollars, thus no foreign exchange rate risk exists. However, the
strategic sales agreement executed with Weiss Technik in 2001 (Refer to Item 1 -
Marketing), will result in payments of Euros. These Weiss Technik transactions
could result in foreign exchange rate risk.

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>

     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.


                                       17
<PAGE>


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

     On May 1, 2001, QualMark Corporation dismissed PricewaterhouseCoopers LLP
as its independent accountants. The Registrant's Audit Committee and Board of
Directors approved the decision to change independent accountants. The reports
of PricewaterhouseCoopers LLP on the financial statements for the past two
fiscal years contained no adverse opinion or disclaimer of opinion and were not
qualified or modified as to uncertainty, audit scope or accounting principle
(Refer to Form 8K filed May 3, 2001).


                                    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, 2001. -- None


                                       18
<PAGE>


                                   SIGNATURES


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


Dated: April 1, 2002             QUALMARK CORPORATION


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

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

<Table>
<Caption>
Signature                        Title                                   Date
---------                        -----                                   ----
<S>                              <C>                                     <C>
/s/ Charles D. Johnston          President, Chief Executive Officer      April 1, 2002
---------------------------      and Director
Charles D. Johnston

/s/ Anthony A. Scalese           Principal Accounting Officer            April 1, 2002
----------------------
Anthony A. Scalese

/s/ H. Robert Gill               Director                                April 1, 2002
------------------
H. Robert Gill

/s/ James L.D. Roser             Director                                April 1, 2002
--------------------
James L.D. Roser

/s/ William J. Sanko             Director                                April 1, 2002
--------------------
William J. Sanko

/s/ Richard Jennewine            Director                                April 1, 2002
---------------------
 Richard Jennewine
</Table>


                                       19

<PAGE>










REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


To QualMark Corporation:


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

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

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





Arthur Andersen LLP

Denver, Colorado
April 1, 2002










                                     F - 1
<PAGE>










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, 2000, and the results of its operations and its cash flows for the year then
ended in conformity with accounting principles generally accepted in the United
States of America. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audit. We conducted our audit of these
statements in accordance with auditing standards generally accepted in the
United States of America, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.


PricewaterhouseCoopers LLP

Denver, Colorado
April 2, 2001











                                     F - 1
<PAGE>

QUALMARK CORPORATION

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




<Table>
<Caption>
                                                          YEARS ENDED DECEMBER 31,
                                                          ------------------------
                                                            2001            2000
                                                          --------       --------
<S>                                                       <C>            <C>
Revenues                                                  $  8,145       $ 12,505
Cost of revenues                                             5,109          7,538
                                                          --------       --------

        Gross profit                                         3,036          4,967

Selling, general and administrative expenses                 3,610          3,942
Research and development expenses                              802            836
Severance charges                                               --            272
                                                          --------       --------

        Total operating expenses                             4,412          5,050
                                                          --------       --------

        Loss from operations                                (1,376)           (83)

Other income (expense):
   Interest expense                                           (200)          (307)
   Interest income                                               1              1
   Other income, net                                             8              2
                                                          --------       --------

Loss before income taxes                                    (1,567)          (387)

Income tax benefit (expense)                                (1,194)            12
                                                          --------       --------

Net loss                                                  $ (2,761)      $   (375)
                                                          ========       ========


Net loss per basic and diluted common share (Note 1)      $  (0.80)      $  (0.13)
                                                          ========       ========

Weighted average shares outstanding                          3,610          3,571
                                                          ========       ========
</Table>


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

                                      F - 2
<PAGE>


QUALMARK CORPORATION

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


<Table>
<Caption>
                                                                         DECEMBER 31,
                                                                    ---------------------
                                                                      2001          2000
                                                                    -------       -------
<S>                                                                 <C>           <C>
ASSETS
Current assets:
   Cash and cash equivalents                                        $   500       $   936
   Trade accounts receivable, net of allowance for doubtful
    accounts of $46 and $187, respectively                            1,406         3,968
   Inventories, net                                                   1,458         1,297
   Deferred tax assets                                                   --         1,194
   Other current assets                                                  26           122
                                                                    -------       -------
        Total current assets                                          3,390         7,517
Property and equipment, net                                             845         1,290
Other assets                                                            104           132
                                                                    -------       -------
                                                                    $ 4,339       $ 8,939
                                                                    =======       =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
   Accounts payable                                                 $   709       $ 1,032
   Accrued expenses                                                     228           710
   Customer deposits and deferred revenue                                --            82
   Capital lease obligations                                             --            35
   Current portion of long-term debt                                    595           700
                                                                    -------       -------
        Total current liabilities                                     1,532         2,559
Long-term debt                                                        1,640         2,461
Deferred tax liability                                                   17            17
                                                                    -------       -------
           Total liabilities                                          3,189         5,037
                                                                    -------       -------
Commitments and contingencies


Convertible redeemable preferred stock (Note 8);
   no par value; 2,000,000 shares authorized;
   692,951 designated as Series A, 538,327 and 465,116 shares
   issued and outstanding, liquidation preference of $1,204           1,125         1,016


Shareholders' equity:
   Common stock; no par value; 15,000,000
      shares authorized; 3,645,638 and 3,643,238 shares issued
      and outstanding                                                 7,303         7,403
   Treasury stock, at cost, 35,546 shares held                         (123)         (123)
   Accumulated deficit                                               (7,155)       (4,394)
                                                                    -------       -------
        Total shareholders' equity                                       25         2,886
                                                                    -------       -------
                                                                    $ 4,339       $ 8,939
                                                                    =======       =======
</Table>


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

                                      F - 3

<PAGE>


QUALMARK CORPORATION

STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDING DECEMBER 31, 2001 AND 2000
(IN THOUSANDS, EXCEPT FOR NUMBER OF SHARES)


<Table>
<Caption>
                                               COMMON STOCK               TREASURY STOCK
                                          ----------------------     ----------------------    ACCUMULATED
                                           SHARES       AMOUNT         SHARES       AMOUNT       DEFICIT        TOTAL
                                          ---------    ---------     ---------    ---------    -----------    ---------
<S>                                       <C>          <C>           <C>          <C>          <C>            <C>
Balance December 31, 1999                 3,539,015    $   7,210            --    $      --     $  (4,019)    $   3,191
Exercise of warrants for common stock        19,079           38            --           --            --            38
Exercise of options for common stock         85,144          197            --           --            --           197
Compensation related to issuance of
   options for services                          --           55            --           --            --            55
Common stock received in settlement of
   note receivable and interest from
   former officer                                --           --        35,546         (123)           --          (123)

Accretion of preferred stock                     --          (17)           --           --            --           (17)
Preferred stock dividends                        --          (80)           --           --            --           (80)
Net loss                                         --           --            --           --          (375)         (375)
                                          ---------    ---------     ---------    ---------     ---------     ---------
Balance December 31, 2000                 3,643,238        7,403        35,546         (123)       (4,394)        2,886
Exercise of options for common stock          2,400            5            --           --            --             5
Compensation related to issuance of
   options for services                          --            4            --           --            --             4

Accretion of preferred stock                     --          (17)           --           --            --           (17)
Preferred stock dividends                        --          (92)           --           --            --           (92)
Net loss                                         --           --            --           --        (2,761)       (2,761)
                                          ---------    ---------     ---------    ---------     ---------     ---------
Balance December 31, 2001                 3,645,638    $   7,303        35,546    $    (123)    $  (7,155)    $      25
                                          =========    =========     =========    =========     =========     =========
</Table>


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

                                      F - 4
<PAGE>


QUALMARK CORPORATION

STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<Table>
<Caption>
                                                                    YEARS ENDED DECEMBER 31,
                                                                    ------------------------
                                                                      2001             2000
                                                                    -------          -------
<S>                                                                 <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss                                                            $(2,761)         $  (375)
Adjustments to reconcile net loss to net cash provided by
 operating activities:
   Provision for inventory obsolescence                                  93              111
   (Gain) loss on disposal of equipment                                   1               (2)
   Depreciation and amortization                                        546              597
   Warrant and stock option expense                                       4               55
   Deferred income tax provision                                      1,194               --
Changes in assets and liabilities:
      Trade accounts receivable                                       2,562              121
      Inventories                                                      (136)             317
      Other assets                                                      101               14
      Accounts payable                                                 (323)            (147)
      Accrued expenses                                                 (482)            (504)
      Customer deposits and deferred revenue                            (82)              24
                                                                    -------          -------

        Net cash provided by operating activities                       717              211
                                                                    -------          -------

CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment                                  (192)            (371)
Proceeds from disposal of property and equipment                         --               15
Investment in patents                                                    (5)             (28)
                                                                    -------          -------

        Net cash used in investing activities                          (197)            (384)
                                                                    -------          -------

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings                                                745              950
Repayments of borrowings                                             (1,671)            (575)
Proceeds from issuance of common stock, net                               5              235
Payments on capital lease obligations                                   (35)             (26)
                                                                    -------          -------

        Net cash (used in) provided by financing activities            (956)             584
                                                                    -------          -------

Net increase (decrease) in cash and cash equivalents                   (436)             411
Cash and cash equivalents at beginning of year                          936              525
                                                                    -------          -------

Cash and cash equivalents at end of year                            $   500          $   936
                                                                    =======          =======

SUPPLEMENTAL DISCLOSURE
Interest paid                                                       $   192          $   299
                                                                    =======          =======

NON-CASH INVESTING AND FINANCING ACTIVITIES
Common stock received in settlement of note receivable
and interest from former officer                                    $    --          $   123
                                                                    =======          =======

Transfer of equipment to inventory held for resale                  $   118          $    --
                                                                    =======          =======
</Table>


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

                                      F - 5

<PAGE>


QUALMARK CORPORATION

NOTES TO FINANCIAL STATEMENTS

1.   ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     ORGANIZATION

          QualMark Corporation ("QualMark" or "the Company") designs,
     manufactures, and markets proprietary equipment that rapidly and
     efficiently expose product design and manufacturing-related defects for the
     purpose of improving product quality and reliability. The Company's high
     performance physical stress equipment supports significant improvements in
     the process of Design Verification Testing ("DVT") and Environmental Stress
     Screening ("ESS"). DVT is the process by which electronic product
     manufacturers ensure their products perform within the previously
     determined operating ranges (commonly known as "specifications"). ESS is
     the testing process used by these same manufacturers to expose
     production-related defects.

          The Company's equipment allows manufacturers to determine the true
     operating limits of their products. This gives manufacturers the necessary
     information to reduce design costs, improve product reliability, shorten
     time to market, reduce warranty costs, and extend warranty periods. The
     Company's equipment is used by manufacturers in a wide range of industries
     to perform highly accelerated stress testing on products such as circuit
     boards, personal computers, monitors, flight navigation systems, cellular
     telephones, LAN/WAN equipment and consumer electronics.

          The Company evolved from a business manufacturing and marketing its
     proprietary OVS (Omni-axial Vibration System) equipment to a full service
     organization offering HALT (Highly Accelerated Life Test) and HASS (Highly
     Accelerated Stress Screen) test services as well. The Company operates a
     network of test centers, known as Accelerated Reliability Test Centers
     ("ARTC"), which provide comprehensive HALT and HASS test and support
     services to industry. These services include accelerated reliability
     improvement test services (HALT and HASS) using QualMark's OVS physical
     stress equipment performed either in the ARTC test centers or at the
     customer's site.

          QualMark currently operates four test centers located in the
     metropolitan areas of Denver, Colorado, Huntington Beach, California, Santa
     Clara, California, and Boston, Massachusetts. The Company also utilizes one
     domestic strategic alliance with a large testing company in Detroit,
     Michigan. In addition, the Company has established strategic alliances with
     Anecto Ltd., Maser Engineering, IMQ Instituto del marchia di Qualita,
     Institutet For Verkstadsteknisk Forskning/The Swedish Institute of
     Production Engineering, and Emitech, to operate testing centers in Galway,
     Ireland, Enschede, the Netherlands, Milan, Italy, Molndal, Sweden and
     Paris, France. As international demand for its products and services grows,
     the Company may further expand its domestic and international presence by
     expanding strategic alliance arrangements with other test lab
     organizations.

     LIQUIDITY

          During 2001, the Company experienced operating losses due to the
     sudden and dramatic decrease in orders for its products which occurred in
     the second half of 2001, primarily attributed to general economic
     uncertainty and significant reductions in the orders for capital equipment
     and related products in technology-related industries such as those served
     by the Company. The Company took certain actions in 2001 to address this,
     including cost reductions and changes to its marketing and distribution
     strategy. The Company's management believes that this strategy is resulting
     in new customers, expanded distribution and will lead to increased revenue
     in the future, although there can be no guarantee thereof. On January 31,
     2002, the Company and its bank modified the terms of its revolving line of
     credit and term note to provide for payments of approximately $600,000 in
     2002 and a due date for this facility of March 15, 2003. On March 27, 2002,
     the Company closed on a transaction whereby it received $1 million of
     proceeds from the sale of preferred stock.

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

                                      F - 6
<PAGE>

QUALMARK CORPORATION

NOTES TO FINANCIAL STATEMENTS

     CASH AND CASH EQUIVALENTS

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

     CONCENTRATION OF CREDIT RISK

          Financial instruments that potentially subject the Company to
     concentrations of credit risk consist primarily of trade accounts
     receivable. Receivables arising from sales to customers are not
     collateralized and, as a result, management continually monitors the
     financial condition of its customers to reduce the risk of loss. The
     Company is not exposed to a concentration of credit risk as it relates to
     specific industries or geographical areas as its customers are not heavily
     concentrated in any specific industry or region. During 2001, one customer
     comprised 10% or more of the Company's revenue. The Company was not
     dependent on any single industry segment for its revenues.

     INVENTORIES

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

     PROPERTY AND EQUIPMENT

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

     INTANGIBLES

          Costs related to patents are capitalized and amortized over their
     estimated useful life of five years.

     REVENUE RECOGNITION

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

     RESEARCH AND DEVELOPMENT

          The Company expenses costs for research and development as incurred.


                                      F - 7
<PAGE>

QUALMARK CORPORATION

NOTES TO FINANCIAL STATEMENTS


     ADVERTISING EXPENSE

          The Company charges advertising, including production costs, to
     expense on the first date of the advertising period. Advertising expense
     for 2001 and 2000 was $38,000 and $68,000, 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.

     INCOME TAXES

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

     PRODUCT WARRANTIES

          Provision for anticipated warranty costs is recorded at the time the
     sale is recognized. In 2001 and 2000, the Company offered a one-year parts
     and labor warranty on all new chambers, and sells an equipment service
     contract for an additional one-year parts and labor warranty.

     FINANCIAL INSTRUMENTS

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

     EARNINGS (LOSS) PER SHARE

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


                                      F - 8
<PAGE>

QUALMARK CORPORATION

NOTES TO FINANCIAL STATEMENTS


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

<Table>
<Caption>
                                                          DECEMBER 31,
                                                    --------------------
                                                      2001         2000
                                                    -------      -------
<S>                                                 <C>          <C>
Basic and diluted loss per share computation:

   Net loss                                         $(2,761)     $  (375)

   Accretion of redeemable preferred stock and
       dividends                                       (109)         (97)
                                                    -------      -------

   Net loss applicable to common shareholders       $(2,870)     $  (472)
                                                    =======      =======

   Weighted average shares outstanding -- basic       3,610        3,571
                                                    =======      =======

   Net loss per share -- basic                      $ (0.80)     $ (0.13)
                                                    =======      =======

   Weighted average shares outstanding                3,610        3,571

   Dilutive stock options and warrants                   --           --
                                                    -------      -------
                                                      3,610        3,571
                                                    =======      =======

   Net loss per share -- diluted                    $ (0.80)     $ (0.13)
                                                    =======      =======
</Table>

          Options and warrants to purchase 1,386,535 and 993,658 shares of
     common stock and preferred stock convertible into 538,327 and 465,116
     shares of common stock were excluded from dilutive stock option
     calculations for 2001 and 2000, respectively, as their inclusion would be
     antidilutive.

     USE OF ESTIMATES

          The preparation of the financial statements in conformity with
     accounting principles generally accepted in the United States requires
     management to make estimates and assumptions that affect the reported
     amounts of assets and liabilities and disclosure of contingent assets and
     liabilities at the date of the financial statements and the reported
     amounts of revenues and expenses during the reporting period. Actual
     results could differ from those estimates.

     COMPREHENSIVE INCOME

          For the years ended December 31, 2001 and 2000, comprehensive loss
     equaled net loss.

     RECLASSIFICATION

          Certain amounts have been reclassified in prior years to be consistent
     with the classification as of December 31, 2001. These reclassifications
     had no impact on previously reported net loss or shareholders' equity.


                                      F - 9
<PAGE>

QUALMARK CORPORATION

NOTES TO FINANCIAL STATEMENTS


     NEW ACCOUNTING PRONOUNCEMENTS

          In June 1998, the Financial Accounting Standards Board ("FASB") issued
     Statement of Financial Accounting Standards No. 133, "Accounting for
     Derivative Instruments and Hedging Activities" ("SFAS No. 133"). SFAS No.
     133 establishes accounting and reporting standards requiring that every
     derivative instrument (including certain derivative instruments embedded in
     other contracts) be recorded in the balance sheet as either an asset or
     liability measured at its fair value. It also requires that changes in the
     derivative's fair value be recognized currently in earnings unless specific
     hedge accounting criteria are met. There was no impact on the Company's
     financial statements as a result of adopting SFAS No. 133 on January 1,
     2001.

          In June 2001, the Financial Accounting Standards Board ("FASB") issued
     Statement of Financial Accounting Standards No. 141, "Business
     Combinations" ("SFAS No. 141"). SFAS No. 141 requires that all business
     combinations be accounted for using the purchase method of accounting. The
     use of the pooling-of-interest method of accounting for business
     combinations is prohibited. The provisions of SFAS No. 141 apply to all
     business combinations initiated after June 30, 2001. The Company will
     account for any future business combinations in accordance with SFAS No.
     141.

          In June 2001, the FASB issued Statement of Financial Accounting
     Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS No. 142").
     SFAS No. 142 changes the accounting for goodwill and intangible assets and
     requires that goodwill no longer be amortized but be tested for impairment
     at least annually at the reporting unit level in accordance with SFAS No.
     142. Recognized intangible assets should be amortized over their useful
     life and reviewed for impairment in accordance with FASB Statement of
     Financial Accounting Standards No. 121, "Accounting for the Impairment of
     Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." The
     provisions of SFAS No. 142 are effective for fiscal years beginning after
     December 15, 2001, except for provisions related to the nonamortization and
     amortization of goodwill and intangible assets acquired after June 30,
     2001, which will be subject immediately to the provisions of SFAS No. 142.
     The adoption of SFAS No. 142 had no impact on the Company's financial
     statements.

          In June 2001, the FASB issued Statement of Financial Accounting
     Standards No. 143, "Accounting for Asset Retirement Obligations" ("SFAS No.
     143"), which establishes accounting standards for recognition and
     measurement of a liability for an asset retirement obligation and the
     associated asset retirement cost. SFAS No. 143 is effective for financial
     statements issued for fiscal years beginning after June 15, 2002. SFAS No.
     143 is not expected to have a material effect on the Company's financial
     position.

          In August 2001, the FASB approved Statement of Financial Accounting
     Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived
     Assets" ("SFAS No. 144"). SFAS No. 144 supersedes Statement of Financial
     Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
     Assets and for Long-Lived Assets to Be Disposed Of". SFAS No. 144
     establishes a single accounting model for long-lived assets to be disposed
     of by sale and requires that those long-lived assets be measured at the
     lower of carrying amount or fair value less cost to sell, whether reported
     in continuing operations or discontinued operations. SFAS No. 144 is
     effective for fiscal years beginning after December 15, 2001. The Company
     will adopt SFAS No. 144 on January 1, 2002. SFAS No. 144 is not expected to
     have a material effect on the Company's financial position.

2.   INVENTORIES

        Inventories consist of the following (in thousands):

<Table>
<Caption>
                                         DECEMBER 31,
                                     --------------------
                                      2001         2000
                                     -------      -------
<S>                                  <C>          <C>
Raw materials                        $   913      $   708
Work in process                           19            1
Finished goods                           576          638
Less: Allowance for obsolescence         (50)         (50)
                                     -------      -------
                                     $ 1,458      $ 1,297
                                     =======      =======
</Table>


                                     F - 10
<PAGE>

QUALMARK CORPORATION

NOTES TO FINANCIAL STATEMENTS

          The Company monitors inventory for obsolescence and provides an
     allowance when necessary. During the years ended December 31, 2001 and
     2000, $93,000 and $111,000, respectively is included in cost of sales as a
     write down of obsolete raw materials.

3.   PROPERTY AND EQUIPMENT

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

<Table>
<Caption>
                                                          DECEMBER 31,
                                                    --------------------
                                                     2001          2000
                                                    -------      -------
<S>                                                 <C>          <C>
Machinery and equipment                             $ 2,652      $ 2,686
Furniture and fixtures                                  190          190
Leasehold improvements                                  548          466
Software                                                235          189
Construction in process                                  --          101
                                                    -------      -------
                                                      3,625        3,632
Less: Accumulated depreciation and amortization      (2,780)      (2,342)
                                                    -------      -------
                                                    $   845      $ 1,290
                                                    =======      =======
</Table>

          Depreciation expense was $518,000 and $575,000 for the years ended
     December 31, 2001 and 2000, respectively.

4.    ACCRUED EXPENSES

        Accrued expenses consist of the following (in thousands):

<Table>
<Caption>
                                                          DECEMBER 31,
                                                    --------------------
                                                     2001          2000
                                                    -------      -------
<S>                                                 <C>          <C>
Accrued warranty                                    $    88      $   345
Accrued employee related                                111          200
Accrued severance (Note 13)                              --           82
Other                                                    29           83
                                                    -------      -------
                                                    $   228      $   710
                                                    =======      =======
</Table>

5.   INDEBTEDNESS

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

          During 2001, there were various renegotiations of the Credit
     Agreement. Among other changes, the term loan was increased to $2,000,000
     with required monthly payments of $45,000 and the revolving credit line was
     reduced to $1,000,000. On January 31, 2002, the Company renegotiated its
     Credit Agreement with the bank. Among other changes, this amendment to the
     Credit Agreement extends the maturity date for both the line of credit and
     the term loan to March 15, 2003, increased the monthly principal payments
     on the term loan from $45,000 to $50,000, and changed the interest to the
     Prime Rate plus 3.0%, commencing on February 28, 2002.


                                     F - 11
<PAGE>

QUALMARK CORPORATION

NOTES TO FINANCIAL STATEMENTS


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

          As of December 31, 2001, the balances of the revolving credit and term
     loan are $645,000 and $1,590,000, respectively.

          The Company must maintain certain financial and other covenants in
     order to draw amounts available under the revolving line of credit. As of
     December 31, 2001, the Company was in default of certain financial
     covenants contained in the Credit Agreement. The Company has, however,
     received a waiver from its lender regarding such noncompliance.

          As required by the renegotiated Credit Agreement on January 31, 2002,
     the Company will make monthly principal payments, beginning February 28,
     2002, of $50,000 on the term loan. The Company had also determined that,
     during 2002, quarterly payments to the revolving line of credit would be
     made, based on cash flows generated from operations. At the close of each
     quarter, the Company has made arrangements to meet and review results of
     the Company with the commercial bank and the Company believes its relations
     with its commercial bank to be good. At the end of 2002, the Company
     expects to negotiate with the commercial bank for an extension to the
     Credit Agreement, although there can be no assurance that such
     renegotiations will be successful


          The following represents future amounts payable at December 31, 2001
     (in thousands).

<Table>
<Caption>
        Year ended December 31,
<S>                                        <C>
           2002                            $  595
           2003                             1,640
                                           ------
                                           $2,235
                                           ======
</Table>

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

6.   LEASE COMMITMENTS

          The Company leases office space, and operating facilities under
     operating lease arrangements. Future minimum lease payments consist of the
     following at December 31, 2001 (in thousands):


<Table>
<Caption>
        Year ended December 31,
<S>                                        <C>
                    2002                   $ 358
                    2003                     211
                    2004                     140
                    2005                     117
                    2006                      53
                                           -----
                                           $ 879
                                           =====
</Table>

          Rent expense for the years ended December 31, 2001 and 2000 was
     $566,000 and $576,000, respectively.


                                     F - 12
<PAGE>

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,
                                                  -------------------------
                                                   2001             2000
                                                  -------          -------
<S>                                               <C>              <C>
  Current tax expense (benefit)
     Federal                                      $    --          $    (6)
     State                                             --               (6)
                                                  -------          -------
                                                       --              (12)
  Deferred tax expense (benefit)
     Federal                                         (512)              --
     State                                            (62)              --
                                                  -------          -------
                                                     (574)              --
                                                  -------          -------

  Increase in valuation allowance                   1,768               --
                                                  -------          -------
                                                  $ 1,194          $   (12)
                                                  =======          =======
</Table>


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

<Table>
<Caption>
                                                 YEARS ENDED DECEMBER 31,
                                         -------------------------------------
                                                 2001                2000
                                         ----------------      ---------------
                                         AMOUNT       %        AMOUNT      %
                                         ------    ------      ------    -----
<S>                                      <C>       <C>         <C>      <C>
Computed "expected" tax                  $ (533)    (34.0)%    $(132)   (34.0)%
State income taxes, net of Federal
  income tax effect                         (77)     (4.9)%        2      0.5%
Increase in valuation allowance           1,768     112.8%        96     24.8%
Other                                        36       2.3%        22      5.6%
                                         ------    ------      -----    -----
                                         $1,194      76.2%     $ (12)    (3.1)%
                                         ======    ======      ======   =====
</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,
                                                  ------------------------
                                                   2001             2000
                                                  -------          -------
<S>                                               <C>              <C>
  Deferred tax assets:
     Net operating loss carry forwards            $ 2,335          $ 1,619
     Accrued liabilities                               62              192
     Allowance for doubtful accounts                   16               74
     Inventory reserves                                20               20
     Depreciation and amortization                     85               --
     Other                                              2                5
     Valuation allowance                           (2,480)            (712)
                                                  -------          -------
  Total deferred tax assets                            40            1,198
                                                  -------          -------
  Deferred tax liabilities:
     Inventory capitalization differences              --                4
     Amortization of patents                           57               17
                                                  -------          -------
  Total deferred tax liabilities                       57               21
                                                  -------          -------
  Net deferred tax asset (liability)              $   (17)         $ 1,177
                                                  =======          =======

Recorded as follows:
     Deferred tax assets                          $    --          $ 1,194
     Non-current deferred tax liabilities             (17)             (17)
                                                  -------          -------
  Net deferred tax asset (liability)              $   (17)         $ 1,177
                                                  =======          =======
</Table>


                                     F - 13
<PAGE>

QUALMARK CORPORATION

NOTES TO FINANCIAL STATEMENTS


     As of December 31, 2001 and 2000, the Company had net operating loss
("NOL") carryforwards of approximately $5,986,000 and $4,114,000, 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.

     The Company experienced a downturn it its business during 2001, which
resulted in significant operating losses. The Company attributes the downturn
primarily to the current uncertain general economic environment, and the
volatile economic environment faced by the Company's customers. Because of this
situation, management reassessed the realization of its recorded net deferred
tax assets. Based on this reassessment, management concluded, based on its
assessment of appropriately weighted available evidence as prescribed in the
Statement of

Financial Accounting Standards 109 ("SFAS 109"), that it was more likely than
not that existing deferred tax assets would not be realizable and determined a
valuation allowance was required for recorded deferred tax assets. Accordingly,
the Company's valuation allowance was increased by $1,768,000, which resulted in
an increase to the provision for income taxes of the same amount.

     The internal revenue code contains provisions which may limit the NOL carry
forwards available to be used in any given year if certain events occur,
including significant changes in ownership.

8.   PREFERRED STOCK

     In 1999, the Company authorized the issuance of 502,326 shares of Series A,
convertible, redeemable, cumulative, participating, no par preferred stock
("Series A preferred stock"). On April 20, 2001 the Company's Board of Directors
resolved and filed a Certificate of Amendment of Series A Convertible Preferred
Stock with the State of Colorado, in accordance with the provisions of its
Articles of Incorporation to increase the number of Series A preferred stock to
692,951 shares.

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

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

      Conversion -- The Series A preferred stock may, at the option of the
      holder, be converted at any time into shares of common stock at $2.15 per
      share.

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

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

      Dividends -- The Series A preferred stock accrue dividends at 8% per
      annum. Dividends may be paid in cash or additional preferred shares, in
      kind, at the option of the Company. In addition, in the event the Company
      declares, pays or sets apart a common stockholder dividend, each holder of
      shares of the Series A preferred stock shall be entitled to receive a per
      share dividend equal to the number of shares of common equity on which
      such common dividend is declared into which each share of Series A
      preferred stock is convertible on the record date, multiplied by the
      amount of cash or property paid, or by the number of shares of capital
      stock issued. As of December 31, 2001 and 2000, the Series A preferred
      shares accumulated dividends in arrears of


                                     F - 14
<PAGE>

QUALMARK CORPORATION

NOTES TO FINANCIAL STATEMENTS


     $47,000 and $112,000, respectively. Of the dividends in arrears at December
     31, 2001, the Company anticipates a dividend payment of 21,895 in preferred
     shares at the conversion price of $2.15 per share.

     Liquidation -- The Series A preferred stock ranks senior to common stock
     and has a liquidation preference of $2.15 per share plus all declared and
     unpaid dividends which totals $1,204,000 at December 31, 2001.

     Mandatory Redemption -- The Series A preferred stock is redeemable at any
     time after September 1, 2004 at the option of the holders of the Series A
     preferred stock. The redemption price is equal to $2.15 per share to the
     extent the Company has funds legally available for such payment. If the
     Company does not have funds available, at the option of the holders of the
     Series A preferred stock, the Series A preferred stock can be converted
     into a debt obligation of the Company in a form acceptable to the holders
     of the Series A preferred stock. The Company is accreting the carrying
     value of the Series A preferred stock to its redemption price to the
     earliest date the Series A preferred stock holders can elect the option to
     redeem the Series A preferred stock. The accretion recorded, including the
     impact of the Series A preferred stock discount, was $17,000 in 2001 and
     2000.

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

9.   STOCK WARRANTS AND OPTIONS

     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. During 1999, Hobbs exercised 54,000 warrants to purchase 54,000
shares of common stock. During 2000, Hobbs exercised the remaining 18,000
warrants to purchase 18,000 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 132,710 shares of common stock at $4.50 per share. During
2000, 5,001 warrants were converted into 1,079 shares of common stock. The
remaining warrants expired during 2001.

     During 1999, five-year warrants to purchase 139,535 shares of common stock
at an exercise price of $2.50 per share were issued in connection with the
Series A preferred stock, as described above (See Note 8). These warrants had a
fair market value of $87,000 at the time of issuance. As of December 31, 2001,
none of these warrants had been exercised.

     Also in 1999, the Company issued five-year 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 14). As of December 31, 2001,
none of these warrants had been exercised.

     These warrants were valued using the Black-Scholes options-pricing model.
See below for assumptions used to value these warrants.



                                     F - 15
<PAGE>

QUALMARK CORPORATION

NOTES TO FINANCIAL STATEMENTS

     STOCK OPTIONS

          The Company has two stock option plans, an incentive stock option plan
     (the "1993 Plan") and the 1996 Stock Option Plan (the "1996 Plan")
     (collectively, the "Plans"). The 1993 Plan provides employees and officers
     with an opportunity to purchase an aggregate of 159,746 shares of the
     Company's common stock. The 1993 Plan requires that incentive stock options
     be issued at exercise prices which are at least 100% of the fair value of
     the stock at the date of the grant. Options issued under the 1993 Plan vest
     at a rate of 25% per year over four years and generally expire up to ten
     years from the date of grant. Under the 1996 Plan, grants of both incentive
     stock options and non-qualified options are permitted. Incentive stock
     options may only be granted to employees of the Company, including officers
     and directors who are also employees. Non-qualified options may be issued
     to officers, directors, employees or consultants of the Company. The
     exercise price of incentive stock options granted under the 1996 Plan must
     be at least 100% of the fair market value of the Company's stock at the
     grant date, while the exercise price of non-qualified options is at the
     discretion of the Board of Directors, but is ordinarily priced at 100% of
     the fair market value at the grant date. Aggregate common shares of 722,000
     are reserved for issuance under the 1996 Plan, as amended. Shares forfeited
     can be reissued under the 1996 Plan. Options issued under the 1996 Plan
     vest at a rate of 25% per year over four years for employees and 33% per
     year over three years for directors and generally expire up to ten years
     from the date of grant.

     Stock option transactions of the Plans are summarized below:

<Table>
<Caption>
                                                       WEIGHTED AVERAGE
                                          SHARES        EXERCISE PRICE
                                         --------      ----------------
<S>                                      <C>           <C>
Outstanding at December 31, 1999          693,247          $   3.68
Granted                                   242,000              2.80
Exercised                                 (56,144)             2.16
Forfeited                                (233,567)             3.82
                                         --------
Outstanding at December 31, 2000          645,536              3.43
Granted                                   234,750              1.27
Exercised                                  (2,400)             2.03
Forfeited                                (250,886)             3.67
                                         --------
Outstanding at December 31, 2001          627,000              2.53
                                         ========
</Table>


          At December 31, 2001 and 2000, options were exercisable with respect
     to 307,800 and 308,776 shares, respectively, with exercise prices ranging
     from $1.03 to $6.44 and a weighted average exercise price of $3.21 and
     $3.87, respectively. As of December 31, 2001 the weighted average
     contractual life was 5.05 years.

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

<Table>
<Caption>
                                                                WEIGHTED AVERAGE
                        NUMBER OF SHARES                      REMAINING CONTRACTUAL
EXERCISE PRICE RANGE      OUTSTANDING      EXERCISE PRICE            LIFE
--------------------    ----------------   --------------     ---------------------
<S>                     <C>                <C>                <C>
   $1.03 - $1.50             219,500           $1.24                 6.49
   $2.03 - $2.94             256,250           $2.59                 5.08
   $3.25 - $4.56             100,550           $3.42                 2.75
   $5.69 - $6.44              50,700           $6.05                 3.27
                             -------           -----                 ----
                             627,000           $2.53                 5.05
                             =======           =====                 ====
</Table>


                                     F - 16
<PAGE>

QUALMARK CORPORATION

NOTES TO FINANCIAL STATEMENTS


          During 2000, nonqualified options to purchase 116,000 common shares at
     a price of $2.64 per share were granted. 29,000 of these options were
     exercised and 87,000 of the options were forfeited during 2000. During
     2000, nonqualified options to purchase 116,088 common shares at a price of
     $2.00 per share expired. As of December 31, 2001, there were no
     nonqualified options outstanding.

          In October 2000, 25,000 options were granted to a Director of the
     Company for services provided beyond normal director duties. These options
     were 100% vested and exercisable on the date of grant and the compensation
     expense of $55,000, which was equal to the fair value of the options as
     determined by the Black-Scholes option-pricing model, was recorded at the
     time of issue.

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

     FAIR VALUE

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


<Table>
<Caption>
                                                    YEARS ENDED DECEMBER 31,
                                                    ------------------------
                                                      2001            2000
                                                    -------          -------
<S>                                                 <C>              <C>
Net loss applicable to common shareholders:
   As reported                                      $(2,870)         $ (472)
   Pro forma                                        $(3,117)         $ (504)

Basic and diluted loss per share:
   As reported                                      $ (0.80)         $(0.13)
   Pro forma                                        $ (0.86)         $(0.14)
</Table>

          The fair value of options granted in 2001 and 2000 were $295,000 and
     $560,000 respectively. 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, 2001 and 2000: dividend yield of zero; expected
     volatility ranging from 79% to 100% ; risk-free interest rates ranging from
     4.31% to 6.72%; and an expected term of seven years for options and five
     years for warrants.

10.  PROFIT SHARING PLAN

          The Company maintains an employee profit sharing plan under Section
     401(k) of the Internal Revenue Code (the "Plan") covering personnel who
     have been employed at least three months. Employees may contribute up to
     the federal limit of their compensation to the Plan each year. During 2001
     the Company implemented a formal contribution plan. Beginning on April 1,
     2001 the Company's contribution plan allowed for company matching
     contributions of $0.25 for every $1.00 invested by the employee in the



                                     F - 17
<PAGE>

QUALMARK CORPORATION

NOTES TO FINANCIAL STATEMENTS


     program, limited to the first 50% of the employee's maximum contribution,
     as limited by Federal law. Participants vest in employer contributions at a
     rate of 20% per year over five years. During 2001 and 2000, $19,000 and
     zero were contributed to the Plan, respectively. Effective January 1, 2002,
     the Company's board of directors has temporarily discontinued Company
     contributions to the Plan.

11.  SEGMENT INFORMATION

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

          The accounting policies for these segments are the same as those
     described in Note 1 and there are no intersegment transactions. The Company
     evaluates the 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, 2001

Sales                             $ 5,815      $ 2,330      $ 8,145
Gross profit                        2,445          591        3,036
Property and equipment, net           176          669          845


YEAR ENDED DECEMBER 31, 2000

Sales                             $ 9,213      $ 3,292      $12,505
Gross profit                        3,770        1,197        4,967
Property and equipment, net           322          968        1,290
</Table>


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

<Table>
<Caption>
                   YEARS ENDED DECEMBER 31,
                   -------------------------
                    2001              2000
                   -------          -------
<S>                <C>              <C>
United States      $ 6,213          $ 9,471
International        1,932            3,034
                   -------          -------

Total              $ 8,145          $12,505
                   =======          =======
</Table>

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


                                     F - 18
<PAGE>

QUALMARK CORPORATION

NOTES TO FINANCIAL STATEMENTS


12.  RELATED PARTY TRANSACTIONS

          During 1998, the Company lent $104,000 to the Company's former
     president pursuant to a note collateralized by his primary residence with
     interest accruing at a rate equal to 10% annually. The note was payable
     over five years, with 5% of the principal due at each anniversary date and
     the remaining balance due at the end of the term. On January 13, 2000, the
     former president remitted 4,016 shares of the Company's common stock at a
     fair market value of $4.06 per share on that date to satisfy $16,000 of
     principal, interest and penalties related to the note.

     On May 19, 2000, the Company's president resigned from his position.
     Subsequently, on June 14, 2000, 31,530 common shares were remitted to the
     Company by the former president, at a fair market value of $3.39 per share
     on that date to satisfy the remaining principal and accrued interest
     balance of $104,000.

13.  SEVERANCE CHARGE

          During June 2000, the Company initiated an organizational restructure
     plan and charged $272,000 in severance to operations. This reorganization
     resulted in the resignation of the Company's president and a reduction of
     six other personnel from the Sales and Marketing, Accounting and
     Administrative, and Manufacturing departments. Severance costs include
     salary payments, fringe benefits and taxes related to these seven
     employees. Cash payments to settle the salary payments, fringe benefits and
     taxes continued through May of 2001. Cash payments made during 2001 and
     2000 totaled $82,000 and $190,000, respectively. As of December 31, 2001,
     the severance liability had been reduced to zero.

14.   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. 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 paid $925,000 to SSI in three unequal payments
     upon signing the agreement with the last payment being made in April 2001.
     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, which was included in general and administrative expense in 1999.

          On May 30, 2001, the Company was served with an arbitration demand
     from Gregg K. Hobbs, a former employee. The arbitration demand alleges that
     the Company breached provisions in the original September 30, 1995
     separation agreement, executed between Gregg K. Hobbs and the Company. An
     arbitration date of April 29, 2002 has been scheduled to resolve this
     matter. Although the Company believes it did not breach the September 30,
     1995 agreement, and will actively defend its position, no assurance can be
     given on the results of the ultimate outcome. Management does not believe
     the results of this arbitration will have a material impact on the
     Company's financial position or results of operations.

15.  SUBSEQUENT EVENTS

     Equity Infusion

          On March 11, 2002, the Company signed a binding term sheet with Roser
     Ventures, LLC pursuant to which it or one of its affiliates (the
     "Investor"), would invest $1 million in the Company in exchange for shares
     of certain convertible preferred stock in the Company. Under the terms of
     this agreement, the Investor will also exchange its Series A Preferred
     stock (currently held in the name of The Roser Partnership III, SBIC, LP)
     for another series of convertible preferred stock and will receive
     additional warrants to purchase the Company's Common Stock.



                                     F - 19
<PAGE>


QUALMARK CORPORATION

NOTES TO FINANCIAL STATEMENTS


          On March 27, 2002, the Company issued 1,000 shares of Series C
     Convertible Preferred Stock to the Investor in exchange for $1 million in
     cash. These shares will not be converted into common stock until after this
     transaction has been approved by the shareholders.

          The Investor will also receive warrants to purchase shares of the
     Company's common stock in connection with this transaction. The number of
     warrants will be 25% of the number of common shares into which the Series C
     Preferred Stock is convertible.

          As a result of these transactions, the Company will record a non-cash
     charge to earnings available to common shareholders in the first quarter of
     2002.

     Nasdaq

          On March 20, 2002, the Company received notification from the Nasdaq
     Listing Qualification Panel that the Panel was of the opinion that QualMark
     Corporation presented a definitive plan that will enable it to comply with
     all requirements for continued listing on The Nasdaq SmallCap Market.

          The Company's common stock will be conditionally listed on The Nasdaq
     SmallCap Market pursuant to certain exceptions. These exceptions require
     the Company to file a proxy statement with the Securities and Exchange
     Commission and Nasdaq by March 26, 2002 and to file certain financial
     statements with its Form 10-QSB for the quarter ending March 31, 2001. In
     order to comply with the terms of the exceptions, QualMark must be able to
     demonstrate compliance with all requirements for continued listing on The
     Nasdaq SmallCap Market. Satisfaction of these requirements will require
     that the Company's shareholders approve various matters contained in the
     proxy. The Company believes that it can meet these requirements; however,
     there can be no assurance that it will do so.

          Companies operating under exception are to be identified by a fifth
     character "C" appended to the Company's trading symbol changing the symbol
     from "QMRK" to "QMRKC". The "C" will be removed from the symbol when the
     Nasdaq Panel has confirmed compliance with the terms of the exception and
     all other criteria necessary for continued listing. If at some future date
     the Company's securities should cease to be listed on The Nasdaq SmallCap
     Market, the securities may continue to be listed on the OTC-Bulletin Board.



                                     F - 20
<PAGE>


                                INDEX TO EXHIBITS

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

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

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

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

  3.5    Statement of Change of Registered Agent.(5)

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

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

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

 10.2    QualMark Corporation 1996 Stock Option Plan.(3)

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

23.1     Consent of Arthur Andersen LLP, Independent Public Accountants.

23.2     Consent of PricewaterhouseCoopers LLP.

99.1     Letter of Assurance for Arthur Andersen LLP
</Table>

---------

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

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

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

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

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


<PAGE>


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

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

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

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