<PAGE>

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

FORM 10-QSB (Mark One)

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

For the quarterly period ended September 30, 2002

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

For the Transition period from                         to
                               -----------------------    ----------------------

Commission file number 0-28484

                              QualMark Corporation
--------------------------------------------------------------------------------
                     (Exact name of small business issuer as
                            specified in its charter)

<TABLE>
<S>                                                          <C>
            Colorado                                              84-1232688
-------------------------------                              -------------------
(State or other jurisdiction of                               (I.R.S. Employer
 incorporation or organization)                              Identification No.)

1329 West 121st Avenue, Denver, CO                                 80234
(Address of principal executive offices)                         (Zip Code)
</TABLE>

(Issuer's telephone number) (303) 254-8800


--------------------------------------------------------------------------------
              (Former name, former address and former fiscal year,
                          if changed since last report)

      Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the 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. [X] Yes [ ]
No

                APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
                   PROCEEDINGS DURING THE PRECEDING FIVE YEARS

      Check whether the registrant filed all documents and reports required to
be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution
of securities under a plan confirmed by a court. [ ] Yes [ ] No

                      APPLICABLE ONLY TO CORPORATE ISSUERS

      State the number of shares outstanding of each of the issuer's classes of
common equity, as of latest practicable date:

The number of shares of no par value common stock outstanding at November 13,
2002 is 3,610,092.

      Transitional Small Business Disclosure Format (check one): [ ] Yes [X] No
<PAGE>
                         PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

                              QUALMARK CORPORATION
                            STATEMENTS OF OPERATIONS
            (UNAUDITED, AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                                FOR THE THREE     FOR THE THREE      FOR THE NINE      FOR THE NINE
                                                 MONTHS ENDED      MONTHS ENDED      MONTHS ENDED      MONTHS ENDED
                                                 SEPTEMBER 30,     SEPTEMBER 30,     SEPTEMBER 30,     SEPTEMBER 30,
                                                      2002             2001              2002              2001
                                                      ----             ----              ----              ----
<S>                                             <C>               <C>                <C>               <C>
Net revenue                                       $     1,916       $     1,527       $     5,903       $     6,845
Cost of sales                                             989             1,125             3,296             4,312
                                                  -----------       -----------       -----------       -----------
    Gross profit                                          927               402             2,607             2,533

Selling, general and administrative expenses              802               953             2,291             2,868
Research and development expenses                         178               195               562               608
                                                  -----------       -----------       -----------       -----------
   Loss from operations                                   (53)             (746)             (246)             (943)

Other expense:
    Interest, net                                         (44)              (39)             (139)             (159)
                                                  -----------       -----------       -----------       -----------
Loss before income taxes                                  (97)             (785)             (385)           (1,102)

Provision for income taxes                                 --               280                --               880
                                                  -----------       -----------       -----------       -----------

Net loss                                          $       (97)      $    (1,065)      $      (385)      $    (1,982)
                                                  ===========       ===========       ===========       ===========

Net loss per share - basic and diluted            $     (0.05)      $     (0.30)      $     (0.31)      $     (0.57)

Weighted average number of common shares -
  basic and diluted                                 3,610,000         3,610,000         3,610,000         3,610,000
</TABLE>

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


                                       2
<PAGE>
                              QUALMARK CORPORATION
                                 BALANCE SHEETS
            (UNAUDITED AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES)

<TABLE>
<CAPTION>
                                                           SEPTEMBER 30, 2002     DECEMBER 31, 2001
                                                           ------------------     -----------------
<S>                                                        <C>                    <C>
                        ASSETS
Cash                                                           $ 1,006                $   500
Trade accounts receivable, net of allowance for
  doubtful accounts of $108 and $46 at September 30,
  2002 and December 31, 2001, respectively                       1,908                  1,406
Inventories, net                                                   541                  1,458
Other current assets                                                86                     26
                                                               -------                -------
    Total current assets                                         3,541                  3,390

Property and equipment, net                                        734                    845
Other assets                                                        73                    104
                                                               -------                -------

Total Assets                                                     4,348                  4,339
                                                               =======                =======

        LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable                                                   451                    709
Accrued expenses                                                   362                    228
Current portion of long-term obligations                         1,775                    595
                                                               -------                -------
    Total current liabilities                                    2,588                  1,532

Noncurrent portion of long-term obligations                         --                  1,640
Deferred tax liability                                              17                     17
                                                               -------                -------
   Total liabilities                                             2,605                  3,189
                                                               -------                -------

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

  692,951 designated as Series A, 538,327 shares
  issued and outstanding, liquidation preference
  of $1,204;                                                        --                  1,125

  692,951 designated as Series B, 571,013 shares
  issued and outstanding, liquidation preference
  of $1,279;                                                     1,213                     --

  2,000 designated as Series C, 1,000 shares issued
  and outstanding, liquidation preference of $1,042;               111                     --

Shareholders' Equity:
Common Stock; no par value; 15,000,000 shares
  authorized; 3,645,638 shares issued at
  September 30, 2002 and December 31, 2001                       8,082                  7,303
Treasury Stock, at cost, 35,546 shares held
  at September 30, 2002 and December 31, 2001                     (123)                  (123)
Accumulated deficit                                             (7,540)                (7,155)
                                                               -------                -------
    Total shareholders' equity                                     419                     25
                                                               -------                -------
Total liabilities and shareholders' equity                     $ 4,348                $ 4,339
                                                               =======                =======
</TABLE>

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


                                       3
<PAGE>
                              QUALMARK CORPORATION
                            STATEMENTS OF CASH FLOWS
                        (UNAUDITED, AMOUNTS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                  FOR THE NINE     FOR THE NINE
                                                                  MONTHS ENDED     MONTHS ENDED
                                                                  SEPTEMBER 30,    SEPTEMBER 30,
                                                                      2002             2001
                                                                      ----             ----
<S>                                                               <C>              <C>
Cash Flows From Operating Activities:
Net loss                                                            $  (385)         $(1,982)
Adjustments to reconcile net loss to net cash provided by
  operating activities:
    Depreciation and amortization                                       318              427
    Loss on disposal of equipment                                         3                1
    Deferred income tax provision                                        --              880
    Provision for obsolete inventory                                     24               --
    Provision for bad debts                                              62             (111)
    Inventory write off                                                  --               93
    Stock option expense                                                 11               --
Change in assets and liabilities:
    Accounts receivable                                                (564)           2,139
    Inventories                                                         905             (231)
    Other assets                                                        (51)             (28)
    Accounts payable and accrued expenses                              (124)            (495)
     Customer deposits and deferred revenue                              --              (82)
                                                                    -------          -------
        Net cash  provided by operating activities                      199              611


Cash Flows From Investing Activities:
Acquisition of property and equipment                                  (200)            (189)
Investment in patents                                                    --               (5)
                                                                    -------          -------
    Net cash used in investing activities                              (200)            (194)


Cash Flows From Financing Activities:
Proceeds from borrowings                                                 --              300
Payments on borrowings                                                 (460)          (1,491)
Proceeds from issuance of preferred stock and warrants, net             967               --
Proceeds from issuance of common stock                                   --                5
                                                                    -------          -------
    Net cash provided by (used in) financing activities                 507           (1,186)

Net increase (decrease)  in cash                                        506             (769)
Cash at beginning of period                                             500              936
                                                                    -------          -------
Cash at end of period                                               $ 1,006          $   167
                                                                    =======          =======

Supplemental Disclosure:
Interest paid                                                       $   115          $   120

Non-Cash Activities:
Transfer of equipment held for resale                               $    12               --

Deemed preferred stock dividend resulting from conversion
of Series A preferred shares to Series B preferred shares           $   489               --
Redeemable preferred stock dividends declared                       $   116          $    69
Accretion of preferred stock                                        $   116          $    13
</TABLE>

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


                                       4
<PAGE>
                              QUALMARK CORPORATION
                          NOTES TO FINANCIAL STATEMENTS

QualMark Corporation (the "Company") was founded in 1991 and is a manufacturer
and distributor of physical stress systems, as well as a provider of physical
stress testing services. Physical stress systems rapidly and efficiently expose
product design and manufacturing related failures of customer products and
components, thereby providing manufacturers necessary information to improve
product design, quality and reliability. The Company also provides physical
stress testing services through its network of test centers.

NOTE 1 - Financial Presentation

These financial statements should be read in conjunction with the audited
financial statements for the year ended December 31, 2001 and notes thereto as
well as other information and analysis included in the Company's Form 10-KSB for
the year then ended.

The interim financial data as of September 30, 2002 and for the three and nine
months ended September 30, 2002 and 2001 is unaudited; however, in the opinion
of management of the Company, the interim data includes all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the results for the interim periods presented. Results for the
three and nine months ended September 30, 2002 are not necessarily indicative of
results for the remainder of 2002. Amounts at December 31, 2001 are derived from
the Company's audited financial statements.

NOTE 2 - Inventories

Inventories consist of the following (in thousands):

<TABLE>
<CAPTION>
                          SEPTEMBER 30,    DECEMBER 31,
                              2002            2001
                              ----            ----
<S>                       <C>              <C>
Raw materials               $   526          $   913
Work in process                  89               19
Finished goods                   --              576
Less: Allowance for
  obsolescence                  (74)             (50)
                            -------          -------
                            $   541          $ 1,458
                            =======          =======
</TABLE>

The Company monitors inventory for turnover and obsolescence, and records
reserves for excess and obsolete inventory as appropriate.


                                       5
<PAGE>
NOTE 3 - Commercial Bank Borrowings

The Company's commercial bank borrowings consist of a term loan and a revolving
line of credit, (the "Credit Agreement"). Refer to the 2001 Form 10-KSB,
Financial Statement Note 5.

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. On July 18, 2002 the Credit Agreement was amended, in which the monthly
term loan principal payments increased from $50,000 to $55,000, beginning on
July 31, 2002. On October 18, 2002 the Credit Agreement was amended, in which
the revolving line of credit limit was reduced from $1,000,000 to $750,000.

The average interest rate for the nine-month period ending September 30, 2002,
for the term loan and revolving credit line was 7.53%. 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 September 30, 2002, there was $48,000 of additional availability
on the line of credit.

As of September 30, 2002, the balances of the revolving credit and term loan are
$645,000 and $1,130,000, respectively.

The Company must maintain certain financial and other covenants to be in
compliance with the Credit Agreement. Although the Company is not now, nor has
it ever been in arrears on any payment pursuant to the Credit Agreement, as of
September 30, 2002, the Company was in default of certain financial covenants
contained in the Credit Agreement. The Company has, however, received waivers
from its lender regarding such noncompliance for the quarter ending September
30, 2002.

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 guarantee that such
renegotiations will be successful.

NOTE 4 - 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.

NOTE 5 -Loss Per Share

Basic loss per share is computed by dividing net loss available to common
shareholders by the weighted average number of shares outstanding during the
period. Diluted loss per share is computed using the weighted average number of
shares determined for the basic computations plus the number of shares of common
stock that would be issued assuming all contingently issuable shares having a
dilutive effect on earnings per share were outstanding for the period.

The calculation of basic and diluted loss per share is as follows (in
thousands):


                                       6
<PAGE>
Basic and diluted loss per share computation:

<TABLE>
<CAPTION>
                                                      THREE MONTHS ENDED                 NINE MONTHS ENDED
                                                      ------------------                 -----------------
                                                 SEPTEMBER 30,    SEPTEMBER 30,    SEPTEMBER 30,    SEPTEMBER 30,
                                                     2002             2001             2002             2001
                                                     ----             ----             ----             ----
<S>                                              <C>              <C>              <C>              <C>
Net loss                                           $   (97)         $(1,065)         $  (385)         $(1,982)
Accretion of redeemable preferred stock,
preferred stock dividends, and beneficial
conversion feature                                    (100)             (27)            (232)             (81)
Deemed preferred stock dividend resulting
from conversion of Series A preferred shares
to Series B preferred shares                            --               --             (489)              --
                                                   -------          -------          -------          -------
Net loss applicable to common shareholders            (197)          (1,092)          (1,106)          (2,063)
                                                   =======          =======          =======          =======
Weighted average shares outstanding - basic          3,610            3,610            3,610            3,610
                                                   =======          =======          =======          =======
Net loss per share - basic                         $ (0.05)         $ (0.30)         $ (0.31)         $ (0.57)
                                                   =======          =======          =======          =======

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

Dilutive stock options and warrants                     --               --               --               --
                                                   -------          -------          -------          -------
Weighted average shares outstanding - diluted        3,610            3,610            3,610            3,610
                                                   =======          =======          =======          =======
Net loss per share  - diluted                      $ (0.05)         $ (0.30)         $ (0.31)         $ (0.57)
                                                   =======          =======          =======          =======
</TABLE>

Options and warrants to purchase 1,863,517 and 1,456,785 shares of common stock
and 595,931 (3,125,597 if converted to common shares, refer to Note 8) and
549,166 (549,166 if converted to common shares, refer to Note 8 ) preferred
shares were excluded from dilutive stock option calculations for the three and
nine month periods ended September 30, 2002 and 2001, respectively, as their
inclusion would be antidilutive.

NOTE 6 - Segment Information

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

The accounting policies for these segments are the same as those described in
Note 1 of the Company's Form 10-KSB for the fiscal year ended 2001 and there are
no significant ongoing inter-segment transactions. The Company evaluates the
performance of its segments and allocates resources to them based primarily on
revenue or 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.


                                       7
<PAGE>
The table below summarizes information about reported segments (in thousands) as
of and for the three months ended September 30, 2002 and 2001:

<TABLE>
<CAPTION>
                               EQUIPMENT      ARTC         TOTAL
                               ---------      ----         -----
<S>                            <C>           <C>          <C>
THREE MONTHS ENDED 9/30/02
Net revenue                      $1,665      $  251       $1,916
Gross profit                        974         (47)         927
Property and equipment, net         148         586          734

THREE MONTHS ENDED 9/30/01
Net revenue                      $  925      $  602       $1,527
Gross profit                        282         120          402
Property and equipment, net         206         748          954
</TABLE>

The table below summarizes information about reported segments (in thousands) as
of and for the nine months ended September 30, 2002 and 2001:

<TABLE>
<CAPTION>
                               EQUIPMENT      ARTC       TOTAL
<S>                            <C>           <C>         <C>
NINE MONTHS ENDED 9/30/02
Net revenue                      $4,763      $1,140      $5,903
Gross profit                      2,425         182       2,607
Property and equipment, net         148         586         734

NINE MONTHS ENDED 9/30/01
Net revenue                      $5,059      $1,786      $6,845
Gross profit                      2,125         408       2,533
Property and equipment, net         206         748         954
</TABLE>

The following table shows sales by geographic area (in thousands) for the three
months ended September 30, 2002 and 2001:

<TABLE>
<CAPTION>
                    THREE MONTHS ENDED         THREE MONTHS ENDED
                    SEPTEMBER 30, 2002         SEPTEMBER 30, 2001
<S>                 <C>                        <C>
United States                  $ 1,281                    $ 1,366
International                      635                        161
                               -------                    -------
Total                          $ 1,916                    $ 1,527
                               =======                    =======
</TABLE>

The following table shows sales by geographic area (in thousands) for the nine
months ended September 30, 2002 and 2001:

<TABLE>
<CAPTION>
                     NINE MONTHS ENDED          NINE MONTHS ENDED
                    SEPTEMBER 30, 2002         SEPTEMBER 30, 2001
<S>                 <C>                        <C>
United States                  $ 3,567                    $ 5,252
International                    2,336                      1,593
                               -------                    -------
Total                          $ 5,903                    $ 6,845
                               =======                    =======
</TABLE>

NOTE 7 - Income Taxes

Refer to the Company's 2001 Form 10-KSB, Financial Statement Note 7.

NOTE 8 - Preferred Stock

Preferred Stock - Series A and Series B


                                       8
<PAGE>
On March 27, 2002 an existing investor (the "Investor") exchanged its 571,013
outstanding shares of Series A preferred stock, (refer to 2001 10-KSB, Financial
Statement Note 8), for an equal number of shares of Series B preferred stock of
the Company. The Series B preferred stock has the same preferences, limitations
and relative rights as the Series A preferred stock, except that the conversion
rate will be $0.922 per share instead of $2.15 per share. These rights include
voting rights equal to the number of shares of common stock into which each
share of preferred stock would be convertible, dividends at the rate of 8.0% per
annum paid quarterly either in cash or in kind, priority over common stock to
distributions upon liquidation or dissolution and redemption rights on any date
after September 1, 2004. The preferred stock exchange resulted in a beneficial
conversion feature of $489,000. This beneficial conversion feature would
normally have resulted in a credit to common stock and a charge to retained
earnings. As the Company has an accumulated deficit, both the credit and charge
are reflected in common stock in the accompanying 2002 financial statements. In
addition, this beneficial conversion feature was recorded as a charge to loss
applicable to common shareholders for the quarter ended March 31, 2002.

As a result of the exchange, the Series B shares provide the Investor with a
conversion rate that reflects current market prices.

As of September 30, 2002, the Series B preferred shares have accumulated
dividends in arrears of $51,000. Of the dividends in arrears at September 30,
2002, the Company anticipates a dividend payment of 23,876 Series B preferred
shares at the liquidation price of $2.15 per share on or before December 31,
2002.

The Series B preferred stock ranks senior to common stock and has a liquidation
preference of $2.15 per share plus all declared and unpaid dividends which
totals $1,279,000 at September 30, 2002.

Preferred Stock - Series C

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

On March 27, 2002, the Investor purchased 1,000 shares of Series C preferred
stock and warrants to purchase shares of common stock, in exchange for
$1,000,000. The net proceeds to the Company were $967,000. The warrants were
valued and recorded at $259,000. Due to the conversion feature of the Series C
preferred stock transaction, a beneficial conversion feature of $741,000 existed
at the execution of the agreement. The Company is accreting the beneficial
conversion feature of the Series C preferred stock to the earliest date the
Series C preferred stock holders can elect the option to redeem the Series C
preferred stock. The accretion recorded for the nine month period ending
September 30, 2002 was $103,000. The beneficial conversion feature was recorded
as an increase to common stock and a decrease to Series C preferred stock.

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

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

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

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

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


                                       9
<PAGE>
      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 September 30, 2002, the Series C
      preferred shares accumulated dividends in arrears of $42,000. Of the
      dividends in arrears at September 30, 2002, the Company anticipates a
      dividend payment of 42 Series C preferred shares at the liquidation price
      of $1,000 per share on or before December 31, 2002.

      Liquidation -- The Series C preferred stock ranks senior to common stock
      and has a liquidation preference of $1,000 per share plus all declared and
      unpaid dividends which totals $1,042,000 at September 30, 2002.

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

Warrants

In connection with the Series C preferred stock transaction, the Investor
received warrants to purchase 417,153 shares of the Company's common stock. The
exercise price of the warrants is $1.265, and the warrants have a term of five
years during which they can be exercised. The value of the warrants issued was
estimated to be $259,000. The warrants have been recorded as an increase to
common stock, which is being accreted to the earliest date the Series C
preferred stockholder can elect the option to redeem the Series C preferred
stock.

NOTE 9 - Legal Matters

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 was set, rescheduled to August 19, 2002, and subsequently rescheduled
to April 21, 2003 to resolve this matter. The Company believes it did not breach
the September 30, 1995 agreement or cause damages to entitle Gregg K. Hobbs to
recovery, and it will actively defend its position; however, no guarantee can be
given on the ultimate outcome or on the ultimate amount of damages, if any.
Based on consultations with legal counsel, management believes that the
likelihood of a material unfavorable outcome is remote.

Item 2.

                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

The statements contained in this report, which are not historical in nature, are
forward-looking statements subject to risks and uncertainties that are difficult
or impossible to predict with accuracy. Actual results could differ materially
from those set forth or implied by forward-looking statements. Such risks and
uncertainties include, but are not limited to, variability in order flow and
operating results, availability of capital to support operations, the ability of
the Company to find and retain qualified personnel to staff its manufacturing
and marketing operations and existing and anticipated test centers, and the risk
that the demand for the Company's systems will not continue to grow.

Results of Operations

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


                                       10
<PAGE>
Three Months Ended September 30, 2001 Compared With Three Months Ended September
30, 2002

Revenue

Net revenue increased $389,000 or 25.5% from $1,527,000 in the three months
ended September 30, 2001 to $1,916,000 for the three months ended September 30,
2002.

Equipment Revenue

Equipment revenue increased $740,000 or 80.0% from $925,000 in the three-month
period ended September 30, 2001 to $1,665,000 in the three months ended
September 30, 2002. Four OVS units were sold in the third quarter of 2001
compared to ten OVS units sold in the third quarter of 2002. The increase in
sales for the period ended September 30, 2002 primarily occurred due to the
Company's aggressive pursuit of international sales and increased demand for
used OVS equipment during the prevalent conservative domestic economic
atmosphere in the high technology industry, which pressures a decrease in demand
for capital equipment purchases. Of the units sold in the quarter ended
September 30, 2002, six represented international sales versus one international
sale for the quarter ended September 30, 2001. The international market
continues to grow providing 38.1% of the Company's equipment revenue for the
three months ended September 30,2002 versus 15.0% for the three months ended
September 30, 2001. The Company continues to expect a slow recovery in domestic
equipment sales, as the equipment line of business trends capital spending.
Because of the lagging domestic economy, QualMark has increased its focus on the
used/refurbish equipment line of business. The increased demand for used
equipment has enabled the Company to help stimulate its domestic equipment
sales. Of the total OVS units sold for the quarter ended September 30, 2002,
three represented used or refurbished pieces of QualMark equipment. The Company
utilizes two methods to supply its used and refurbished equipment line. The
Company actively purchases used QualMark equipment from the marketplace,
refurbishes and sells the updated equipment, or sells its used "as is" equipment
from its test center labs. Both methods could result in lower per chamber
average revenue, but will generally yield higher margins for the Company. The
Company is encouraged with its steady increase in international equipment sales
and is anticipating its recently released product the OVTT (refer to Management
Discussion and Analysis, Research & Development paragraph) to also assist in
stimulating the domestic equipment market. The Company can not give any
assurance on the continued demand of its used/refurbish equipment sales, success
of the OVTT, or the continued increase in international equipment sales.

On September 7, 2001 the Company announced an exclusive strategic partnership
with Weiss Umwelttechnik GmbH ("Weiss Technik"), the world leader in
environmental test chambers. Based in Reiskirchen-Lindenstruth, Germany, Weiss
Technik is the world's largest maker of environmental test chambers with annual
revenue of US $150 million, and is a member of the Schunk Group with annual
revenue of US $700 million. Under terms of the agreement, QualMark becomes Weiss
Technik's exclusive marketing partner in the United States and Canada. There
were no recorded Weiss sales for the third quarter of 2002. To date, the Company
attributes the slow Weiss domestic sales trend to noncompetitive pricing in the
domestic environmental test chamber market. The Company is continuing to analyze
the existing pricing model and is meeting in the fourth quarter of 2002 with
Weiss to discuss current issues regarding domestic Weiss environmental chamber
sales.


Test Center (ARTC) Revenue

Test center revenue decreased $351,000 or 58.3% from $602,000 in the three
months ended September 30, 2001 to $251,000 in the three months ended September
30, 2002. The Company operated four test centers, maintained one strategic
domestic partnership, and three strategic partnership test center operations in
Europe during 2002 versus six test centers in the U.S. and three strategic
partnership operations in Europe during the same period in 2001. The Company
primarily attributes the decrease in test center revenue to a conservative
economic atmosphere in the high technology industry, as well as an increase in
competition. Due to the existing economic trends, companies that would not
normally compete in the test center industry are doing so to generate additional
revenue. This additional competition has resulted in increased pricing and
demand pressures for the Company. During the second quarter of 2002, the Company
suffered a loss of one direct sales personnel in a key test center market. Also,
during 2002, the Company strategically changed the existing sales structure from
a direct field sales organization to independent sales representatives to
minimize sales related expenses. The independent sales representatives have
taken longer than expected to learn the sales cycle associated with the
Company's test center markets. The Company is continually training and assisting
in direct customer sales calls with the independent sales representatives, and
believes this process will continue through the fourth quarter 2002, but can not
give any


                                       11
<PAGE>
assurances on the ultimate outcome of test center revenue. The Company is also
continuing to examine the Detroit, Michigan partnership test center model, in
which additional partnerships may be entered into to minimize both variable and
fixed test center costs, while benefiting in a revenue share. This model may
result in decreased test center revenue, but should produce higher gross
profits, although no assurance can be given.

Gross Profit

Total gross margin for the three months ended September 30, 2002 was 48.4%. This
compares to a gross margin of 26.3% for the three months ended September 30,
2001. The increase in gross margin for the three-month period is primarily due
to the demand for used and refurbished equipment, changes in product sales mix,
in which a larger number of higher dollar equipment related services were sold
yielding higher margins, a decrease in average sales discounts given on new
equipment sales, and the closure of the Florida test center during the first
quarter of 2002, which minimized test center cost of sales. In the third quarter
2002, the Company recognized an increased demand for its used/refurbished
chambers, in which three chambers were sold. In 2001, the low gross margin was
primarily due to the review and write off of $93,000 in obsolete raw inventory,
$35,000 in additional costs incurred to relocate the Santa Clara test center, an
unfavorable shift in product mix to lower margin equipment components, and the
diminished demand for capital goods in the existing economic environment. The
Company will continue to focus on its used/refurbish equipment line of business,
place emphasis on improving product mix, manufacturing utilization, overhead
management, and examine other existing domestic test center facilities for
strategic relationships similar to the Detroit, Michigan partnered test center.

Operating Expenses

Total operating expenses decreased $168,000 or 14.6% to $980,000 for the three
months ended September 30, 2002 from $1,148,000 for the three months ended
September 30, 2001.

Selling, general and administrative expenses decreased $151,000 or 15.8% to
$802,000 in the three months ended September 30, 2002 from $953,000 for the
three months ended September 30, 2001. Expenses in the third quarter 2002
decreased primarily due to the significant reduction in department personnel, in
response to the economic down turn during 2001 continuing through 2002. Included
in the selling, general, and administrative costs was a $129,000 charge for
legal related expenses for arbitration (refer to Note 9 of the Financial
Statements). If the Company had not incurred the additional $129,000 in
arbitration related expenses, the decrease in the third quarter selling,
general, and administrative would be $280,000 or 29.4%. A large component of
selling, general, and administrative expenses are sales and marketing expenses,
which decreased 29.4% for the three months ended September 30, 2002 as compared
to the three months ended September 30, 2001. The decrease is attributed to the
Company's reorganization of international sales and "right sizing" its
infrastructure beginning at the end of 2000 and continuing through 2002. Also,
the Company has strategically changed the existing sales structure from a direct
field sales organization to independent sales representatives to minimize all
related sales expenses, and to ensure that additional sales costs are relative
to sales demand. If the Company determines the recently implemented sales
structure is not effective, direct field sales personnel may be added, which
would increase selling, general, and administrative expense. QualMark continues
to monitor and identify ways to reduce operating expenditures. Currently, the
Company's infrastructure and systems have been set up and redesigned to prepare
for an increase in sales demand with a minimal increase in selling, general, and
administrative costs.

Research and development costs decreased $17,000 or 8.7% to $178,000 for the
three months ended September 30, 2002 from $195,000 for the three months ended
June 30, 2001. The decrease is primarily attributed to a reduction of research
and development staff. The Company continually strives to sustain its commitment
to product improvements and research and development. As a result, research and
development expenditures fluctuate from quarter to quarter, and may increase in
future quarters. On September 25, 2002 the Company formally introduced a major
new product the OVTT (Omni Vibration Table Top) system that enables users to
quickly and conveniently perform evaluations for field returns, spot audits and
pre- and post- release product design verifications. The OVTT system uses the
Company's patented Six Degrees of Freedom vibration technology and was designed
with low air requirements and low noise levels, making it efficient and
inexpensive to use. The OVTT has the flexibility of a table top vibration
system, which allows companies to mount the OVTT into most environmental
chambers. As of September 30, 2002, the Company has not actively solicited
orders or provided quotations for the OVTT, but expects to begin quoting and
accepting orders during the fourth quarter of 2002.

Nine Months Ended September 30, 2001 Compared With Nine Months Ended Sept 30,
2002


                                       12
<PAGE>
Revenue

Net revenue decreased $942,000 or 13.8% from $6,845,000 in the nine months ended
September 30, 2001 to $5,903,000 for the nine months ended September 30, 2002.


Equipment Revenue

Equipment revenue decreased $296,000 or 5.9% from $5,059,000 in the nine-month
period ended September 30, 2001 to $4,763,000 in the nine-months ended September
30, 2002. Thirty-three OVS units were sold in the first nine months of 2001
compared to thirty OVS units sold in the first nine months of 2002. The decrease
in sales for the nine months ended September 30, 2002 primarily occurred due to
the prevalent conservative domestic economic atmosphere in the high technology
industry, which pressures a decrease in demand for capital equipment purchases.
Of the units sold in the nine months ended September 30, 2002, seventeen
represented international sales versus eleven international sales for nine
months ended September 30, 2001. The international market continues to grow
providing 49.0% of the Company's equipment revenue for the nine months ended
September 30,2002 versus 30.0% for the nine months ended September 30, 2001. The
Company continues to expect a slow recovery in domestic equipment sales, as the
equipment line of business trends capital spending. Because of the lagging
domestic economy, QualMark has increased its focus on the used/refurbish
equipment line of business. The increased demand for used equipment has enabled
the Company to help stimulate its domestic equipment sales. Of the total OVS
units sold for the nine months ended September 30, 2002, four represented used
or refurbished pieces of QualMark equipment. The Company utilizes two methods to
supply its used and refurbished equipment line. The Company actively purchases
used QualMark equipment from the marketplace, refurbishes and sells the updated
equipment, or sells its used "as is" equipment from its test center labs. Both
methods could result in lower per chamber average revenue, but will generally
yield higher margins for the Company. The Company is encouraged with its steady
increase in international equipment sales and is anticipating its recently
released product the OVTT (refer to Management Discussion and Analysis, Research
& Development paragraph) to also assist in stimulating the domestic equipment
market. The Company can not give any assurance on the continued demand of its
used/refurbish equipment sales, success of the OVTT, or the continued increase
in international equipment sales.

During the nine month period ending September 30, 2002 the Company sold three
standard Weiss environmental units and one special order unit, in which the
Company received and reported a commission. Total Weiss revenue represented 1.9%
of the Company's equipment revenue year to date for 2002. The Company attributes
the slow Weiss domestic sales trend to noncompetitive pricing in the domestic
environmental test chamber market. The Company is continuing to analyze the
existing pricing model and is meeting in the fourth quarter of 2002 with Weiss
to discuss current issues regarding domestic Weiss environmental chamber sales.


Test Center (ARTC) Revenue

Test center revenue decreased $646,000 or 36.2% from $1,786,000 in the nine
months ended September 30, 2001 to $1,140,000 in the nine months ended September
30, 2002. The Company operated four test centers, maintained one strategic
domestic partnership, and three strategic partnership test center operations in
Europe during 2002 versus six test centers in the U.S. and three strategic
partnership operations in Europe during the same period in 2001. The Company
primarily attributes the decrease in test center revenue to a conservative
economic atmosphere in the high technology industry as well as an increase in
competition. Due to the existing economic trends companies that would not
normally compete in the test center industry are doing so to generate additional
revenue. This additional competition has resulted in increased pricing and
demand pressures for the Company. During the second quarter of 2002, the Company
suffered a loss of one direct sales personnel in a key test center market. Also
during 2002, the Company strategically changed the existing sales structure from
a direct field sales organization to independent sales representatives to
minimize sales related expenses. The independent sales representatives have
taken longer than expected to learn the sales cycle associated with the
Company's test center markets. The Company is continually training and assisting
with direct customer sales calls for the independent sales representatives, and
believes this process will continue through the fourth quarter, but can not give
any assurance on the ultimate outcome of test center revenue. The Company is
also continuing to examine the Detroit, Michigan partnership test center model,
in which additional partnerships may be entered into to minimize both variable
and fixed test center costs, while benefiting in a revenue share. This model may
result in decreased test center revenue, but should produce higher gross
profits, although no assurance can be given.


Gross Profit

Total gross margin for the nine months ended September 30, 2002 was 44.2%. This
compares to a gross margin of 37.0% for the nine months ended September 30,
2001. The increase in gross margin for the nine-month period is primarily due to
the demand for used and refurbished equipment, changes in product sales mix, in
which a larger number of higher dollar equipment components and


                                       13
<PAGE>
services were sold yielding higher margins, a decrease in average sales
discounts given on new equipment sales, the closure of the Florida test center
during the first quarter of 2002, which minimized test center cost of sales, and
the test center partnership instituted in Detroit, Michigan with a large
national testing lab. For the nine months ended September 30, 2002, the Company
recognized an increased demand for its used/refurbished chambers, in which four
chambers were sold. In 2001, the low gross margin was primarily due to the
review and write off of $93,000 in obsolete raw inventory, $35,000 in additional
costs incurred to relocate the Santa Clara test center, an unfavorable shift in
product mix to lower yielding equipment parts, and the diminished demand for
capital goods in the existing economic environment. The Company will continue to
focus on its used/refurbish equipment line of business, place emphasis on
improving product mix, manufacturing utilization, overhead management, and
examine other existing domestic test center facilities for strategic
relationships similar to the Detroit, Michigan partnered test center.


Operating Expenses

Total operating expenses decreased $623,000 or 17.9% to $2,853,000 for the nine
months ended September 30, 2002 from $3,476,000 for the nine months ended
September 30, 2001.

Selling, general and administrative expenses decreased $577,000 or 20.1% to
$2,291,000 in the nine months ended September 30, 2002 from $2,868,000 for the
nine months ended September 30, 2001. Expenses in the nine months ended 2002
decreased primarily due to the significant reduction in department personnel, in
response to the economic down turn during 2001 continuing through 2002. Included
in the selling, general, and administrative costs was a $20,000 charge for
severance related expenses, as the Company continues to "right size" its
operations against revenues, and $294,000 in charges for arbitration related
expenses (refer to Note 9 of the Financial Statements). If the Company had not
incurred the additional $20,000 in severance expenses and $294,000 in
arbitration related expenses, the decrease in the nine months ending September
30, 2002 selling, general, and administrative would be $891,000 or 31.1 %. A
large component of selling, general, and administrative expenses are sales and
marketing expenses, which decreased 39.0% for the nine months ended September
30, 2002 as compared to the three months ended September 30, 2001. The decrease
is attributed to the Company's reorganization of international sales and "right
sizing" its infrastructure beginning at the end of 2000 and continuing through
2002. Also, the Company has strategically changed the existing sales structure
from a direct field sales organization to independent sales representatives to
minimize all related sales expenses, and to ensure that additional sales costs
are relative to sales demand. If the Company determines the recently implemented
sales structure is not effective, direct field sales personnel may be added,
which would increase selling, general, and administrative expense. QualMark
continues to monitor and identify ways to reduce operating expenditures.
Currently, the Company's infrastructure and systems have been set up and
redesigned to prepare for an increase in sales demand with a minimal increase in
selling, general, and administrative costs.

Research and development costs decreased $46,000 or 7.6% to $562,000 for the
nine months ended September 30, 2002 from $608,000 for the nine months ended
September 30, 2001. The decrease is primarily attributed to a reduction of
research and development staff. The Company continually strives to sustain its
commitment to product improvements and research and development. As a result,
research and development expenditures fluctuate from quarter to quarter, and may
increase in future quarters. On September 25, 2002 the Company formally
introduced a major new product the OVTT (Omni Vibration Table Top) system that
enables users to quickly and conveniently perform evaluations for field returns,
spot audits and pre- and post- release product design verifications. The OVTT
system uses the Company's patented Six Degrees of Freedom vibration technology
and was designed with low air requirements and low noise levels, making it
efficient and inexpensive to use. The OVTT has the flexibility of a table top
vibration system, which allows companies to mount the OVTT into most
environmental chambers. As of September 30, 2002, the Company has not actively
solicited orders or provided quotations for the OVTT, but expects to begin
quoting and accepting orders during the fourth quarter of 2002.


Liquidity and Capital Resources

During the nine months ended September 30, 2002, the Company generated $199,000
of cash from operations, invested $200,000 for equipment, and repaid $460,000 of
commercial bank borrowings. The Company also received net proceeds of $967,000
from the issuance of preferred stock, refer to Financial Statement Note 8.
Together, these activities resulted in a cash increase of $506,000, for an
ending balance of $1,006,000 at September 30, 2002. During the nine months ended
September 30, 2001, the Company generated $611,000 of cash from operating
activities, invested $189,000 for equipment and $5,000 for patents, repaid
$1,491,000, and borrowed $300,000 with commercial banks. Employees and investors
exercised options of common stock for proceeds of $5,000. Together, these
activities resulted in a cash decrease of $769,000 for an ending balance of
$167,000 at September 30, 2001.


                                       14
<PAGE>
The Company's commercial bank borrowings consist of a term loan and a revolving
line of credit.

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. On July 18, 2002, the Credit Agreement was amended, in which the monthly
term loan principal payments increased from $50,000 to $55,000, beginning on
July 31, 2002. On October 18, 2002 the Credit Agreement was amended, in which
the revolving line of credit limit was reduced from $1,000,000 to $750,000.

The average interest rate for the nine-month period ending September 30, 2002,
for the term loan and revolving credit line was 7.53%. 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 September 30, 2002, there was $48,000 of additional availability
on the line of credit.

As of September 30, 2002, the balances of the revolving credit and term loan are
$645,000 and $1,130,000, respectively.

The Company must maintain certain financial and other covenants to be in
compliance with the Credit Agreement. Although the Company is not now, nor has
it ever been in arrears on any payment pursuant to the Credit Agreement, as of
September 30, 2002, the Company was in default of certain financial covenants
contained in the Credit Agreement. The Company has, however, received waivers
from its lender regarding such noncompliance for the quarter ending September
30, 2002. The Company cannot give any assurance on future compliance with the
financial and other covenants set forth in the Credit Agreement. Such
non-compliance may have a material adverse affect on the Company's liquidity and
its ability to generate the funds necessary to satisfy the existing Credit
Agreement.

As required by the renegotiated Credit Agreement the Company is making monthly
principal payments, which began on July 31, 2002, of $55,000 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 guarantee that such
renegotiations will be successful.

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 the third 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 their 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.


Business Environment

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

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


                                       15
<PAGE>
If we fail to address our competitive challenges, there could be a material
adverse effect on our business, financial conditions and results of operations.

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

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


Suppliers

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


International Operations

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


                                       16
<PAGE>
Intellectual Property

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


Legal Proceedings

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. Year to date, the Company has
incurred approximately $294,000 in costs relating to the arbitration. The
Company expects the matter to be resolved on April 21, 2003 by the arbitrator.
The Company believes it did not breach the September 30, 1995 agreement or cause
damages to entitle Gregg K. Hobbs to recovery, and it will actively defend its
position; however, no guarantee can be given on the ultimate outcome or on the
ultimate amount of damages, if any. Based on consultations with legal counsel,
management believes that the likelihood of a material unfavorable outcome is
remote.


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.


Nasdaq Market Listing

On March 20, 2002 the Company was notified by The Nasdaq Stock Market that a
Nasdaq Listing Qualifications Panel found that QualMark had presented a
definitive plan that would enable it to evidence compliance with all
requirements for continued listing on the Nasdaq SmallCap Market within a
reasonable period of time and sustain compliance with those requirements over
the long term. The Panel determined to continue the listing of the Company's
stock on The Nasdaq SmallCap Market if it complied with certain undertakings. On
March 27, 2002 the Company, in reliance upon this notification, completed a $1
million preferred stock financing transaction with The Roser Partnership III
which provided that if shareholder approval was not obtained for the stock
issuance, the preferred stock would convert on a different basis than if
shareholder approval was obtained. Although the Company complied with the
undertakings established by Nasdaq, on May 9, 2002 the Nasdaq Stock Market
notified the Company that this transaction, which was initially approved by
Nasdaq, did not meet the requirements of a staff interpretation of the
shareholder approval requirements. According to IM-4350-2, first published March
7, 2002, if the terms of a transaction can change based upon the outcome of a
shareholder vote, no shares may be issued prior to shareholder approval. As a
result, effective May 10, 2002, the Company became actively listed on the OTC
Electronic Bulletin Board under the symbol QMRK.


Critical Accounting Policies and Estimates

Refer to the 2001 Form 10KSB, Management Discussion and Analysis, Item 6.


Contractual Obligations

Refer to the 2001 Form 10KSB, Management Discussion and Analysis, Item 6.


                                       17
<PAGE>
Item 3.

           QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company's exposure to interest rate changes are primarily related to its
variable rate debt issued under its $1,775,000 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 September 30, 2002 would be an annual increase or
decrease of approximately $18,000 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, will result in payments in Euros.
These Weiss Technik transactions could result in foreign exchange rate risk. As
of September 30, 2002, the Company did not incur material charges relating to
exchange rate risk.

Item 4.

                             CONTROLS AND PROCEDURES

Within the 90 day period prior to the date of this report, management concluded
its evaluation of the effectiveness of the design and operation of the Company's
disclosure controls and procedures. As of the Evaluation Date, the Company's
President and Chief Executive Officer and its Vice President of Finance
concluded that the Company maintains disclosure controls and procedures that are
effective in providing reasonable assurance that information required to be
disclosed in the Company's reports under the Securities Exchange Act of 1934
(Exchange Act) is recorded, processed, summarized and reported within the time
periods specified in the SEC's rules and forms, and that such information is
accumulated and communicated to the Company's management, including its
President and Chief Executive Officer and its Vice President of Finance, as
appropriate, to allow timely decisions regarding required disclosure. Management
necessarily applied its judgment in assessing the costs and benefits of such
controls and procedures, which, by their nature, can provide only reasonable
assurance regarding management's control objectives. There have been no
significant changes in the Company's internal controls or in other factors that
could significantly affect these controls subsequent to the Evaluation Date.


                                       18
<PAGE>
                            PART II OTHER INFORMATION

Item 1 Legal Proceedings

      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 was set, rescheduled to August 19, 2002, and
      subsequently rescheduled to April 21, 2003 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.

Item 2 Changes in Securities

      None

Item 3 Defaults upon Senior Securities

      None

Item 4 Submission of Matters to a Vote of Security Holders

      None

Item 5 Other Information

      None

Item 6 Exhibits and Reports on Form 8-K.

      (a)   Exhibits - See Index to Exhibits

      (b)   Reports on Form 8-K during the quarter ended September 30, 2002:

            On July 9, 2002, QualMark Corporation dismissed Arthur Andersen LLP
            as its independent accountants. The Registrant's Audit Committee and
            Board of Directors approved the decision to change independent
            accountants. The report of Arthur Andersen LLP on the financial
            statements for the year ended December 31, 2001 contained no adverse
            opinion or disclaimer of opinion and was not qualified or modified
            as to uncertainty, audit scope or accounting principle. The report
            of PricewaterhouseCoopers LLP on the financial statements for the
            year ended December 31, 2000 contained no adverse opinion or
            disclaimer of opinion and was not qualified or modified as to
            uncertainty, audit scope or accounting principle. In connection with
            its audit for the most recent fiscal year and through July 9, 2002,
            there have been no disagreements with Arthur Andersen LLP on any
            matter of accounting principles or practices, financial statement
            disclosure, or auditing scope or procedure, which disagreements if
            not resolved to the satisfaction of Arthur Andersen LLP would have
            caused them to make reference thereto in their report on the
            financial statements for such years. During the two most recent
            fiscal years and through July 9, 2002, there have been no reportable
            events (as defined in Regulation S-K Item 304(a)(1)(v)). The
            Registrant has requested that Arthur Andersen LLP furnish it with a
            letter addressed to the SEC stating whether or not it agrees with
            the above statements. Due to the current status of Arthur Andersen,
            we were not able to obtain such a letter.


                                       19
<PAGE>
            The Registrant engaged Gelfond Hochstadt Pangburn, P.C. as its new
            independent accountants as of July 9, 2002.

            On September 5, 2002, the Registrant was notified by the Judicial
            Arbiters Group, Inc. ("JAG") that the arbitration with Gregg K.
            Hobbs would be postponed until April 21, 2003.


                                       20
<PAGE>
                                   SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

                                  QualMark Corporation

Date:  November 13, 2002                By: /s/ CHARLES D. JOHNSTON
                                           ------------------------------------
                                           Charles D. Johnston President,
                                           Chief Executive Officer

Date: November 13, 2002                 By: /s/ ANTHONY A. SCALESE
                                           ------------------------------------
                                           Anthony A. Scalese
                                           VP of Finance & Administration
                                           & Principal Accounting Officer



                                       21
<PAGE>
         CERTIFICATION PURSUANT TO RULE 13A-14 OR 15D-14 OF THE SECURITIES
          EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302 OF
                         THE SARBANES-OXLEY ACT OF 2002

I, Charles D. Johnston, certify that:

      1.    I have reviewed this quarterly report on Form 10-QSB of QualMark
            Corporation;

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

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

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

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

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

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

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

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

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

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

Date:  November 13, 2002

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


                                       22
<PAGE>
         CERTIFICATION PURSUANT TO RULE 13A-14 OR 15D-14 OF THE SECURITIES
          EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302 OF
                         THE SARBANES-OXLEY ACT OF 2002

I, Anthony A. Scalese, certify that:

      1.    I have reviewed this quarterly report on Form 10-QSB of QualMark
            Corporation;

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

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

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

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

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

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

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

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

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

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

Date:  November 13, 2002

                                           /s/  Anthony A. Scalese
                                           ------------------------------------
                                           Anthony A. Scalese
                                           Vice President of Finance &
                                           Principal Accounting Officer


                                       23
<PAGE>
                                INDEX TO EXHIBITS

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

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

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

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

  3.5         Statement of Change of Registered Agent.(5)

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

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

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

 10.2         QualMark Corporation 1996 Stock Option Plan.(3)

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

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

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

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

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

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

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

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

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

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

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

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


                                       24
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER                                DESCRIPTION
------                                -----------
<S>           <C>
10.19         Second Amendment to Promissory Notes and Fifth Amendment to Loan
              Agreement dated February 1, 2001 by and between QualMark and U.S.
              Bank National Association.(8)

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

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

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

10.23         Series C Preferred Stock Certificate of Designations (11)

10.24         Series B Preferred Stock Certificate of Designations (11)

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

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

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

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

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

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

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

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

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

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

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

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


                                       25