<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                         June 30, 2004
                               -------------------------------------------------
[  ]  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)

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

    4580 Florence Street, Denver, CO                                80238
--------------------------------------------                 -------------------
  (Address of principal executive offices)                        (Zip Code)

(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 August 12, 2004
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 SHARE DATA)

<TABLE>
<CAPTION>

                                                         FOR THE THREE      FOR THE THREE     FOR THE SIX       FOR THE SIX
                                                         MONTHS ENDED       MONTHS ENDED      MONTHS ENDED      MONTHS ENDED
                                                           JUNE 30,           JUNE 30,          JUNE 30,          JUNE 30,
                                                             2004               2003             2004              2003
                                                         ----------------------------------------------------------------------
<S>                                                      <C>                <C>               <C>               <C>
        Net revenue                                       $     3,210       $     1,977       $     6,059       $     3,310
        Cost of sales                                           1,730             1,154             3,131             2,077
                                                         ----------------------------------------------------------------------
            Gross profit                                        1,480               823             2,928             1,233
        Selling, general and administrative expenses              773               590             1,727             1,141
        Research and development expenses                         177               159               337               329
        Arbitration and associated legal expenses                 145               536               213               536
                                                         ----------------------------------------------------------------------
           Income (loss) from operations                          385              (462)              651              (773)
        Other expense:
            Interest, net                                         (27)              (25)              (50)              (57)
                                                         ----------------------------------------------------------------------
        Income (loss) before income taxes                         358              (487)              601              (830)
        Provision for income taxes                                 (6)               --                (6)               --
                                                     ----------------------------------------------------------------------
        Net income (loss)                                 $       352       $      (487)      $       595       $      (830)
                                                     ======================================================================
        Net income (loss) per share - basic               $      0.07       $     (0.16)      $      0.11       $     (0.29)

        Net income (loss) per share - diluted             $      0.04       $     (0.16)      $      0.07       $     (0.29)

        Weighted average number of common shares -          3,610,000         3,610,000         3,610,000         3,610,000
        basic

        Weighted average number of common shares -          7,283,000         3,610,000         7,198,000         3,610,000
        diluted
</TABLE>

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


                                       2
<PAGE>
                              QUALMARK CORPORATION
                                 BALANCE SHEETS
                 (AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES)
<TABLE>
<CAPTION>
                                                                             JUNE 30, 2004   DECEMBER 31, 2003
                                                                             ---------------------------------
                                                                              (UNAUDITED)
<S>                                                                          <C>             <C>
ASSETS

Current assets:
  Cash                                                                                $376                $442
  Trade accounts receivable, net of allowance for
     doubtful accounts of $49 and $28 at June 30,
      2004 and December 31, 2003, respectively                                       2,658               2,119
  Inventories, net                                                                     540                 379
  Other current assets                                                                 119                  35
                                                                             ---------------------------------
    Total current assets                                                             3,693               2,975

  Property and equipment, net                                                          537                 622
  Restricted cash                                                                       90                  90
  Other assets                                                                          89                  94
                                                                             ---------------------------------
                                                                                    $4,409              $3,781
                                                                             =================================
LIABILITIES AND SHAREHOLDERS' DEFICIT

Current liabilities:
  Accounts payable                                                                  $1,225                $858
  Accrued arbitration settlement                                                        94                 426
  Accrued expenses, other                                                              678                 450
  Current portion of long-term debt                                                    690                 440
                                                                             ---------------------------------
    Total current liabilities                                                        2,687               2,174

  Long-term debt                                                                        --                 480
                                                                             ---------------------------------
     Total liabilities                                                               2,687               2,654
                                                                             =================================
Commitments and contingencies

Convertible redeemable preferred stock; 2,000,000 shares authorized
  (Note 7): 692,951 designated as Series B, 657,236 shares
  (2004) and 631,549 (2003) shares issued and outstanding,
  liquidation preference of $1,470 (2004)                                            1,435               1,369

  2,000 designated as Series C, 1,151 shares (2004) and 1,106 shares
  (2003) Issued and outstanding, liquidation preference of $1,198 (2004)               650                 503

Shareholders' deficit:
  Common stock; no par value; 15,000,000 shares authorized;
      3,610,092 shares issued and outstanding                                        7,231               7,444
  Accumulated deficit                                                               (7,594)             (8,189)
                                                                             ---------------------------------
     Total shareholders' deficit                                                      (363)               (745)
                                                                             ---------------------------------
                                                                                    $4,409              $3,781
                                                                             =================================

</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 SIX   FOR THE SIX
                                                                       MONTHS ENDED   MONTHS ENDED
                                                                       JUNE 30, 2004  JUNE 30, 2003
                                                                       ----------------------------

Cash Flows From Operating Activities:
<S>                                                                    <C>            <C>
Net income (loss)                                                            $   595       $  (830)
Adjustments to reconcile net income (loss) to net cash
provided by (used in)
 operating activities:
    Depreciation and amortization                                                146           183
    Gain on disposal of equipment                                                 --            (4)
    Decrease in inventory reserve                                                 --            (8)
    Provision for bad debts                                                       21             1
    Warrants and stock option expense                                              7             7
Change in assets and liabilities:
    Trade accounts receivable                                                   (560)         (356)
    Inventories                                                                 (161)          209
    Other assets                                                                 (84)         (164)
    Accounts payable and accrued expenses                                        588           655
    Accrued arbitration settlement                                              (332)           --
                                                                      ----------------------------
        Net cash provided by (used in) operating activities                      220          (307)

Cash Flows From Investing Activities:
Acquisition of property and equipment                                            (56)         (152)
 Sale of property and equipment                                                   --            11
                                                                      ----------------------------
    Net cash used in investing activities                                        (56)         (141)


Cash Flows From Financing Activities:
Payments on borrowings                                                          (230)         (330)
                                                                      ----------------------------
    Net cash used in financing activities                                       (230)         (330)

Net decrease in cash                                                             (66)         (778)
Cash and cash equivalents at beginning of period                                 442         1,288
                                                                      ----------------------------
Cash and cash equivalents at end of period                                   $   376       $   510
                                                                      ============================
Supplemental Disclosure:
Interest paid                                                                $    45       $    65

Non-Cash Investing and Financing Activities:
Preferred stock dividends                                                    $   105       $    97
Accretion of preferred stock                                                 $   108       $   108
Transfer of equipment to inventory held for resale                               $--       $     1
</TABLE>

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

                                       4
<PAGE>
                              QUALMARK CORPORATION
                     NOTES TO UNAUDITED 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 - Business and Summary of Significant Accounting Policies

Financial Presentation

These financial statements should be read in conjunction with the audited
 financial statements for the year ended December 31, 2003 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 June 30, 2004 and for the three and six months
ended June 30, 2004 and 2003 is unaudited; however, in the opinion of the
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 six months
ended June 30, 2004 are not necessarily indicative of results for the remainder
of 2004. Amounts at December 31, 2003 are derived from the Company's audited
financial statements.

Stock Based Compensation

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

<TABLE>
<CAPTION>
                                           THREE MONTHS ENDED               SIX MONTHS ENDED

                                      JUNE 30, 2004  JUNE 30, 2003   JUNE 30, 2004    JUNE 30, 2003
                                      -------------------------------------------------------------
<S>                                   <C>            <C>             <C>              <C>
Net income (loss)                         $   352        $  (487)       $   595        $    (830)

ADD:  Stock-based employee
compensation expense included in
reported net income, net of related
tax effects                                    --             --             --               --

DEDUCT: Total stock-based employee
compensation expense determined
under fair value based method for
all awards, net of related tax
effects                                       (73)          (119)          (149)            (235)
                                      -------------------------------------------------------------
Pro forma net income (loss)               $   279        $  (606)       $   446        $  (1,065)
                                      =============================================================
Income (loss)  per share:
Basic -  as reported                      $  0.07       $  (0.16)      $   0.11        $   (0.29)
                                      =============================================================
Diluted - as reported                     $  0.04       $  (0.16)      $   0.07        $   (0.29)
                                      =============================================================
Basic - pro forma                         $  0.05       $  (0.20)      $   0.07        $   (0.35)
                                      =============================================================
Diluted - pro forma                       $  0.02       $  (0.20)      $   0.03        $   (0.35)
                                      =============================================================
</TABLE>


                                       5
<PAGE>
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.

Recently Issued Accounting Pronouncements

In May 2003, the Financial Accounting Standards Board (FASB) issued SFAS No.
150, Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity. SFAS No. 150 establishes new standards on how an issuer
classifies and measures certain financial instruments with characteristics of
both liabilities and equity. The provisions of SFAS No. 150 are generally
effective for all financial instruments entered into or modified after May 31,
2003, except for those provisions relating to mandatorily redeemable
non-controlling interests, which have been deferred. The adoption of SFAS No.
150 did not have a material impact on the financial position or results of
operations of the Company. If the deferred provisions of SFAS No. 150 are
finalized in their current form, management does not expect adoption to have a
material effect on the financial position or results of operation of the
Company.

NOTE 2 - Inventories

Inventories consist of the following (in thousands):

                                        JUNE 30,     DECEMBER 31,
                                         2004          2003
                                      --------------------------
   Raw materials                      $  490          $   375
   Work in process                        47               13
   Finished goods                         50               38
   Less: Allowance for                   (47)             (47)
   obsolescence
                                      ------          -------
                                      $  540          $   379
                                      ======          =======

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

NOTE 3 - Commercial Bank

The Company's commercial bank borrowings consist of a term loan and a revolving
line of credit, (the "Credit Agreement"). Refer to the 2003 Form 10-KSB,
Financial Statement Note 5.

On February 27, 2004, the Company renegotiated its Credit Agreement. Among other
changes, the monthly principal payments decreased from $60,000 to $50,000 for
February 2004, and then decrease to $30,000 from March 2004 through September
2004, with a final increase to $40,000 from October 2004 through maturity. In
addition, the maturity date was extended to March 15, 2005.

On April 20, 2004, the Company renegotiated its Credit Agreement with the
commercial bank. Among other changes, the revolving line of credit was increased
from $500,000 to $1,000,000.

The average interest rate for the six-month period ended June 30, 2004 and 2003,
for the term loan and revolving credit line was 7.00% and 7.25%, respectively.
Both the revolving credit line and term loan under the Credit Agreement are
collateralized by substantially all the assets of the Company. As of June 30,
2004, the balances of the revolving credit and term loan are $500,000 and
$190,000, respectively. Borrowings under the line of credit are subject to
borrowing base limits. Based on the provisions of the Credit Agreement, as of
June 30, 2004 there was $500,000 of additional availability on the line of
credit.

The Company must maintain certain financial and other covenants to be in
compliance with the Credit Agreement. The Company is not now, nor has it ever
been in arrears on any payment pursuant to the Credit Agreement. For the three
and six months ended June 30, 2004, the Company was in compliance with its
financial covenants.


                                       6
<PAGE>
The Company had also determined that, during 2004, 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 2004,
the Company expects to begin negotiating 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  - Income (Loss) Per Share

Basic income (loss) per share is computed by dividing net income (loss)
available to common shareholders by the weighted average number of shares
outstanding during the period. Diluted income (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,
except per-share amounts):

Basic and diluted loss per share computation:

<TABLE>
<CAPTION>
                                                       THREE MONTHS ENDED              SIX MONTHS ENDED

                                              JUNE 30, 2004     JUNE 30, 2003    JUNE 30, 2004     JUNE 30, 2003
                                              ------------------------------------------------------------------
<S>                                           <C>               <C>              <C>               <C>
Net income (loss)                               $   352           $  (487)          $   595           $  (830)
Accretion of redeemable preferred
stock and preferred stock dividends                (108)             (103)             (213)             (205)
                                              ------------------------------------------------------------------
Net income (loss) available to common
shareholders                                    $   244           ($  590)          $   382           $(1,035)
                                              ==================================================================
Weighted average shares outstanding -
basic                                             3,610             3,610             3,610             3,610
                                              ==================================================================
Net income (loss) per share - basic             $  0.07           $ (0.16)          $  0.11           $ (0.29)
                                              ==================================================================
Weighted average shares outstanding -
basic                                             3,610             3,610             3,610             3,610

Dilutive stock options and warrants                 150                --               135                --
Convertible preferred stock                       3,523                --             3,453                --
                                              ------------------------------------------------------------------
Weighted average shares outstanding -
diluted                                           7,283             3,610             7,198             3,610
                                              ==================================================================
Net income (loss) per share - diluted           $  0.04           $ (0.16)          $  0.07           $ (0.29)
                                              ==================================================================

</TABLE>

Options and warrants to purchase 1,883,888 shares of common stock were included
in the dilutive stock option calculation for the three and six month period
ended June 30, 2004 using the treasury stock method, which resulted in a net
share increase of 150,000 shares and 135,000 shares, respectively. The effect of
conversions for the three and six month period ended June 30, 2004 of preferred
stock to common stock was 3,522,698 and 3,453,173, respectively, using the if
converted method. Dividends applicable to convertible preferred stock of
$189,000 and $298,000 for the three and six months ended June 30, 2004 were
added back to net income to determine diluted net income per share. (refer to
Note 7).

Options and warrants to purchase 1,873,563 shares of common stock and 632,655
(3,318,212 if converted to common shares, refer to Note 7) preferred shares were
excluded from dilutive stock option calculations for the three and six month
periods ended June 30, 2003, as their inclusion would be antidilutive.

NOTE 5 - Segment Information

The Company operates in two business segments, testing equipment ("Equipment")
and Accelerated Reliability Test Centers ("ARTC"). The Equipment segment is
engaged in the manufacture and sale of vibration and thermal chambers for
quality control


                                       7
<PAGE>
testing of various electronic devices and components. The ARTC segment operates
service centers where vibration and thermal chambers are available to customers
for daily rental.

The accounting policies for these segments are the same as those described in
Note 1 of the Company's Form 10-KSB for the fiscal year ended 2003 and there are
no 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.

The tables below summarize information about reported segments (in thousands) as
of and for the three and six months ended June 30, 2004 and 2003:

                                         EQUIPMENT         ARTC            TOTAL
                                         ---------------------------------------
THREE MONTHS ENDED JUNE 30, 2004
Net revenue                               $2,870          $  340          $3,210
Gross profit                               1,380             100           1,480
Property and equipment, net                  137             400             537

THREE MONTHS ENDED JUNE 30, 2003
Net Revenue                               $1,701          $  276          $1,977
Gross profit                                 805              18             823
Property and equipment, net                  148             538             686

                                         EQUIPMENT         ARTC            TOTAL
                                         ---------------------------------------
SIX MONTHS ENDED JUNE 30, 2004
Net revenue                             $5,418          $  641           $6,059
Gross profit                             2,782             146            2,928
Property and equipment, net                137             400              537

SIX MONTHS ENDED JUNE 30, 2003
Net Revenue                             $2,779          $  531           $3,310
Gross profit                             1,238              (5)           1,233
Property and equipment, net                148             538              686


The following information is by geographic area (in thousands) as of and for the
three and six months ended June 30, 2004 and 2003:

<TABLE>
<CAPTION>
                                      UNITED                         ASIA       MIDDLE
                                      STATES   MEXICO     EUROPE    PACIFIC      EAST      TOTAL
                                     -------  -------     ------    -------     ------     -----
<S>                                  <C>      <C>         <C>       <C>         <C>        <C>
THREE MONTHS ENDED JUNE 30, 2004
Sales                                $1,749        --     $  171     $1,248     $   42     $3,210
Property and equipment, net             528        --          9         --         --        537

THREE MONTHS ENDED JUNE 30, 2003
Sales                                $  861        --     $  212     $  904         --     $1,977
Property and equipment, net             590        --         96         --         --        686
</TABLE>

<TABLE>
<CAPTION>

                                      UNITED                         ASIA       MIDDLE
                                      STATES   MEXICO     EUROPE    PACIFIC      EAST      TOTAL
                                     -------  -------     ------    -------     ------     -----
<S>                                  <C>      <C>         <C>       <C>         <C>        <C>
SIX MONTHS ENDED JUNE 30, 2004
Sales                                $2,458   $   174     $  820     $2,540     $   67     $6,059
Property and equipment, net             528        --          9         --         --        537

SIX MONTHS ENDED JUNE 30, 2003
Sales                                $1,818        --     $  588     $  904         --     $3,310
Property and equipment, net             590        --         96         --         --        686
</TABLE>


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

                                       8
<PAGE>
NOTE 6 - Income Taxes

During the three months ended June 30, 2004 the Company recorded a $6,000
provision for estimated Alternative Minimum Tax (AMT). The Company anticipates
net operating profits for the year ended December 31, 2004, although no
assurance can be given. The Company expects to utilize its net operating loss
carryforwards to offset any ordinary taxable income for the year ended December
31, 2004.

Refer to the Company's 2003 Form 10-KSB, Financial Statement Note 7.

NOTE 7 - Preferred Stock

Refer to the Company's 2003 Form 10-KSB, Financial Statement Note 8 for full
preferred stock (B & C) disclosure.

Preferred Stock - Series B  ("Series B preferred stock")

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

    Conversion -- The Series B preferred stock may, at the option of the holder,
    be converted at any time into shares of common stock at $0.922 per share.
    The applicable conversion terms resulted in a beneficial conversion feature
    which is being accreted to the earliest date the Series B preferred
    stockholder can elect the option to redeem the Series B preferred stock. The
    accretion recorded for the three and six months ended June 30, 2004 and 2003
    was $4,000 and $8,000, respectively, for each period

    Anti-Dilution Protection -- The Series B 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 B preferred stock.

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

    Dividends -- The Series B preferred stock accrues dividends at 8% per annum.
    Dividends may be paid in cash or additional preferred shares, in kind, at
    the option of the Company. In addition, in the event the Company declares,
    pays or sets apart a common stockholder dividend, each holder of shares of
    the Series B preferred stock shall be entitled to receive a per share
    dividend equal to the number of shares of common equity on which such common
    dividend is declared into which each share of Series B preferred stock is
    convertible on the record date, multiplied by the amount of cash or property
    paid, or by the number of shares of capital stock issued. During the three
    months ended June 30, 2004 and 2003, $29,000 and $27,000 of dividends were
    accrued, respectively. During the six months ended June 30, 2004 and 2003,
    $58,000 and $53,000 of dividends were accrued, respectively. As of June 30,
    2004, the Series B preferred shares have $58,000 of accumulated dividends in
    arrears. Of the dividends in arrears at June 30, 2004, the Company
    anticipates a dividend payment (in kind) of 26,731 Series B preferred shares
    at the liquidation price of $2.15 per share on or before December 31, 2004.

    Liquidation -- The Series B preferred stock ranks senior to common stock and
    has a liquidation preference of $2.15 per share plus all declared and unpaid
    dividends, which totals $1,470,000 at June 30, 2004.

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

    Optional Redemption -- The Company maintains a one-time option to repurchase
    the Series B preferred stock or require the holder to convert their
    preferred stock, under the following terms. At any time following a 45-day
    consecutive trading period during which the average closing price per share
    of the Company's common stock is at least $5.00 per share, the Company may
    give notice of its intention to repurchase all of the outstanding Series B
    preferred shares. The holder of the Series B preferred stock shall have 30
    days from receipt of the Company's repurchase notice to elect to convert
    their Series B preferred shares to common


                                       9
<PAGE>
      stock. In the event that the holder of the Series B preferred stock does
      not elect to convert all of their Series B preferred stock, the Company
      may repurchase all, but not less than all, of the remaining Series B
      preferred stock at the price of $4.00 per share, or 90% of the fair market
      value of the common stock, whichever is greater, plus any accumulated
      dividends, by notice to the holder of the Series B preferred stock and
      tendering of funds within five business days of the expiration of the
      Series B preferred stockholder's conversion option. The fair market value
      of the common stock shall be determined by the average closing price of
      the common stock for the five trading days prior to the date on which the
      Series B preferred stockholder's option to convert expires.

Preferred Stock - Series C  ("Series C preferred stock")

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

    Conversion - The Series C preferred stock may, at the option of the holder,
    be converted at any time into shares of common stock. 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
    resulted in a beneficial conversion feature which is being accreted to the
    earliest date the Series C preferred stockholder can elect the option to
    redeem the Series C preferred stock. The accretion recorded for the three
    and six months ended June 30, 2004 and 2003 was $37,000 and $74,000,
    respectively, for each period.

    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 accrues 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 C preferred stock shall be entitled to receive a per
    share dividend equal to the number of shares of common equity on which such
    common dividend is declared into which each share of Series C 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. During
    the three months ended June 30, 2004 and 2003, $24,000 and $22,000 of
    dividends were accrued, respectively. During the six months ended June 30,
    2004 and 2003, $47,000 and $44,000 of dividends were accrued, respectively.
    As of June 30, 2004, the Series C preferred shares accumulated dividends in
    arrears of $47,000. Of the dividends in arrears at June 30, 2004, the
    Company anticipates a dividend payment (in kind) of 47 Series C preferred
    shares at the liquidation price of $1,000 per share on or before December
    31, 2004.

    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 total $1,198,000 at June 30, 2004.

    Conditional 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 Series C
    holder 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, and are being accreted to the
    earliest date the Series C preferred stockholder can elect the option to
    redeem the Series C preferred stock. The accretion recorded during the three
    and six months ended June 30, 2004 and 2003 was $13,000 and $26,000,
    respectively, for each period.


                                       10
<PAGE>
NOTE 8 - Legal Matters

     On May 30, 2001, the Company was served with an arbitration demand from
Gregg K. Hobbs ("Hobbs"), a former employee, officer and director. The
arbitration demand alleged that the Company breached provisions in the original
September 30, 1995 separation agreement, executed between Hobbs and the Company,
and that Hobbs suffered damages in excess of $7,000,000. The parties selected a
single arbitrator with the Judicial Arbiter Group ("JAG") in Denver, Colorado
and after several delays a hearing was held before the arbitrator beginning on
April 21, 2003. At the conclusion of the arbitration hearing, Hobbs asserted
damages of $10,000,000. The arbitrator issued a "Decision and Award" on June 20,
2003, in which the arbitrator found the Company had breached certain provisions
of the September 30, 1995 agreement and awarded Hobbs damages in the amount of
$261,650. On July 11, 2003, as instructed by the arbitrator, the parties
submitted requests for attorney fees and costs and interest. Subsequently, both
parties filed pleadings opposing all or part of the other party's request for
fees and costs and the Company filed an opposition to Hobbs request for
interest.

    On November 17, 2003, the arbitrator made a final award in favor of Hobbs in
the amount of $410,729, which includes the net amount of fees and costs awarded
to Hobbs as well as interest at 8% from June 20, 2003. In response to efforts by
Hobbs to confirm the June 20, 2003 award, the Company filed pleadings contesting
confirmation based on irregularities in the arbitration decision and award.
Following briefings and two judicial hearings, the Company and Hobbs reached a
settlement on February 13, 2004, in which the Company agreed to withdraw its
objections to confirmation and Hobbs agreed to accept payment according to a
schedule. The schedule called for one lump sum payment of $264,109 on February
17, 2004, which was paid by the Company, and monthly payments, due on the last
day of the month, of approximately $19,000 from March through November of 2004,
plus interest at 8%. The payment schedule and terms call for additional
penalties of up to $30,000 against the Company in the event a payment is not
timely received by Hobbs. As of June 30, 2004, the Company had been timely with
its payments, and had an outstanding liability to Hobbs of $94,000, which
includes the arbitration award and accrued interest through June 30, 2004.

On March 10, 2003, the Company, a former employee, and ASQ Quality Press were
served with a complaint in U.S. District Court in Denver, Colorado from Hobbs
alleging (i) infringement of copyrights purportedly owned by Hobbs, in violation
of the Copyright Act, 17 U.S.C. Sec. 101, (ii) false designation of origin and
false or misleading representation in commerce under Sec. 43(a) of the Lanham
Act, 15 U.S.C. Sec 1125(a), and (iii) common law unfair competition. The Company
filed an answer on March 31, 2003, which denied all allegations of the complaint
and on June 23, 2003 the Company asserted a counter-claim against Hobbs seeking
damages for copyright infringement, alleging that Hobbs had sold all of his HALT
and HASS related intellectual property to the Company in 1994 for valuable
consideration. On November 3, 2003 the Company filed a motion for partial
summary judgment, and on May 21, 2004, the Company filed a motion for leave to
supplement its motion for summary judgment. On June 19, 2004, the Judge granted
the Company's motion for summary judgment, finding that Hobbs had sold the
copyrighted material to the Company for valuable consideration in 1994 and the
Court issued an order that Hobbs must pay QualMark's legal fees and costs based
on a finding that Hobbs' case was frivolous and his legal positions were not
reasonable. The Company submitted an application for fees and costs totaling
$243,000. Hobbs has opposed the application for fees, which the Judge has not
yet ruled on. Hobbs has also appealed the grant of summary judgment in favor of
the Company to the United States Court of Appeals for the 10th Circuit.

The Company's counterclaim against Hobbs alleging copyright infringement was
dismissed without prejudice based on the Company's having not registered its
copyrights prior to initiating the counterclaim. The Company had registered its
copyrights in seminar materials with the Register of Copyrights after it filed
its counterclaim and the Company has refiled its infringement action in the U.S.
District Court for Colorado and has also sought a preliminary injunction to
prevent Hobbs from using the Company's copyrighted materials without permission.
A hearing on the preliminary injunction was held on July 27, 2004. No ruling has
been made as of this date. There is no assurance that the Company will be
awarded by the Court all of the fees and costs applied for or that Hobbs will
voluntarily pay the Company amounts awarded by the Court, or that the
preliminary injunction will be issued. The Company will vigorously pursue its
claim for fees and costs and seek to collect any award in full and will take all
legal steps necessary to protect its favorable ruling on appeal.


                                       11
<PAGE>


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.

Three Months Ended June 30, 2004 Compared With Three Months Ended June 30, 2003

Revenue

Net revenue increased $1,233,000 or 62.4% from $1,977,000 in the three months
ended June 30, 2003 to $3,210,000 for the three months ended June 30, 2004.

      Equipment Revenue

Equipment revenue increased $1,169,000 or 68.7% from $1,701,000 in the
three-month period ended June 30, 2003 to $2,870,000 in the three months ended
June 30, 2004. The number of OVS units sold in the second quarter 2004 increased
88.9% over the second quarter 2003. The increase in sales for the quarter ended
June 30, 2004 is primarily a direct result of the Company's aggressive pursuit
of international sales and a slight improvement in the domestic economy in the
last half of 2003, continuing through the second quarter 2004. Of the total
units sold, international system sales increased 50.0% over the same period in
2003. The Company continues to be cautiously optimistic in regards to a slowly
recovering economy through the remainder of 2004, as a result, the Company is
continuing to cultivate its international presence by emphasizing its core
markets, as well as pursuing the used/refurbished equipment line of business.
The demand for used equipment has enabled the Company to help stimulate its
domestic sales. QualMark utilizes fifteen independent international sales
representatives including representatives from the European, Mexican, Middle
Eastern, and Asian sectors. The Company is encouraged by the steady increase in
equipment sales but cannot give any assurance of the demand of its
used/refurbish equipment sales, international sales, or the overall increase in
equipment sales.

      Test Center (ARTC) Revenue

Test center revenue increased $64,000 or 23.2% from $276,000 in the three-month
period ended June 30, 2003 to $340,000 in the three months ended June 30, 2004.
The Company operated four test centers in the U.S., maintained four domestic
strategic agreement test center operations, and four strategic agreement test
center operations in Europe during the three months ended June 30, 2004, versus
four test centers operations in the U.S., one strategic domestic agreement test
center operation, and four strategic agreement test centers in Europe during the
same period in 2003. The Company primarily attributes the increase in test
center revenue to an improved domestic test center economy and an increase in
testing volume in the strategic domestic test centers. Under the domestic and
international strategic agreement test centers, the Company does not have a
continuing obligation under any of the agreements. The Company also continues to
examine the strategic agreement test center model, in which additional
agreements may be entered into to minimize both variable and fixed test center
costs, while benefiting in a revenue share. The Company has changed its
strategic


                                       12
<PAGE>
focus on the test center line of business to maximize volume and utilization in
the current operating environment. These changes include operational
consolidations, sales personnel redeployment, and the expansion of
domestic/international strategic agreements. The Company feels confident that
these changes will result in increased revenues, expand the Company's customer
network, and increase product awareness; however, the Company cannot give any
assurances on the ultimate success.

Gross Profit

Total gross margin for the three months ended June 30, 2004 was 46.1%. This
compares to a gross margin of 41.7% for the three months ended June 30, 2003.
The increase in gross margin for the three-month period is primarily due to the
88.9% increase in OVS units sold and an increase in volume for the Company's
test center line of business.

Operating Expenses

Total operating expenses decreased $190,000 or 14.8% to $1,095,000 for the three
months ended June 30, 2004 from $1,285,000 for the three months ended June 30,
2003.

Selling, general and administrative expenses increased $183,000 or 31.0% to
$773,000 in the three months ended June 30, 2004 from $590,000 for the three
months ended June 30, 2003. The increase is attributed to the Company's
significant increase in sales and the investment in the Company through its
sales and marketing programs, which is in line with the Company's projected
needs. QualMark continues to monitor and identify ways to reduce operating
expenditures.

Research and development costs increased $18,000 or 11.3% to $177,000 for the
three months ended June 30, 2004 from $159,000 for the three months ended June
30, 2003. The increase is primarily attributed to an increase in research and
development staff, including contract labor. 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.

Arbitration and legal associated expenses decreased $391,000 or 72.9% from
$536,000 for the three months ended June 30, 2003 to $145,000 for the three
months ended June 30, 2004. On June 19, 2004, the Company was granted summary
judgment for a complaint of copyright infringement brought by Dr. Hobbs (refer
to Note 8 Legal Matters). For the three months ended June 30, 2004, legal costs
of $145,000, attributed to defending the copyright infringement action were
included in the financial statements. On November 17, 2003 the Company received
the final arbitration decision and the decision on interest and fees on claims
brought by Gregg K. Hobbs (refer to Note 8 Legal Matters). Arbitration related
expenses of $536,000 were accounted for in the three months ended June 30, 2003.

Income Tax

During the three months ended June 30, 2004 the Company recorded a $6,000
provision for estimated Alternative Minimum Tax (AMT), as the Company
anticipates net operating profits for the year ended December 31, 2004, although
no assurance can be given. The Company expects to utilize its net operating loss
carryforwards to offset any ordinary taxable income for the year ended December
31, 2004.

Interest Expense

Interest expense increased $2,000 or 8.0% to $27,000 for the three months ended
June 30, 2004 from $25,000 for the three months ended June 30, 2003. The
increase is primarily attributed to the completion of amortized debt issue costs
for warrants issued to the Company's commercial bank on July 25, 2003 for
consideration of a 2003 renegotiated credit agreement.

Six Months Ended June 30, 2004 Compared With Six Months Ended June 30, 2003

Revenue

Net revenue increased $2,749,000 or 83.1% from $3,310,000 in the six months
ended June 30, 2003 to $6,059,000 for the six months ended June 30, 2004.


                                       13
<PAGE>
      Equipment Revenue

Equipment revenue increased $2,639,000 or 95.0% from $2,779,000 in the six-month
period ended June 30, 2003 to $5,418,000 in the six months ended June 30, 2004.
The number of OVS units sold in the first six months 2004 increased 106.3% over
the first six months 2003. The increase in sales for the six months ended June
30, 2004 is primarily a result of the Company's aggressive pursuit of
international sales and a slight improvement in the global economy in the last
half of 2003, continuing through the first half of 2004. Of the total units
sold, international system sales increased 154.5% over the same period in 2003.
The Company continues to be cautiously optimistic in regards to a slowly
recovering economy through the remainder of 2004, as a result, the Company is
continuing to cultivate its international presence by emphasizing its core
markets, as well as pursuing the used/refurbished equipment line of business.
The demand for used equipment has enabled the Company to help stimulate its
domestic sales. QualMark utilizes fifteen independent international sales
representatives including representatives from the European, Mexican, Middle
Eastern, and Asian sectors. The Company is encouraged by the steady increase in
equipment sales but cannot give any assurance of the demand of its
used/refurbish equipment sales, international sales, or the overall increase in
equipment sales.

      Test Center (ARTC) Revenue

Test center revenue increased $110,000 or 20.7% from $531,000 in the six-month
period ended June 30, 2003 to $641,000 in the six months ended June 30, 2004.
The Company operated four test centers in the U.S., maintained four domestic
strategic agreement test center operations, and four strategic agreement test
center operations in Europe during the six months ended June 30, 2004, versus
four test centers operations in the U.S., one strategic domestic agreement test
center operation, and four strategic agreement test centers in Europe during the
same period in 2003. The Company primarily attributes the increase in test
center revenue to an improved domestic test center economy and an increase in
testing volume in the strategic domestic test centers. Under the domestic and
international strategic agreement test centers, the Company does not have a
continuing obligation under any of the agreements. The Company also continues to
examine the strategic agreement test center model, in which additional
agreements may be entered into to minimize both variable and fixed test center
costs, while benefiting in a revenue share. The Company has changed its
strategic focus on the test center line of business to maximize volume and
utilization in the current operating environment. These changes include
operational consolidations, sales personnel redeployment, and the expansion of
domestic/international strategic agreements. The Company feels confident that
these changes will result in increased revenues, expand the Company's customer
network, and increase product awareness; however, the Company cannot give any
assurances on the ultimate success.

Gross Profit

Total gross margin for the six months ended June 30, 2004 was 48.3%. This
compares to a gross margin of 37.3% for the six months ended June 30, 2003. The
increase in gross margin for the six-month period is primarily due to the 106.3%
increase in OVS units sold and an increase in volume for the Company's test
center line of business.

Operating Expenses

Total operating expenses increased $271,000 or 13.5% to $2,277,000 for the six
months ended June 30, 2004 from $2,006,000 for the six months ended June 30,
2003.

Selling, general and administrative expenses increased $586,000 or 51.4% to
$1,727,000 in the six months ended June 30, 2004 from $1,141,000 for the six
months ended June 30, 2003. A large component of selling, general, and
administrative expenses are sales and marketing expenses, which increased 88.6%
for the six months ended June 30, 2004 as compared to the six months ended June
30, 2003. The increase in sales and marketing expenses is attributed to the
Company's significant increase in sales and the investment in the Company
through its sales and marketing programs, which is in line with the Company's
projected needs. QualMark continues to monitor and identify ways to reduce
operating expenditures.

Research and development costs increased $8,000 or 2.4% to $337,000 for the six
months ended June 30, 2004 from $329,000 for the six months ended June 30, 2003.
The increase is primarily attributed to an increase of research and development
staff, including contract labor. 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.

Arbitration and legal associated expenses decreased $323,000 or 60.3% from
$536,000 for the six months ended June 30, 2003 to $213,000 for the six months
ended June 30, 2004. On June 19, 2004, the Company was granted summary judgment
for a complaint of copyright infringement brought by Dr. Hobbs (refer to Note 8
Legal Matters). For the six months ended June 30, 2004, legal costs of


                                       14
<PAGE>
$213,000, attributed to defending the copyright infringement action were
included in the financial statements. On November 17, 2003 the Company received
the final arbitration decision and the decision on interest and fees on claims
brought by Gregg K. Hobbs (refer to Note 8 Legal Matters). Arbitration related
expenses of $536,000 were accounted for in the six months ended June 30, 2003.

Income Tax

During the six months ended June 30, 2004 the Company recorded a $6,000
provision for estimated Alternative Minimum Tax (AMT), as the Company
anticipates net operating profits for the year ended December 31, 2004, although
no assurance can be given. The Company expects to utilize its net operating loss
carryforwards to offset any ordinary taxable income for the year ended December
31, 2004.

Interest Expense

Interest expense decreased $7,000 or 12.3% to $50,000 for the six months ended
June 30, 2004 from $57,000 for the six months ended June 30, 2003. The decrease
is primarily attributed to the continued payment of the outstanding commercial
bank debt, which decreased approximately $230,000 from December 31, 2003 to June
30, 2004.

Liquidity and Capital Resources

During the six months ended June 30, 2004, the Company generated $220,000 of
cash from operating activities, invested $56,000 for equipment, and repaid
$230,000 of commercial bank borrowings. Together, these activities resulted in a
cash decrease of $66,000, for an ending cash balance of $376,000 at June 30,
2004. During the six months ended June 30, 2003, the Company used $307,000 of
cash from operating activities, invested $152,000 for equipment and received
$11,000 from sale of equipment, and repaid $330,000 of commercial bank
borrowings. Together, these activities resulted in a cash decrease of $778,000,
for an ending cash balance of $510,000 at June 30, 2003.

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

On February 27, 2004, the Company renegotiated its Credit Agreement, among other
changes; the monthly principal payments decreased from $60,000 to $50,000 for
February 2004, and then decrease to $30,000 from March 2004 through September
2004, with a final increase to $40,000 from October 2004 through maturity. In
addition, the maturity date was extended to March 15, 2005.

On April 20, 2004, the Company renegotiated its Credit Agreement with the
commercial bank. Among other changes, the revolving line of credit was increased
from $500,000 to $1,000,000.

The average interest rate for the three-month periods ended June 30, 2004 and
2003, for the term loan and revolving credit line was 7.00% and 7.50%,
respectively. Both the revolving credit line and term loan under the Credit
Agreement are collateralized by substantially all the assets of the Company. As
of June 30, 2004, the balances of the revolving credit and term loan are
$500,000 and $190,000, respectively. Borrowings under the line of credit are
subject to borrowing base limits. Based on the provisions of the Credit
Agreement, as of June 30, 2004 there was $500,000 of additional availability on
the line of credit.

The Company must maintain certain financial and other covenants to be in
compliance with the Credit Agreement. The Company is not now, nor has it ever
been in arrears on any payment pursuant to the Credit Agreement. For the three
and six months ended June 30, 2004, the Company was in compliance with its
financial covenants. 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 of $30,000 on the term loan. The Company had also determined
that, during 2004, quarterly payments to the revolving line of credit would be
made based on cash flows generated from operations. For the three and six months
ended June 30, 2004, the Company has been unable to make any additional payments
to reduce the revolving line of credit. The Company cannot give any guarantee on
its ability to make additional payments to the revolving line of credit for the
remainder of 2004. 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


                                       15
<PAGE>
to be good. At the end of 2004, 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 2004 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 2004. However, the Company's
management believes that the Company's cash and cash equivalents, working
capital, and $1,000,000 revolving credit line provide adequate capital resources
to fund its operations, 2004 debt repayments, and working capital needs, through
at least the end of the second quarter of 2005. The Company's inability to
modify or replace its debt when it comes due on March 15, 2005, 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.

Recently Issued Accounting Pronouncements

Refer to Note 1 of the Financial Statements.

Business Environment

Refer to the 2003 Form 10KSB, Management Discussion and Analysis, Item 6.

Suppliers

Refer to the 2003 Form 10KSB, Management Discussion and Analysis, Item 6.

International Operations

Refer to the 2003 Form 10KSB, Management Discussion and Analysis, Item 6.

Intellectual Property

Refer to the 2003 Form 10KSB, Management Discussion and Analysis, Item 6.

Legal Proceedings

Refer to Note 8 of the Financial Statements.

Government Regulation

Refer to the 2003 Form 10KSB, Management Discussion and Analysis, Item 6.

Nasdaq Market Listing

Refer to the 2003 Form 10KSB, Market for Common Equity and Related Stockholder
Matters, Item 5.

Critical Accounting Policies and Estimates

Refer to the 2003 Form 10KSB, Management Discussion and Analysis, Item 6.

Contractual Obligations

Refer to the 2003 Form 10KSB, Management Discussion and Analysis, Item 6.

Item 3.


                                       16
<PAGE>
           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 $690,000 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 June 30, 2004 would be an annual increase or decrease of
approximately $6,900 in interest expense for a twelve-month period.

Item 4.


                            CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures:

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

(b) Changes in Internal Controls:

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

                            PART II OTHER INFORMATION

Item 1.   Legal Proceedings

Refer to Note 8 of the Financial Statements.

Item 2. Changes in Securities

      None

Item 3.   Defaults upon Senior Securities

      None

Item 4.  Submission of Matters to a Vote of Security Holders

      The following matters were submitted to a vote of shareholders of the
      Company at the Annual meeting of Shareholders held May 24, 2004:
      (a) The following members were elected to the Board of Directors to hold
      office until the next annual meeting.


                                       17
<PAGE>
<TABLE>
<CAPTION>
NOMINEE                          FOR                                WITHHELD
<S>                              <C>                                <C>
Charles D. Johnston              6,599,596                          12,600
James LD Roser                   6,599,596                          12,600
Alan Valenti                     6,599,596                          12,600
William Sanko                    6,599,596                          12,600
</TABLE>


(b)   Gelfond Hochstadt Pangburn, P.C., independent public accountants, were
      selected as the auditors of the Company for the fiscal year ending
      December 31, 2004, by a vote of 6,580,021 shares in favor, 8,600 shares
      against, and 23,575 shares withheld.



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 June 30, 2004:

          On April 28, 2004, the Company issued a press release announcing its
          earnings for the three and six months ended June 30, 2004.

                                   SIGNATURES


                                       18
<PAGE>
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:  August 13, 2004             By: /s/ CHARLES D. JOHNSTON
      ---------------------          -----------------------------------------
                                   Charles D. Johnston,
                                   President
                                   & Chief Executive Officer

Date: August 13, 2004              By: /s/ ANTHONY A. SCALESE
      ---------------------           ----------------------------------------
                                   Anthony A. Scalese,
                                   Chief Financial Officer
                                   & Principal Accounting Officer


                                       19
<PAGE>
                                INDEX TO EXHIBITS

        EXHIBIT
         NUMBER                         DESCRIPTION
         ------                         -----------

           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)


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<PAGE>
        EXHIBIT
         NUMBER                         DESCRIPTION
         ------                         -----------

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

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

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

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

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

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

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

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

          10.23           Series C Preferred Stock Certificate of Designations
                          (11)

          10.24           Series B Preferred Stock Certificate of Designations
                          (11)

          10.25           Fifth Amendment to Promissory Notes and Eighth
                          Amendment to Loan Agreement dated January 23, 2003 by
                          and between QualMark and U.S. Bank National
                          Association.(12)

          10.25(b)        Sixth Amendment to Promissory Notes and Ninth
                          Amendment to Loan Agreement dated July 25, 2003 by and
                          between QualMark and U.S.Bank National Association(13)

          10.26           Irrevocable Letter of Credit issued to Catellus
                          Development Corporation (12)

          10.26 (b)       Warrant  agreement  to purchase  25,000  shares of
                          Common  Stock dated July 25, 2003 (13)

          10.27           Seventh Amendment to Promissory Notes and Tenth
                          Amendment to Loan Agreement dated February 27, 2004 by
                          and between QualMark and U.S. Bank National
                          Association. (14)


                                       21
<PAGE>
        EXHIBIT
         NUMBER                         DESCRIPTION
         ------                         -----------

          10.28           Settlement  Agreement and Payment  Schedule  dated
                          February 13, 2004, by and between  QualMark
                          Corporation  and Gregg K. Hobbs.(14)

          10.29           Eighth Amendment to Promissory Notes and Eleventh
                          Amendment to  Loan Agreement dated April 20, 2004 by
                          and between QualMark and U.S. Bank National
                          Association.(15)

          14              Director and Officer Code of Ethics (14)

          31.1            CEO  Certification of Section 302 of the
                          Sarbanes-Oxley  Act of 2002

          31.2            CFO  Certification of Section 302 of the
                          Sarbanes-Oxley  Act of 2002

          32              Certifications of Section 906 of the Sarbanes-Oxley
                          Act of 2002


----------

(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.

(12)  Incorporated by reference from the Company's Annual Report on Form 10-KSB
      for the year ended December 31, 2002.

(13)  Incorporated by reference from the Company's Quarterly Report on Form
      10-QSB for the quarter ended June 30, 2003.

(14)  Incorporated by reference from the Company's Annual Report on Form 10-KSB
      for the year ended December 31, 2003.

(15)  Incorporated by reference from the Company's Quarterly Report on Form
      10-QSB for the quarter ended March 31, 2004.


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