<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, 2005

[ ]  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.)
</TABLE>

<TABLE>
<S>                                                               <C>
    4580 Florence Street, Denver, CO                                 80238
(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

     Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act). [ ] Yes [X] No

     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 9,
2005 is 4,417,706.

     Transitional Small Business Disclosure Format (check one): [ ] Yes [X] No

<PAGE>

                         PART I - FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

                       QUALMARK CORPORATION AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF OPERATIONS
              (UNAUDITED, AMOUNTS IN THOUSANDS, EXCEPT 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,
                                                    2005            2004            2005            2004
                                               -------------   -------------   -------------   -------------
<S>                                            <C>             <C>             <C>             <C>
Net revenue                                     $    3,509      $    2,717      $   10,936      $    8,777
Cost of sales                                        1,925           1,477           6,053           4,609
                                                ----------      ----------      ----------      ----------
   Gross profit                                      1,584           1,240           4,883           4,168

Selling, general and administrative expenses         1,026             749           3,216           2,476
Research and development expenses                      179             205             556             542
Arbitration and associated legal expenses               --              51              --             264
                                                ----------      ----------      ----------      ----------
   Income from operations                              379             235           1,111             886

Other expense:
   Interest, net                                       (29)            (19)           (101)            (69)
                                                ----------      ----------      ----------      ----------
Income before income taxes                             350             216           1,010             817
Provision for income taxes                             (19)             (4)            (26)             (9)
                                                ----------      ----------      ----------      ----------
Net income                                      $      331      $      212      $      984      $      808
                                                ==========      ==========      ==========      ==========

Net income per share - basic                    $     0.03      $     0.03      $     0.14      $     0.13

Net income per share - diluted                  $     0.03      $     0.02      $     0.12      $     0.09

Weighted average number of common shares -
   basic                                         4,344,000       3,610,000       4,216,000       3,610,000

Weighted average number of common shares -
   diluted                                       5,188,000       7,341,000       8,817,000       7,199,000
</TABLE>

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


                                        2

<PAGE>

                       QUALMARK CORPORATION AND SUBSIDIARY
                           CONSOLIDATED BALANCE SHEETS
                 (AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES)

<TABLE>
<CAPTION>
                                                                       SEPTEMBER 30,   DECEMBER 31,
                                                                            2005           2004
                                                                       -------------   ------------
                                                                        (UNAUDITED)
<S>                                                                    <C>             <C>
ASSETS
Current assets:
   Cash                                                                   $   496        $   516
   Trade accounts receivable, net of allowance for
      doubtful accounts of $49 and $50 at September 30,
      2005 and December 31, 2004, respectively                              3,108          2,748
   Inventories, net                                                         1,216            749
   Current deferred tax assets, net                                           120            120
   Other current assets                                                       174            183
                                                                          -------        -------
      Total current assets                                                  5,114          4,316
   Property and equipment, net                                                541            592
   Restricted cash                                                             90             90
   Goodwill                                                                 1,057          1,057
   Intangible assets                                                          239            296
   Non-current deferred tax assets, net                                       353            353
   Other assets                                                               176            184
                                                                          -------        -------
                                                                          $ 7,570        $ 6,888
                                                                          =======        =======

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
   Accounts payable                                                       $   811        $   676
   Accrued expenses                                                           689            953
   Deferred revenue and customer deposits                                      12             89
   Current portion of long-term debt                                          250            250
                                                                          -------        -------
      Total current liabilities                                             1,762          1,968
   Deferred revenue                                                            38             48
   Long-term debt                                                           1,306          1,480
   Other liabilities                                                           31             12
                                                                          -------        -------
      Total liabilities                                                     3,137          3,508
                                                                          -------        -------
Commitments and contingencies

Convertible redeemable preferred stock; 2,000,000 shares
   authorized (Note 7):
   1,000,000 designated as Series B, 711,786 shares (2005)
      and 683,967 shares (2004) shares issued and outstanding,
      liquidation preference of $1,624 (2005)                               1,594          1,500
                                                                          -------        -------
   3,000 designated as Series C, 1,247 shares (2005) and 1,198
      shares (2004) issued and outstanding, liquidation preference
      of $1,324 (2005)                                                      1,103            799
                                                                          -------        -------
Shareholders' equity:
   Common stock; no par value; 15,000,000 shares authorized;
      4,417,706 shares (2005) and 4,133,348 shares (2004) issued and
      outstanding                                                           7,439          7,768
   Accumulated deficit                                                     (5,703)        (6,687)
                                                                          -------        -------
      Total shareholders' equity                                            1,736          1,081
                                                                          -------        -------
                                                                          $ 7,570        $ 6,888
                                                                          =======        =======
</TABLE>

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


                                        3

<PAGE>

                       QUALMARK CORPORATION AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                        (UNAUDITED, AMOUNTS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                               FOR THE NINE    FOR THE NINE
                                                               MONTHS ENDED    MONTHS ENDED
                                                              SEPTEMBER 30,   SEPTEMBER 30,
                                                                   2005            2004
                                                              -------------   -------------
<S>                                                           <C>             <C>
Cash Flows From Operating Activities:
Net income                                                        $ 984           $ 808
Adjustments to reconcile net income to net cash provided by
   operating activities:
   Depreciation and amortization                                    247             215
   (Recovery) provision for bad debts                                (1)             18
   Recovery of inventory allowance                                   (4)             --
   Warrants and stock option expense                                 --               7
Change in assets and liabilities:
   Trade accounts receivable                                       (359)           (190)
   Inventories                                                     (463)           (214)
   Other assets                                                       6             (61)
   Accounts payable, accrued expenses and other liabilities        (110)            423
   Accrued arbitration settlement                                    --            (390)
   Deferred revenue and customer deposits                           (87)             --
                                                                  -----           -----
      Net cash provided by operating activities                     213             616

Cash Flows From Investing Activities:
Acquisition of property and equipment                              (128)           (240)
                                                                  -----           -----
      Net cash used in investing activities                        (128)           (240)

Cash Flows From Financing Activities:
Issuance of common stock                                             69              --
Proceeds from borrowings                                             --              80
Payments on borrowings                                             (174)           (320)
                                                                  -----           -----
      Net cash used in financing activities                        (105)           (240)

Net (decrease) increase in cash                                     (20)            136
Cash and cash equivalents at beginning of period                    516             442
                                                                  -----           -----
Cash and cash equivalents at end of period                        $ 496           $ 578
                                                                  =====           =====

Supplemental Disclosure:
Interest paid                                                     $  94           $  64
Income tax paid                                                   $  28              --

Non-Cash Investing and Financing Activities:
Preferred stock dividends                                         $ 171           $ 158
Accretion of preferred stock                                      $ 227           $ 164
</TABLE>

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


                                        4

<PAGE>

                       QUALMARK CORPORATION AND SUBSIDIARY
              NOTES TO UNAUDITED CONSOLIDATED 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. The Company's
wholly-owned subsidiary, Qualmark ACG Corporation ("Qualmark ACG") supplies
electrodynamic systems, components, and service to the worldwide vibration test
equipment market.

NOTE 1 - Business and Summary of Significant Accounting Policies

Financial Presentation

These financial statements should be read in conjunction with the audited
consolidated financial statements for the year ended December 31, 2004 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, 2005 and for the three and nine
months ended September 30, 2005 and 2004 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 nine months ended September 30, 2005 are not necessarily indicative of
results for the remainder of 2005. Amounts at December 31, 2004 are derived from
the Company's audited consolidated 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              NINE MONTHS ENDED
                                         -----------------------------   -----------------------------
                                         SEPTEMBER 30,   SEPTEMBER 30,   SEPTEMBER 30,   SEPTEMBER 30,
                                              2005            2004            2005            2004
                                         -------------   -------------   -------------   -------------
<S>                                      <C>             <C>             <C>             <C>
Net income                                   $ 331           $ 212           $ 984           $ 808

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                                    (134)            (78)           (166)           (227)
                                             -----           -----           -----           -----
Pro forma net income                         $ 197           $ 134           $ 818           $ 581
                                             =====           =====           =====           =====
Income per share:
Basic - as reported                          $0.03           $0.03           $0.14           $0.13
                                             =====           =====           =====           =====
Diluted - as reported                        $0.03           $0.02           $0.12           $0.09
                                             =====           =====           =====           =====
Basic - pro forma                                *           $0.01           $0.10           $0.07
                                             =====           =====           =====           =====
Diluted - pro forma                              *           $0.01           $0.10           $0.06
                                             =====           =====           =====           =====
</TABLE>

*    Less than $0.01 per share


                                        5

<PAGE>

In May 2005, the Company adopted the QualMark Corporation 2005 Stock Option Plan
(the "Plan"). The number of shares of Common Stock available for issuance under
the Plan is 300,000, subject to adjustment for dividends, stock splits or other
changes in the Company's capitalization. As of September 30, 2005, there are
28,000 options granted under the Plan.

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 2 - Inventories

Inventories consist of the following (in thousands):

<TABLE>
<CAPTION>
                                   SEPTEMBER 30,   DECEMBER 31,
                                        2005           2004
                                   -------------   ------------
<S>                                <C>             <C>
Raw materials                          $  906          $620
Work in process                            86            57
Finished goods                            272           124
Less: Allowance for obsolescence          (48)          (52)
                                       ------          ----
                                       $1,216          $749
                                       ======          ====
</TABLE>

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

NOTE 3 - Borrowings

The Company's commercial borrowings consist of a term loan, a revolving line of
credit, (the "Credit Agreement") and a convertible debt agreement (the
"Convertible Debt"), refer to the 2004 Form 10-KSB, Financial Statement Note 5.

The average interest rate for the nine-month periods ended September 30, 2005
and 2004 was 7.5% and 7.17%, respectively.

Both the revolving credit line and term loan under the Credit Agreement are
collateralized by substantially all the assets of the Company. Borrowings under
the line of credit are subject to borrowing base limits. As of September 30,
2005, there were no borrowings and there was $1,500,000 of availability on the
line of credit. As of September 30, 2005, the principal balance of the term loan
was $556,000.

The Company's Convertible Debt agreement is a five-year, interest only agreement
with provisions for interest rate resets and conversion into the Company's
common stock. The Convertible Debt agreement was entered into with an affiliate
of the commercial bank that issued the Company's Credit Agreement. The
Convertible Debt agreement is collateralized by substantially all the assets of
the Company, subject to subordination to the Credit Agreement. As of September
30, 2005, the principal balance of the convertible debt was $1,000,000.

The Company must maintain certain financial and other covenants to be in
compliance with the Credit Agreement and Convertible Debt. The Company is not
now, nor has it ever been in arrears on any payment pursuant to the Credit
Agreement or the Convertible Debt. For the three and nine months ended September
30, 2005, the Company was in compliance with its financial covenants.

As required by the Credit Agreement, the Company is making monthly principal
payments of $20,800 on the term loan during 2005. The Company has also
determined that, during 2005, draws on the revolving line of credit are expected
to be made based on operational cash flow needs or growth based initiatives. 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 Convertible Debt holder.


                                        6

<PAGE>

NOTE 4 -Income Per Share

Basic income per share is computed by dividing net income available to common
shareholders by the weighted average number of shares outstanding during the
period. Diluted income 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,
using the if-converted or treasury-stock methods.

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

<TABLE>
<CAPTION>
                                              THREE MONTHS ENDED              NINE MONTHS ENDED
                                        -----------------------------   -----------------------------
                                        SEPTEMBER 30,   SEPTEMBER 30,   SEPTEMBER 30,   SEPTEMBER 30,
                                            2005             2004            2005            2004
                                        -------------   -------------   -------------   -------------
<S>                                     <C>             <C>             <C>             <C>
Net income                                $  331           $  212         $  984           $  808

Accretion of redeemable preferred
   stock and preferred stock dividends      (185)            (108)          (398)            (322)
                                          ------           ------         ------           ------
Net income available to common
   shareholders                           $  146           $  104         $  586           $  486
                                          ======           ======         ======           ======
Weighted average shares outstanding -
   basic                                   4,344            3,610          4,216            3,610
                                          ======           ======         ======           ======
Net income per share - basic              $ 0.03           $ 0.03         $ 0.14           $ 0.13
                                          ======           ======         ======           ======
Net income available to common
   shareholders - diluted                 $166(a)(b)       $  158         $1,044(a)        $  644
                                          ======           ======         ======           ======

Weighted average shares outstanding -
   basic                                   4,344            3,610          4,216            3,610

Dilutive stock options and warrants          242              137            259              136
   Convertible securities                    602(c)         3,594          4,342            3,453
                                          ------           ------         ------           ------
Weighted average shares outstanding -
   diluted                                 5,188            7,341          8,817            7,199
                                          ======           ======         ======           ======
Net income per share - diluted            $ 0.03           $ 0.02         $ 0.12           $ 0.09
                                          ======           ======         ======           ======
</TABLE>

a)   For the three and nine month periods ended September 30, 2005, net income
     available to common shareholders includes the add back of $20,000 and
     $60,000, respectively of interest expense related to convertible debt under
     the "if converted" method.

(b)  For the nine months ended September 30, 2005, net income available to
     common shareholders includes an adjustment to add back $398,000 of
     preferred stock dividends and accretion under the "if converted" method.
     For the three months ended September 30, 2005, there is no adjustment for
     preferred stock dividends and accretion, as the effect would be
     anti-dilutive.

(c)  Does not include common shares obtainable upon conversion of preferred
     stock, as the effect would be anti-dilutive for the quarter.

Options and warrants to purchase 242,000 shares of common stock and 602,410
shares of common stock underlying convertible debt, refer to the 2004 Form
10-KSB, Financial Statements Note 5, were included in the dilutive calculation
for the three months ended September 30, 2005. 3,815,080 shares of common stock
underlying convertible preferred stock, refer to Note 7, were not included in
the dilutive calculation for the three months ended September 30, 2005 as the
effect would be anti-dilutive. Options and warrants to purchase 259,000 shares
of common stock, 3,739,784 of common stock underlying convertible preferred
stock, refer to Note 7, and 602,410 shares of common stock underlying
convertible debt, refer to the 2004 Form 10-KSB, Financial Statements Note 5,
were included in the dilutive calculation for the nine months ended September
30, 2005.

Options and warrants to purchase 137,000 shares of common stock and 3,594,698 of
common stock underlying convertible preferred stock, refer to Note 7, were
included in the dilutive calculation for the three month period ended September
30, 2004. Options and warrants to purchase 136,000 shares of common stock and
3,453,173 of common stock underlying convertible preferred stock, refer to Note
7, were included in the dilutive calculation for the nine month period ended
September 30, 2004.


                                        7

<PAGE>

NOTE 5 - Segment Information

Prior to November 2004, the Company operated in two business segments, testing
equipment and Accelerated Reliability Test Centers ("ARTC"). The testing
equipment segment is engaged in the manufacture and sale of vibration and
thermal chambers for quality control testing of various electronic devices. The
ARTC segment operates service centers where vibration and thermal chambers are
available to customers for daily rental. On November 15, 2004, the Company added
a third segment, QualMark ACG (ACG) (refer to the 2004 Form 10-KSB, Financial
Statements Note 13). The ACG segment is engaged in the manufacture, repair and
service of electrodynamic vibration shaker systems.

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 2004 and
inter-segment transactions are eliminated. The Company evaluates the performance
of its segments and allocates resources to them based primarily on 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 nine months ended September 30, 2005 and 2004:

<TABLE>
<CAPTION>
                                        EQUIPMENT   ARTC    ACG    TOTAL
                                        ---------   ----   ----   ------
<S>                                     <C>         <C>    <C>    <C>
THREE MONTHS ENDED SEPTEMBER 30, 2005
Net revenue                               $2,863    $218   $428   $3,509
Gross profit                               1,481      51     52    1,584

THREE MONTHS ENDED SEPTEMBER 30, 2004
Net revenue                               $2,422    $295    --    $2,717
Gross profit                               1,192      48    --     1,240
</TABLE>

<TABLE>
<CAPTION>
                                       EQUIPMENT   ARTC     ACG     TOTAL
                                       ---------   ----   ------   -------
<S>                                    <C>         <C>    <C>      <C>
NINE MONTHS ENDED SEPTEMBER 30, 2005
Net revenue                              $8,429    $830   $1,677   $10,936
Gross profit                              4,231     239      413     4,883

NINE MONTHS ENDED SEPTEMBER 30, 2004
Net revenue                              $7,841    $936       --   $ 8,777
Gross profit                              3,974     194       --     4,168
</TABLE>

The following information is by geographic area (in thousands) as of and for the
three and nine months ended September 30, 2005 and 2004:

<TABLE>
<CAPTION>
                                        UNITED              ASIA
                                        STATES   EUROPE   PACIFIC    TOTAL
                                        ------   ------   -------   ------
<S>                                     <C>      <C>      <C>       <C>
THREE MONTHS ENDED SEPTEMBER 30, 2005
Sales                                   $1,633    $877     $  999   $3,509
Long lived assets, net                   2,013      --         --    2,013

THREE MONTHS ENDED SEPTEMBER 30, 2004
Sales                                   $1,226    $ 27     $1,464   $2,717
Long lived assets, net                     751       4         --      755
</TABLE>


                                        8

<PAGE>

<TABLE>
<CAPTION>
                                        UNITED                      ASIA     MIDDLE
                                        STATES   MEXICO   EUROPE   PACIFIC    EAST     TOTAL
                                        ------   ------   ------   -------   ------   -------
<S>                                     <C>      <C>      <C>      <C>       <C>      <C>
NINE MONTHS ENDED SEPTEMBER 30, 2005
Sales                                   $5,760      --    $2,506    $2,670      --    $10,936
Long lived assets, net                   2,013      --        --        --      --      2,013

NINE MONTHS ENDED SEPTEMBER 30, 2004
Sales                                   $3,685    $174    $  847    $4,004     $67    $ 8,777
Long lived assets, net                     751      --         4        --      --        755
</TABLE>

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

NOTE 6 - Income Taxes

During the three and nine months ended September 30, 2005 the Company recorded a
$3,000 and $10,000, respectively provision for estimated Alternative Minimum Tax
(AMT) and paid $16,000 for income taxes. The Company anticipates net operating
profits for the year ended December 31, 2005, 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, 2005.

Refer to the Company's 2004 Form 10-KSB, Financial Statement Note 7.

NOTE 7 - Preferred Stock

Refer to the Company's 2004 Form 10-KSB, Financial Statement Note 8 for full
preferred stock (B & C) disclosure.

<TABLE>
<CAPTION>
                                           SERIES B               SERIES C
                                     --------------------   -------------------
                                      SHARES     AMOUNT     SHARES     AMOUNT
                                     -------   ----------   ------   ----------
<S>                                  <C>       <C>          <C>      <C>
Balance, January 1, 2004             657,235   $1,369,000    1,151   $  503,000

Earned and issued dividends           26,732      117,000       47       96,000

Accretion of redemption feature
   on preferred stock and warrants        --       14,000       --      200,000

Balance, January 1, 2005             683,967    1,500,000    1,198      799,000

Earned and issued dividends           27,819       94,000       49       77,000

Accretion of redemption feature
   on preferred stock and warrants        --           --       --      227,000

Balance, September 30, 2005          711,786   $1,594,000    1,247   $1,103,000
</TABLE>

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

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

     Designation - On November 2, 2004, the Company's Board of Directors
     approved an increase in the number of Series B preferred shares designated
     to 1,000,000. This increase in the Series B designation allows the Company
     to continue to issue preferred stock to the holder, as payment for
     dividends earned.

     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 has been accreted in full as of September 1, 2004, which is
     the earliest date the Series B preferred stockholder could elect the option
     to redeem the Series B


                                       9

<PAGE>

     preferred stock. The accretion recorded for the three and nine months ended
     September 30, 2005 was zero for each period. The accretion recorded for the
     three and nine months ended September 30, 2004 was $4,000 and $12,000,
     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 September 30, 2005 and 2004, $32,000 and
     $30,000 of dividends were accrued, respectively. During the nine months
     ended September 30, 2005 and 2004, $94,000 and $87,000 of dividends were
     accrued, respectively. As of September 30, 2005, the Series B preferred
     shares have $94,000 of accumulated dividends in arrears. Of the dividends
     in arrears at September 30, 2005, the Company anticipates a dividend
     payment (in kind) of 43,864 Series B preferred shares at the liquidation
     price of $2.15 per share or a full or partial cash payment of up to $94,000
     on or before December 31, 2005.

     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 $1,624,000 at September 30, 2005.

     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 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 has various rights and
     preferences as follows:

     Designation - On November 2, 2004, the Company's Board of Directors
     approved an increase in the number of Series C preferred shares designated
     to 3,000. This increase in the Series C designation allows the Company to
     continue to issue preferred stock to the holder, as payment for dividends
     earned.

     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
     holder 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
     months ended September 30, 2005 and 2004 was $37,000, for each period. The
     accretion recorded for the nine months ended


                                       10

<PAGE>

     September 30, 2005 and 2004 was $111,000 and $113,000, respectively.

     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 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 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 September 30, 2005 and 2004, $26,000
     and $24,000 of dividends were accrued, respectively. During the nine months
     ended September 30, 2005 and 2004, $77,000 and $71,000 of dividends were
     accrued, respectively. As of September 30, 2005, the Series C preferred
     shares accumulated dividends in arrears of $77,000. Of the dividends in
     arrears at September 30, 2005 the Company anticipates a dividend payment
     (in kind) of 77 Series C preferred shares at the liquidation price of
     $1,000 per share or a full or partial cash payment of up to $77,000 on or
     before December 31, 2005.

     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 $1,324,000 at September 30, 2005.

     Conditional Redemption -- The Series C preferred stock is redeemable at any
     time after April 1, 2007 at the option of the holder 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 holder 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 holder of
     the Series C preferred stock.

     Warrants

     In connection with the Series C preferred stock transaction, the 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. On July 29, 2005, the warrant holder elected a cashless
     exercise of its 417,153 warrants, which resulted in a net share issuance of
     220,983 to the warrant holder. As a result of the exercise of all of the
     warrants, the remaining unamortized value allocated to the warrants was
     fully accreted as a reduction to net income available to common
     shareholders during the three months ended September 30, 2005. The
     accretion recorded for the three months ended September 30, 2005 and 2004
     was $90,000 and $13,000, respectively. The accretion recorded for the nine
     months ended September 30, 2005 and 2004 was $116,000 and $39,000,
     respectively.

NOTE 8 - Common Stock

During the nine months ended September 30, 2005, the Company issued 38,375
shares of common stock upon the exercise of stock options for $39,000 cash at an
average exercise price of $1.02 per share, issued 25,000 shares of common stock
upon the exercise of a warrant for $29,000 cash at an exercise price of $1.15,
and issued 220,983 shares of common stock with a cashless conversion ratio of
0.529 upon the cashless exercise of 417,153 warrants.


                                       11

<PAGE>

NOTE 9 - 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 included 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%. As of December 31, 2004, the Company had completed all
payments to Hobbs related to the arbitration award and accrued interest.

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 U.S. District
Court Judge has not yet ruled on. Hobbs also appealed the grant of summary
judgment in favor of the Company to the United States Court of Appeals for the
10th Circuit. The appeal was fully briefed by all parties and oral argument was
held on January 13, 2005 before a three judge panel of the Court of Appeals. In
an Order and Judgment dated March 11, 2005, the Court of Appeals panel
unanimously affirmed the decision of the District Court, stating that it agreed
with the District Court that summary judgment was appropriate with respect to
ownership of the copyrights, that the Copyright Act preempts Hobbs' claims under
the Lanham Act and state unfair competition law and that the District Court did
not abuse its discretion in awarding attorneys' fees to QualMark. The Court of
Appeals also denied Hobbs' motion for permission to file a short rebuttal to
supplement oral argument. There is no assurance that Hobbs will not request
reconsideration of the three Judge panel's decision by the full Court of Appeals
or seek review by the United States Supreme Court. However, were he to do so,
the Company believes his prospects for success would be minimal. The Company
does expect that the U.S. District Court Judge will now rule on the pending
application for fees and costs.

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 re-filed its infringement action in the
U.S. District Court for Colorado and 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. On September
16, 2004, the U.S. District Court denied the Company's motion for a preliminary
injunction and ruled that the matter of Hobbs' alleged infringement of the
Company's copyrights and any remedy for such infringement must go to trial.

There is no assurance that the Company will be awarded by the U.S. District
Court all of the fees and costs applied for or that Hobbs will voluntarily pay
the Company amounts awarded by the Court. 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.


                                       12

<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.

Three Months Ended September 30, 2005 Compared With Three Months Ended September
30, 2004

Revenue

Net revenue increased $792,000 or 29.2% from $2,717,000 in the three months
ended September 30, 2004 to $3,509,000 for the three months ended September 30,
2005.

Equipment Revenue

Equipment revenue increased $441,000 or 18.2% from $2,422,000 in the three
months ended September 30, 2004 to $2,863,000 in the three months ended
September 30, 2005. The number of units sold in the three months ended September
30, 2005 increased 23.6% over the three months ended September 30, 2004. The
increase in sales for the three months ended September 30, 2005 is primarily a
direct result of the Company's penetration of key accounts and an improvement in
the domestic economy during 2005. The Company is continuing its aggressive
pursuit of sales in the aerospace/avionics, defense, automotive, and consumer
electronic industries. Of the total units sold, international system sales
increased 25.1% for the three months ended September 30, 2005. The Company
continues to be cautiously optimistic in regards to a slowly recovering domestic
economy, as a result the Company is continuing to cultivate its international
presence by emphasizing its core markets. QualMark utilizes twenty-nine
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 international sales, or the overall increase in
equipment sales.

Test Center (ARTC) Revenue

Test center revenue decreased $77,000 or 26.1% from $295,000 in the three months
period ended September 30, 2004 to $218,000 in the three months ended September
30, 2005. In the three month period ended September 30, 2005, the Company
operated three test centers in the U.S., maintained four domestic strategic
agreement test center operations, and three strategic agreement test center
operations in Europe, versus four test centers in the U.S., four domestic
strategic agreement test center operations, and five strategic agreement test
center operations in Europe during the same period in 2004. Under the domestic
and international strategic agreement test centers, the Company does not have
any continuing obligation under any of the agreements. The Company primarily
attributes the decrease in test center revenue to the restructuring of the
Company's domestic test labs to improve profitability. The Company is continuing
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


                                       13

<PAGE>

line of business to maximize volume and utilization, while obtaining a
continuous flow of sales leads, 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 implemented changes will continue to contribute to
increased total revenues, expand the Company's customer network, and increase
product awareness; however the Company cannot give any assurances on the
ultimate success.

QualMark ACG Revenue

QualMark ACG generated $428,000 of revenue for the three months ended September
30, 2005. The revenue generated by QualMark ACG included replacement field
coils, replacement armatures, as well as field service support.

Gross Profit

Total gross margin for the three months ended September 30, 2005 was 45.2%. This
compares to a gross margin of 45.7% for the three months ended September 30,
2004.

Operating Expenses

Total operating expenses increased $200,000 or 19.9% to $1,205,000 for the three
months ended September 30, 2005 from $1,005,000 for the three months ended
September 30, 2004.

Selling, general and administrative expenses increased $277,000 or 37.0% to
$1,026,000 in the three months ended September 30, 2005 from $749,000 for the
three months ended September 30, 2004. The primary increase of selling, general,
and administrative expenses during 2005 is attributed to $131,000 of expenses
related QualMark ACG, which represent 12.8% of total selling, general and
administrative expenses. The Company also incurred additional sales commissions
due to an increase in sales.

Research and development costs decreased $26,000 or 12.7% to $179,000 for the
three months ended September 30, 2005 from $205,000 for the three months ended
September 30, 2004. The decrease is primarily attributed to a decrease in
engineering project expenses. 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 of $51,000 were incurred for the three
months ended September 30, 2004, which were related to litigation with Dr. Gregg
Hobbs. (refer to Note 9 Legal Matters).

Interest Expense

Interest expense increased $10,000 or 52.7% to $29,000 for the three months
ended September 30, 2005 from $19,000 for the three months ended September 30,
2004. The increase is primarily attributed to the increase in the outstanding
commercial borrowings with the purchase of ACG, which increased $876,000 from
September 30, 2004 to September 30, 2005.

Nine Months Ended September 30, 2005 Compared With Nine Months Ended September
30, 2004

Revenue

Net revenue increased $2,159,000 or 24.6% from $8,777,000 in the nine months
ended September 30, 2004 to $10,936,000 for the nine months ended September 30,
2005.

Equipment Revenue

Equipment revenue increased $588,000 or 7.5% from $7,841,000 in the nine months
ended September 30, 2004 to $8,429,000 in the nine months ended September 30,
2005. The number of units sold in the nine months ended September 30, 2005
increased 14.3% over the nine months ended September 30, 2004. The increase in
sales for the nine months ended September 30, 2005 is primarily a direct result
of the Company's penetration of key accounts and an improvement in the domestic
economy during 2005. The Company is continuing its aggressive pursuit of sales
in the aerospace/avionics, defense, automotive, and consumer electronic
industries. Of the total units sold, international system sales decreased 1.4%
for the nine months ended September 30, 2005. The Company continues to


                                       14

<PAGE>

be cautiously optimistic in regards to a slowly recovering domestic economy, as
a result the Company is continuing to cultivate its international presence by
emphasizing its core markets. QualMark utilizes twenty-nine 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 international sales, or the overall increase in equipment sales.

Test Center (ARTC) Revenue

Test center revenue decreased $106,000 or 11.3% from $936,000 in the nine months
period ended September 30, 2004 to $830,000 in the nine months ended September
30, 2005. In the nine month period ended September 30, 2005, the Company
operated three test centers in the U.S., maintained four domestic strategic
agreement test center operations, and three strategic agreement test center
operations in Europe, versus four test centers in the U.S., four domestic
strategic agreement test center operations, and five strategic agreement test
center operations in Europe during the same period in 2004. Under the domestic
and international strategic agreement test centers, the Company does not have
any continuing obligation under any of the agreements. The Company primarily
attributes the decrease in test center revenue to restructuring of the Company's
domestic test labs to improve profitability. The Company is continuing 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, while obtaining a continuous flow of sales leads, 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 implemented changes will
continue to contribute to increased total revenues, expand the Company's
customer network, and increase product awareness; however the Company cannot
give any assurances on the ultimate success.

QualMark ACG Revenue

Qualmark ACG generated $1,677,000 of revenue for the nine months ended September
30, 2005. The revenue generated by QualMark ACG included complete factory
rebuilt vibration test systems and shakers, replacement field coils, replacement
armatures, as well as field service support.

Gross Profit

Total gross margin for the nine months ended September 30, 2005 was 44.7%. This
compares to a gross margin of 47.5% for the nine months ended September 30,
2004. The decrease in gross margin for the nine month period is primarily due to
the gross margin earned by QualMark ACG, which is lower than the gross margin
earned by QualMark.

Operating Expenses

Total operating expenses increased $490,000 or 14.9% to $3,772,000 for the nine
months ended September 30, 2005 from $3,282,000 for the nine months ended
September 30, 2004.

Selling, general and administrative expenses increased $740,000 or 29.9% to
$3,216,000 in the nine months ended September 30, 2005 from $2,476,000 for the
nine months ended September 30, 2004. The primary increase of selling, general,
and administrative expenses during 2005 is attributed to $432,000 of expenses
related to QualMark ACG, which represent 13.4% of total selling, general and
administrative expenses. The Company also incurred additional sales commissions
due to an increase in sales and invested in sales and marketing programs to
expand its total vibration market.

Research and development costs increased $14,000 or 2.6% to $556,000 for the
nine months ended September 30, 2005 from $542,000 for the nine months ended
September 30, 2004. 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 of $264,000 were incurred for the nine
months ended September 30, 2004, which were related to litigation with Dr. Gregg
Hobbs. (refer to Note 9 Legal Matters).


                                       15

<PAGE>

Interest Expense

Interest expense increased $32,000 or 46.4% to $101,000 for the nine months
ended September 30, 2005 from $69,000 for the nine months ended September 30,
2004. The increase is primarily attributed to the increase in the outstanding
commercial borrowings with the purchase of ACG, which increased $876,000 from
September 30, 2004 to September 30, 2005.

Income Tax

During the nine months ended September 30, 2005 the Company recorded a $10,000
provision for estimated Alternative Minimum Tax (AMT) and paid $16,000 for
income taxes. The Company anticipates net operating profits for the year ended
December 31, 2005, 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, 2005.

Liquidity and Capital Resources

During the nine months ended September 30, 2005, the Company generated $213,000
of cash from operating activities, invested $128,000 for equipment, repaid
$174,000 of commercial bank borrowings, and generated $69,000 from the issuance
of common stock. Together, these activities resulted in a cash decrease of
$20,000, for an ending balance of $496,000 at September 30, 2005. During the
nine months ended September 30, 2004, the Company generated $616,000 of cash
from operating activities, invested $240,000 for equipment, borrowed $80,000
from its commercial bank and repaid $320,000 of commercial bank borrowings.
Together, these activities resulted in a cash increase of $136,000, for an
ending cash balance of $578,000 at September 30, 2004.

The Company's commercial borrowings consist of a term loan, a revolving line of
credit, and a convertible debt agreement, refer to the 2004 Form 10-KSB,
Financial Statement Note 5.

The average interest rate for the nine-month periods ended September 30, 2005
and 2004 was 7.5% and 7.0%, respectively.

Both the revolving credit line and term loan under the Credit Agreement are
collateralized by substantially all the assets of the Company. Borrowings under
the line of credit are subject to borrowing base limits. As of September 30,
2005, there were no borrowings and there was $1,500,000 of availability on the
line of credit. As of September 30, 2005, the principal balance of the term loan
was $556,000.

The Company's Convertible Debt agreement is a five-year, interest only agreement
with provisions for interest rate resets and conversion into the Company's
common stock. The Convertible Debt agreement was entered into with an affiliate
of the commercial bank that issued the Company's Credit Agreement. The
Convertible Debt agreement is collateralized by substantially all the assets of
the Company, subject to subordination to the Credit Agreement. As of September
30, 2005, the principal balance of the convertible debt was $1,000,000.

The Company must maintain certain financial and other covenants to be in
compliance with the Credit Agreement and Convertible Debt. The Company is not
now, nor has it ever been in arrears on any payment pursuant to the Credit
Agreement or the Convertible Debt. For the three and nine months ended September
30, 2005, the Company was in compliance with its financial covenants.

As required by the Credit Agreement, the Company is making monthly principal
payments of $20,800 on the term loan during 2005. The Company has also
determined that, during 2005, draws on the revolving line of credit are expected
to be made based on operational cash flow needs or growth based initiatives. 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 Convertible Debt holder.
The Company believes its relations with its Commercial Bank and Convertible Debt
holder to be good.

While there is no guarantee that the Company will be able to meet the
operational and financial requirements of its 2005 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
income and usage of cash and cash equivalents for 2005. However, the Company's
management believes that the Company's cash and cash equivalents, working
capital, and $1,500,000 of availability on its revolving credit line provide
adequate capital resources to fund its operations, 2005 debt repayments, and
working capital needs, through at least the end of the third quarter of 2006.


                                       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 $556,000 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, 2005 would be an annual increase or
decrease of approximately $6,000 in interest expense for a twelve-month period.

Business Environment

Refer to the 2004 Form 10KSB, Management Discussion and Analysis, Item 6.

Suppliers

Refer to the 2004 Form 10KSB, Management Discussion and Analysis, Item 6.

International Operations

Refer to the 2004 Form 10KSB, Management Discussion and Analysis, Item 6.

Intellectual Property

Refer to the 2004 Form 10KSB, Management Discussion and Analysis, Item 6.

Acquisition

Refer to the 2004 Form 10KSB, Management Discussion and Analysis, Item 6.

Legal Proceedings

Refer to Note 9 of the Financial Statements.

Government Regulation

Refer to the 2004 Form 10KSB, Management Discussion and Analysis, Item 6.

Critical Accounting Policies and Estimates

Refer to the 2004 Form 10KSB, Management Discussion and Analysis, Item 6.

Contractual Obligations

Refer to the 2004 Form 10KSB, Management Discussion and Analysis, Item 6.

Recently Issued Accounting Pronouncements

Refer to the 2004 Form 10KSB, Management Discussion and Analysis, Item 6.


                                       17

<PAGE>

Item 3.

                             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. As of the end of the period
covered by the 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.

(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.


                                       18

<PAGE>

                            PART II OTHER INFORMATION

Item 1. Legal Proceedings

     Refer to Note 9 of the Financial Statements.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

During the quarter ended September 30, 2005, the Company issued 220,983 shares
of common stock with a cashless conversion ratio of 0.529 upon the cashless
exercise of 417,153 warrants.

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

     (a)  Exhibits - See Index to Exhibits

     (b)  Reports on Form 8-K during the quarter ended September 30, 2005:

          On July 28, 2005, the Company issued a press release announcing its
          earnings for the quarter ended June 30, 2005.

          On August 31, 2005, the Company filed form 8-K disclosing its entry
          into the QualMark Corporation 2005 Stock Option Plan, a definitive
          material agreement.

                                   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 14, 2005                 By: /s/ CHARLES D. JOHNSTON
                                            ------------------------------------
                                            Charles D. Johnston President,
                                            Chief Executive Officer


Date: November 14, 2005                 By: /s/ ANTHONY A. SCALESE
                                            ------------------------------------
                                            Anthony A. Scalese
                                            Chief Financial Officer
                                            & Principal Accounting Officer


                                       19

<PAGE>

                                INDEX TO EXHIBITS

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

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

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

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

 3.5       Statement of Change of Registered Agent.(5)

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

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

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

10.2       QualMark Corporation 1996 Stock Option Plan.(3)

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


                                       20

<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
 NUMBER                                 DESCRIPTION
-------                                 -----------
<S>        <C>
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)

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)

10.30      Loan and Security Agreement dated November 9, 2004 by and between
           QualMark and Silicon Valley Bank (16)

10.31      Loan and Security Agreement dated November 11, 2004 by and between
           QualMark and Partners for Growth (17)

10.32      Asset Purchase Agreement dated November 12, 2004 by and between
           QualMark and ACG Dynamics, Inc. (17)

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
</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.

(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.

(16) Incorporated by reference from the Company's Quarterly Report on Form
     10-QSB for the quarter ended September 30, 2004.

(17) Incorporated by reference from the Company's Annual Report on Form 10-KSB
     for the year ended December 31, 2004.


                                       21